Milken report: State needs to fight runaway production aggressively

The Milken Institute is urging the state of California to increase its efforts to fight runaway production.

The recommendation was part of 32-page report, “Fighting Production Flight: Improving California’s Filmed Entertainment Tax Credit Program,” that was issued Thursday. Report, authored by Kevin Klowden, I-Ling Shen and Ka Wai Ho, noted that California’s $75 million production budget cap for features makes it the only state with that kind of restriction.

“While excluding big-budget productions may help the ‘little guys’ who have difficulty in attaining funding, it does not address the main goal of tax incentives, which is to create and maintain jobs,” the report said. “Big-budget productions often employ disproportionately larger crews and invest much more than a smaller project.”

The report suggested that rather than a budget cap, new legislation could include a limit on “qualified expenditure” to control the amount of credit available for any production.

“Furthermore, bigger productions often have significantly higher above-the-line spending,” the report added. “Above-the-line expenditures do not qualify for tax credits, yet they generate economic activity.”

Currently, the state of California provides $100 million in annual tax credits for productions, but demand far exceeds supply, with 28 projects selected by lottery out of more than 330 in the most recent round earlier this month. Legislation has been introduced to extend the 3-year-old incentive program — which is far smaller those in than many other states — for another five years after it runs out in 2013.

The report also urged that legislators expand the credit pool from the current $100 million “to a level that can accommodate demand” and suggested that a separate fund for TV productions be created to allow a more targeted use of money.

The Milken report noted that the legislation last year was stalled in the state Senate, which ultimately opted for a one-year extension rather than the five-year extension original planned. And it said that the legislation should be aimed at attracting new productions to the state, rather than pursuing productions that are leaving in pursuit of the lowest overall costs.

“California cannot and should not match states that are providing the highest level of tax breaks and incentives, whether due to higher costs such as in New York or to make up for a smaller pool of skilled film professionals,” the report said. “Instead it should combine strong incentives with a combination of greater flexibility and availability in order to meet the demand that already exists.”

Based on a review of the past two completed years of the program, the report recommended that California take the following steps:

• Eliminate “unnecessary contingencies” to attract productions.

• Deepen and broaden California’s entertainment industrial base to create an environment that attracts future productions.

• Encourage local job creation and keep workers’ skills up to date to enhance the state’s supply and quality of production crew.

• Attract foreign and international productions to capture demand for production locales, facilities, and crews.

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