California Seeing ‘Profound Erosion’ of Production

California Runaway Production Impact

State film commission pushing for increasing tax credits

Runaway production has produced a “profound erosion” of California’s film and TV production, according to a report from  the state’s film commission.

The report,  released Tuesday, asserted that the state’s four-year-old incentive program — which provides $100 million in tax credits annually and is administered by the commission — isn’t large enough to reverse the trend.

“While our modest tax credit program has had an ameliorative effect in retaining some production spending, California continues to experience a pronounced erosion of this signature industry,” the report said. “California still boasts a superior critical mass of state-of-the-art facilities, highly-skilled film crews, and the best talent, but this infrastructure is at risk. “

CLICK HERE TO LINK TO THE REPORT

The document, authored by the film commission as a progress report on the program, noted the following trends due to production leaving California:

  • Unions are reporting high levels of unemployment among their members
  • Many businesses in California that support production have closed or have been forced to lay off employees, while others have expanded their businesses out of state rather than investing at home.
  • Many California film industry workers and service providers report “devastating” income losses due to the large number of feature films and TV series relocating to other jurisdictions.

The report also disclosed that California’s share of 1-hour network series, which are not eligible for the tax credit, had declined 89% in 2005 to only 37% in 2012.

The commission announced in June that 31 productions had been selected to receive California’s Film and Television Tax Credit — 14 features, 14 basic cable TV series and three movies of the week — including the “Entourage” movie and “Pretty Little Liars.”  California producers submitted 380 applications for the state’s latest round of California’s Film and Television Tax Credit — up 18% from last year’s 327 submissions.

The fourth season of MTV’s “Teen Wolf” will receive $11.09 million, the highest of the 31 new allocations.  Warner Bros. “Major Crimes” received the second-highest allocation at $9.1 million followed by a pair of Horizon series — “Rizzoli & Isles” with $8.55 million and “Pretty Little Liars” with $8.04 million.

SEE ALSO: ‘Teen Wolf’ Takes $11.09 Million as Top California Tax Credit

With only $100 million in credits available annually and features with budgets over $75 million not eligible, demand far exceeds supply with less than 10% of applications receiving the credit. The commission asserted in June that the four-year-old program has helped generate $4.67 billion in direct spending within the state, including $1.59 billion in wages paid to “below-the-line” crew members.

California’s credit is smaller than those of rival states with a maximum of 25% of the budget. Amid resistance from legislators from Northern California, Gov. Jerry Brown signed a two-year $200 million extension of the program last fall with those funds to be doled out in June, 2014 and June, 2015.

The new report said that once incentive programs take root in other states and countries, those locales effectively develop their long-term infrastructure with stage construction, post-production facilities and job training programs.

“For example, incentive-rich jurisdictions such as New Mexico, Louisiana, Philadelphia, Michigan, Toronto and Hungary have all built impressive multi-studio facilities over just the past few years,” it noted. “Pinewood Studios, one of the most successful movie production companies in the world, is building a multi-studio facility in Georgia, and is ramping up its education and training programs.”

The new report also warned that  without more funding for the tax credit program, California will continue to lose direct spending and tax revenues from film and TV productions — particularly in TV.

“The situation is especially dire for TV series production, given that producers are unlikely to film their first season in California without a reasonable assurance that tax credits will be available for future seasons,” it said.

The report said that the tax credit program has succeeded in attracting basic cable TV series, mid-sized feature films and made-for-TV movies but warned that if the state is not more competitive, productions will increasingly choose other states and countries.

“Once the epicenter for entertainment production, California can no longer assume this leadership position,” it said.  “Maintaining California’s worldwide leadership role as the ‘entertainment capitol of the world’ is vital to the state’s economy.”

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  1. Brian Dzyak says:

    Tax “incentives” are truly just bribes paid to Corporations which use extortion tactics to play one city/State/National government against the others. NO government can afford to keep playing this game which is really a race to the bottom that shovels money upwards to those who already have more than they know what to do with and away from the rest of us and our communities which need tax revenue. So what if the tax “incentive” advocates get California to “beat” the Louisiana tax credit? You don’t think that Louisiana isn’t going to counter with a larger number? Then what? CA has to up their “incentive” too? Where does it end? When Corporations have absolute tax amnesty? That’s where this “game” is headed. And it has to STOP.

    Instead of handing out more Corporate Welfare, the way to bring production back to California is to wage war on the practice of “incentives” at the most fundamental level. Extortion is illegal therefore the practice of film industry tax “incentives” should be illegal as well. STOPPING the tax “incentive” scam should be the goal here, not figuring out how to jump deeper into the pit.

    The VFX community is specifically looking to FIGHT the practice by attacking the problem at the “trade” level. Instituting a Tariff would protect domestic VFX jobs as tariffs did for ALL US industries prior to GATT and NAFTA which have worked hard to all but decimate domestic manufacturing of all kinds. IATSE needs to stop trying to play the “incentive” game and start fighting to end it legislatively, just as VFX is working to do for international runaway post-production.

  2. Brad says:

    Informative atricle for Industry people.

  3. Bill says:

    California has confiscatory tax rates to begin with, which production tax credits only begin to offset.

    Then add the mention of Union salaries (hint, Union leaders – there’s a REASON your members are unemployed and that’s because they’ve priced themselves out of jobs) and even the most socialist of Californians can begin to see that the costs just don’t add up.

    So how would California, which is in major debt already, afford greater production tax credits? Raise income or sales taxes again?

    • bunadiminatea says:

      Bill is absolutely correct. It’s not about VFX – that was always a high-ticket entitled business that was ripe for competition. It’s the arrogance and greed of the Unions, thinking that films couldn’t be made without them, and their willingness to use strong-arm tactics to intimidate the mid-range and little guys rather than actually doing deals that made sense. Well, thanks, guys – you just succeeded in running everyone out of town, with the extra added result of killing the post business too, particularly accelerating the demise of film (thanks, SAG!). I grew up here, went to school here, worked here for twenty years, and then the IA and the Teamsters decided that threats and pickets were the way to get the indies to pay up, and SAG decided that TV movies weren’t really movies and not eligible for the LBA, and I’ve been working steadily in Eastern Europe ever since.

    • Brian Dzyak says:

      “Confiscatory” tax rates?! ALL taxes, by definition, are “confiscatory.” That’s the cost we citizens agree to pay in order for our society to function. A society without adequate taxation or no taxation at all is akin to Somalia that has no public schooling, no functional infrastructure, no food/water protection, and no effective national defense.

      Unions are merely groups of working people who band together to fight for and protect adequate pay and safe working conditions. Your argument, “Bill,” suggests that all workers are just asking for too much and that is the reason the economy stops functioning. Nowhere in your argument do you make the case that those at the top who are truly obtaining most of the wealth should also agree to be paid less. Why is that, “Bill”?

      But you’re right, California should not jump into this tax “Bribe” scam because, like ALL cities/States/nations, taxpayers NEED that tax revenue to function properly and the cost of society should not be laid at the feet of only the Middle Class, whom you want to steal from by eroding labor unions. The wealthy, who are currently hoarding an estimated $32 TRILLION in offshore accounts, can afford to shoulder the burden of paying for the clean and safe society which enables them to get wealthy in the first place.

    • Ginger says:

      Most of the out of state (but still in-country) production is done by LA union crews. This has nothing to do with union wages. The tax incentives far outweigh what productions pay in below-the-line wages. But great way to distract from the real problem at hand and blame the middle class as usual.

  4. gregory says:

    VFX Activist VFX Soldier raised funds through crowdfunding to examine the WTO trade infractions from foreign tax incentives. The white paper can be found here:

    https://docs.google.com/file/d/0B4u3k7ExaTQjanYweEtJWW9PVXM/edit

    The solution posited was to use Countervailing Duty law and recognize foreign incentives as tariffs.

  5. ed says:

    Great article Dave, its hard to believe what your writing is not fiction, it sounds like a the premise for a bad horror-comedy. Many of the legislators in Northern Ca. voted for this plan, but the plan they voted for is not very good. We need to match the $440 Mil per year that NY gives and we need to un cap the $75Mil ceiling. Thanks for the great article.

    • Marcus Pun says:

      We need to spend 440 million? For how many jobs? if we “rescued 10,000 jobs, that would result in a $44,000 per year subsidy PER JOB. 20,000 jobs would be subsidized by the California taxpayers to the tune of $22,000 per year. How insane it that? Better to give it to the same workers and say “here, make a film, we get a percentage of the gross”. A number of states, Louisiana and Michigan among them are rethinking these subsidies and realizing that the benefits are generally transported to other states or countries and not realized by the taxpayers.

  6. The unions should abandon high minimum wages and benefits that drive production all over the world. There must be some better function for SAG than an initiative that means less work for everyone? This is not an anti union comment…just a call out that they change their outdated objectives. High employment should be prioritized over a select few getting wages triple elsewhere. Mofilm does tons of production in LA…more accomodating union policy would triple or quadruple volume.

  7. SmallBusiness Refuge from California says:

    Why don’t the limousine liberals in Hollywood demand that the State of California get off the backs of the business community so that they can compete with low tax jurisdictions instead of asking for hand-outs from the overtaxed citizens of California? It’s amazing how hypocritical the Hollywood liberals are when they criticize corporate America for moving jobs to lower tax states or countries, and yet they are doing the EXACT same thing when they move production out of California. If these liberals really cared about the high-paid union production jobs being lost in California, they would refuse to work on productions based outside the state.

    • kyoseki says:

      Even with NO taxes it’s impossible to compete with countries that subsidize over half the cost of labor.

      Why do the work in California when you can force your VFX studios to relocate their workforce to Canada and have the Canadian public cover half the bill?

  8. Peter Carr says:

    “Maintaining California’s worldwide leadership role as the ‘entertainment capitol of the world’ is vital to the state’s economy.” just as Vancouvers production hub is to Canada and look whats happened here. Ontario raises its film and television tax credits so every one moves out east.

    • Marcus Pun says:

      How much do we, the taxpayers, have to spend? 440 million? A billion? Where does it stop? Should we subsidize the film industry to the tune of 2 billion dollars? Because that is probably what you would have to do to match NY, and mitigate foreign tax bribes, er, credits.

  9. kyoseki says:

    There’s no such thing as “long term post-production infrastructure” as BC is now finding out.

  10. Nanny Mo says:

    Yes, it’s too expensive to film in Cally.

  11. David Cheshier says:

    It would have helped to include a link to the original report for those interested in further details.

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