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In a move showing Sacramento is taking Hollywood’s runaway production problem seriously, a key state legislative committee has backed tax credit legislation for projects filmed in California.

The Assembly Revenue and Taxation Committee voted 7-0 on Wednesday in favor of AB 2747, which creates a 15% wage-based tax credit for the first $25,000 paid to each employee involved in production of a California-based film. The credit, which would go into effect in July 2004, would be available for productions with budgets between $200,000 and $10 million — most likely indie pics, movies of the week, miniseries and cable shows.

The support for the tax credit came despite Tuesday’s proposal by Gov. Gray Davis for significant tax hikes and spending cuts to narrow the current $23.6 billion budget deficit, which has nearly doubled in six months.

“Clearly, the size of the state deficit will be a challenge in getting the bill approved, but it won’t take effect until 2004, when the state’s economy will hopefully be in better shape,” said Melissa Patack, VP of the Motion Picture Assn. of America.

Davis first proposed the bill in January by Davis, a day after he announced a $12 billion deficit. The legislation, authored by Speaker Herb Wesson and backed by major Hollywood unions and the MPAA, must clear the Assembly appropriation committee before going to the full Assembly and Senate.

Wesson told the committee that the bill has been drafted in response to the incentives offered by other states and countries. He said his legislation would retain production in California, “somewhat” stem the tide of runaway production and maintain the economic stimulus associated with production in the state.

AB 2747 is similar to pending federal legislation, which proposes a 25% tax credit. Backers believe the proposals — Senate Bill 1278 and House Resolution 3131 — are more likely to move forward during the current congressional session as amendments to other bills rather than as stand-alone bills.

In another development on the runaway production front, the City Council of Santa Monica unanimously passed a resolution late Tuesday night in support of the controversial petition to seek penalties on producers who accept Canadian subsidies. Resolution supports Santa Monica film and TV workers and businesses affected by Canada’s “unfair subsidy practices” and asks for federal trade remedies and relief.

The Film & Television Action Committee’s petition — backed last year by SAG’s national board and 12,000 petition signers as a means of stopping runaway production — was delayed four months ago after they withdrew the document in order to provide further data about the entertainment industry. FTAC plans to refile the petition seeking a federal investigation into the legality of Canadian subsidies, which could lead to producers being required to pay tariffs as a condition of releasing the film or TV show in the U.S.

Opponents have argued the petition drive harms the chances of the wage-based tax credit legislation and could lead to a trade war. “We are sort of mystified by the city of Santa Monica being involved in a trade issue,” Patack said. “We believe incentivizing domestic film production is the most effective way to stop runaway production.”

But Mayor Pro Tem Kevin McKeown, who introduced the resolution, said, “We must stand in solidarity with our local workers and businesses, not with the boardroom bean-counters who prize profits above people.”

FTAC said it plans to seek passage of similar resolutions by other cities.