Co-Author of California Tax Credit Bill: Studios Shouldn’t ‘Pit The States Against One Another’

Califronia Tax Incentives Sacramento Capitol
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When news broke earlier this month that the MPAA was planning to hold a summit of film commissioners, the timing stirred concern from some California lawmakers that it was happening right on the heels of the state tripling the size of its tax credit program.

In other words, after California took a major step to being more competitive in its tax credits, would other states be encouraged to up their game as well?

The Sept. 29 summit in Washington D.C. will gather film commissioners to discuss “how to better partner to garner additional legislative and other political support for your jurisdiction’s production incentive program,” according to the invite. An MPAA spokeswoman said that the event had been in the works since July, before California’s state Assembly and Senate passed AB1839, the tax credit bill, on Aug. 29.

But Assemblyman Mike Gatto, principal co-author of AB1839, said he was “very concerned” over the prospect of California, now with $330 million in annual tax credits, being used as leverage to convince other states to expand their programs.

Gatto said that both he and State Sen. Kevin de Leon, the incoming president pro tem, expressed their concerns to MPAA chairman Chris Dodd “that that is perhaps not the right thing to do right now.”

“The important thing right now is not to pit the states against one another,” Gatto said in an interview on Thursday. “It is to have a really thriving industry in the states that already have the infrastructure. [California] is where that infrastructure is, where it has been for so many years, the human capital and the brains and the know how. And let’s try to keep it here. Let’s not try to help the poaching.”

A spokeswoman for the MPAA had no comment Gatto’s remarks. In a speech to San Fernando Valley business leaders last year, Dodd warned that “more needs to be done to keep this industry from slowly slipping away.”

He said his “job at the Motion Picture Association is to advocate on behalf of my studios, not the locations of their productions, but I know the studios I represent would prefer, everything else being equal, to make their films and television programs here in California, for many reasons.”

The MPAA also promotes production activity in other states. It has retained lobbyists in states like Georgia and Louisiana, which have been successful at luring production with the promise of generous tax credits. In speaking to investors, studio executives have not been shy about pointing to the availability of incentives as a way to keep budgets under control.

Sources say that more than anything else, the upset over the MPAA conference has been in the timing, coming so soon after California lawmakers passed its expanded program by an overwhelming margin. But it came after a long lobbying campaign that had to counter criticism that such a move would only fuel “a race to the bottom.” In a report released in the spring, the state legislative analyst expressed that concern, but otherwise recognized the reason for film and TV tax incentives given the competition from other states.

The Sept. 29 event, the MPAA said, is being timed to coincide with the Oct. 3-5 Cineposium in New York of the Association of Film Commissioners International.

And as much as studios have taken advantage of incentives in other states and countries, they also have run into the realities of state politics. Despite lobbying from the MPAA and other state business groups, North Carolina scaled back its incentive program last month to just $10 million in annual grants, even though it has had a long history of production of movies like “Hunger Games” and TV series like “Dawson’s Creek.” Nevada is looking to use funds from its tax credit program to finance the package that has helped lure Tesla to build a battery factory in the state.

Gatto said that it was his hope that the new tax credit law will “make California so competitive that it really will stop this aggressive game by other states, and that it will really price them out of the market.”

Los Angeles Mayor Eric Garcetti said that he was not concerned about other states responding by expanding their credit.

“Those states can try to, but California can win this war,” he said. “We have the best infrastructure. And what we have noticed in state after state, they have to go much higher [in their tax credit]. They do lose money from it, and that is not wise for their schools and their services.

“It’s just that California was always positioned well to do something. We were just dumb for a decade. We finally got smart.”