California Production Tax Credit Generated $4.3 Billion in Activity

Backers of expanding California’s Film and Television Tax Credit Program have received a strong endorsement from a new study by the Southern California Association of Governments.

The study, released Thursday, asserts that the current program — funded at $100 million annually — created an 11% return on investment in its first three years in 109 projects; helped generate $4.3 billion in economic activity; supported 22,300 jobs; and generated $247.7 million in state and local tax revenues.

High-profile projects covered under the program included “Bridesmaids,” “The Lincoln Lawyer,” “The Social Network” and “We Bought a Zoo.” Television series brought the highest return on investment at 19%, while independent feature films generated a 15% return.

The SCAG study also found that for every $1 of tax credit certificate issued, total economic activity in the state increased by $19.12; total state gross domestic product increased by $9.48; and $1.11 was returned to state and local governments in the form of tax revenues.

“You cannot look at this program and not see it as a formidable economic and fiscal benefits,” said Hasan Ikhrata, SCAG exec director. “California is very much at risk of losing its film industry, and without this program the past five years, the losses would have been even more painful.”

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The SCAG report also said California’s market share has eroded and noted that, in the 2013 fiscal year, 75% of the 41 live action feature films with production budgets in excess of $75 million were filmed outside of California.

The report pointed to “Man of Steel,” filmed in Illinois at a cost of $220 million; “The Hobbit,” Parts 1 and 2, filmed in New Zealand at a combined budget of $320 million and “Iron Man 3” and “Oz, The Great and Powerful,” filmed in North Carolina and Michigan, respectively, at costs of $200 million each.

The loss of big-budget pictures cost California $410 million in state and local tax revenues, 47,600 jobs and total economic output of $9.6 billion.

“Even the loss of only half of that spending cost the state a significant amount of economic activity,” the report states. “It is evident that (California) is losing ground to other states and nations.”

The study was released a month after the introduction of Assembly Bill 1839, authored by Assembly members Mike Gatto and Raul Bocanegra and aimed at overhauling the current incentive program over a five-year period with the goal of attracting bigger movies and TV series.

The authors have not yet assigned a specific dollar figure to the bill — due for its first hearing next week in Sacramento at the Assembly Arts and Entertainment committee — but have proposed the elimination of the program’s ban on feature films budgeted at over $75 million.

A Feb. 22 rally in Burbank to support the bill drew over 700 supporters from the below-the-line community and a March 15 rally in Sunland drew 600 backers among Hollywood vendors.

And on Feb. 27, the Milken Institute called for a major overhaul of California’s film incentive program in a study recommending that the state open the program to bigger-budget fare and add incentives for vfx work and investments in digital infrastructure. The report showed that the Golden State lost more than 16,000 high-paying film production jobs between 2004 and 2012.

The California incentive program was blasted in 2012 when the California’s Legislative Analyst Office issued a downbeat report that said the program benefits were not generating enough economic activity to make up for the decline of tax revenues.

The report by SCAG, the nation’s largest metropolitan planning organization, was principally authored by Christine Cooper of the Los Angeles County Economic Development Corp.

“It is not hyperbole to assert that the state is losing jobs to other states and nations and is continuing to bleed out at increasing rates,” Cooper wrote.

The SCAG report also noted that California does not have a subsidy program specifically targeting visual effects, leading to some California-based companies opening offices overseas to qualify for tax incentives there.

“This report shows very clearly that this is a mistake,” said John Husing, president of Economics & Politics Inc. “The film industry is very important to California. We don’t have many things that we can point to that are going to, or potentially going to, grow our economy. We need to take some kind of action, and to those who think it’s a subsidy, it’s not a subsidy if it’s returning more than it’s costing.”

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