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L.A. Mayor Calls for Expanded Tax Credits for Visual Effects

Los Angeles Mayor Eric Garcetti, appearing on Wednesday at the opening of a new visual effects facility in Sherman Oaks, Calif., said that he would like to see a boost in state tax credits for that type of work and other kinds of post-production.

It was an acknowledgement that even as city and state officials tout gains in TV and film production since California’s tax credit was more than tripled in 2014, there are still some job categories lagging as they face tough competition from generous incentives in other states and countries.

The visual effects business, once thriving in Los Angeles, has been all but decimated in the region, as some companies have shut down and others, like Sony Imageworks, have left to Vancouver.

California offers a 5% credit for visual effects, but only projects that are eligible for the 20% production credit can receive it. By contrast, other states and countries have targeted visual effects work, offering credits that are multiples of California’s credit.

“Right now, it is about a five percent credit, and I think that can be expanded,” Garcetti said, adding that he would like to raise the $330 million annual cap on the program, and see “deep categories for visual effects, as we see in other places.”

He said that “if we are doing it on the production side, at a certain level, we should be doing it on the same level on the post-production side.”

California’s funding for tax credits runs through 2019-20, but lawmakers and industry boosters who lobbied for the recent expansion of the credit already are talking about what is needed next.

Garcetti was appearing at a company, FuseFX, that has expanded in the state since it was launched in 2006. It has moved from several different locations in Burbank to a modern, 27,000-square-foot space on Califa Street in Sherman Oaks. The company spent $4 million on the new space, which currently houses 175 employees. Among other things, the facility features 4K infrastructure and four screening rooms.

Its founder and president, David Altenau, said that they have been able to distinguish themselves by developing a “highly efficient pipeline that results in better creative communication and quality control.” The company has had a heavy focus on effects for TV dramas, including shows like “American Crime Story,” “Marvels Agents of S.H.I.E.L.D.” and “American Horror Story,” for which it won an Emmy in 2015.

He acknowledged that in meetings with prospective clients, the conversation frequently turns to whether they can offer rebates, based on a region’s tax incentives. He said that he would then point out that FuseFX’s bids were competitive and that the company offered “a better product in the end.” But in 2014 they did open offices in Vancouver and New York, which offer more generous tax credits and now have about 50 employees each.

“The company is successful based on this being the core of the operation, and the group of people we have working here, so we try to stay committed to that,” he said, adding that it is still a challenge to “keep a balance between different locations and not have tax rebates just drive the whole equation. And we have been able to do it.”

As work declined in Los Angeles, a number of visual effects artists have urged federal trade officials to pursue unfair trade action against other countries like Canada for their tax credits. They have also been critical of film and TV tax subsidies in general, as cities and states try to outdo each other in the rebates.

Daniel Lay, who authors the VFX Soldier blog, testified two years ago to an ad hoc Los Angeles City Council committee that he calculated that British Columbia in some cases was paying almost 60% of salaries of resident VFX artists.

“Now the Mayor is realizing he has to press on the gas pedal in an accelerating race to the bottom,” Lay wrote via email on Wednesday.

When it comes to the trade situation, Garcetti said that “some of the deep deep subsidies in other countries, you scratch your head and wonder how they can do that? It can’t a money maker.”

He said that the key was in offering a “smart subsidies,” and said that the expanded program was paying for itself.

“The calculations that we are doing are showing the amount of money that this is putting into the economy, it is a four- to five-fold recycling effect of those dollars,” he said. “Three billion dollars of production is probably $15 billion back into the economy in California.”

Some studio chiefs say that even the expanded program in California is not generous enough to entice them to locate some of their most expensive movies, the tentpole franchises that are being shot in places like Georgia and London.

“I wouldn’t ask the state leaders to do something that isn’t in our state’s interest and that doesn’t pay for itself,” Garcetti said. “But we have proven that it pays for itself. Now lets target the productions that are still not here.”

Photo from Julie Shuford for FuseFX: Councilman David Ryu, Los Angeles Mayor Eric Garcetti, David Altenau,  Los Angeles film and TV liaison Kevin James.

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