California Set to Approve $330 Million Extra for Hollywood, Including New Soundstage Incentive

Fox Studio Lot
Courtesy of Fox

That escalated quickly.

In May, Gov. Gavin Newsom announced an extra $30 million for the state’s film and TV tax credit program. Not to be outdone, the Legislature offered $180 million over two years.

Now the two sides have reached a compromise: $330 million.

That includes the $180 million, plus a brand-new $150 million tax incentive to spur construction of new soundstages in the state.

“I’m very excited,” said Sen. Anthony Portantino, who represents Glendale and Burbank, and who pushed for the construction incentive. “If we build more capacity, that leads to more productions and more jobs.”

The new money is on top of the $330 million in tax credits the state already provides to Hollywood each year. The windfall comes as the state is spending a record-breaking $75 billion budget surplus, including billions for homelessness, social services and education.

The tax credit bill was unveiled on Sunday night, and is expected to pass both houses and get Newsom’s signature. The bill also requires productions that benefit from the soundstage credit to submit a diversity plan, and spells out that the plan “shall include goals that are broadly reflective of California’s population, in terms of race and gender.”

That language goes farther than previous state efforts on diversity, which have generally focused on data collection and incentivizing job training programs. In the past, lawmakers have feared that anything that could be construed as a quota would run afoul of Proposition 209, the constitutional amendment that outlaws affirmative action in the state.

“We want to be constitutional, and we think we are,” Portantino said. “By having the productions initiate their own plans, I think that’s an outstanding solution to the problem.”

Portantino had introduced a soundstage incentive bill earlier in the session, but it died in the Senate. Portantino was able to revive it during budget negotiations. The measure has strong backing from Hollywood unions and the State Building and Construction Trades Council.

“Other states and countries are hard at work trying to court this industry and they’ve had some success,” said Robbie Hunter, president of the building trades council, and Entertainment Union Coalition president Thom Davis, in a joint statement. “In California we cannot afford to lose any more blue-collar, middle-class jobs. We are going to ensure this industry stays where it was born and belongs, and we are determined to grow it with our efforts.”

The Los Angeles area has 5.2 million square feet of studio production space — 40% more than its nearest global competitor, the United Kingdom. It has double the production space of Toronto and almost triple the space available in New York, according to the latest data compiled by FilmLA. However, some have expressed concern that the competitors are adding capacity.

Los Angeles-area soundstages enjoyed average occupancy rates of 94% for 2019, the last year for which data are available. Several new soundstage projects have been announced recently, though it is not clear which would benefit from the new incentive. Among them is Echelon Studios, a $450 million project in Hollywood that was announced in May by Bain Capital. Hackman Capital Partners also recently announced a $1.25 billion renovation of Television City.

The soundstage incentive will operate much differently than the traditional California film credit. The money will not be divided into separate buckets for different types of productions, and the credits will not be awarded based on a competitive “jobs ratio” process. Instead, the credit will be open on a first-come, first-served basis to qualified applicants. Each film or TV production will be limited to $12 million in credits apiece, based on either 20% or 25% of qualified spending.

To qualify, a production must shoot at least 50% of its schedule at a new or renovated soundstage. The soundstage construction must cost at least $25 million, and the soundstage project must get its building permit after the bill is signed into law.

The soundstage incentive expires in 10 years, but the $150 million is likely to be consumed much sooner than that. Portantino estimated it would take about three years, but it could go even faster.

The California tax incentive program is largely geared toward encouraging TV series to relocate from other jurisdictions. Newsom’s original proposal was to add $30 million that would specifically go to that purpose. But once the state attracts a TV show, it also agrees to subsidize it for the remainder of its run. The state has already lured more TV shows than it has funding to support under the current $330 million appropriation. That “shortfall” prompted the Legislature to add $75 million per year over two years to underwrite recurring shows.

It remains to be seen how much of the bill will be a temporary windfall, and how much will become permanent. The baseline $330 million tax credit will go up to $420 million per year for two years, before dropping back down to $330 million and then expiring in 2025. In two or three years, Hollywood stakeholders could come back to Sacramento and argue that the soundstage allocation has been exhausted and needs to be replenished, and that the state cannot afford to reduce funding when other states remain competitive.