California Film Commission: Incentive Program Is Inadequate for Stopping Runaway Production

9:00 AM PST 07/23/2014 by Alex Ben Block
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"Being Mary Jane"

The tax credits generate $770 million for every $100 million invested but don't meet demand, according to a new study.

As the California legislature considers whether to expand movie/TV tax incentives, the state film commission on Wednesday released a report making a strong case for the economic value of the program, the need for more funding and the devastating impact from underfunding.  

“It is clear that demand for California tax credits far exceeds supply,” concludes The Film and Television Tax Credit Program Progress Report. “Without adequate funding for the Tax Credit Program, California will continue to lose direct spending and tax revenues from film and TV productions that choose to film elsewhere. The situation is especially dire for TV series production, given that producers are unlikely to film their first season in California without a reasonable assurance that tax credits will be available for future seasons.”

The report shows that the incentives, which began in 2009, generate $770 million in direct production spending for every $100 million the state invests, which includes $245 million in payroll for below the line workers — people other than the stars, director, producer and writer.

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For every $100 million in incentives, productions hire about 8,700 cast and crew and utilize 10,000 vendors; and employ more than 66,000 extras as daily hires. And that doesn’t include the ancillary benefits of tourism to the state.

Over the course of the program that has added up to $5.4 billion in total direct spending in the state, which includes $1.7 billion in below the line wages.

Each year the applications for the available $100 million have grown and been quickly oversubscribed. From 2010 when there were 70 applications it has grown to 502 in 2014 – a 617 percent increase.

The report finds that among those who applied for incentives but did not qualify, 84 percent left the state and virtually all went to other states or countries that did offer then incentives.

“From 2010 – 2014, these ‘runaway’ projects,” says the report, “accounted for nearly $2 billion in production spending outside California -- an economic blow to state and local governments, not to mention the state’s below-the-line production workers and businesses that rely on the film/TV production industry.”

That doesn’t count those productions that didn’t bother to apply in California because of the lure of other locations, out of frustration with the underfunded system or because of timing (California incentives are all gone in one day in June for the coming fiscal year so they can’t help productions that begin or are shot at other times).

The report also notes California is not doing well with the single most lucrative kind of show it needs to retain, dramatic TV series. Dramas spend a lot, can go on for years and employ a lot of workers (generating ancillary spending and taxes).

“An analysis of 1-hour TV series from 2005 – 2013 reveals steady growth in the number of series produced, from a total of 79 shows in 2005 to 137 in 2013 – a 73% increase,” says the report. “At the same time, the number of 1-hour TV series produced in California hit a record nine-year low, with just 39 out of 137 choosing to film in state.”

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“California’s market share declined from 65% of all 1-hour TV series produced in 2005,” adds the report, “to just 28% of all such shows produced in 2013 -- a market share decline of nearly 60%.”

The report also notes that the current program excludes big budget movies (with budgets above $75 million) and all network TV series (while cable series can qualify). The report says of 30 big budget movies released in 2013, only two short primarily in California. It estimates those productions that shot outside the state “employed tens of thousands” in “well-paid skilled” jobs.

A bill that has already passed the California Assembly and now is pending in the state Senate, AB1839, would extend eligibility for  the incentives to the current state program. There has also been talk about increasing the annual spend to as much as New York State, which is over $430 million, but that has not been set yet and many not happen. Gov. Jerry Brown has yet to even agree to extend the current program although that is expected.

Like the movie and TV business which California once dominated – but has been steadily declining for the past decade – the visual effects industry is also in decline, according to the report. The U.K, Canada and others states have offered incentives that lure this work to their locale.

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“The result has been the scattering of California's visual effects community,” declares the report, “with highly-skilled digital artists forced to chase jobs, often overseas. Nearly two dozen California visual effects firms have closed or gone bankrupt in the last decade. California is losing an industry that began here but can not be sustained due to abundant out-of-state competition and incentives.”

One place California has had some success is in luring back TV series that have shot in other states. If a show returns, it gets an extra bonus that adds up to a 25 percent incentive. Since the program began six shows have come to California from elsewhere. Many others apply but their experience is that only shows which actually qualify for the credits come to the state.

In the most recent year only the show Being Mary Jane qualified. It is moving to California from Georgia. “Moving an established TV series,” notes the report, “is costly and requires detailed advanced planning to dismantle, transport and rebuild sets, relocate cast members, find comparable locations, etc. all within a tight time-frame.”

In addition to the state incentives, the report notes that many local communities in the state have also created programs to lure productions. The city of Los Angeles, under Mayor Eric Garcetti, has been active in trying to retain and attract shows and movies. It provides business tax exemptions and provides free use of city owned locations, among other incentives.

San Francisco offers a rebate of up to $600,000 on any fees paid to the city, which can include payroll tax, permits, locations and up to four police officers per day.

Still the report singles out San Francisco as an area which has seen a large loss of production. It even lists movies that are set in the city but did not shoot more than a few days there including Godzilla, Terminator 5 and Dawn of the Planet of The Apes.

“Once the epicenter for entertainment production,” states the report, “California can no longer assume this leadership position. Maintaining California’s worldwide leadership role as the ‘entertainment capital of the world’ is vital to the state’s economy.”

Read the entire report here.

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