Authors of Tax Incentive Bill Praise Report Aiming to Stop Runaway Production

Courtesy of Assemblymembers
Raul Bocanegra, left, and Mike Gatto

Assemblymen Raul Bocanegra and Mike Gatto say the Milken Institute's proposals are in line with the bill they proposed earlier this month.

Two members of the California Assembly who introduced legislation to expand and extend tax incentives for movie and TV production had praise Thursday for a Milken Institute report called “A Hollywood Exit.” The report lays out recommendations for what the state must do to remain competitive and retain entertainment industry jobs.

“It’s more information,” says Assemblyman Raul Bocanegra (D-Pacoima) "on how a very important industry is leaving California and points out if we do nothing, we will see more good paying jobs go outside the state.”

“It doesn’t surprise me,” says Mike Gatto (D-Los Angeles). “We’ve gotten a lot of the same impressions. It does work to identify real points for additional recommendations and discussion.”

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The report by Kevin Klowden, Priscilla Hamilton and Kristen Keough details the decline of entertainment industry jobs since the peak year of 2004.  It says that between 2004 and 2012, production employment in the state declined from 152,525 jobs to 136,388 jobs, a decline of 16,137 jobs.

At the same time, the report points out, New York State saw an increase of 25 percent among what the study calls “high paying, middle class jobs, wilt wages that average $98,500 per person (in California) and $89,000 (in New York).”

“These jobs contribute to the state revenues and provide sustainable incomes that support significant local expenditures,” adds the report.

At the end, the report lays out eight specific recommendations that it says can help stem the outflow of these jobs even in the face of 43 states and many foreign countries – especially Canada – offering tax incentives that often are greater and broader than the $100 million a year that California offers.

Some of the recommendations are already part of AB 1839, the bill introduced by Bocanegra and Gatto on Feb. 19. For instance Milken suggests an increase in the total funds available since the California allocation is spent in a single day each year, meaning that there is no money available for shows that need assistance later in the year.

Bocanegra notes that their bill does not have an exact amount. That will be decided later, depending in large part, he says, on what Gov. Jerry Brown’s revised budget estimates show in mid-May. If, as expected, California finds itself with a significant budget surplus, Bocanegra says that will help make the case that the state needs to think as big as New York state, which allocates over $425 million a year.

The Milken report also calls for the elimination of a “sunset date” when the law will expire in favor of a periodic review, which is how New York does it. It says greater certainty would encourage studios to make larger commitments to infrastructure and would prevent sudden policy reversals as happened in the state of Michigan.

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Gatto explains that will never happen. In California, a majority can pass a new tax law but it takes a super majority (two thirds of legislators) to remove it. He said that is the reason all tax laws have a life of five years or less; and that will not change.

Both Bocanegra and Gatto concur with the report’s suggestions about making funds available for the first time in California for TV series, especially one-hour dramas, and for big budget movies. Until now both have been ineligible for tax incentives.

In their proposed bill, network TV shows and other scripted shows would be eligible to apply; and movies can benefit up to $100 million of their cost.

The report suggests the establishment of a fee for productions that apply to raise $3 million to allow the California Film Commission to hire more employees, who then would evaluate more productions. Any excess would go to the state general fund.

Bocanegra says that is already in their bill, although there is no specific amount for the fee or how much it should raise. That is left up to the commission to determine.

The report also suggests an additional five percent credit for productions that take place outside Southern California to encourage activity all over the state. That too is already baked into the proposed legislation.

One reason for this is to show legislators from northern California that this is a sate problem and that it can benefit the entire state. In past years, similar bills have had the amount of money and term reduced by legislators who feel it is really only going to benefit Southern California.

Bocanegra points out that among the 60 co-sponsors of the bill in the Assembly and Senate, quite a few are from outside Southern California. He believes the state is at an important turning point in understanding the need for this increased commitment: “The fact that some of our colleagues are seeing the press over the last year about how California is losing out to other states has galvanized increased interest.”

What is not in the proposed bill, which both assemblymen like, are incentives for digital visual effects and for animation. Gatto says that includes incentives for postproduction work, much of which has left California in recent years for New York, Vancouver and elsewhere.

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Gatto liked a Milken proposal for a research and development fund to keep California on the cutting edge of entertainment but said it almost definitely will not be part of the bill this year.

Gatto says he has heard from people who believe Congress should do something to address digital effects, post production and other aspects of what he calls “infrastructure competition,” to keep that work in the U.S.

“At some point Congress should also study whether there is a way to keep the 50 states from competing.”

For now, the proposed expansion of tax incentives must jump eight big hurdles by late this summer. Three committees each in the Assembly and Senate, and the two floor votes by each body.

At every level, through committees and on the floor for a vote, the bill can be altered, amendments can be added, dollar amounts can rise and fall; so the final shape of the bill won’t be clear for months to come.

If passed, it would go to Gov. Brown, who as L.A. Film Czar Kenneth Ziffren pointed out Thursday remains non-committal about whether he will support this.

Bocanegra says the Governor always waits until a bill is well along before he makes his decision, and points out he has signed two extensions of tax incentives already. He says he has met with the governor along with other legislators and has kept him informed about the new proposals. “He understands the issues very well,” says Bocanegra.

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