California Governor's Office Optimistic But Offers No Guarantee of Expanded Tax Incentives

Ken Haber
Kish Rajan

UPDATED: At the annual California Film Commission breakfast, a member of Brown’s team said they are aware of the program's value but cautioned that doesn’t assure support.

A sense of optimism permeated the ninth annual California Film Commission breakfast on Thursday, with references to pending legislation to expand and extend the state’s film tax credit program and recent moves to organize labor and business groups to support the bill and, more noteworthy, seek a significant increase over the annual $100 million allocation for the program.

Kish Rajan, director of the governor’s office of business and economic development, seemed to add to the sense of hope in his brief remarks to the more than 200 people who attended, representing film commissions from around the state, production companies, media and vendors from locations services to companies that audit to certify tax incentives.

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“I know [Gov. Jerry Brown] understands how important you are and he is grateful for what you’ve done for him,” said Rajan, “and I share the optimism he will understand what you need.”

However, in a brief interview after his speech, Rajan was much more tempered about the future of the bill to expand the tax credit program.

“I know the industry wants to make sure [Gov. Brown is] fully apprised of the economic consequences and the opportunities associated with this,” said Rajan. “Where it will go from there and how the governor will treat all the inputs and ultimately work with it is up to him and his legislative team.”

Rajan did say Brown has longstanding ties to the entertainment industry and pointed to Ken Ziffren, who attended the breakfast in his role as the city of Los Angeles’s film czar, charged with helping stop runaway production, bringing more show business to the city and helping get the pending legislation approved.

Rajan said the governor has known Ziffren for 50 years, and they have a “great relationship.”

“The governor has great connectivity to the film and entertainment industry,” added Rajan. “They’ve made a real effort to reach him directly, so I’m confident he has an appreciation of the industry and an appreciation of the implications of this particular matter about the tax credit. He’s very aware of it.”

The key moment will come in the middle or end of next month, when the governor’s office reveals its estimate of the size of the expected state surplus of funds. That will trigger a deluge of requests for the available money, including from the film and TV industries who are hoping to raise the available annual tax credits to somewhere close to what New York offers, which is about $430 million a year.

Rajan made it clear he would not even guess at how that might play out. “The game in Sacramento is about how to divide up the pie, and I think that’s certainly happening now,” said Rajan. “With regard to the surpluses the governor has been very clear that he wants to hold the line on spending and continue to move California’s fiscal situation in a responsible direction. ... I don’t see any change in that any time soon.”

Amy Lemisch, executive director of the California Film Commission, said in her opening remarks that since 2009 more than $600 million has been spent by the state to stimulate production activity. She said that there has been $1.5 billion in direct spending on wages, and it has meant $4.7 billion in economic activity for the state.

She said the next date that the commission will accept applications for the coming year’s credits is June 2. As usual, it is expected the entire $100 million will be committed by the end of that day (although some may shift to a waiting list as a few projects drop out).

Lemisch noted even if the new legislation makes it through multiple committees, two floor votes (the Assembly and Senate) and is signed by Brown, it will not become effective until 2016.

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Lemisch said they also are seeking to have more of the applications handled electronically instead of on paper, so the commission has set some new rules and procedures to encourage that.

Not everybody is waiting for the new legislation. Kathleen Dodge, executive director of the Eldorado Lake Tahoe film and media office, was pitching a novel concept that could pay off with not one but two state tax incentive payoffs.

Dodge said since her part of California is right on the Nevada border, a production could be housed and fed in Lake Tahoe and still shoot in California.

“Basically, it would be shooting 75 percent of your days in the state of California and spending 60 percent of your budget in Nevada,” said Dodge. “So being right there on the state line, if you got both incentives, you could benefit from over a 40 percent tax incentive.”

She said this only became a possibility this year when new Nevada tax incentives passed in early 2013 took effect, offering a transferable tax credit that could cover up to 19 percent of a movie or TV shows budget. The production must spend at least $500,000 in Nevada and meet other requirements.

However, Lemisch said she didn’t think it would be possible to both do 75 percent of production in California, with the salaries of cast and crew and production costs, and still spend 60 percent in Nevada.