Report Warns That California Isn't Doing Enough to Retain Movie, TV Productions

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While the Milken Institute praises the state's efforts to stop runaway production, it argues that passing the pending extension of the $100 million annual tax incentive program still isn't enough to remain competitive.

Independent economic think tank the Milken Institute on Thursday issued an in-depth report that praises California’s efforts to stop runaway production, makes the case for extending the tax credit program and suggests ways the Golden State’s incentive program can be improved to attract as well as retain movie and TV productions.

“The most important element in revising the incentives is to attract new productions to the state, rather than pursuing productions that are leaving in pursuit of the lowest overall costs,” wrote Kevin Klowden, I-Ling Shen and Ka Wai Ho, authors of the report. “California cannot and should not match states that are providing the highest level of tax breaks and incentives, whether due to higher costs such as in New York or to make up for a smaller pool of skilled film professionals. Instead it should combine strong incentives with a combination of greater flexibility and availability in order to meet the demand that already exists.”

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What that means is that California is still far and away the state with the most movie and TV production -- thanks to its infrastructure, trained work force and existing business base -- but that has been steadily eroding for years. In 2009-10, according to the report, California had 1,087 movie and TV productions (of which 525 were TV only). The second most successful state at winning productions was New York with 624, followed by Louisiana with 149, Texas with 148, Michigan with 112, Georgia with 111, Illinois with 74 and Florida with 65.

The report comes out on the eve of the annual Locations Show this weekend in downtown Los Angeles, where about 180 exhibitors from all over the world will be pitching their locations, crews and incentives to filmmakers and studios. That includes a contingent representing the state of California and many local communities.

“There is no question that the bar for competition has been raised and that California is seeing concerted efforts to draw entertainment productions and workers out of the state,” says the report. “California’s concentration of film employment has slipped from 4.4 times the national average in 1997 to less than 3.7 times the average now.”

The report cites U.S. Bureau of Labor statistics that show California’s share of national entertainment employment peaked in 1997 at about 47 percent, bottomed out in 2002 at about 38 percent and as of 2010 was holding steady at nearly 40 percent.

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The California tax incentive program stated in 2009 has produced results. “The 125 film and TV productions that were awarded tax incentives had a combined direct spending of more than $2.3 billion in the state,” notes the report. “During this period, $760 million of qualified wages were paid to below- the-line crew members, and the total qualified non-wage spending amounted to nearly $700 million.

“The California Film Commission estimated that the 27 projects selected on June 1, 2011, will spend more than $662 million in California, including nearly $234 million in qualified wages. They will employ an estimated 3,048 cast members, 3,307 crewmembers and 49,778 extras and stand-ins (calculated in 'man-days'). The incentives are in high demand.”

The report warns that the $100 million a year the state spends is not doing the job: “The first day in 2011 to apply for the credits saw 176 applications,, which more than doubled the amount from the previous year. This level of demand suggests that the chief problem with the incentive program is not the percentage of credits offered but rather the constraints on the size and scope of the program.”

The fact that all of the money in the program is committed in one day discourages many productions – especially those from other countries – from even looking at the state as a potential location, says the report.

It also notes the current program essentially is about to run out of money. Although it officially ends in 2014, all the money allocated will have been spent by this July.

The Milken report, titled “Fighting Production Flight: Improving California’s Filmed Entertainment Tax Credit Program,” strongly suggests the state needs to pass an extension of the incentive program and up the ante on how much it is willing to spend, even if it doesn’t match the highest incentives elsewhere.

There is a bill in the state Assembly to extend the program at the same level for five more years, but it is moving very slowly. The author of that bill, Assemblyman Felipe Fuentes, praised the report Thursday to The Hollywood Reporter and said it proves there is a need to keep it going. “This is another example that the film and television tax credit program is working by keeping productions in California and creating jobs,” said Fuentes. “It’s imperative that an extension of the program is approved this year so the program does not expire.” 

When it comes to offering incentives to retain and attract productions, California, says the report, is “a latecomer despite (or perhaps because of) its leading position in the industry. New Mexico and Louisiana pioneered the incentive concept in 2002. By the beginning of 2011, more than 40 states (and many countries) had offered incentives, including tax credits and cash, to lure film and TV productions.”

“Statistics compiled by Film L.A.,” says the report, “suggest that television production filmed in California has passed its pinnacle. In Los Angeles, where more than 80 percent of the state’s entertainment employment is concentrated,the number of permitted on-location television production days has dwindled from its 2007 peak of over 23,000 to below 16,000 in 2009, a 32 percent decline due in no small part to the recent recession.

“Although the number rebounded in 2010, many producers may have opted for alternative locales with lower costs and better financial incentives. Pilot programs for broadcast and cable networks were increasingly filmed in other states and abroad, with L.A. taking only half of the pie in the 2010-2011 development cycle  This also means that if a pilot is made into a series, it is less likely to be shot in L.A.”

At a time unemployment in California is high, tax revenues are down and the economy is weak, the report makes clear that part of that is lost opportunity. “Productions spend a large amount of money, which creates jobs and tax revenue for local governments,” the report continues. “An earlier Milken Institute report on film flight estimated that in 2008, if California had retained the 40 percent share of total entertainment jobs in North America it enjoyed in the late 1990s, 10,600 direct jobs would have been preserved and more than 25,000 indirect jobs would have been generated in the state.”

The report says more emphasis should be placed on retaining and attracting TV productions, where the state still has a big lead – but one that is in decline.

“California still leads the nation in TV productions due to the concentration of talent and infrastructure in Hollywood,” says the report. “The top five states between 2009 and 2010 were California (525 productions), New York (345), Georgia (67), Texas (45) and Illinois (37). Because of California’s infrastructure advantage, tax credits for television productions do not need to be as generous as those in competing states. Still, the current restrictions are a concern.”

The report makes some specific suggestions on how to improve the state’s efforts:

-- Eliminate unnecessary contingencies to attract productions that create the most jobs and to facilitate producers’ long-term planning.

-- Deepen and broaden California’s entertainment industrial base to create an environment that attracts future productions.

-- Encourage local job creation and keep workers’ skills up to date to enhance the state’s supply and quality of production crew.

-- Target television production to increase, or at least maintain, current production levels with their consistent employment and steady cash flow.

-- Attract foreign and international productions to capture demand for production locales, facilities, and crews from the fast-growing global entertainment industry.

-- Expand the credit pool from the current $100 million annual fund to a level that can accommodate demand. A separate fund for television productions would allow a more targeted use of money.

The Santa Monica-based Milken Institute publishes research and hosts conferences about a variety of issues in the U.S. and overseas.

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