What California's $400 Million Film and TV Tax Incentive Would Buy: Job Preservation

AP Photo/Reed Saxon

The proposed system will have a bias toward applicants who produce the most jobs and the best-paying jobs — and will penalize those who overestimate how many positions they create

Before a California state Senate committee unanimously approved a bill to quadruple financial incentives to $400 million to retain and attract TV and movie productions, amendments were inserted aimed at insuring the money goes to save jobs that would otherwise be lost.

The bill now also includes stiff penalties to punish applicants who overestimate the number of jobs being created and even to “claw back” money if it is later discovered there were discrepancies in claims made by recipients.

A summary of the new amendments provided by the office of Sen. Kevin de Leon (D-Los Angeles), who becomes President pro tempore of the Senate this fall, says it will be the job of the California Film Commission to determine whether there is a discrepancy of 10 percent or more in the number of jobs created and determine if a penalty is warranted. If there is a discrepancy of more than 20 percent, an applicant can be denied the right to participate in the funding program the following year.

“I rewrote the whole bill,” de Leon told The Hollywood Reporter on Saturday. "The bill is the spirit of me, Kevin de Leon. I thought the bill needed more accountability and more transparency. The end goal is maximum economic output to make sure the taxpayers are getting the most bang for the buck.”

“We know what the narrative is in terms of hemorrhaging jobs,” added de Leon. “We know the narrative of other states cannibalizing our good California middle-class jobs.  But we can't get into the narrative of us versus Louisiana because it's a race to the bottom. It's not apples to apples. At the end of the day, it's not Hollywood's money. It's the people's money. And the people want accountability."

The system will, for the first time, have a bias toward applicants who create the most jobs, and the best-paying jobs, exactly the kind the entertainment industry is famous for offering.

“What differentiates our program from a lot of others,” says a guild official active in lobbying for the expanded bill, is that “nobody gets any money, the state doesn’t have to do a thing, until you prove how many jobs have been created and everybody has been paid.”

“This is not just about job creation,” the guild official added, “but creation of jobs that have the kind of income, health and pension benefits that everybody is always talking about.”

Under current law, no money is paid until a production is concluded and a production files documentation. The new bill calls for an even tougher audit focused on making sure the promised jobs are actually delivered.

The new law, if approved, will also do away with the lottery system used to determine who qualifies. It has been used  because there were so many more applicants than funding available. The bill orders the CFC to create a scoring system in collaboration with GoBiz, the governor’s office that promotes business and job growth in the state (and has oversight of the CFC).

The scoring system will be based on a “job creation ratio,” using a formula laid out in the new bill: “aggregate employee compensation divided by the amount of tax credit requested.”

Under the new bill, a production must do at least 75 percent of its principal photography in California and must spend at least 75 percent of its budget in the state to qualify at all.

The bill also says that each applicant will have to get a Job Creation Certification, based on proving that “if not for the credit, the applicant’s production would not occur in California.”

The new “competitive allocation process,” as it is called in the bill, would take effect in January 2016, and there will be two “allocation cycles” per year. That is different than the current lottery system, which has seen the entire $100 million allocation committed on a single day in early June.

The bill would fund the program for four years, from 2016 through fiscal year 2018-2019.

For the first time, big-budget movies and network TV series will be eligible for tax credits if the law passes, but there is also a new provision to segregate different kinds of productions. “To ensure like productions are competing against one another,” the new bill will mandate “separate pots for indie films, new TV pilots and renewed series, feature films and relocating productions from out of state.”

New productions can qualify for tax credits of from 15 percent to 20 percent of what will be spent in the state; and productions coming from outside the state can get up to 25 percent. There is also a five percent bonus in some cases for productions done outside the L.A. 30-mile zone. 

The bill is expected to pass the full state Senate before the legislative session ends on Aug. 31; it will also have to pass both the Assembly and the Senate again (and go through a conference committee) because of the new amendments. Then it will go to Gov. Jerry Brown who must sign it before it becomes law.

To bring home the point that this bill is about jobs for real people, on Wednesday the California Film and Television Production Alliance is holding what it calls a “mobilization” on the North Lawn of the state Capitol in Sacramento. It is meant to demonstrate what the workers, small businesses, vendors and creative talent do — to show the kind of jobs that are at stake.

Among stars participating will be actor Ron Perlman of Sons of Anarchy and actor-director Carl Weathers (Rocky). They will be joined by other film and TV workers, union leaders and film commissioners from across the state.

Crews will actually simulate production activity, or as one member of the coalition put it, take legislators and their staffs “behind the magic to show who we are.”

The show Scandal has done a special shoot for the occasion, and there will be a crew from the ABC Family show Pretty Little Liars to demonstrate production, and others to show how makeup is done, how wardrobe is chosen, how Foley artists create sound effects and more.

There will be a green screen so each visitor will be able to take away a photo of themselves in a scene from a show, as if they were actually on the set.

“We’re going to be inside the building telling people all about it,” says the guild official. “The goal is to get to the legislators. A lot already know about it, including some who really love [the show] Scandal.”

Tina Daunt contributed to this article.