California has extended its tax program three times despite concerns about effectiveness. The real motivation? A desire to defend Hollywood.
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Updated Jan. 16, 2020.
When Oscar night rolls around, Californians rooting for “Once Upon A Time…in Hollywood,” “Marriage Story,” or “Ford v Ferrari” will be able to thank themselves as well as the Academy. In all three cases, Golden State audiences not only paid for the movie tickets and Netflix subscriptions underwriting their production, but also let their tax dollars be leveraged by movie studios to produce those Best Picture nominees in-state.
Intended to promote and help keep film and TV production in California, the state’s Film & Television Tax Credit, now in its third iteration, just celebrated its 10th year in business. Once controversial, it has become, over the years, a sort of “Titanic” of fiscal programs — sprawling, sentimental and popular across the political spectrum despite its formidable expense.
State lawmakers, Democratic and Republican alike, overwhelmingly vote in the industry’s favor — so much so that annual funding has grown threefold from $100 million to $330 million. And there’s no letup: last year, the state renewed its commitment through 2025, ensuring that Californians will help churn out more content in the streaming era.
But while the tax credit is just a sliver of the state’s $222 billion budget, policy analysts say there’s conflicting evidence the program pays for itself. In fact, California has extended the credit three times with politicians ignoring concerns that, for example, it plays favorites with Tinseltown over other important industries in California and that it continues to be debated how much taxpayers get out of it.
Love it or hate it, everyone agrees there’s really one motivation for it: California’s desire to defend Hollywood.
“We’re doing it because other states are doing it,” said Brian Weatherford, the state fiscal analyst at the nonpartisan Legislative Analyst’s Office.
California is home to more than half of U.S. motion picture production with a high concentration of jobs within a 30-mile radius of Los Angeles. But there’s a history of other states and countries luring production out of state. New York, Canada, and the United Kingdom have long provided subsidies and reports of lost market share helped spur California to offer its own tax credit. In 2009, the actor-turned-governor Arnold Schwarzenegger signed the first bill, arguing it would help retain film and television production and put Californians back to work during the recession.
Proponents say the economic benefits are huge because productions have a multiplier effect from hiring actors, artists, crew and extras down to boosting business for caterers, hotels and other supportive services. Critics, however, say the program is a political giveaway to a flush industry.
Disney exceeded $7 billion at the global box office last year while Warner Bros., NBCUniversal and Sony also reported significant profits. Naysayers suggest that money is better used to tackle more pressing issues, such as homelessness, college costs and pension liabilities.
The California Film Commission, which administers the tax program, released a progress report in November showing that productions that received $1.1 billion in subsidies between 2015 and 2020 stand to generate nearly $8.4 billion in direct spending. Put another way, the tax credits have helped put over 27,000 actors, 36,000 crew members and 558,000 extras to work.
Colleen Bell, the commission’s executive director, says that’s proof enough.
“I’m an advocate for this program and its proven success,” she said.
But here’s the rub: the report is simply a tally of the spending tied to every production that got some credit. So what would have happened if that film or TV show hadn’t received a credit. Would the production have gone somewhere else? Would it not have been made? Or would it have been made in California anyway?
Starting in 2015, the film commission began tracking the fate of projects that applied for tax credits but were denied. They found two-thirds left California and were made out of state. Those so-called runaway projects accounted for $3.55 billion in spending — money that California could have kept if there were more tax credits.
Still, analysts say it’s difficult to judge the overall success. There’s no way to know what would have happened to the industry without this subsidy. Would Universal Studios have uprooted its movie lot to Vancouver? Would Pixar have relocated animators from Emeryville to New York?
“There’s no way for us to know that,” Weatherford said.
The inability to make an assessment has opened the door to criticism. University of Southern California public policy professor Michael Thom posited in a policy journal review that most beneficiary films would still have been produced in California without tax credits. The film commission’s own tracking found one-third of projects were made in the state anyway. One can simply look to past Oscar-nominated movies “La La Land,” a musical ode to Hollywood dreams, and “Lady Bird,” where director Greta Gerwig heaped spoonfuls of Sacramento scenery, as examples of films made in California without an incentive.
Thom said tax incentives have less effect on the film industry than the economic growth of the past decade or technological advances.
“Time after time, studies show that tax incentives for the entertainment industry do not pay off,” Thom wrote in an email response to CalMatters.
And while California has set some safeguards for claiming credits to reduce corporate taxes, personal income taxes and sales taxes, other states have experienced abuse. In Georgia, a scathing state audit found production companies have been able to claim credits even though they were ineligible or they claimed more credits than allowed.
Still, supporters say California can’t stand idly by while other states and countries try to poach production.
More than half of U.S. states offer tax incentives for film and TV production. Most spend less than $330 million a year, but a few top the Golden State. Georgia, for instance, spent $667 million on film tax credits in 2016, growing to $915 million in 2017. New York allocates $420 million a year.
“Without our tax credit program,” Bell said. “It’s more difficult to maintain the necessary competitiveness with other jurisdictions who are also trying to encourage production in their states or countries around the world.”
So far, California’s film commission has handed out credits to some of the major releases of the last decade, such as “Captain Marvel,” “Bumblebee” and “A Wrinkle in Time.” Millions have been set aside for some upcoming high-profile films — think NBA superstar LeBron James teaming up with Bugs Bunny in “Space Jam 2” and “La La Land” director Damien Chazelle’s “Babylon,” which remains under wraps.
If anything, California may be willing to double down on one of its flagship industries. Assemblywoman Luz Rivas has proposed a bill, AB 1442, to give production companies even more credit if they leave Southern states with restrictive abortion laws.
Without endorsing Rivas’ Share Our Values Film Tax Credit, Gov. Gavin Newsom used the opportunity to encourage productions to return to California.
“For those of you that have left to do productions in states like Georgia, consider the investment there and what it’s promoting, versus investing in your state and what we’re promoting,” Newsom said in a video posted on Twitter. “This is the moment, come back home.”
Note: The previous version of this story stated there was no way to show what would have happened to projects that didn’t receive a tax credit. This story has been corrected to include the film commission’s tracking of lost productions.