As California lawmakers eye solutions to the state’s declining film and television production, the Senate Budget and Fiscal Review Subcommittee on Wednesday weighed Gov. Gavin Newsom‘s proposal to allocate $750M annually to the Film and Television Tax Credit Program in hopes of revitalizing the industry.
The subcommittee welcomed three panels of economists, industry leaders and other experts who spoke to the pros and cons of increasing the tax incentive from its current cap of $330M annually as part of a broader proposal, laid out in a pair of bills introduced in February, to staunch the bleeding of a years-long mass exodus of domestic production. Some state lawmakers are hoping the program’s revamp will breathe some much-needed life into California’s once bustling film and television industry, while others expressed some skepticism over whether more than doubling the incentive cap is the most productive use of those funds within the state budget.
“The amount of the tax credit is basically exactly the same amount as the amount the governor is proposing to cut [from] the University of California and the California State University. It is the amount of the reductions that both universities are facing from the National Institutes of Health, reductions from the federal government. It is almost the amount that the city of Los Angeles has requested of us this week to respond to the fires, and it is more than the amount that we’ve been asked for Proposition 36, and it’s a significant component of the amount that the governor is proposing to draw the state’s rainy day fund reserves from. So, it’s a serious fiscal matter for us to be taking a look at,” Senator Christopher Cabaldon said in his opening remarks.
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Newsom first unveiled his plan to expand California’s tax incentive program cap in October, and since then calls to action have only grown after Los Angeles was hit with yet another devastating blow when two historically damaging fires swept through the city at the beginning of the year. In February, lawmakers introduced a pair of bills to the legislature that aimed to “amend, update, and modernize” the program beyond just the increased monetary commitment, and on Tuesday those bills were updated to include more specific language about those plans.
Those additional measures include expanding the definition of a qualified motion picture to allow a wider range of projects to apply for the program and increasing the available credit amount for an individual project from 20% to 35% for amounts paid or incurred in Los Angeles, specifically. There are also other credit increase proposals for areas of “economic opportunity” within the state.
“People want to stay here, work here and live here. The goal of this increased funding is to make this possible,” Lauren Greenwood, Deputy Director of Legislative & External Affairs in the Governor’s Office of Business and Economic Development, told lawmakers. “We have crafted our film and television tax credit program to not only ensure accountability and returns to California taxpayers, but also updated the program to reflect our California values…it isn’t an accident that California is the birthplace for this creative industry. Our culture of acceptance and openness has long fostered innovation and the freedom of expression.”
The Governor’s office argued that the return on investment extends far beyond just the jobs created by production returning to California, also insisting that the film and television industry is a vital part of the state’s tourism draw and brings much-needed cashflow to local businesses in and around major production hubs.
Per an impact report released by the Entertainment Union Coalition in February, from 2015 to 2020, about 50% of the 312 productions that did not qualify for California’s tax credit incentive relocated to another area, resulting in an approximate loss of 28,000 jobs and $7.7 billion in economic activity.
Illustrating the financial impact of the tax incentive program, Executive Director of the California Film Commission Colleen Bell said that, since its inception, it “has generated over $26 billion in economic activity and more than 197,000 jobs with health and pension benefits.”
Several lawmakers at the subcommittee hearing seemed particularly interested in the return on investment from such a massive expansion of the program and sought to discuss at times whether the money would be better spent elsewhere, such as healthcare, food assistance, and affordable housing initiatives.
“In light of these vast needs, and given the cuts and delays that were made in the last two years to address budget deficits, there are more urgent uses of funds of the additional $420 million that is proposed to be added to the film credit,” Kayla Kitson, senior fellow at the California Budget and Policy Center, urged, adding that “even in better budget times, our organization would still recommend that policymakers carefully scrutinize tax incentives for businesses in general and for specific industries, given that they do take dollars off the table that could be used to invest in other programs to improve the well being of Californians.”
Cabaldon acknowledged Kitson’s concerns, insisting “that’s fundamentally the challenge that we’re trying to grapple with.”
“Because if we spend $1 on one more student at UCLA, or we spend $1 in the multifamily housing program to build shelter for someone, the economic impacts there are enormous — $2 million of lifetime earnings for the first one, massive savings in terms of homelessness costs and whatever in the second,” he said.
Rowan Isaaks, from the Legislative Analyst’s Office, pushed back on the idea that bolstering the Film and Television Tax Credit Program would provide meaningful return on investment for California, citing economic analysis from state’s like New York and Georgia, where the fiscal return is about $0.20 to $0.30 cents for every dollar of tax credit allocated.
“New York’s evaluation was that their credit is at best a break even and likely a net cost to the state economically,” Isaaks explained. “Georgia has been an example of a program of a state that has increased employment in the film industry and generated an increase in the industry, but the average cost of producing and keeping a job in Georgia is extremely high because their tax credit is uncapped.”
Lawmakers also expressed concerns over whether upping the cap on California’s incentive program would put the state in a “race to the bottom,” since it may encourage other territories to increase their own caps, effectively creating a perpetual state of competition that could become unsustainable.
However, Senator Ben Allen, who introduced the bill in the Senate along with Senators Caroline Menjivar and Henry Stern, challenged that assertion.
“Do you really think that New York thinks that they’re gonna bottom out every other jurisdiction, and get it all themselves?” he asked. “There’s a tremendous cultural and tourism benefit associated with this industry for California that I think gets totally under appreciated in some of the analyses that have been brought forward…I appreciate it how hard it is for us to fully incorporate every possible benefit or lost opportunity associated with doing something like this, But I am concerned, perhaps, that the analysis the LAO has engaged in is just far too narrow in scope and purview.”
California’s budget for the 2025-36 fiscal year must be approved by June 15, so this discussion will likely be ongoing for several more months, especially as the Senate and Assembly bills make their way through their respective chambers.
The production community itself has also been committed to solving this issue. Two major initiatives have recently emerged — the Entertainment Union Coalition’s Keep California Rolling campaign and Stay in LA, which has been championed by some of the industry’s biggest stars as well as top film and TV writers and producers — aimed at not only calling attention to the issue but lobbying lawmakers to engage meaningfully in finding solutions.
Following the expert panels, committee members heard public comment from dozens of people who encouraged lawmakers to support the expansion. There was no public dissention.
