Independent Report Confirms Success of California Film Incentive
Fantastic news for proponents of the California Film & Television Tax Credit — a new independent report came out this week from The Headway Project and UCLA Institute for Research on Labor and Employment (UPDATED: to read the more comprehensive UCLA version of the report, CLICK HERE). The report authors (who received no entertainment industry funding) largely confirm the findings from the LAEDC last year, which showed California (at the state plus local level) earns a positive return on investment from its film incentive program. The independent analysis is important, because as you may recall, the LAEDC report “There’s No Place Like Home: Bringing Film & Television Production Back to California” took only one issue with the LAEDC’s earlier findings. Whereas the LAEDC report claimed that the California return on each dollar spent on the program was $1.13 in state and local tax revenue; the Headway report lowered this slightly to a $1.04 return. Other than that, the report backs the LAEDC’s conclusions, making this the second comprehensive study of the CA film incentive program to illustrate its value to the state.
Following is a summary of some of the other key passages in the report.
There is No Home Field Advantage: Out-of-State Film Incentives Distort Film Production Market
Echoing what we have said many times on this blog, the Headway report blames runaway production on the existence of large film tax credit programs in other states and nations. These out-of-state film incentives, combined with the false belief held by lawmakers and others that production could never really leave California, have made runaway production a dire threat to the state’s economy:
The third reason that film and TV tax credits have worked so well is that, as other states and countries have offered aggressive tax credits to lure production away from California, legislators in Sacramento have
reacted very slowly and cautiously, believing that film and television producers would stay in California because it’s the traditional heart of the industry, offering the best facilities, the deepest bench of talent and the essential cluster of support companies that studios need to build sets, edit footage, create special effects and provide other specialized services.
Twenty years ago, this may have been the case. But after two decades of steady subsidy and focused dedication to building production infrastructure, many states and countries (especially Canada) now offer first-rate facilities, larger skilled labor pools and the support of state agencies that are nearly equal to those of California. This phenomenon is quickly approaching a tipping point – a point at which California will forever lose any true competitive advantage as the heart of the entertainment industry.
Productions Can and Will Leave: Why Many Projects Wouldn’t “Just Film in CA Anyway”
According to the Headway report, the notion that incentivized projects “would have filmed here anyway” were it not for the existence of the California Film & Television Tax Credit is false:
The very heart of the economic debate over this tax credit is centered around the issue of trying to determine whether a tax credit issued to a film or television production was the decisive factor that kept that production in California – creating employment, in-state production spending and tax revenues – or whether it was a free money subsidy given to a production that would have filmed in California anyway.
How did Headway authors come by their opinion? First, they looked at all of the projects that had applied and were wait-listed for California’s film incentive. Of the 14 total projects that never got California credits but were ultimately produced, 91.6% of their combined budgets were spent in other states — all of which offered their own film incentive programs. California didn’t get to keep the productions anyway, as some predicted would happen. Those the state managed to retain were small — totaling less than 9 percent of all the at-risk production spending that was at stake.
It’s All About Jobs, And They Don’t Cost Much to Create in California
The Headway report confirmed the LAEDC report’s findings that the California Film & Television Tax Credit created 20,040 jobs — or 19,000 Full Time Equivalent (FTE) positions — in its first year. Moreover, from a cost-benefit perspective, even if California’s film incentive generated no new revenue for the state, the cost-per-job would still be under $12,000 for a position that pays well over $70,000 annually.
Considering the fact that the cost-per-job totals in other states is often well over $75,000, California seems to be getting a massive bang for its buck. That’s only helped by the fact that state and local tax revenue went up by a little under $1,500 for every job created!
In the final analysis, the Headway report concludes that “compared to programs and incentives offered by other states and countries” California’s incentive earns “high marks” and “the California Film Commission manages the public’s money well.”
In conclusion, the California Film & Television Tax Credit Program is thrifty and well-designed. It offers filmmakers and television producers a far smaller subsidy than is offered in New York, Louisiana, Canada or other locations. It specifically excludes credits for the actors, producers, directors, screenwriters and others in Hollywood’s “rich man’s club,” focusing its incentives instead on the hundreds of thousands of middle class, unionized laborers and small companies who support the entertainment industry. Unlike New York and Louisiana, California will not write a check and buy the tax credit back for cash. The California Film Commission imposes a high standard of compliance and auditing in return for the tax credit allocation, and it performs its audits well with modest staff and resources.
The Headway Project demonstrates that with smart, responsible state policies like the California Film & Television Tax Credit in place, film can continue to work for California.