Milken Institute Evaluates Damage to California Economy from Runaway Production

The venerable Milken Institute recently published another report on California’s film industry, and its findings are sobering.  In an earlier report, the Milken Institute estimated California had lost no fewer than 36,000 jobs from the late 1990s to 2008 because of runaway production. Now they’re laying out new numbers that help put that figure in perspective.

By 2012, the concentration of the entertainment industry workforce in California slipped from “4.4 times the national average in 1997 to less than 3.7 times the average now”:

Since the entertainment industry last peaked in California in 1997, filmed production of all kinds has been lured away by competing state and foreign governments. Other states and nations have sought to attract motion picture and television productions to boost tax revenues and create high-paying jobs in a high-tech, high-profile industry… While the staying power of some of these efforts is uncertain in the current economic and fiscal climate, 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.

Indeed, as the data shows, California’s entertainment empire has gone through a punishing decade:

By other analyses, the damage to certain sectors of California’s film industry is even more pronounced. At Film Works, we’ve tried to illuminate how the runaway production phenomenon affects multiple aspects of the film production process. The Milken Institute has data to back this up:

A similar trend can be seen in post-production employment, which is a subcategory of the entertainment industry and involves the technical work that has to be done after a film is shot (e.g., visual effects, sound mixing, and editing). Most of these jobs rely on digital technology; as a result, they are more mobile and do not have to be in the same location as the actual production… The number of post-production jobs in California plummeted from 15,252 in 1996 to 8,734 in 2003, a decline of 43 percent. The situation has somewhat improved since then, and in 2010, California had close to 10,000 post-production jobs. In the meantime, however, the state lost many visual-effect businesses either to relocation (e.g., Digital Domain moved to Vancouver) or because many small to mid-size firms could not withstand subsidized competition from Canada and the United Kingdom or low labor costs in China and India.

Interestingly, the Milken report also examines the cost vs. benefit of film incentives in terms of new revenue returned to the state and the amount of credits paid out.  In states without an established film industry (which is almost every state save California & New York) the return on investment (ROI) is very low.  In states with an established industry the ROI is very high:

For example, the Massachusetts Department of Revenue estimated that from 2006 to 2008, for every dollar of film incentive provided, the Commonwealth gained $0.16 of tax revenue in return. In contrast, a 2009 study by Ernst & Young placed the return at $1.10 for the state of New York, and the Los Angeles County Economic Development Corporation (LAEDC) derived $1.13 for California.

State revenues aside, the Milken report lists other benefits that the California Film & Television Tax Credit brings to California’s private economy.  In short, the benefit is billions of dollars spent on goods and services and tens of thousands of jobs created in a state with the third highest unemployment rate in the nation:

From FY 2009–10 to 2010–11, 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. 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 (see Table 1 for the breakdown by type of production). 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 crew members, and 49,778 extras and stand-ins (calculated in “man-days”).

Our thanks go out to the Milken Institute and other research organizations helping make the case for keeping filming in the Golden State. Film Works for California. Let’s keep it here.

The following video is a short interview with the Milken Institute’s Kevin Klowden about California’s entertainment industry cluster:

 

 

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