June 29, 2018: LOS ANGELES DAILY NEWS - Brown’s budget steps up to persuade California’s booming film/TV production to stay home, funding incentives through 2025

June 29, 2018

Link to original story HERE:

By Bob Strauss

When he signed the state’s $200 billion, 2018-19 budget Wednesday, lame duck Governor Jerry Brown ensured that California’s signature film production industry will remain viable through at least 2025.

The $330 million per year Film & Television Tax Credit program will now be in effect for another five years after that. It began doing business exactly three years ago and had two more years to go from its original legislation.

Called The 2.0 Program, the current system replaced a less-effective, $100 million-per-year incentive system. By multiple measures, it has been proven a resounding success at slowing runaway production to highly incentivized places such as Georgia, Canada and Great Britain.

The resulting production boom in the state and especially in the industry’s traditional, Southern California home base will continue, and likely increase, now that what’s being called 3.0 assures producers that they can count on California’s incentive for the next seven years.

“Motion picture and television productions need the certainty of the California Film and Television tax-credit program in order to consider California as a location in their production planning,” State Senator Holly J. Mitchell (D-Los Angeles), chair of the Senate Budget and Fiscal Review Committee and author of the Senate bill extending the credit, noted in a statement. “The good middle-class jobs, which pay above-average wages and benefits, as well as the positive economic impact generated by robust film and TV production, depend upon those decisions.”

While most of the 3.0 extension remains the same as the system that’s already in place, new provisions kicking in in 2020 include a three percent increase in the portion of credits reserved for independent film productions, a five percent uplift to shows that hire in the state outside of the Thirty Mile Zone around Hollywood, efforts to train people from disadvantaged communities for industry jobs and requiring each production to provide a written anti-harassment policy and report on the diversity of its above-the-line workers.

Preliminary numbers from the California Film Commission, which administers the program, demonstrate what 2.0 has accomplished in its first three years of operation. Qualifying for tax credits through a rigorous review of how much spending and below-the-line (non-actor, director, producer and other high-salaried positions) jobs they would generate in California, 150 movie and TV projects spent $5.9 billion in the state. Those productions have earned $840 million in tax credits since July of 2015.

The 150 productions hired 29,000 below-the-line crewmembers and employed background actors (extras) for 418,000 man-days, both of which categories qualified for the tax credit. Those shows generated $2.3 billion in qualified wages and an additional $1.7 billion in qualified no-wage expenditures on equipment, soundstage rentals, set construction materials and the like.

Those non-qualifying above-the-line wages — such as the pay for the 18,000 speaking-actor jobs in the 150 shows — and certain other expenditures added up to $1.9 billion of taxable money for the California economy.

“There’s tax revenue generated from $1.9 billion spending on salaries and these other things that’s an add-on benefit for the state,” noted the CFC’s director, Amy Lemisch. “Some of our competitors aren’t going to have that add-on for the above-the-line spend producers are getting the credit on. So this is sort of like free money for the state. It’s a big deal.”

Lemisch also pointed out that, by leaving above-the-line salaries out of the tax credit program, California’s system allows for a more apparent return on investment for the state than places like Georgia, which tax credits pretty much everything, can prove.

“That was obviously a very deliberate decision by the policymakers to focus just on below-the-line jobs, small businesses, all of that spending footprint – which is huge!” Lemisch said. “But again, if you look at the various studies that are done all over the place, we can show a positive return because it’s a more modest, targeted program.”

And it works well enough to encourage some big productions that could get larger incentives in uncapped jurisdictions to shoot in California anyway. Ask most producers and they’ll tell you that nowhere matches the infrastructure and talent pool L.A. has to offer; ask most any actor who’s worked in Georgia’s summer humidity and they’ll tell you they definitely prefer going home to their families and own beds in more temperate So Cal after a long day.

“It encouraged us, for sure,” said Burbank-based Marvel Studios President Kevin Feige, whose next superhero spectacular “Captain Marvel” is the company’s first to film primarily in California. “It is still not anywhere near what it is in other places, which is why places like London and Atlanta are where we primarily do it. It’s still more economically advantageous to shoot in those other places, but there was enough of a tax incentive that we could make the argument to shoot in L.A.”

Kevin Klowden, managing economist and executive director at Santa Monica’s Milken Institute Center for Regional Economics, recently co-authored a report that concluded California’s incentive program could work better if:

It increased the yearly tax credit amount to at least match New York’s $420 million;

It tried to allot more credits for indie films (which 3.0 does);

It figured out a way for new TV shows to get a better shot at credits that have primarily become reserved for renewed series and programs that move here from out-of-state (new titles of which are expected to be announced when the CFC reveals the first qualifying series for 2.0’s fourth fiscal year next week).

Klowden also praises the benefits of California’s below-the-line emphasis.

“If you get above-the-line coverage, that’s a sweet deal for a producer, but it doesn’t actually add much value to the state,” Klowden observed. “For a state, one of the things you can demonstrate is that if you are creating below-the-line jobs, those people spend money locally. They don’t just spend it during the shoot, they spend it during the rest of the year – and they pay state taxes. Above-the-line, they’re not going to be staying in that state more than they need to, they’re going to go to wherever they live and they’re going to spend their money there, whether it be California or New York or Jackson Hole, Wyoming.

“The fact is, from an economic standpoint, a job-creation standpoint, you do not recapture the value for above-the-line,” Klowden added. “There’s no study, nobody has been able to demonstrate that. It’s great if you’re trying to build up a presence and lure in productions in the short term, but in the long term it doesn’t pay for itself.”

With California’s program good through 2025 now, local film workers can rest easy in their beds at night.

“It’s amazing that the film and TV incentive extension was passed,” said Eric Fierstein, currently location manager for the HBO series “Ballers,” which relocated to California from Miami thanks to the 2.0 tax credits. “I think it is going to enhance a lot  more film and television work in the state, and it’s an exciting possibility for the future of the industry in California. It really is wonderful news that the state is seeing the potential in what is happening and understanding that is a growth opportunity.”

“With this extension, we will continue the growth of film production that California has seen over the last few years,” Stuart Waldman, president of the Valley Industry & Commerce Association, said in a press release last week. “This tax credit has a proven track record for creating and keeping jobs in the film industry. This extension will maintain and support the economic vitality brought to California and to the greater San Fernando Valley region by film and television projects.”

Even professionals who don’t use the tax credit sound thrilled about what it’s done and will do for California’s industry. Mark Horowitz, who’s been producing CBS’ ratings-topping “NCIS” in Santa Clarita for, like, forever – or at least since well before production incentives were a thing around here – summed up what the tax credit program means emotionally as well as economically.

“I grew up in Burbank,” Horowitz explained. “My grandfather was a prop man on movies from ‘Tarzan’ to ‘Gone with the Wind’ and my father was a set decorator on a lot of television series. There were at least eight motion picture, television or animation studios that were a short bike ride from my house. That was the norm.

“I’ve been very fortunate in the 40 years that I’ve been working, every show that I’ve been involved with as a producer has been able to shoot here in Southern California,” Horowitz added.

“But at a point in time I sort of became the exception,” he said. “More and more friends had to leave town and their families just to stay employed. It was just wrong, the industry is just too valuable to let slip away. So it is encouraging that we’ve come up with some pretty smart legislation.”

Horowitz summed it all up: “We’re changing what used to be runaway production into something that I like to call just-c’mon-back-home production. Just stop with all the nonsense, here’s a tax credit, c’mon back.”