Caution advised on California’s TV, film credits

While acknowledging that California’s film and television industry has been hit hard by runaway production, a new report by the state Legislative Analyst’s Office urges lawmakers to be cautious about expanding subsidies for Hollywood.

California has been allocating $100 million annually since 2009 to film and TV productions, using a lottery system to award 20% to 25% tax credits as an inducement to keep their business in the state. The hope is that keeping filming in the state will help boost the economy.

But the analyst’s office report disputes claims from film industry proponents that California’s incentive program “pays for itself.” The advisory group, which is charged with providing nonpartisan fiscal and policy analysis for state lawmakers, had similar conclusions in a report issued nearly two years ago.

“The state government receives far less revenue back than it spends on the tax credit,” the report says.

The report also took aim at a report released in March by the Southern California Assn. of Governments that said every tax credit dollar returned $1.11 cents to the state and local governments. The analyst’s office disputed those numbers, saying they overstated the fiscal benefit to the state.

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In fact, the analyst’s office concluded the state gets back 65 cents in tax revenue for each $1 in film tax credits (not counting an additional 35 cents returned to local governments).

Nonetheless, the analyst’s office recognized challenges facing the entertainment industry. The report noted that California has a large but declining share of U.S. motion picture employment. The state’s share of industry employment declined to 52%, or about 107,400 film and television jobs. That’s down from 65% in 2004.

The study also documents the extent to which other states and countries are aggressively luring business with state tax credits and rebates.

“Given that other states and countries offer subsidies, it might be difficult for California not to provide subsidies and still maintain its leadership position in the industry,” the report stated. “If the Legislature wishes to continue or expand the film tax credit, we suggest that it do so cautiously.”

The findings come just as lawmakers in the Assembly are reviewing a bill that would extend and expand funding for the film credit through 2022.

A coalition of entertainment industry unions and studios, joined by Mayor Eric Garcetti’s newly appointed film czar Ken Ziffren, has been lobbying to support the bill, AB 1839. They argue Southern California is losing one of its signature industries to states and countries that offer more generous incentives.

The bill, which won initial approval from a legislative committee in March, would broaden eligibility to include big movie productions, all television series and provide a special incentive for shooting outside the traditional L.A. area.

Assemblymen Mike Gatto (D-Los Angeles) and Raul Bocanegra (D-Pacoima), the authors of AB 1839, said the report would help their bill.

“The California Legislative Analyst’s Office issued a report that confirmed what independent economic analyses of California’s Film Tax program have found: that the program has merit,” they said in statement. “Today’s report states that it’s ‘reasonable’ to continue and expand the program.”

California’s film and television tax credit program has been widely debated since its inception. To date, it has funded about 270 projects, generating an estimated $4.75 billion in economic activity.

richard.verrier@latimes.com