Tax Break Being Sought for Filming

In an aggressive step by state officials to combat runaway film production, Gov. Gray Davis plans to propose California’s first sizable tax credit today in an effort to discourage film and TV shows from fleeing to cheaper locales such as Canada.

The Davis plan is being proposed to start in 2004 and is projected to save producers $50 million the first year, $80 million the second and $100 million by the third year, far more than any state program in the past. The state has done little in the past, because it has historically dominated filming.

Davis is expected to unveil the plan at a meeting with Hollywood union leaders in Burbank. He is seeking to grant producers a 15% tax credit on the first $25,000 earned by a worker on lower-budget projects--probably those of less than $10 million--provided that substantially all of the production takes place within the state.

The proposal is similar to recent federal proposals by lawmakers in Washington seeking to blunt runaway production nationwide. The federal proposal offers a 25% credit. The California credit would offset state taxes applying to the companies that make the films.

The Davis plan was welcomed by studio and labor representatives, even though the announcement of the program raises questions about political timing. Davis, who is facing reelection this year, is closely tied to the labor movement in California, and the issue of runaway production is the top concern of Hollywood’s blue-collar unions with potentially tens of thousands of jobs at risk.

“This will be good for the economy of Southern California,” said Jack Valenti, president of the Motion Picture Assn. of America. “The very fact the governor is coming out with this presages good things.”

Davis had been considering a credit of as high as 25% but chose to propose the lower number--and delay the start of the program until 2004--because of the state’s $12-billion budget deficit, Deputy Press Secretary Byron Tucker said.

Because the tax credit is aimed at modest-budget productions, Davis’ program will affect neither major Hollywood films nor involve a credit on the $20-million-a-picture salaries of stars such as Julia Roberts. It won’t even affect the typical Hollywood film, which now costs an average of nearly $55 million to make. Instead, the credit targets the plethora of smaller TV movies, independent films, cable productions, TV pilots and other projects with smaller profit margins that have been fleeing Hollywood in droves to such countries as Canada and Australia.

Davis said he wants to send a message that California will compete with other states and countries for productions.

“We’re creating an atmosphere that lets filmmakers know that California really wants their business. This stimulus package will provide a substantial financial boost to California’s entertainment community,” Davis said.

Some details have yet to be worked out, including the exact size of productions affected and how much filming has to take place in California to qualify. Tucker said those details would be resolved with legislators. In the past, proposals for tax credits have received a cool response out of concern they might be seen as giveaways to big studios.

Runaway production has been a problem for nearly two decades in Hollywood, accelerating rapidly during the 1990s when studies show the number of U.S.-developed productions shot in foreign countries doubled to about one in four now.

A 1999 report by the Directors Guild of America and the Screen Actors Guild estimated that nearly $3 billion in production leaves the U.S. annually, the largest chunk affecting California.

That study estimated the overall economic effect at more than $10 billion when the losses ripple through the economy, although some economists have disputed that number as too high.

Canada has been especially aggressive at luring projects, offering government financial incentives on top of a weak Canadian dollar and lower wages that make shooting about 25% cheaper there, according to union and federal studies. Productions with stories set in the U.S. but shot or scheduled to be shot in Canada include the upcoming Civil War movie “Cold Mountain” and the popular new WB series “Smallville,” set in Kansas. Even the prime-time Fox soap opera “Pasadena” opted to shoot for budget reasons in Vancouver, British Columbia, instead of its namesake city.

Calls for legislative action to blunt runaway production have been voiced for years. The movement gained momentum in the last year as the industry’s fortunes declined, California’s economy softened and pressures increased to tighten budgets.

Entertainment employment in Los Angeles County slid by 32,900 from its high of 272,000 in November 1999, according to the Los Angeles County Economic Development Corp.

“People have always looked at this industry like it’s a big moneymaking, money-grabbing business. But it’s cyclical, and people from technical workers to actors are freelance. The industry provides employment for working families who need the money and benefits to survive,” said Joseph Aredas, the top West Coast official for the International Alliance of Theatrical Stage Employees.