Milken Institute evaluates state film tax credits

California’s film tax credit program has helped to stem the flight of movies and TV shows since it was enacted in 2009, but would be improved with more funding and fewer restrictions on the types of projects that can qualify, a new study concludes.

The report, “Fighting Production Flight,” from the Milken Institute says the film tax credit program — which gives producers 20% to 25% tax credits toward qualified production expenses for films and TV shows shot in California — has been successful in that it has been oversubscribed and has had a “demonstrable impact in arresting the decline in filmed entertainment spending and employment in the state.”

But the report also cites shortcomings. “The key concerns with the program are its limited funding relative to demand, the fact that it placed all targeted programs in the same application and allocation process, and the lack of long-term structural incentives that would serve to expand the program beyond its current funding and statutory limits,” the report says.

The report’s release comes as the state Assembly weighs a bill to extend funding for the film credit, due to expire next year, for five years. However, the bill’s fate is uncertain because of California’s budget crisis.

In the first two years of the program, more than $300 million in tax credits were awarded to 125 projects that had combined direct spending of more than $2.3 billion in the state, with $760 million in wages paid to below-the-line crew members, Milken notes. This year, 27 projects were selected to receive funds.

The report provides further evidence of how California’s entertainment industry is losing ground to rivals.

The state’s share of national entertainment employment has fallen from 4.4 times the national average in 1997 to less than 3.7 times the average now because of growing competition from other states and foreign governments that provide film tax credits and other incentives.

The industry’s employment in California has hovered around 160,000 for most of the decade, down from 180,000 during its heyday in the late 1990s.

The Milken Institute is a nonprofit economic think tank co-founded by former highflying 1980s Wall Street player Michael Milken.

An earlier Milken Institute study on film flight estimated that California lost more than 36,000 jobs and $2.4 billion in wages between 1997 and 2008 as production migrated to other states.

In its latest study, Milken recommends several changes to improve the program, including offering tax breaks to encourage infrastructure construction — such as the development of soundstages — and making the tax credits transferable as they are in several other states, including New York.

Currently, only tax credits awarded to independent films with budgets less than $10 million can be sold or transferred to a third party. Tax transfers are attractive because they allow filmmakers to cash in their credit if they don’t have a tax liability with the state.

The Milken study also recommends removing the current limit on tax credits to movies with budgets less than $75 million, noting that bigger budget movies create more jobs. “Removing, or at least raising, the cap could increase the rate of return on film tax incentives,” the report says.