GLENDALE â€” The growing popularity of out-of-state film productions has emerged as the major contributor to the area's rising unemployment rates, which jumped toward 10% in May after a brief decline in April, experts said.
Unemployment rates rose from 9.4% to 9.9% in Glendale and from 8.7% to 9.2% in Burbank, matching the figures logged in March, according to a report released Friday by the California Economic Development Department.
In December, the jobless rates for Burbank and Glendale were just 7.7% and 8.3%, respectively.
While the latest figures are lower than the state's record 11.5% unemployment rate, they continue to rise as entertainment giants plan their projects for locations outside of California, experts said.
Businesses in Glendale and Burbank â€” from lighting and costume companies to restaurants and retailers â€” are so dependent on revenue generated from local studio operations that the continued drop in home-state projects has forced them to slash jobs, or shut down altogether.
The so-called runaway film production phenomenon, in which studios locate their projects in other states or countries to take advantage of generous tax incentives, has not only driven up local unemployment rates, but will likely keep them on the rise for the long term, experts said.
â€œWith this issue of runaway production, it looks kind of scary because all these other states are offering incentives, and all of a sudden all of these studios are really focusing on costs,â€ said Jack Kyser, founder of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corporation.
Slumping DVD sales and revenue from television advertisements have prompted an increased urgency on the part of studios to find opportunities for savings, Kyser said.
Those efforts to cut costs may have an extended effect on local businesses that depend on local productions, he said.
While experts previously anticipated a new contract agreement this month between the Screen Actors Guild and major studios would push a series of previously delayed projects into the pipeline, they now fear that many of them will now be made in other states that offer attractive tax breaks.
New York, Louisiana and New Mexico offer tax incentives of up to 30% for film and television productions, while Canada offers benefits worth up to 55% of labor costs. California previously had no incentive program until a stimulus measure was passed into law this year that offers up to 25% in tax credits for qualifying projects. The incentives take effect in July.
But those incentives will not apply to big-budget films, sitcoms and other projects from major studios that are likely to locate elsewhere, said Philip Sokoloski, spokesman for FilmLA, the group that handles film permits in Los Angeles.
The increase in productions in other states and countries has also prompted some local industry professionals to set up entertainment-industry companies in other states that serve those projects, which has in turn made it easier for studios to opt for other states over California, where the bulk of the industry's workforce has historically been, Sokoloski said.
â€œThe incentives have caused the work to go elsewhere,â€ he said. â€œThe infrastructure has developed around that work, and as a result, the reason to go [out of state] is only reinforced.â€
California's incentive plan has already influenced decisions for planned film and television projects, even though it does not apply to films costing more than $75 million, said Democratic Assemblyman Paul Krekorian, creator of the incentive plan.
Working to retain projects with larger price tags could benefit California, and particularly local economies in Glendale and Burbank, but an incentive package for that group wouldn't be realistic because of its cost to the state, Krekorian said.
â€œThere's a limited amount of money and there's only so much that you can do, and so we focused the incentives on the production that would be most likely to be influenced on making their location decisions on an incentive,â€ Krekorian said of the plan.
The state's budget constraints for offering incentives may be damaging to the local economy as other states continue to draw major projects that typically benefit businesses with even marginal connections to the entertainment industry, said Don Nakamoto, labor market specialist for the Verdugo Workforce Investment Board.
â€œUnfortunately a lot of states and countries are willing to invest a lot into trying to attract a lot of the work that exists here, and there's nothing really that's stopping that trend,â€ Nakamoto said. â€œThey're willing to offer very generous incentive packages. In a lot of ways, especially considering the state's financial situation, it's difficult for us to compete.â€
While stimulus funds could create more jobs and drive more money into the local economies, concerns about the prospects for growth in the entertainment industry are keeping economists skeptical.
Even the recent SAG deal, which could jump-start some in-state projects, will have only a marginal impact until lawmakers find a way to give California a financial draw over other states, Kyser said.
â€œThe equation is changing, and there's this intense focus on costs,â€ Kyser said. â€œSo we don't have an advantage there, and all of these other states â€” why are they doing it? It's jobs and tax revenue, which has eluded [lawmakers] in Sacramento.â€