Gov. Gavin Newsom wants to more than double the amount the state offers in incentives, which would make its program one of the nation’s most generous.
Responding to pleas from California’s film industry, which has struggled to rebound from labor unrest and industry disruption, Gov. Gavin Newsom on Sunday announced a proposal to more than double the size of the state’s film tax incentive program to $750 million annually.
If the proposal is approved by the State Legislature, California would offer more money to entice film productions than any state except Georgia, which provides unlimited tax credits. California’s existing program is capped at $330 million annually. The increase would go into effect on July 1, 2025.
“California is the entertainment capital of the world, rooted in decades of creativity, innovation and unparalleled talent,” Mr. Newsom said in a statement. “Expanding this program will help keep production here at home, generate thousands of good-paying jobs, and strengthen the vital link between our communities and the state’s iconic film and TV industry.”
In recent weeks, state economic development officials and entertainment executives in Los Angeles have publicly expressed concern over the persistent slump in film production, begging officials to do more to keep film shoots in the state.
Over the past 20 years, states have aggressively wooed Hollywood, offering movie and television productions more than $25 billion in filming incentives, according to a survey by The New York Times. Thirty-eight states offer some form of incentive, including Georgia, which has extended more than $5 billion in film tax credits since 2015, and New York, which has provided at least $7 billion in credits.
How much money have states been spending?
Over the last 20 years, states have given movie and television productions more than $25 billion in filming incentives. Thirty-eight states currently offer some form of incentive. Georgia’s lauded program has poured more than $5 billion into Hollywood since 2015. New York has spent at least $7 billion, and California has dedicated more than $3 billion to try to retain productions.
Why do states want to encourage filming?
Supporters of film incentives see them as an engine for job creation. After all, when productions come to town, they need electricians, hair stylists and many other crew members to make movie magic. Productions also spend money while working — money that trickles through local economies to hotels, diners and dry cleaners.
Are there any downsides?
Incentives can be effective at luring projects. But economists warn that using them to do so is very expensive and offers minimal bang for your buck. Study after study has found that the tax revenue generated by film incentive programs is a quarter, or even a dime, of every dollar invested. In some programs, each job that is directly created can cost taxpayers more than $100,000.
And yet states are handing out cash?
Incentives come in different forms. Many states do offer cash rebates or grants, which are paid out directly to production companies. Other states give some form of a tax credit. Depending on the state, tax credits can be used toward tax liability, converted into a refund or sold.
Wait, studios sell their tax credits?
Yes. Many states offer a transferable tax credit. Studios can then sell those credits to companies with high state-tax liabilities. By selling them, often at a slight discount, studios can cash out and buyers can receive modest tax relief. As a result, companies with minimal ties to the entertainment industry have become a hidden part of the incentive ecosystem.
Who’s buying these credits?
Companies like Best Buy, U.S. Bank and Dr Pepper buy these tax credits from productions. High-net-worth individuals also sometimes purchase them. Consider one example: The production company behind “The Trial of the Chicago 7” received a $5.2 million tax credit from New Jersey that it sold to Apple Inc. for $4.8 million.
Can we track where all this money is going?
It’s hard. This process involves vast sums of tax revenue that states are owed but never collect. Because the money does not come into the state treasury to begin with, it is less obvious that the revenue has been lost. And that can make transferable tax credits politically palatable.
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