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Tuesday, April 22, 2014

Hollywood Begs for a Tax Break in Some States, Including California






LOS ANGELES — The San Fernando Valley has served as home to award-winning movies like “E.T.,” “Boogie Nights” and “Crash.” But Raul Bocanegra, a state lawmaker representing a large swath of the valley, worries about the collapse of film and television production in his district and across Hollywood’s home state.

“There was a time when we actually made things,” said Mr. Bocanegra, referring to the automobile and aerospace manufacturing plants that have left California.
“Now, we make films here,” he said. “If we’re not careful, we will lose it.”

Mr. Bocanegra is leading an aggressive push, along with entertainment companies and Hollywood unions, to hand out as much as $2 billion in new tax breaks to increase movie and television production in California, which has lost business to states like New York with far more generous subsidies. Last year, for the first time, more studio movies were filmed in Louisiana than in California, according to the nonprofit FilmL.A.




“Major Crimes,” top left, gets incentives to shoot in California; “Boardwalk Empire” went elsewhere. Maryland is negotiating over subsidies for “House of Cards,” right. Credit James Best Jr./The New York Times

But tax credits for Hollywood, a glamorous and mostly thriving industry, are not an easy sell. While California allots about $2 billion in annual general credits to state businesses for research and development, few if any industries have enjoyed state largess as big as the entertainment sector. And the recent arrest of a California state senator accused of accepting bribes in exchange for supporting film credit legislation has provided further ammunition for opponents of the program.

“I’m not a fan of tax credits in general,” Senator Lois Wolk, who leads the state Senate’s governance and finance committee, said in a statement that signaled opposition to the push. “In fact, I’m a real skeptic of all of them and have done everything possible to limit their size and duration.”

It is not just California. Lawmakers across the country are wrestling with the efficacy of these programs and how generous they should be in luring film and television production to their states.

Nationwide, about $1.5 billion in tax breaks is awarded to the film industry each year, according to a 2012 survey by The New York Times. Several tax policy groups oppose film incentives; a 2010 report by the nonprofit Tax Foundation said states justified them using “fanciful estimates of economic activity” and they largely just shift production from one sector to another without producing a net increase in economic activity or employment. (In a letter, California’s legislative analyst in 2012 told lawmakers that varying methodology and special circumstances in California diminished the reliability of often-conflicting studies.)
In Maryland this month, a $3.5 million tax credit proposal to support the “House of Cards” TV series, which is filmed in and around Baltimore, failed a vote in the Legislature. The makers of “House of Cards” had previously threatened to move to another state if they didn’t receive sufficient incentives. Maryland’s governor, Martin J. O’Malley, is working with the show to reach an agreement, said a press officer for the governor.

Critics in Minnesota have called for dismantling the state’s small incentives program, which was recently scheduled for a legislative audit of its effectiveness. The new television series “Fargo,” set in Minnesota, is being shot in Alberta, Canada, with a lift from incentives there.

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Gov. Andrew Cuomo of New York hopes the new CBS “Late Show” will stay in the city, which lured NBC’s “Tonight Show” from Los Angeles using tax breaks. Credit Mike Groll/Associated Press

A coast-to-coast duel erupted after CBS named Stephen Colbert its new “Late Show” host, with Eric Garcetti, the mayor of Los Angeles, lobbying for the show to move to Los Angeles and the New York governor, Andrew M. Cuomo, calling for it to remain in New York. New York recently lured NBC’s “Tonight Show” from Burbank to Manhattan with a tax credit that has been valued at $20 million a year.

In California, a new law would expand the film credit program to cover not only smaller films and new TV series as it does now, but also major studio productions that cost as much as $100 million, and expensive, established television shows.

The bill, co-sponsored by Mr. Bocanegra and Mike Gatto, both Democratic legislators in California’s State Assembly, has been criticized by the California School Employees Association and the California Teachers Association. Pointing to what they said were $20 billion in cuts to state support for education in the last several years, the teachers’ group said in a statement, “Tax credits for special interest groups, corporations and others have, over the last decade, depleted our general fund of billions of dollars.”

Supporters of the proposed increase in tax incentives for Hollywood point to a report published by the Milken Institute in February noting that California lost more than 16,000 production jobs since 2004, while other states with substantial subsidy programs, including Texas and North Carolina, together gained that many, and more.

Louisiana last year served as the location for 18 of 108 feature films, versus 15 in California, according to FilmL.A., which monitors film permits in Los Angeles County. Los Angeles logged about 7,000 feature film location shooting days last year, down 50 percent from a 1996 peak of roughly 14,000 days, while television dramas were shot on location here for about 4,100 days, down 39 percent from their recent peak in 2008.



“This iconic California industry is at a tipping point from which it might not return,” Kathy Garmezy, a senior executive at the Directors Guild of America, said last week.

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Mayor Eric Garcetti of Los Angeles also wants the "Late Show," lobbying for it to move to California. Credit Monica Almeida/The New York Times

But public talk — “We’re going to Sacramento and storming that place like never before,” Mr. Garcetti said recently — has been the loud part of a mostly quiet campaign. And there are some hitches and obstacles in the existing laws that might yet keep producers from tapping California tax credits for their big movies or TV dramas like “Boardwalk Empire” and “The Good Wife,” which have already gone elsewhere.

One complication is that an existing, smaller incentive program in California — it is helping to underwrite the “Entourage” movie and the cable series “Major Crimes” — will exhaust all of its $100 million-a-year funding in June 2015, though the program technically exists for two years beyond that. That funding gap results in part from practices that have accelerated the assignment of some credits.

California’s proposed five-year credit program would kick in on July 1, 2016. But its backers, including Kenneth Ziffren, director of the Los Angeles entertainment industry and production office, fret that a rule barring overlapping laws could prevent the granting of new credits until the old program expired a year later, leaving California exposed to competitors.

“We’d be a year behind, as it is, and the legislation in its current form won’t kick in for two years,” Mr. Ziffren said. Lawmakers will find a way to close the gap, Mr. Bocanegra said.


Bargaining over the size of the new tax credits program is most likely to begin next month, after delivery of a revised proposal for next year’s state budget. Supporters of film credits are hoping ultimately to get the assent of Gov. Jerry Brown, who earlier this year proposed a budget with roughly $4 billion in various reserves. To date, the governor has taken no public position on the tax credit.

The proposed enhanced tax incentives will face a serious test in the California State Senate, which was recently stung by the indictment of Ron Calderon. Mr. Calderon has pleaded not guilty to charges that, among other things, he tried to peddle his influence over film subsidies to an undercover F.B.I. agent posing as a Hollywood executive.

“It certainly casts a dark cloud over the whole subject,” Ms. Wolk, the state senator, said in her statement. “We should not be considering a renewal or expansion of the very same legislation that was and may still be at the center of an ongoing F.B.I. investigation into corruption in the Legislature.”

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