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Lights! Camera! (Legislative) Action! Governor Newsom Wants Additional Film Tax Credits To Keep Production Local

A on-camera monitor is in the foreground showing three people on film set that's in the background.
A view of a monitor during July 2021 production in L.A. of the indie feature film, “The Star City Murders.”
(Rodin Eckenroth
Getty Images)
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Hollywood may be home base for the film industry, but it's certainly no longer the only place where production work is happening these days. Gov. Gavin Newsom is hoping to change that, by proposing in this year's budget to not only extend the state's film tax credit, but also add a little sweetener that he hopes will keep more productions in the Golden State.

An extra incentive

Newsom is proposing that the state not only continue to provide credits to reduce tax liability for qualifying studios, but that it offer them refunds that could total in the hundreds of millions of dollars.

Other states, like Georgia and New Mexico, have attracted film studios with their generous tax incentives, and supporters of Newsom’s proposal say this could bring studios back to the state whose film industry is already iconic.

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While it’s clear why studios would support this credit, Kathy Bañuelos, senior vice president of state government Affairs for the Motion Picture Association, said the benefit works both ways.

“The program is set up so that productions must come here, must spend the money, must prove that they've actually hired workers and utilize the local vendors in order to actually receive the tax credit at the back end,” she said.

And Bañuelos said that among all the applicants, the studios that create the most jobs are ultimately selected to receive a tax credit certificate.

Timing is everything

Others, like Chris Hoene of the California Budget and Policy Center, feel the money would be better spent elsewhere, especially when the state is facing a budget deficit.

“[State leaders] should be skeptical about spending money on tax credits that the research shows have very mixed evidence in terms of actually paying for themselves or [creating] really significant upticks in economic activity,” Hoene said.

Show me the money?

The effects will depend a lot on how the state goes about implementing the proposal, said Milken Institute economist Kevin Klowden. For instance, the increase in economic activity would be superficial, he said, if the jobs created are only temporary. And the state would have to structure the program carefully so there’s a way to quantify and evaluate the economic activity it creates and to avoid penalizing state revenue.

The incentive program would also make it easier for the state to hold Hollywood accountable towards the goal of hiring more women and people of color. Studios would have to meet diversity requirements to qualify for the credits — but people are divided on whether that’s the most pressing justice issue.

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“We're gonna probably turn around this year and be telling childcare workers that they can't get a significant raise or we're not gonna provide enough food assistance to low income folks,” Hoene said. “We've got a homelessness crisis and state leaders have to close a deficit. I think it's just a matter of priorities.”

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Newsome Hollywood Tax 03.29.2023
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