California should consider scaling back or eliminating its $330 million film tax incentives program if other states do so, according to a new report from the state Legislature’s non-partisan Legislative Analyst’s Office, which found that the first 10 years of the program only boosted the state’s economic output by “a few hundredths of a percentage point” – less than $1 billion a year.
The LAO also made a similar suggestion back in April 2014, before the program was expanded. “If the Legislature wishes to continue or expand the film tax credit, we suggest that it do so cautiously,” its report said at the time.
“If more jurisdictions back away from their film and television tax incentives, lawmakers should consider whether California’s incentive programs should be changed or eliminated as well,” the report states (read it here).
Several states already have done just that, and it’s been a disaster for their film industries. Arizona eliminated its program in 2010 and is now the only Western state that doesn’t offer film incentives. A recent headline in a local paper there reads, “Large-Scale Film Productions Skip Arizona for Other States.”
The headline of a recent news account out of Austin reads, “Texas Cut the Budget for Film Incentives. Now Filmmakers are Leaving to Shoot Elsewhere.” North Carolina has also seen a sharp decline in film and TV production since the state reduced its tax incentives in 2014. And it’s been the same pattern at other states that cut or eliminated their tax incentives, including New Jersey, Michigan and Iowa.
Even Canada is cutting its incentives. Effective tomorrow, British Columbia will be cutting its film incentives from 33% to 28%.
The LAO report doesn’t say how many more states would have to scale back or scrap their programs before the Legislature considers following suit, but the view from Hollywood can be summed up in a single word: never.
Film production has been California’s flagship industry for nearly a century, but until the state tripled its incentives program last year to $330 million, films and TV shows – and thousands of high-paying jobs – were fleeing the state in droves. And even now, California’s expanded incentives program still lags far behind New York’s ($520 million a year), Great Britain’s ($762 million) and Canada’s ($475 million).
The LAO report, however, claims that the lure of much better incentives in other states and countries hasn’t really hurt Hollywood that much. “Some of the motion picture projects under the first film tax credit program probably would have filmed in California even if they had not received a tax credit.”
The LAO claims to be “non-partisan,” but it acknowledges that it has a bias against tax incentives of all kinds.
“As we have stated previously, the competition between states to provide public subsidies to specific individuals or companies is very problematic as a public policy,” it said in the report. “In general, we advise policy makers to reject such tax incentives.”
It acknowledged, however, that “California’s adoption of a film tax credit is understandable in light of the actions taken by other states to lure Hollywood productions away from California.”