GOVERNATOR KEEPS PROMISE: New California Budget Blueprint Contains Showbiz Tax Breaks; Will They Pass?

Under the newly negotiated terms contained in the bipartisan plan to close the state’s $42 billion revenue shortfall, film companies would get tax breaks totaling $100 million annually to keep their productions in California even though funding for schools, colleges, and public transportation would be cut back. As you know, everyone in Hollywood from Iron Man director John Favreau to studio heads who donated heavily to his reelection campaign have been personally lobbying Arnold Schwarzenegger to keep his promise to the entertainment biz and find financial incentives. But for a long time, the state legislature has opposed showbiz tax breaks, and The Governator has backed down each time. The proposed California measure differs from previous tax credits in that it does not address above the line personnel but doesn’t go into effect until 2011. Let’s see if it passes.

Votes in the Assembly and state Senate are planned as soon as Friday. It is unclear whether the required 2/3s of legislators will support the proposal. One problem is that the new budget blueprint, negotiated in secret between Schwarzenegger and legislative leaders, also contains other budget-busting tax breaks for corporations which Republicans fought for and won. These would deprive the state coffers of $690 million annually. There’s an argument raging over whether this creates jobs or not. As a result, it’s uncertain how legislators will view the tax breaks aimed specifically at the entertainment business.

Lobbying for California tax breaks heated up after the ABC hit show Ugly Betty last spring became the first TV series to announce it was leaving Los Angeles after New York passed new 30% tax breaks (and NYC an extra 5%) to lure showbiz productions and 20,000 jobs. And who got the blame? Schwarzenegger, because he has done less than zero to stop runaway production or enact incentives to lure TV shows and films back to California and even Los Angeles. Besides New York, other states like Louisiana and Michigan (where a big full-frills production studio is being built) are offering state tax breaks. No wonder California’s proposal is called the Ugly Betty Production Credit.

But now New York State just announced it has run out of money for its tax credit program for showbiz. That could impact the California legislature’s decision to finally match such programs. Maybe the lawmakers won’t feel the heat as much. As one New York producer just emailed me to say, “It doesn’t matter if California passes the tax break legislation. Because it won’t last. New York went through a 5-year allocation totalling almost half a billion dollars in only 10 months. How long do you think $100 million will last in LA? It won’t save or create jobs. It’s just another present for Big Media, who will get the money first with their existing shows.”