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Hollywood tax credits, one year later

Dinner for Schmucks The California Legislature adopted its first tax incentives for film and TV production one year ago, authorizing $100 million to $200 million in annual tax breaks through June 2014 for projects filmed in the state. Last week, the Schwarzenegger administration released its estimate for how much bang the state's economy was receiving for its bucks: The 107 subsidized productions in the first two years should generate about $2 billion in direct spending. At a cost of $300 million in tax subsidies, that translates to about $6.66 in economic activity for every $1 in taxes foregone.

Or so the administration says. I'm skeptical of these sorts of calculations because they're based in part on theoretical models of how paychecks get spent, and they assume that workers would be idle if not for the subsidized productions. Granted, there are far too many underemployed California film workers, but it's still possible that subsidized projects crowded out unsubsidized ones.

I've also wondered how the state could prevent subsidy dollars from flowing to productions that were going to be filmed in California anyway. It's easy for most other states to avoid that problem because they have little or no native film industry. They offer incentives in a bid to level the playing field with California, whose advantages include more experienced and more plentiful workers and better filmmaking facilities.

Amy Lemisch, executive director of the California Film Commission, says there's no way to say for sure which of the 107 productions would have been made here even without the state aid. The state can't give preference to applicants that threaten to film elsewhere; the aid program is "essentially first-come, first-served," Lemisch said in an interview Friday.

Nevertheless, she said she's confident from talking to producers even before they applied for the tax breaks that "the vast majority of them would not have been here without the incentive." It's become a common business practice to shop for the best tax breaks before deciding where to shoot, Lemisch explained. "No one does a movie anymore without looking at comparisons to other territories that offer incentives. It just isn’t done anymore. It’s rare that someone is making a movie without incentives."

Among the projects lured to California by the incentives, Lemisch said, were "Dinner for Schmucks," which was originally set in New York, and the TV series "Justified," which was set in rural Kentucky and originally shot in Pittsburgh, Penn., before moving to Santa Clarita. Schwarzenegger's office also cited "Red State," a forthcoming horror film from director Kevin Smith (a New Jersey native who made his name with films set in the Garden State).

Lemisch said there may have been a risk some years ago of wasting tax breaks on filmmakers who weren't going to leave California, but that's becoming less and less of an issue as the hunt for government subsidies has become a standard part of the moviemaking process. Besides, with only a limited amount of tax breaks to offer, Lemisch can watch what happens to the productions that don't obtain subsidies. "I now have a pretty big waiting list," Lemisch said, "and I will be watching very carefully where they go."

According to the governor's office, the $2 billion includes $736 million in wages for 18,200 crew members on 51 feature films, 14 made-for-TV movies and seven TV series on basic cable. Other beneficiaries include 4,000 cast members and more than 100,000 background or “extra” players, the administration reported, citing statistics from the state Film Commission.

-- Jon Healey

Photo: Actors Steve Carell and Paul Rudd in a scene from "Dinner for Schmucks," which was financed in part by California taxpayers. Credit: AP Photo / Paramount Pictures, Merie Weismiller Wallace

 

Comments () | Archives (3)

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quatidion

Tax 'breaks' in the for of actual 'credits' or 'subsidies' where the state actually gives money to companies, or simply a lower tax rate?

Since when does a lighter tax burden become a subsidy? That's like saying you're doing somone a favor if you only make them carry a 40 pound pack, in a race, instead of an 80 pound pack.

They still have to compete with world class runners that don't have to carry the pack at all. And those world class runners hire workers. We can't.

Over a hundred business have left the state.(http://thebusinessrelocationcoach.blogspot.com/). 14,000 small business went bankrupt in California last year. California business are the 4th highest taxed in the nation. California's regulatory costs are now the highest in the country.

John Chambers, CEO of CISCO systems, said he would never open another facility in California again. Apple Computer opened their $1B assembly plant in South Carolina. The Automobile Club of Southern California has moved over 1000 jobs to facilities outside of California. Hilton Hotels has moved their Headquarters out of Los Angeles to Virginia. Northrup-Grumann has moved their Headquarter out of Los Angeles to Virginia.

LOL. And the most liberal industry in California is using tax 'breaks' to grow the movie business.

How ironic.

Jon Healey

@quatidion -- No matter how it's structured, a tax break for one industry or set of companies that's not available to other companies is a subsidy. If you'd like to do a little research, you can read about the incentives here: http://www.film.ca.gov/Incentives.htm. Basically, qualified film companies get a credit against income or sales taxes equal to up to 20% of certain expenses. In plain English, it puts 20% of the cost of selected films on the tab of Cali taxpayers.

You can argue for lower tax burdens generally in California. But that logic doesn't defend giving tax breaks to some and not to others.

quatidion

LOL. Using your logic, Jon, under your 'fairness doctrine' we make sure NO business survives in California -- even the last bastion of liberalism.


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