Cut!: State Analyst Says Tax Incentive to Boost Filmmaking Is a Flop

Monday, June 25, 2012

Tax credits worth $100 million, doled out annually to keep filmmakers from leaving  California, are a net loss for the state and of questionable effectiveness, the independent Office of the Legislative Analyst told the Senate Governance Finance Committee, which is considering a 5-year extension of the program that began in 2009 under actor-turned-governor-turned-actor Arnold Schwarzenegger.

The report specifically evaluated two other reports—one commissioned by the Los Angeles County Economic Development Corp. (LAEDC), which said the state got back $1.13 in economic benefit for every $1 it spent—and another by the UCLA Institute for Research on Labor and Employment (UCLA-IRLE), which pegged the benefit at $1.04. The legislative analyst said the state return didn’t break a buck and criticized the LAEDC for assuming that film companies would have shot elsewhere without the credit, not considering the economic benefits generated in California even when the companies shoot outside the state and not factoring in benefits to the state if the tax credits weren’t spent in a different fashion.

The legislative analyst also cast doubt on the positive effect movies have on the state’s tourism industry and wrote, “It is difficult to assume, however, that the content of credited films would routinely be significant in terms of inducing film-related tourism to California.”

Hollywood was not happy. “That is crazy,” Christine Cooper, an author of the LAEDC report, told the Hollywood Reporter. “People come here for the Walk of Fame in Hollywood, to see the studios. If we lose the industry, we’re going to lose significant economic activity.”

The incentives have proven very popular, with the state randomly choosing the lucky film company recipients from applications that annually seek a total of $400 million. Supporters of the program say it is a valuable economic stimulus that provides jobs to unemployed skilled workers and utilizes production sets that would otherwise sit idle.   

But the bottom line for the legislative analyst was that the money could be better spent on other, more needy endeavors and that Hollywood should look elsewhere for a happy ending.

–Ken Broder

To Learn More:

State Report Says California Film Tax Credit Loses Money (by Richard Verrier, Los Angeles Times)

Legislative Analyst: Film Tax Credit a Net Loss in Tax Dollars (by Kevin Yamamura, Sacramento Bee)

Hollywood Slams New Report Critical of California Production Tax Incentives (by Alex Ben Block, Hollywood Reporter)

Report on Film Tax Credit (Legislative Analyst’s Office) (pdf)

Economic and Production Impacts of the 2009 California Film and Television Tax Credit (UCLA Institute for Research on Labor and Employment) (pdf)

Entertainment & Media in Los Angeles (by Jack Kyser, Nancy Sidhu Ph.D. and Kimberly Ritter,  Los Angeles County Economic Development Corporation)  

Film Flight: Lost Production and Its Economic Impact on California (by Kevin Klowden, Anusuya Chatterjee and Candice Flor Hynek, Milken Institute)

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