Will Newsom’s expanded tax credit program save California’s film industry?

Amid mounting pressure from Hollywood to bring production and entertainment jobs back to California, Gov. Gavin Newsom unveiled plans Sunday to significantly raise the annual cap on the state’s film and TV tax incentive program.
During a news conference held at Hollywood’s Raleigh Studios and attended by Los Angeles Mayor Karen Bass, as well as several entertainment union officials, Newsom declared his intent to increase the yearly limit to $750 million from $330 million.
Pending legislative approval, that number would surpass all other capped film and TV tax credit programs around the country. But will it be enough to prevent film and TV shoots from fleeing the state, restore the entertainment job market and solve California’s worsening production crisis?
Many in the industry welcomed the announcement as a significant move in the right direction, while acknowledging that there is more work to be done.
“It’s a start,” said Lindsay Dougherty, principal officer of Teamsters Local 399, which represents studio drivers, location workers and other Hollywood crew members.
“For California to be competitive with these other countries, we might need more money down the road. But this is … good news in a very bad time in a for our members that are not working and haven’t been working for quite some time.”
Rebecca Rhine, western executive director of the Directors Guild of America, agreed that raising the limit “may not be the entire solution, but it is a very, very important first step.”
Newsom and other elected officials have faced growing calls to expand California’s film and TV tax credit program as local production has struggled to rebound in the wake of last year’s strikes by Hollywood writers and actors.
While the entertainment industry at large has been hurting amid a widespread industry contraction, California has been hit particularly hard. Productions are increasingly flocking to other states and countries — such as New York, Georgia, Mexico and the United Kingdom — that offer more generous tax incentives.
The governor’s office said Sunday that 71% of projects excluded from California’s film and TV tax credit program have opted to shoot elsewhere.
Newsom “needed to make this announcement now,” said Kevin Klowden, executive director of the Milken finance institute.
“The morale and the impacts are very real and … if the governor didn’t make an announcement in advance of the budget cycle, there would be an incredible level of uncertainty,” Klowden said.
Runaway production has had an adverse effect on entertainment workers, as well as ancillary businesses, such as prop houses and caterers, that depend on Hollywood to survive.
Gregg Bilson, whose Sunland-based ISS Props has served the industry for three generations, called the governor’s proposed rebate “a great step as it more than doubles our current incentive,” but also recognized that it still doesn’t put the state on par with some other regions.
“Is it enough to be competitive with other parts of the world? No, and it never will be when you look at the income disparity and that other countries are giving as much as 40%,” Bilson said.
“But it is very competitive given it’s in California, which has the greatest infrastructure and crews in the world.”
This year, Bass appointed an entertainment industry task force to address the challenges Hollywood is facing.
Ellen Goldsmith-Vein, chief executive of Gotham Group and the mayor’s task force’s chair, said she is glad the state is “moving towards … putting people back to work and creating opportunities for young people.”
Newsom’s proposal will probably help increase some of the production that has dropped off in California in recent years, said Vanessa Roman, partner at Akin Gump Strauss Hauer & Feld, who advises clients in the entertainment industry. Especially smaller independent producers.
Under California’s current tax credit cap, a handful of productions could get approved early in the year and take up most of the credits.
“It was used up pretty quickly,” she said. “When it comes to tax credits, more is always better.”
Motion Picture Assn. Chief Executive Charles Rivkin said Newsom’s proposal indicated the governor’s “commitment to securing California’s future as a leader in film, television and streaming production.”
Others were more skeptical.
Newsom’s proposed increase to the California film and TV tax credit was “long, long overdue,” said Jody Simon, a partner at law firm Fox Rothschild.
Although an expanded cap may bring some production back, other states have gotten a leg up by building competing hubs with experienced crews and studio facilities.
“Some of the intrinsic advantages of L.A. have been eviscerated,” he said. “I believe there’s still an underlying preference to shooting in L.A., so hopefully this brings more production back.”
Vince Gervasi, president of Santa Clarita-based Triscenic Production Services, called the proposed tax incentives “a drop in the hat.”
“It sounds like a lot of money when you say it’s $400 million more, but in the big picture, it’s nothing like what Georgia is giving out,” said Gervasi, who added that he is struggling to keep his set and scenery storage business afloat. “It’s a nice gesture, but a little too late.”
The higher cap is “a big yawn for” independent productions, said Sky Moore, a partner at law firm Greenberg Glusker.
California’s tax credit program has more limitations on qualifying expenses — excluding big-ticket items such as star and director salaries — and is more complicated. Add to that the lower labor costs in other states, and “I don’t think it’s going to have an impact, at least for the independents,” he said.
Kayla Kitson, a senior policy expert at the California Budget and Policy Center, expressed concerns that greater state funding for the film and TV tax credit program could result in less aid for vulnerable groups, such as people experiencing homelessness and food insecurity.
“When the state has budget shortfalls, we often see safety net programs … on the chopping block,” Kitson said.
If the Legislature approves, the lid on California’s film and TV tax credit program could be raised to $750 million as soon as July.
“We hope that the legislators see the urgency in what the governor is trying to accomplish,” said Thom Davis, president of the California IATSE Council. (IATSE is the union representing Hollywood crew members.)
“Especially those in the L.A., San Francisco, San Diego areas where this is a very important industry to not only our members, but also their local economies.”