Guest Column: A Hollywood Exit: Why Stopping Film Flight Matters to California

Home

News

California Fiscal Issues and Information page

California Fiscal Focus

Summary Analysis of General Fund Cash Receipts (2007 - 2014)

May 2014 Cash Report Summary Analysis

Guest Column: A Hollywood Exit: Why Stopping Film Flight Matters to California

Published May 8, 2014

By Kevin Klowden

For the past decade and a half, California has seen its position as the global center of the entertainment industry come under siege. Although past rivals such as Bollywood and Hong Kong have been prolific in serving their own markets, they have rarely had an impact on the economic underpinnings of Hollywood and certainly not on its filmed production workforce. California is losing production jobs by lending its workers to other states for films and television, and this has resulted in a consistent erosion of the local workforce since its last peak in 2004.

Unlike the decline that began with the introduction of the Canadian Film incentives in 1997 and stretched until 2004, when the declining value of the U.S. dollar brought productions back home, this flight of movie and television production jobs is larger, farther reaching, and potentially much more dangerous. Not only is California now competing against foreign centers in Vancouver, Toronto, London, Sydney and elsewhere, but it is facing a dramatic challenge from domestic rivals such as New York and Louisiana, which are boosting their own entertainment jobs at the expense of California. With the first wave of domestic film incentives taking hold in 2005, California suddenly found itself at a competitive disadvantage and wound up establishing the 2009 California Film and Television Production Tax Credit, at $100 million per year. Between 2004 and 2012, California’s base in filmed production employment declined from 152,525 to 136,388 in absolute numbers – a loss of 16,137 jobs. At the same time, California’s main rival, New York, added 10,675 jobs in film production – growth of nearly 25 percent over those eight years. In California, these were high-paying middle-class jobs, with wages that average $98,500 per person; in New York, they average $89,000 per person. The jobs contribute to state revenues and provide sustainable incomes that support significant local expenditures.

The great threat that is presented by states such as New York, and increasingly by Louisiana and Georgia, is that they are utilizing the combination of their own incentives and the limits of the California program to not only lure productions but to establish and expand their own filmed entertainment infrastructures. Our goal in preparing our recent report, “A Hollywood Exit: What California Must Do to Remain Competitive in Entertainment—and Keep Jobs,” was to examine which states have most effectively utilized their incentives to fully capture their economic benefit, developing a local filmmaking infrastructure that includes soundstages, crews, catering companies, prop makers, transportation, and all other elements necessary to have strong in-state employment in the industry. What makes states like New York such a threat to California is that they are adding significantly to the local employment base, allowing them to support ongoing productions while also lessening their reliance on crews imported from California.

The state whose incentive and business model we analyzed in depth is New York, which is not only California’s greatest rival but also comparable in terms of having a large workforce, high cost of doing business, and, just as significantly, a need to promote the benefits of filmed entertainment statewide and not just in the New York City metropolitan area. To understand the factors driving this change, we examine Hollywood’s evolving business model, which is driven by an increasing dependence on blockbusters amid significant technological change.

As is noted in the study, California’s $100 million in incentives have become fully subscribed in the areas they cover: cable shows and films with budgets under $75 million. But the tax credit program is hampered by the restrictions placed on it when originally authored: the limited size of the funding pool and the lack of coverage for hour-long network dramas and movies with budgets over $75 million. Over the five years since the California tax credit was introduced, the State has lost almost all of its share of television shows and movies in those categories. Furthermore, the visual effects industry, also not covered by any incentives, has seen a dramatic departure of work from California. Even more than movie production, this sector has a broader, statewide reach, with significant work being performed in the San Francisco, Oakland and San Jose metropolitan areas.

California’s program does have some significant advantages over most other states. Because the infrastructure for the industry already exists, we capture a far higher value from the credits both in expenditures and our workforce than almost any other state. Unlike other states, California only pays out the promised funds once a production is complete and the producers file their receipts. This means that not only is the work completed, but California actually can recapture its investment in the film or television show before it actually has to pay out the credit. This is significant, because it minimizes the program’s drain from the State’s general fund while ensuring clear and accountable results.

Given these factors, what can be done to improve the filmed tax credit and improve its impact? As a key first step, the size of the available credit pool must be expanded. New York State chose to expand its fund to $420 million in 2009, and this has played a significant role in its industry growth. Second, an additional five percent credit should be granted for filming outside the Los Angeles area. This is essential for jumpstarting the broader statewide industry, which has suffered since the Canadian incentives back in 1997. Third, include large budget movies, hour-long network dramas and visual effects. These steps will go a long way toward reinvigorating one of the State’s key high-technology and value-added industries.

Kevin Klowden is a managing economist at the Milken Institute, where he serves as director of the California Center. The opinions in this article are presented in the spirit of spurring discussion and reflect those of the author and not necessarily the Controller or his office.