I Screen Studies

Peter Sanders reported in the Wall Street Journal Feb 18 that the California state legislature was considering a tax credit for Hollywood films as part of the efforts to cut the state’s budget deficit. The move in California has been on the cards for some time. It may have been accelerated by a report issued last month by Film LA Inc. (formerly the Entertainment Industry Development Corporation) claiming a ’steep’ fall in feature film shoot days in LA in the fourth quarter of 2008.

The Film LA figures are available as a .pdf file here.

Overall fall from 2007 to 2008 was a little more gentle (54,871 days to 53,957 days), which continues a trend apparent for some years. Allen J Scott calls this the “intensifying geographic decentralization of film-shooting activities” away from Hollywood, and notes this trend has been evident for several decades. At the same time, as the Film LA figures show, LA continues to be the centre of television production in the US.
According to Julie Carr Smyth of Associated Press, the Californian tax break was approved yesterday (Thursday).

Variety reports (18 February) that the Californian scheme is budgeted to cost $500 million over 5 years.

The state’s tax credit program covers 20% of below-the-line expenses for production of up to $75 million. It can be sweetened to 25% of expenses for indie feature productions of up to $10 million — and for all TV series relocating to California, as a sort of housewarming gift.

“The Production Incentive Program is geared towards feature films with budgets between $1 million and $75 million, TV series that relocate to California and TV series produced for basic cable,” said Amy Lemisch, head of the state’s film commission. “Eligible film and television productions must shoot at least 75% of the total days in California; the credits will be applicable for tax years beginning in January 2011.”

The Californian scheme has been dubbed the ‘Ugly Betty’ tax credit, after the hit TV series relocated from California to New York to take advantage of the tax credit there (but see below…)

Smyth’s report gives a lot of useful background on the position of various states. She also makes the point that the overall volume of feature film production is not growing, so the states are seemingly engaged in a ‘race to the bottom’, ratcheting up incentives and increasing competition for a static amount of work.

The competition between states has also created new companies, like Tax Credits LLC which describes itself as Placement Specialists, not Brokers, and claims to have “handled nearly 1100 transactions totaling in excess of $360 million in various state tax credits”. The company works with filmmakers to determine the location (or combination of locations) that will offer the best deal for producers.

Some states are reporting very positive outcomes of their incentive schemes

A study conducted for New Mexico [available as a .pdf file here], where films such as the Oscar-winning “No Country For Old Men,” “The Book of Eli” and “In Plain Sight,” showed positive results. The review by Ernst & Young, released earlier this month, found that 30 films produced in 2007 in that state generated about $253 million in spending and directly created 5,989 jobs.

New Mexico Gov. Bill Richardson boasted in his recent State of the State speech that the state had “created a new industry” over the past six years through its film industry incentive program.

Smyth also notes that several states and state governors are rethinking their incentive schemes:

• Wisconsin’s Governor Doyle wants to replace the state’s incentive program introduced in 2008, which gives back 25 percent of qualified film production expenses, with a $500,000-per-year grant program that gives awards only to projects that create permanent jobs in the state. The head of the local film commission, Film Wisconsin, launched a PR offensive late last year outlining (with little hard data) the benefits of the existing scheme and arguing that it should be continued.
• Connecticut Governor Jodi Rell was being urged to cut CT’s tax credit system as part of the current budget review process.
• Two weeks ago, New York State announced it would no longer accept applications for the New York State Film Production Credit which gave a 30% tax break to qualifying productions. NY’s recent production boom has been put down to the ’success’ of this scheme. The move to suspend the Credit comes despite reports that the State has benefitted enormously in financial terms. Variety notes “of the $2.69 billion the state has collected, it’s refunded only $690 million after collection”. A ‘Save Our Jobs’ campaign has been launched by NY workers.

Sanders’ report contained the following graphic showing which states currently offer incentives (California should now be bright green rather than light green).