California filmmakers to get more tax breaks in new law. Do incentives keep shows here?

California is upping the amount of money it offers to the entertainment industry in annual tax credits designed to encourage producers to film TV shows in the Golden State.

Gov. Gavin Newsom late Wednesday signed a law offering another $124 million in annual tax credits to the industry over the next four years. It comes on top of the $330 million a year California already provides to the film and television industry in tax credits.

Supporters say the credits nurture entertainment jobs and encourage filmmakers to keep shows here rather than chase tax breaks offered in states like Georgia.

“The current tax credit has been so successful that demand for bringing more productions back to California has exceeded the amount we previously budgeted,” the bill’s author Sen. Anthony Portantino, D-Burbank, said Thursday. “By meeting that demand, we’re going to increase California’s economic vitality and health and welfare of our state as we come out of this pandemic.”

For the first time, the state is requiring all filmmakers and television producers to include diversity requirements to receive the tax breaks.

Filmmakers must create a statement on diversity goals and how they plan to achieve them, which are then approved by California Film Commission.

The new credits are set aside for television series that relocate to California and for studio construction of new sound stages.

Assemblyman Jesse Gabriel, D-San Fernando Valley, said during Thursday’s Assembly hearing that the tax incentives create “millions of direct and indirect jobs.”

Do state film tax credits create jobs?

But researchers remain skeptical that the tax breaks have any clear benefit to California’s economy.

University of Southern California associate professor Michael Thom called that “a Hollywood (and Sacramento) fiction.”

“The incentives have little to no effect across the board. Film office employees, lobbyists, and politicians credit the incentives with employment and wage gains,” Thom said in an email to The Bee. “But they fail to realize that most of those gains would have happened anyway — without costing taxpayers a dime.”

The California Legislative Analyst’s Office in 2019 determined that about one-third of all film and television projects that received a tax credit would have been made in California regardless of the incentive. The office also found that while the number of industry jobs increased in states with active incentive programs, so did the number of jobs in states without tax breaks.

Two studies published by Thom in 2018 and a study by Tulane University Professor Patrick Button in 2019 found that film tax credit programs not only in California but in states across the country have had no long term effect on wages or on state economies.

Button said it’s “really difficult to entangle” whether films and television series come to California for the tax benefit or because Hollywood is a desirable place for production.

“These incentives do impact where filming occurs,” Button said. “Because California is already a desirable place to film, it’s likely that incentives have more of a positive impact in California compared to other states.”

Button said that credible estimates show that for every dollar a state government puts into film industry incentives, they get back between 10 cents and 30 cents in state tax revenue through increased economic activity.

“We generally don’t find that these tax incentives are really associated with much economic growth into the motion picture production business anyways, so the bang for your buck is kind of low.”

Construction incentives

The bill also allocates money for construction of sound stages, which Portantino called long-term investment in the film industry because sound stages can last for a hundred years.

Other states like Florida have put similar programs offering construction incentives. Button said there’s little research specifically on the benefits of film construction incentives, but that it could create a “film cluster,” because sound stages are tangible infrastructure that can be used by several films to keep them coming back to a certain state.

In a place like California with sound stages already built across Los Angeles, the benefit may be lower than in other parts of the country that need to build up infrastructure to become a desirable filming destination.

“When states offer more money or more government incentives, yeah, they might get some more filming, they might get some more jobs, but the amount that we actually measure is pretty trivial. So it just makes us wonder if that additional investment was really worth it, because the benefits were small relative to what would be high, high costs,” Button said.

This story was originally published July 21, 2021 at 2:51 PM.