Doubling California Film Tax Credits Gets Early Lawmaker Support

California lawmakers appear willing to put aside skepticism about economic benefits of the state’s film and television tax credits and to expand the program, mainly to stanch the flow of productions to places with more generous tax breaks.

They’re weighing whether to agree with Gov. Gavin Newsom’s (D) proposal to more than double the annual credit award budget from $330 million to $750 million. To strengthen the push for a bigger pot of credits, supporters like the California Film Commission and entertainment industry and labor groups often cite a 2022 study showing the credit generates $24 in economic output for every dollar in allocated credits.

Whether that statistic is accurate may be beside the point for lawmakers who want to help California’s signature industry, which hasn’t recovered from the Covid-19 pandemic and labor disputes with actors and writers in 2023. Supporting Hollywood and keeping productions in California is winning out over the need to prove the credit’s benefit goes beyond the entertainment industry.

“If this were $1 billion I would absolutely be in support right now,” Assemblymember Isaac G. Bryan (D) said. at an Assembly Budget Subcommittee hearing examining the proposal in depth for the first time.

Expanding the credit would increase the number of productions in California, but little evidence backs up claims that the expansion would benefit the California economy as a whole, the Legislature’s fiscal and policy analyst said in a Feb. 28 report and in testimony before the committee.

Lawmakers should be cautious about making new spending commitments like expanding the film and TV tax credit in the face of continuing operating deficits, said Rowan Isaaks, economist for the Legislative Analyst’s Office.

“If protecting the California film industry from external competition is a high priority for the Legislature and an end in itself, then expanding the credit in the short term is a very valuable option to consider,” Isaaks said.

Big-Name Winners

The credit has been renewed and expanded multiple times since it was created in 2009. Since then, California has awarded $3.4 billion in credits and the recipients have claimed $1.64 billion of it on their tax returns, according to the budget committee. Productions and companies with big names like Star Wars and the Joker, Apple Inc., and HBO have been recent winners.

But the annual funding cap means demand always outstrips supply. Meanwhile, California is losing productions to jurisdictions with more generous programs like Georgia, where funding is uncapped, and New York, where credits can be used for directors and actors. All 10 contenders for the Academy Awards Best Picture this year were made outside California, and most of them got tax credits from other jurisdictions.

Bryan, Assemblymember Rick Zbur (D), and other members pushed back on LAO’s conclusion that the evidence is weak to support the credit’s boost to the state economy, especially considering all the ancillary economic activity they create.

“It is a business investment, it’s a labor investment, it’s a retirement investment, it’s a health care investment, it’s a dry cleaners investment, it’s a catering investment, it’s a restaurant investment,” Bryan said, to applause from entertainment industry representatives and workers who filled the hearing room.

Democratic Assemblymembers Chris Ward and Alex Lee said they support the entertainment industry but are weighing the tax credit increase against other incentives. They pointed to their decision in 2024 to suspend net operating losses and limit research and development credit claims temporarily to help close the budget deficit. Those cuts hurt the tech and bioscience industries that they represent, they said.

‘Competitive With New York’

The film tax credit is only 5% of total state tax credits for businesses, Lauren Greenwood, deputy director of legislative affairs for the Governor’s Office of Business and Economic Development, told the committee. The office ran an analysis to determine how much bigger it should be.

“We felt that $750 million would put us back on the map in terms of being competitive with New York,” she said.

The increase would create $13.5 billion in wages and other expenditures eligible for the credit, another $5.1 billion in non-qualified wages, and 77,000 jobs, Greenwood said.

The Senate is planning a similar discussion later in March during a joint hearing of the Senate Revenue and Taxation Committee and the Senate Budget Subcommittee on State Administration and General Government. Lawmakers have until June 15 to pass a budget in time for the start of the new fiscal year July 1.