Labor unions in the entertainment industry are backing a last-minute California bill that would offer an unusual tax credit to companies if they build new media production facilities with union labor and create thousands of jobs.
S.B. 51 by Sen. Elena Durazo (D), could benefit
Disclosures filed with the Secretary of State’s office show Netflix, NBC Universal parent Comcast Corp., and Sony Pictures Entertainment have lobbied Gov.
The Entertainment Union Coalition supports the bill as a way to keep production in California. Before the coronavirus pandemic hit, companies already were facing a shortage of sound stage space that forced some productions to move out of state, the coalition said in an Aug. 28 letter to Durazo. Film and television production is suffering from 90% unemployment due to the pandemic.
“While there is uncertainty at this moment, what we do know is that, given the issues raised by the Covid-19 pandemic, many more productions would like to remain in California—and many others would like to return,” the unions said.
Coalition members are the California International Alliance of Theatrical and Stage Employees Council, Laborers’ International Union of North America Local 724, Screen Actors Guild-American Federation of Television and Radio Artists, and Teamsters Local 399. Representatives of the unions didn’t respond to requests for comment.
The coalition has been asking Newsom since at least May to “monetize the California Competes Tax Credit for the building of infrastructure/soundstages when their application is accompanied by a significant commitment to long term jobs here in California,” according to a May 29 letter to Newsom.
Newsom spokesman Jesse Melgar said the governor typically doesn’t comment on pending legislation.
Union-friendly provisions of the bill require companies to pay the state’s prevailing wage, which is the hourly rate usually paid to construction or craft workers in the nearest labor market. Construction projects undertaken with the refunded credits must be performed under project labor agreements, which require that workers be paid prevailing wages and govern other employment terms.
Prevailing wages and project labor agreements usually are required on public works projects funded with state money.
A company that creates at least 5,000 jobs a year for 10 years could get a tax credit through the California Competes program in the form of a refund. The company would have to use the refund to invest in projects that help media production facilities and can’t be moved easily—for example, constructing or expanding buildings.
The income tax credit would be the only one available to California businesses as a refund in the year it’s claimed, although some tax incentives can be transferred to others and most can be carried forward to be used in future years if a company doesn’t have a tax liability on which to apply a credit. The only refundable tax credits offered in California are the earned income tax credit aimed at low-income wage earners and the Young Child Tax Credit.
Companies could qualify for the new credit in addition to California’s existing film and television production tax credit, which the California Film Commission awards to applicants based on jobs and overall economic activity created through independent and non-independent films, TV projects, and relocating TV series.
The bill appears to establish a new tier of tax benefit within the existing California Competes program, which was created in 2014 as an economic development tool. Companies apply for the credit and, if approved, sign a contract with the state promising to invest specific amounts of capital and create a specific number of jobs over five years. If they breach the contract the state recaptures all or part of the credit.
NBC Universal LLC was awarded a California Competes tax credit in June under the program’s existing rules, which limit use of the credit to claims against a state tax liability and don’t offer a tax refund. The company promised to create 800 jobs and invest $132 million over five years in its online streaming services in exchange for a $20 million credit.
Other media or entertainment companies that have received the existing California Competes credit include:
- Dreamworks Animation LLC was awarded $10 million in 2018 for committing to investing $60.5 million and creating 306 jobs in Glendale;
- Hulu LLC was awarded $4.2 million in 2017 for committing to investing $109 million and creating 410 jobs in San Francisco, Santa Monica, and Novato; and
- Viacom International Inc. was awarded $1 million in 2015 for committing to investing $56 million and creating 56 jobs in Los Angeles and Burbank but didn’t satisfy the contract and was unable to claim the credit.
The expected job creation and investment under the bill is more than any of the 1,085 credit awards issued to almost as many companies since the program’s start, according to data from the Governor’s Office of Business and Economic Development, known as Go-Biz.
Tesla Motors Inc. has been the largest recipient so far, receiving a $15 million credit for agreeing in 2015 to increase employment in the state by 4,426 people and invest $2.3 billion in facilities to manufacture vehicles and components over five years. Tesla has satisfied the terms of the agreement, according to Go-Biz.