California Tax Credits for Runaway Film and Television Productions. “ultimately denied due to lack of available funds” Nearly $1 billion was spent on production outside of the state. That’s according to the latest report from the California Film Commission, which makes a compelling case for greater funding of the state’s tax incentives program.
California currently offers $420 million a year in film incentives, but it’s not nearly enough to support all of the films and TV shows that want to shoot here. New York has a smaller film industry and offers credits of $4.20m. Georgia, however, offered $1.2billion last year.
However, incentivized projects continue to see an increase in production spending and job growth. According to the report, direct in-state spending by projects that received the tax credits grew by $200 million – from $2.1 billion to $2.3 billion – during the 2021-22 fiscal year, with growth continuing through the first half of this year. Estimated total spending for the first two-and-a-half years of the current program – Program 3.0 – is expected to top $6.2 billion.
The full report is available here.
“California’s iconic film industry continues to create opportunity and drive economic growth throughout our state,” Gavin Newsom, Governor “Today’s report from the California Film Commission affirms the tax credit program continues to produce outstanding results and foster diversity and inclusion for a workforce that better reflects our vibrant communities.”
“The competition today is global, so it’s wonderful to see our state’s commitment to maintaining our status as the world’s film and TV production capital,” Colleen Bell, Executive Director of California Film Commission. “The tax credit program is an incredibly effective tool, and today’s report confirms it’s working precisely as intended.”
According to the report, every dollar spent by the state on film incentives results in many times more wages and gross domestic products. The report is based on Los Angeles Economic Development Corporation data. “for every tax credit dollar allocated, the state benefitted from at least $24.40 in economic output, $16.14 in gross domestic product, $8.60 in wages and $1.07 in state and local tax revenues.”
In all, the previous version of the program – Program 2.0 – generated a total of $21.9 billion in economic output and $961.5 million in state and local tax revenue over its five-year run.
These numbers would have been even higher if the money was available to finance more projects, and maintain filming in California. According to the report 77% of California’s production spending was lost due to projects that were denied a California tax credit. California also lost 16 projects out of 28, which left California for other reasons. “These runaway projects accounted for $951 million in production spending outside California,” The report states.
“With the $951million lost globally,” The report states that “productions that did not receive tax credits left California to generate expenditures” In other jurisdictions:
• New York: $254 million
• Georgia: $130 million
• New Mexico: $28 million
• Louisiana: $2 million
• Other U.S. jurisdictions: $299 million
• Canada: $88 million
• England, Italy, Ireland, Mexico: $150 million
The report cites five recent projects that were turned down for tax credits, and later went to film elsewhere. Don’t Look UpIt spent its $100 million production budget on filming in Massachusetts, Washington, DC. Day ShiftGeorgia was the location for “The Godfather”, which was filmed with a production budget of $100 million. PinocchioThe film was shot in England, Italy and cost an estimated $150 Million. Season 3 of SuccessionThe film was shot in New York City with an estimated production budget $81 million. The Mighty DucksThe film was shot in Vancouver on a budget worth $20 million.
California is also missing out on millions of dollars in virtual production spending and visual effects because it is the only state that does not have a credit for visual effects.
“A recent study revealed that over $7 billion is projected in worldwide VFX spend in 2022, increasing to $10.5 billion by 2025,” The report states. “California is not benefiting from this expanding sector of the motion picture industry due to a lack of targeted incentives.”
“The majority of VFX work is performed outside of California, assigned to companies in countries and provinces with a 30-40% rebate on visual effects work without the requirement of filming the same project in that jurisdiction,” The report states. “VFX artists, technicians, programmers, coordinators, producers, supervisors, match-movers, compositors, effects artists, and hundreds of other types of VFX workers living outside of California are being paid for visual effects work from studios and companies based in California. California’s 25% tax credit is not competitive enough for some company’s financial goals; therefore, many California-approved tax credit projects decide to get VFX work done at other locales which provide a stand-alone VFX tax credit.”
“With the addition of virtual production, the filmmaking process’ complex visual effects work has increased,” The report concludes. “Companies which perform this VFX technology are finding it difficult to continue to operate in California without the kinds of incentives available elsewhere. These companies have made significant investments in skilled technicians, and they want to stay in California. But, if you want to reduce costs, it is worth looking elsewhere for incentives.
“As a result, many California VFX companies have created offshore subsidiaries and are training workforces to work on projects in jurisdictions with stand-alone incentive programs. According to a recent analysis by KMPG, the visual effects market is an estimated $6 to $7 billion industry and is projected to grow roughly12% through 2025. With the growth of streaming services – Netflix, Disney+, Hulu, Amazon Prime, Apple TV+, Warner Bros Discovery, CBS, Peacock – the demand for content and shows with heavy visual effects and virtual production is growing.”
Evaluation of the “state’s loss” The report cites the following: “compelling data” The giant accounting firm KMPG has this information. “approximately $6 billion of VFX expenditures were performed outside of California in the last five years. To illustrate the dichotomy between worldwide VFX spend and California spend, one company reported that they spent $920 million on VFX labor worldwide, while spending only $38.8million in California.”
California fails to fully monetize global sales of tax credits. “As a key part of a production’s financing structure, companies rely on the ability to sell tax credits to third parties or back to the state,” This report has more information. “Jurisdictions with such monetization and refund ability provisions hold a competitive edge. California is one of the few jurisdictions that do not offer this type of incentive.”
The report also includes the following highlights:
In-State Employment
The 106 projects approved during the first two and a half years of Program 3.0 are estimated to generate $6.2 billion in direct in‐states pending, including more than $2.1 billion in qualified wages. Program 3.0 approved 106 projects for year two. These include a 4,111 cast of actors, 8,135 crew members, and 79.248 stand-ins/background actors. “man-days”California during the 2,421 days of filming. The first half of fiscal-year three’s projects are expected to have 4,497 staff, 1,141 cast, and 50,458 stand ins/background actors during the 1,297 filming day. Program 3.0’s first two-and half years are expected to have 18,736 employees, 9,833 actors, and 204.700 background performers/stand-ins. There were 5,900 filming days. Productions under the tax credit program generate revenue and non-incentivized jobs in post production.
U.S. Workforce Statistics
With $192billion in film and TV wages generated, there were $84billion of wages paid directly by employees. Millions of Americans work in the television and motion picture industries, which pay $27 billion to 359,000 small businesses.
Training and Diversity in the Workforce
Program 3.0 contains several ongoing and new initiatives that promote diversity, inclusion and workforce training. Continued from Program 2.0, the Career Readiness obligation requires all tax credit project participants to participate in California-based learning and training programs. Working in collaboration with the California Department of Education and the California Community Colleges Chancellor’s office, tax credit projects have fulfilled the requirement by hiring students for paid internships, welcoming faculty members for externships, hosting workshops/panels and staging professional skills tours.
Internships, externships, professional skills tours and internships were all suspended during the worst of the pandemic. The Career Readiness requirement was completed by 33 Projects in Program 3.0. $169,653 total has been contributed to California Community Colleges and the California Department of Education.
Program 3.0 has a new Career Pathways Program. This program targets underserved individuals. This program is directly funded by tax credits projects. It also works in conjunction with partner programs throughout the state.
Since 2020, training providers ManifestWorks, Hollywood CPR, and IATSE Local 695’s SVOP Y-16A Training Program have helped achieve Career Pathways Program goals. A total of 141 individuals have participated in the program: 30 with Hollywood CPR, 39 with ManifestWorks, and 17 with SVOP – all during year-two of Program 3.0.
Moving TV Series
Program 3.0 hosted two new relocating television series in its second fiscal year. Two additional series from New Orleans (and Florida) are slated to relocate in the third half of this fiscal year. To date, a total of 27 TV series have relocated to California under different iterations of the state’s tax credit program.
Big Budget Films
Program 3.0 hosted five films with budgets exceeding $60 million. This year’s fiscal year saw an increase in state spending, which is expected to reach $738 million. The following projects are included Atlas, Beverly Hills Cop 4Please see the following: Frosted. There are four additional large-budget movie projects in the second half of the fiscal year, Joker: Folie a Deux Thomas Crown Affair. To date, Program 3.0 has welcomed 11 big-budget films – or half of the 22 feature films accepted into the program thus far.
Sound stages
California Senate Bill 144 passed July 21st, 2021. This created the California Soundstage Filming Tax Credit Program. The program encourages renovation and construction of California soundstages. Over a period of ten years, the Soundstage Filming Program will allocate $150 million worth tax credits.
But, it is noted that Soundstage Filming Programs are not mentioned in the report. “is still in the early stages of implementation,” Many other countries are also rushing to meet the demand. To date, Soundstage Certification Letters have been issued to a total of 13 soundstages statewide – eight newly constructed and five renovated – with a combined size of over 200,000 sq. ft.
“With Los Angeles soundstages operating at over 90% capacity after the 2020 Covid shutdowns,” The report states that “the necessity for productions to film in other locations has increased the need for more soundstage infrastructure worldwide. Though Los Angeles leads the world in dedicated sound stage space with 5.4 million square feet, global competitors are not that far behind: United Kingdom with 4.7 million, two Canadian jurisdictions with Ontario having 3.3 million and British Columbia having 2.8 million, New York with 2.4 million, and Georgia with 2 million. Within the next three years Georgia, New York, Canada, and the UK have hundreds of thousands of square feet of soundstage space being constructed. Other jurisdictions are also planning large film studio projects to be completed within the next three years including Arkansas, Illinois, Louisiana, Massachusetts, Michigan, New Jersey, New Mexico, Tennessee, Texas, Australia, Ghana, and Ireland.”