To see all the comments on this topic please click Read More.
© 2012 The Headway Project | All Rights Reserved - Terms & Conditions - Privacy Policy | This site is powered by SuperOxygen
© 2012 The Headway Project | All Rights Reserved - Terms & Conditions - Privacy Policy | This site is powered by SuperOxygen
Thanks for putting together a concise and persuasive report about what California is getting out of the tax credits to the entertainment industry. I don’t work in the industry but I care deeply about what happens to California and that means I want this industry strong and thriving right here in the state. Your report sets out some common sense policy suggestions. Have you had a response from the legislature on any of these ideas?
“THERE’S NO PLACE LIKE HOME” is an incredibly important and timely examination of a crisis that is only going to get worse. I was deeply involved in the decision to keep the production of MAD MEN in Los Angeles. Frankly, there was tremendous pressure to move the show to another state with a major tax incentive. In New York, the show would have been nearly $200,000/episode less expensive. Lionsgate Television did everything they could to get Matt Weiner to move the show there. Fortunately for the state of California, Matt Weiner insisted that the show be shot here–only because he’d been working on THE SOPRANOS in NY for years and couldn’t continue to be separated from his family. Very few Executive Producers have had the clout that Matt did to keep the show in LA. If he had agreed to locate the show in NY, it’s estimated that California would have lost close to 8000 jobs by now. We need to figure out how to keep other television shows and feature films here, and the Headway Project report is the right push in that direction.
Great report. And I am responding to it while shooting for three months in North Carolina (how appropriate!)
I completely agree with Gail. It is simply financially irresponsible NOT to shoot in an incentive state (if you possibly can). I hope that this articulate and persuasive report encourages the state legislature to remedy the failings in the current incentive structure in California.
Dear JJ, thanks for your comment. The MPAA has not endorsed our findings. They sponsored the LAEDC report referenced in our study which, as you know, has slightly different conclusions. They endorse only their own report. As far as the California Film Commission goes, we worked very closely with them in producing this study and we ended up recommending that legislators increase funding for this tax incentive and give them broader powers to allocate it. So for these reasons I believe that they were quite pleased with it. As far as a follow-on study is concerned, I think that it will probably be important for the researchers NOT to be funded by any stakeholders in the entertainment industry, just to keep the appearance of any bias out. Thanks of your interest and support.
Loved this report! Very thorough but concise. As a distribution executive at a major studio, it’s refreshing to see a recommendation to incentivize higher budget films, as these have such significant trickle-down effects on the California economy. Have the MPAA and California Film Commission endorsed your findings and what can the Industry do to support your recommendation for a follow-up, bi-partisan study?
Dear Gail: thank you so much for your thoughtful comment. Producers and other industry participants such as yourself see the real economic effect of this production work more so than the rest of us. It’s not just the $100 million that a film may directly spend – it’s all of the subsequent indirect and induced spending that multiplies off of the initial spending that creates the full benefit. The example of your friend who opened a restaurant in Boston near the hotels that Hollywood studios regularly use, which resulted in a 50% increase in her business, is a classic example of this multiplier.
Great work! I read through your report, and boy — I can tell you your key findings are dead on. I am a film producer, and I am to the point where I have writers write to a tax credit state as early as possible in the script, as I know it’s the reality of where we will end up shooting, and I should try to make it as organic as possible to the story, so it doesn’t feel tacked on. I’ve been to Boston time and again….the 25% credit, including on the above the line…a huge issue…is just too much money back to say no to for the entity financing the movie.
The issue of who benefits from the tax credits is worthy of discussion. Obviously the “round one” savings is to the financier of the movie. But there is unquestionably a “trickle down effect” if you follow the money. Bottom line, if a movie isn’t in California shooting, all the grips, gaffers, art directors, etc. aren’t spending movie money or discretionary income here. Fixed costs (housing, etc) maybe if they live here.
There is also a micro-climate effect. I know a restaurant owner in Boston who specifically chose a new location for her restaurant near the hotels and places where movies keep their better paid below the line and above the line people. She said the different neighborhood increased her business by 50%. The money spent on the movie itself, and then what the individuals getting paid (especially those with per diem money) choose to do with their weekly discretionary cash beyond their salary has a huge effect on neighborhoods.
This is so useful! Personally, I would love to work and sleep in my own bed without the collateral damage of leaving home — it just doesn’t make any sense that California has let this stitch drop. It’s big money and big jobs.
Nicely done!!!!!
Dear Richard: Thanks for your new post. It is true, as you point out, that there are additional financial disparities between California and other states/countries, besides just tax credits, that have an impact on production location. While most producers told me that tax incentives were the first and most powerful incentive, certainly cost of labor and other PHW issues also play a role. On the other hand, producers incur huge relocation costs, burn valuable time and take risks associated with all of the unknowns associated with going out of state to shoot. I interviewed one large producer who is currently preparing for a 6 month shoot in North Carolina, for which he received a 25% credit. While the credit is certainly valuable, it is offset by the fact that he 1) has to convert a warehouse into a proper sound stage, 2) is currently working with staff and suppliers with whom he has no prior relationship and 3) will have to fly in and house approximately (get this) one thousand crew members and extras from California because North Carolina doesn’t have the depth. These are significant risks and tradeoffs. We came up with the 12% recommendation “on feel” because, of course, you don’t really know if it’s going to be effective or not until you try it out. Many producers told us that the 25% tax credit they may get from another state like North Carolina ends up being 15% after relocation and broker costs. And one other producer told me, memorably, that he would stay and shoot in California if he could get half what he gets from Louisiana (which is 30%), just because he loses so much control when he has to shoot out of state. So I have to disagree with you a bit that 12% won’t cut it, because I floated that figure by a few producers (who wished to remain anonymous on this issue) and they said that 12% would probably induce them to stay, although it would likely be the minimum. I hope that the state follows this recommendation, because if the film commission began issuing credits at 12%, instead of the current rate of 20-25%, the ROI to the state would go way up.
Mr Kong-
Thank you for the thorough reply – its much appreciated- another un-addressed issue is that of other US States & foreign Countries where the PHW (pension, health & welfare) payments are substantially LOWER than California’s.
In CA, this a HUGE un-addressed cost issue in your report with respect to both small & large budget film making – this issue amounts to 35% of all union labor costs, big movie or little movie
offering large films a mere 12% rebate for film production amounts to a pittance in terms of the relative budgets…
Further to my point, I offer up filming incentives in the UK – where the US dollar is worth roughly .60 of a pound sterling…the film business in the UK is booming with Hollywood based production work..vastly more filming going on in the UK than there is in Hollywood and all despite the seemingly unfavorable exchange rate..why is this happening???
Two major reasons:
1. 17% tax rebate to ALL films – large or small – this essentially erases the VAT (value added tax or UK sales tax) in the UK – all purchases, large or small are tax free
Despite this, the UK is still very expensive place to do business..labor rates are very high – often nearly equal with the rates found in large US cities such as LA or New York…
2. the most compelling factor for filming is the UK’s socialized health care and non-union work force – the UK equivalent of the US PHW (pension, health & welfare) is a mere 13% vs the 35% that prevails in California and many other states…this PHW gap is a very difficult & expensive issue to contend with…
Even when the exchange rate is factored into US dollars, the daily and hourly rates for UK film workers are roughly the same as the unionized workers in California…but the 13% PHW in the UK is the US filming killer – PHW is 23% greater in California and this 23% is what keeps the UK working and Californians un-employed
To my point, a 12% credit for big films simply won’t cut it..to even begin to level the playing field, a rebate for large films must be at least inclusive of the UK’s 17% and I’d think at least half of the 23% gap in the PHW costs…If the numbers can be wrangled to address BOTH these issues – offset sales taxes and a good percentage of PHW, the studios will coming RUNNING back to California with their work….
Dear Richard: thank you for your post. The reason that we have not attempted to measure the impact of the California Film & Television Tax Credit program on large films (production budgets above $75 million) is precisely because, as you point out, they are excluded from eligibility from this program. However, while the current tax credit program excludes these “tent pole” productions, our report does address the issue in multiple places. On the very first page of the Introduction I present a list of nine large films with aggregate production budgets in excess of $1 billion that are currently all in production outside of California. On page 31, under the discussion of restricted transfer of tax credits, I point out the irony that big studios are the best equipped to monetize these tax credits but they are excluded from this program because they generally make big movies with budgets greater than $75 million and are ineligible for California’s program. Moreover, the first of our five recommendations, beginning on page 34, specifically addresses this issue and recommends that the size of the program be increased from $100 million to $200 million, with the new $100 million specifically earmarked for large productions so that they can participate. And our next recommendation explains how this would work, and why we think 12% is the right amount of tax credit to offer to such larger productions. Finally, both the LAEDC and The Headway Project reports discuss the benefits in terms of jobs and tax revenues that the bigger productions are able to provide, and that is why both organizations recommend strategies to bring them back to California. In short, you and I are in agreement on the need to focus on the really big productions and develop an incentive program specifically targeted to get them back in California.
Extremely incomplete study – it only looks at the impact of the lower budget side of film making tax credits in California.
If the analysis had looked at “tent pole” films – the films that the studios spend enormous amounts of money on, they would have found the tax credit has had ZERO effect on these films and where they are produced.
Further investigation would have found the state of California is losing tremendous amounts of tax revenue and jobs as the vast majority of these “tent pole” films are no longer produced in the state of California -
If the study was to look at WARNER BROTHERS, LEGENDARY PICTURES, 20th Century Fox and DISNEY (to name a random few) – thorough research would find that over 80% of these studios 100mil plus budget films are NOT made in California haven’t been made (produced) in California for the past 3 years or even longer.
I work in film and I have worked on 3 films in the past 2 years with combined budgets that total in excess of $750 million dollars – none of these 3 films have been made in California – and that’s ONLY 3 films..there are literally dozens of films in production at any given time and the majority are no longer made in California – the tax revenue and job losses to the state are staggering and going VERY,VERY under reported…this is a huge issue that no single agency or investigator seems to be able to get an accurate handle on
It sure would be nice if your little organization could bring this issue to light….and maybe wake up the legislators in Sacto who seem to believe tax credits for film making is welfare to millionaires..in one sense it is, but its also related to huge losses in tax revenue and jobs in the state economy