In 2001 the U.S. Department of Commerce released a report, “The Migration of U.S. Film and Television Production” which estimated that television production flight (runaway production) increased 230 percent from 1990 to 1998 and that up to $10 billion in film and television production was lost to other countries during the five years prior to the report. The most significant flight was from California to Canada, and the productions most affected were those with budgets between $1 million and $5 million. Films that made up the majority of that budget range were the television “Movies of the Week.” As of 1999, most of those television movies had been lost to Canada with 696 weeks of production in Canada during the year and only 152 weeks in the United States.
From 1999 to 2003, film industry jobs in the five county Los Angeles region dropped from 146, 000 to 111,000 (a 24% drop in just 4 years).The hardest hit were the “below the line” workers (art, construction, costumes, sound, camera, grips etc.), followed by ancillary service businesses (caterers, dry cleaners, transportation, janitorial, security etc.). The San Fernando Valley was particularly vulnerable to runaway production job losses since, in the year 2000, approximately 54,000 film industry employees (representing close to 60% of L, A. County’s film industry employees and approximately 37% of those in the five county L.A. region) worked in the Valley.
Early in 2001, the Valley Industry and Commerce Association (“VICA”) formed a “Runaway Production” subcommittee (which I chaired) to work together with a film industry alliance (consisting of approximately 200 film commissions, the Motion Picture Association of America, the Directors’ Guild of America, The Entertainment Industry Development Corporation (now Film LA, Inc) and others throughout the country) to keep film production in the United States and (of particular importance to VICA) in California.
Despite all of our efforts, film production continued to flee from the United States with the majority being from California. The primary attraction was lower film costs resulting from incentives provided by other jurisdictions. Canada was first, offering refundable tax credits of up to 30% of production costs.
After Canada became successful in luring filming from the U.S. (the majority from California), other countries quickly followed. Of the five films nominated for “Best Picture” at the 2003 Academy Awards presentation, none were filmed entirely in the U.S. and only one, “The Hours” was even partially filmed in the United States. Soon other states (recognizing the potential multiplier effect of film production to their economies) began offering incentives. By 2004, 29 states were offering filming incentives and by the beginning of 2009, the number grew to approximately 40 states.
For more than eight years since the U.S. Department of Commerce issued its report, California has been enduring massive attacks on its film production industry with virtually no means of defense. In 2001 California accounted for more than 80% of all motion picture starts and television programming in the United States. Now the percentages have dropped into the low 30s. It began to appear that all hope for California’s remaining film production industry was lost. Then in February of this year, after working together with the Governor and legislative leaders to develop a solution for California’s waning economy (during special session), Assemblymember Paul Krekorian introduced a bill (ABX3 15) providing for a number of business stimulants which included substantial tax credits to enable California to regain its position in film production.
Assemblymember Krekorian’s bill was signed into law by Governor Schwarzenegger on February 20, 2009. The measure requires the California Film Commission (“CFC”) to administer a motion picture production tax credit allocation and certification program providing $100 million of credit authorizations each year during the fiscal years 2009-10 through 2013-4, totaling $500 million.
The tax credit is equal to 20% of qualified expenditures attributable to the production of a qualified motion picture (which includes feature films with budgets between $1 million and $75 million; Movies of the Week with minimum budgets of $500,000 and new television series with minimum production budgets of $1 million). To be eligible, 75% of the production days must take place in California or 75% of the production budget must be incurred for payment for services performed within the state and the purchase or rental of property used within the state. Additionally, a 25% tax credit is available for qualified expenditures attributable to the production of a television series that relocates to California, or an independent film (a film with a budget between $1 million and $10 million produced by a non-publicly traded company). There are certain restrictions as to subject matter for both the 20% and the 25% credits and the qualified projects must be completed within 30 months from receiving their allocations.
To date, $67 million in tax credits have been allocated to 25 projects with budgets totaling $347 million. It is estimated that for every dollar spent on film production, the overall positive impact on the economy is $2.90. Based on this estimated multiplier of 2.9, the $347 million of expenditures should generate a positive impact to the California economy of over $1.6 billion.
Why did it take so long for California to begin defending itself against its predators? Unfortunately, instead of recognizing the true victims of runaway production many legislators thought the credits would amount to nothing more than corporate welfare and they believed that giving a tax break would impair cash flow and increase the deficit. ABX3 15 relieves the cash flow concerns by allocating the credits beginning in 2009, but deferring their use until 2011, thus the economy has two years to realize the benefits before any cash reductions due to credits. As shown above, results to date are positive.