California Should Look Beyond Film Tax Credits to Boost Industry

California faces an identity crisis, as its status as a film production leader is in peril. Productions are fleeing California for states such as Georgia and for countries such as Turkey—partly because they offer more attractive tax options.

California’s natural response may be to expand its own film and production tax credits, but this approach exacerbates a race to the bottom among the states. Rather than use tax credits to solve the problem, the state should consider more sustainable approaches that go beyond writing checks to billion-dollar studios to temporarily buy their business.

By investing in infrastructure, green initiatives, and workforce development, the Golden State can build long-term benefits for its own economy and the film industry.

Expanding film tax credits is a short-sighted solution for a state with serious financial needs. California’s future lies in getting ahead of the curve, not getting into a bidding war with another locale.

Still, such credits may appear attractive as an easy fix as pressure to restore California’s reputation as a go-to location for television and film production mounts. Such credits appear to create jobs. Productions require huge amounts of labor and filmmakers spend a lot of money, providing an influx of capital to the state.

But nailing down what benefits actually accrue to a state has proven difficult, and studies have shown little or no positive impact on individual state economies when the cost in tax revenue of the breaks are factored in.

The temporary presence of a film crew for a short-term project doesn’t create sustained economic growth. The jobs leave when the production ends, and many jobs may not go to local workers in the first place because productions at times travel with their own crew.

Also, an active secondary market for tax credits means transferable credits received by producers that don’t owe state taxes can be sold for cash. The benefit of a film tax credit may wind up going to an individual or entity with no ties to the production.

Alternate Incentives

Many states with film tax credit programs limit how much tax revenue is spent on the incentives. For instance, Maryland has a project limit of $10 million in tax credits and an overall annual allocation cap of $17.5 million. These policy decisions address the need to balance luring productions with maintaining fiscal responsibility.

That balance is necessary, as throwing more money into credits doesn’t seem to create more jobs. Georgia, for example, has no annual or project cap on its film tax incentive program. An analysis of the state’s spending on film tax incentives found that in 2017, each job created cost about $52,000 in tax credits.

This contrasts with the California Competes Tax Credit program, spanning about the same period (2014 through 2018). In that time, the more general job-creation program cost about $9,900 per incentivized position—clearly a better return on investment.

The CCTC used more holistic measures of a business’s investment in the state to award credits, accounting for job creation, wages, and economic impact on the region. Film tax credits, meanwhile, ultimately subsidize wealthy production companies.

Instead of offering tax credits to individual studios for one-off productions, California could invest in modern, shared production infrastructure. Using tax incentives to finance construction, renovation, and maintenance of state-of-the-art production facilities such as soundstages and editing suites, the state could lean into green filmmaking—reducing productions’ carbon footprints.

In creating a network of publicly available, green-powered production spaces, California would lower production costs for studios of all sizes. By focusing on infrastructure, the state would attract productions and generate revenue well beyond the span of a single television show or film. It also would position California on the vanguard of what may be the next industry to see an environmental, social, and governance revolution.

Environmental grants or carbon tax credits for productions that demonstrate a commitment to greener practices, such as using renewable energy or working with a state-subsidized production suite, would attract environmentally conscious filmmakers. Productions that opt to film in California could gain financial and infrastructure support from the state, as well as marketable eco-cred. The latter would grow more valuable as consumers and investors become more conscious of environmental responsibility.

Tying incentives to California’s broad climate plan would reinforce the state’s reputation for progressive policies while building a competitive edge against other places that may not be able or willing to match.

Labor Development

To get ahead of the labor needs from increasing production, the state could offer tax credits to production companies that partner with California’s state education institutions—from junior colleges to trade schools and universities. The credits could help develop and fund training programs for production crew positions, for example.

Keying the tax credits to workforce development provides an incentive to studios and a path forward for widely accessible training programs. These credits would offset the cost of hiring apprentices, provide job training, and develop educational resources.

By tying tax incentives to skill development, the state could help foster a longer-term industry ecosystem: The talent pool would grow organically within California, making it more attractive to productions that seek qualified workers. Some workers eventually may leave to work in other states, but credits and grants encouraging green filmmaking would draw productions back to California—and with them, workers.

These days, sound stages sit quiet. Local production companies are laying off workers. And Hollywood is struggling to compete with tax incentives offered elsewhere while dealing with strikes and streaming wars.

The solution for California lies in investing in long-term fixed benefits. A traditional film tax credit outlay could stop the bleeding in the near term, but it would only be a matter of time before another state outbids California, and the exodus would begin anew. Tax revenue should be directed toward investments that remain after a production wraps up—and, importantly, remain in the state.

Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law. Follow him on Mastodon at @andrew@esq.social

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