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Hollywood Tax Credits Are A Grand Illusion

by Bruce Haring

Think of Detroit, you think of cars. Think of Maine, you think lobsters. Think of Florida, and oranges come to mind.

Think of Hollywood, and film and TV is the image that appears. But very little of both have lately been produced there, thanks to California’s onerous tax burdens and the incentives offered by Louisiana, Canada, New York and other production-stealers.

That’s why this week’s news that the Golden State government has finally awakened to the need to help one of its signature industries by tripling tax credits for film and TV production isn’t quite the good news backers are trumpeting. That’s because it arrives as too little, too late to save enough jobs to matter.

The Los Angeles Times reports that between 2004 and 2012, the California entertainment industry lost 16,137 film production jobs. Think about that – it means families are torn apart as mom or dad spends a lot of time out of town; money is not being spent in the state on daily activities; and the type of bright young people that used to hold down those jobs are no longer part of the community.

California will now offer $330 million a year in tax credits to film and TV producers, the equivalent of 20%-25% in savings to films with budgets over $75 million, one-hour network TV dramas, and one-hour pilots.  But that amount still trails the $420 million New York offers. And it relies on some weird new system that will use a “job creation ratio” to determine who gets a fair share of the credits.

Keep in mind that TV networks are making fewer one-hour dramas, and most will not suddenly decide to make them in California. The film studios are also making fewer $75 million films.

All of those big-budget productions that are being made are still likely to be made in other locations. Blame the Internet expansion to higher speeds that allows easy remote communications with the home office, cheaper labor costs in out-of-state markets that continues to be an advantage, and the infrastructure that has arisen in other locations to support productions, making it less of a chore to shoot there.

Add in the lower cost of reality-based programming and indie films made on a shoe string that are ineligible for tax credits, and you see the dilemma.

Bottom line: the new tax credits are nice. But it would have been nicer if they had come ten years ago. Some small increase in California entertainment production will likely happen, but not enough to really matter in the long term.

Think of Hollywood, and soon you may be thinking about technology start-ups or other businesses. Because once jobs leave a state, they don’t ever come back to previous levels. That’s not a Hollywood script, but it is reality.




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