Industry News :: Incentive bill still chancy in '06 legislature

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By Jesse Hiestand
California's proposed incentive bill faced an uphill fight when it was introduced last year and won't necessarily have it any easier when it is resurrected in January, according to people familiar with the situation.

One of the largest obstacles is mostly gone -- the budget deficit that led lawmakers to balk at spending $100 million to help Hollywood retain film and television production. But even with the prospect of a balanced budget because of new revenue and belt-tightening, Gov. Arnold Schwarzenegger is eyeing a far bigger prize.

The Hollywood heavyweight is expected to use his Jan. 5 State of the State address to propose not only a budget but also a sweeping upgrade of California's infrastructure, one that could cost as much as $50 billion. Sources say that ambitious undertaking could divert attention and resources from the production incentive, which Schwarzenegger never really publicized in the first place.

Still, lawmakers on both sides of the aisle have pledged to give it another go after the bill, sponsored by state Assembly Speaker Fabian Nunez, D-Los Angeles, stalled in committee and eventually was shelved for failing to garner enough support.

"Everybody's waiting to see what's going to be in the budget, what (Schwarzenegger's) priorities are going to be," California Film Commission executive director Amy Lemisch said. "We're still committed to making it happen. So that's the goal."

Supporters would be delighted to hear Schwarzenegger mention the incentive on Jan. 5, but that's far from guaranteed.

So far, only preliminary steps have been taken to regroup the coalition of studio reps, union officials and producers who backed AB 777. The group has held some early conference calls, but there is no indication that the measure has been revised in response to the criticism it faced just three months ago.

Although there was bipartisan support in the Assembly, some Democrats in the Senate objected to the size of the outlay, while Republicans took issue with the refundable nature of the credit and the fact that there were relatively few restrictions on which filmmakers could qualify.

The bill proposed to subsidize a 12% tax credit on wages and other production costs, worth as much as $3 million per production. Some TV shows could get as much as a 15% break, while qualified commercial production companies could get a 10% credit.

At least 75% of principal photography would have to be done in the state, and certain costs would not be covered, including rights acquisition, development, financing, distribution and residuals.

Taxpayer advocates complained that the incentive was too generous in offering a refund to producers by allowing them to cash out whatever credit was left over after they had met their tax obligations.

Advocates argued that it was preposterous for Hollywood's home state to not have a production incentive when, after years of losing production to Canada and other foreign locations, dozens of other U.S. states have aggressively moved to attract business with generous tax breaks and incentive packages.

Two previous anti-runaway bills have failed in California, including a 15% wage-based tax credit killed in committee three years ago.

Given this track record, there is some pessimism about the current measure, with some insiders predicting that it could die a quiet death in what for Schwarzenegger is an election year.

Representatives of the governor and Nunez were not available for comment.

After the bill was pulled in September, several leading lawmakers wrote to Schwarzenegger, saying that they remained "committed to including industry tax incentives in the budget we pass next year." In addition to Nunez, those lawmakers were Republican Assembly Leader Kevin McCarthy, R- Bakersfield; Senate President Don Perata, D-Oakland; and Senate Republican Leader Dick Ackerman, R-Irvine.

"I look forward to working with the leaders of both houses to make this happen," Ackerman said at the time.

The bill's failure was attributed in part to a lingering perception that it provided "corporate welfare" for an affluent industry based mostly in Southern California. Nunez and Sen. Kevin Murray, D-Los Angeles, did their best to counter that by emphasizing that the primary beneficiaries would be those below-the-line workers whose jobs would be spared when producers opted to stay in the state.

A study commissioned to support this view found that a feature film with a $70 million budget and a 75-day shooting schedule in California created temporary jobs for 588 cast and crew and 1,182 extras. That was said to be equivalent to 141 full-time, one-year jobs as well as 425 full-time indirect jobs.

The Los Angeles Economic Development Corp., the author of the study, said a film of that size generated $199 million in direct and indirect economic activity, leaving the state with $10.6 million in sales and income tax.