California Lawmakers Remove Tax Credit Increase for Film Industry

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Film crew working diligently on a production set in California.

News Summary

California’s efforts to increase the film and TV tax credit cap to $750 million have hit a snag as lawmakers removed this proposal from legislation. Governor Newsom’s push aimed at enhancing the state’s production appeal faces uncertainty, despite unanimous support from key committees. This decision raises concerns about job preservation in the entertainment sector, which is crucial for California’s economy. Advocacy continues from unions and industry leaders, emphasizing the need to modernize the program amidst competition from other states. With the current cap at $330 million, potential changes could create one of the largest incentive pools in the country.

California – The ongoing effort to expand the film and TV tax credit program in California has encountered a significant hurdle as lawmakers have opted to remove an increase to the program’s cap to $750 million from proposed legislation. This development poses challenges for safeguarding jobs in the state’s vital entertainment sector, which has been a cornerstone of California’s economy.

Initially, Governor Gavin Newsom had promised to boost the tax credit program from its existing cap of $330 million to $750 million, a move aimed at enhancing the appeal of California as a production hub. As part of this initiative, two bills—AB 1138 in the Assembly and SB 630 in the Senate—were introduced to facilitate this increase. Both bills successfully passed through their respective appropriations committees but not without controversy. The removal of the $750 million cap raises questions about the future viability of the program, although there remains a possibility it could be reintroduced later during the budget process.

Senator Ben Allen, the author of the Senate version of the bill, communicated his disappointment regarding the cap’s exclusion, reiterating the necessity to modernize the program to uphold California’s prominence in the entertainment industry. Conversely, Assemblyman Rick Chavez Zbur, who authored the Assembly version, maintains an optimistic view, noting broad support from legislators for the proposed increase.

The changes to these influential bills were made amid an intense period of voting on numerous legislative proposals, which may have contributed to the oversight. Just before the appropriations committees cast their votes, Governor Newsom reaffirmed his backing for the $750 million increase, indicating continued executive support for the legislative change.

As the legislative session progresses, the state Legislature faces the challenge of passing a budget by June 15. Nonetheless, there remains the option to address lingering funding issues through later trailer bills following the initial budget approval. Numerous representatives from entertainment unions are actively lobbying for the tax credit expansion, urging state lawmakers to enhance California’s competitiveness against incentive programs offered by other states.

The legislation aims to increase the tax credit from 20% to 35% on qualified production expenses, with rates potentially rising to 40% for productions located in economically disadvantaged regions or outside the central Los Angeles area. Additionally, the proposed expansion intends to include various types of productions such as animated films, television shows, sitcoms, and large-scale competition programs, which may also cater to eligible music scoring projects through potential future amendments.

Both the Senate and Assembly committees have expressed support for the bills, with the Senate Revenue and Taxation Committee voting unanimously to advance SB 630 for consideration by the full Senate. Likewise, AB 1138 garnered approval from the Assembly’s Arts, Entertainment, Sports, and Tourism Committee, paving the way for further evaluations by the entire assembly.

Advocates for the tax credit expansion have made their voices heard, with over 100,000 letters sent to lawmakers in support of the bills. This collective effort includes backing from studio executives and union members who emphasize the importance of preserving union jobs and fostering the entertainment industry in the state. However, critiques of the initiative highlight concerns that the tax credit program could merely serve as corporate giveaways without delivering on projected economic benefits.

Currently, California’s film and TV tax incentive program stands capped at $330 million per year. If the proposed increase is enacted, it would create one of the largest incentive pools in the nation, second only to Georgia’s program. Supporters argue that this expansion would not only protect jobs in the film industry but also generate significant economic returns that would indirectly benefit local businesses outside of the entertainment sector.