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California’s new production tax program aims to keep and create jobs

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A big budget movie called “San Andreas” is coming out just in time for the summer blockbuster season. It’s a film with a very California storyline: Monster earthquakes strike the state, flattening both Los Angeles and San Francisco.

California may play a starring role in San Andreas, but most of the movie wasn’t shot in Golden State. It was shot an ocean away in Queensland, Australia. That’s because the film’s producers got a generous tax credit package from both the Australian and Queensland governments to film their production abroad. That tax package allowed the filmmakers to save millions of dollars in final production costs.

Posters for the upcoming film “San Andreas.” The $100 million disaster movie, starring Duane Johnson, is set in California, but most of it was shot in Australia because of generous tax incentives offered Down Under. (Photo: Saul Gonzalez)

This is just a recent example of a much longer Hollywood story, as tax credit packages, offered both by other countries and other states, have come to dominate studio’s decisions over where films and television shows get made.

Hollywood location manager Chris Baugh, whose credits include “The Italian Job” and “Argo,” has seen that process from the inside. Baugh says his job used to be about finding the perfect mountain, river, or small town to help tell the story in the script and fulfill the director’s vision.

Now, Baugh says, his work also involves looking for the best tax incentive program in other states. When he and his production colleagues find it, that’s often where the cameras and production jobs go. “Most studios feel like they can’t make a film unless they have a tax credit,” says Baugh. “It’s not worth it to them. From a business standpoint, it reduces their risk and increases their profit.”

Chris Baugh
Hollywood location manager Chris Baugh has seen many films he’s worked on for Hollywood studios choose to shoot outside of California because of tax incentives. “From a business standpoint, it reduces their risk and increases their profit,” says Baugh (Photo: Chris Baugh)

Over 30 states now offer tax credits to film and television productions, all with the hope of luring Hollywood away from Hollywood. In just one year this trend cost California 47,000 jobs and $400 million in lost tax revenue, according to a report released last year by the Southern California Association of Governments.

To fight that runaway production, California launched its own film ant television tax incentive program in 2009. It offered $100 million a year via lottery to producers who qualified. But other states matched and exceeded California’s incentives.

Last year, legislation was passed and signed into law by Governor Jerry Brown to get production back to the state. The new law revamps California’s production tax incentive program. The five-year program is much bigger, with $330 million offered annually instead of $100 million; and, unlike the old program, big budget films and television shows are also allowed to apply for the credits.

Amy Lemisch, executive director of the California Film Commission, which administers the program, says its goal is create more jobs in the state and bolster California businesses tied to Hollywood production, from prop shops to caterers to trucking companies.

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Amy Lemisch is the executive director of the California Film Commission, which administers the state’s tax credit program for movies and television. “If you want to have a thriving entertainment production industry in 2015, you need a robust incentive program,” says Lemisch. “That is the way the industry is operating.”

“That will be our success, when we see more levels of all kinds of productions,” says Lemisch. “More of our crews finding work and our support businesses, all of thousands and thousands of support businesses that productions use for services and rentals and specialty items, we hope to see those thrive.”

But even as California expands its production tax credit program, many economists and tax experts question the wisdom and effectiveness of such initiatives.

Joe Henchmen, a vice-president at the Washington D.C.-based Tax Foundation, has studied production tax incentive programs across the country. He argues that the economic benefits gained by increased film and television production often don’t match the revenue states lose by offering tax breaks.

“The added economic activity, the added tourism, the added restaurant stays, the added hotel stays, the added employment of part time personal, it does not come close to making up for the outlay for the subsidy for the production company,” says Henchmen.

Here in California, to insure the state is getting the most economic bang for its tax credit buck, films and television shows applying to the program will go through a competitive process that aims to ensure that they are creating jobs. Instead of being selected by a lottery, as they were in the old system, productions will be ranked by how many jobs they create and how much spending they put into support services.

“We have very stringent controls in place to monitor that what a production said they were going to do they actually do,” says Lemisch. “Did the production pay all their payroll? Did they pay all the bills and spend what they were going to spend? And are the numbers penciling out?”

Chris Baugh hopes California’s new production tax credit system works. He says he’s tired of seeing productions that could have been shot in California go out of state. He’s also tired of spending time on the road as productions set up their cameras elsewhere to take advantage of tax credits.

“I’ve spent so much time away from home, living in a hotel room, that I’ve considered leaving the business, so I can take my life back up and continue on like a normal human being,” he says.

But Baugh will soon be traveling again as he scouts locations for a film in Georgia, a state that offers very generous tax incentives.