California Report Criticizes $100 Million Hollywood Aid

California’s $100 million annual tax subsidy for the film and TV industry doesn’t pay for itself, and expanding it may not stem job losses to other regions, the state’s non-partisan fiscal analyst said.

For every $1 of subsidy, the state gets back about 65 cents in sales, income and use taxes, the Legislative Analyst’s Office said yesterday in a report citing the Los Angeles County Economic Development Corp. Local and federal agencies separately collect 46 cents, according to the report.

Legislators may still wish to consider expanding California’s subsidies, the analyst said. Hollywood is a flagship industry, with high-paying jobs for the most populous U.S. state, according to the report. It also warned that other states could respond with increases of their own.

“This sort of competition can be characterized as a race to the bottom,” Legislative Analyst Mac Taylor said in the report. “It is unclear how these sorts of competitions end.”

California and 36 other states offer tax credits to the film industry, with payments totaling $1.4 billion a year. California lost 16,137 entertainment industry jobs between 2004 and 2012, a decline of 11 percent. New York, the Golden State’s main competitor, added 10,675 positions, up almost 25 percent, according to a February report by the Milken Institute.

Los Angeles Mayor Eric Garcetti wants to double the tax-credit program and expand it to include advertising, shows on premium-cable networks such as HBO, and films with budgets of more than $75 million. Los Angeles accounts for about half of the 221,000 jobs in the U.S. film industry, the analyst said.

$120 Billion

At $120 billion of gross output, the U.S. motion-picture industry is larger than the automotive repair and maintenance industry at $112 billion and natural-gas distribution at $82 billion, according to the report.

California provides a tax credit for 20 percent of qualified expenditures for eligible film and television projects. TV series relocating to California from other places and independent films are eligible for a tax credit of 25 percent of qualified expenditures.

The legislative analyst warned there could be consequences if elected leaders boost the credits.

“In responding to other states’ increased subsidy rates, California may only stoke this race to the bottom without making any real headway in terms of increasing its share of film and television productions,” the analyst said. “Meanwhile, the expense of the film tax credit program would increase.”

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Rob Golum, Pete Young

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