The Motion Picture Association unveiled a report on Friday that calls for a vast expansion of the California film and television tax credit.
The report contends that the credit generates billions of dollars in economic benefits for the state and produces a positive return in state and local tax revenue. The report advocates expanding the state credits for film and TV production and for the construction of soundstages, as well as creating a new credit for visual effects work.
The report also argues for making the existing credits refundable or transferrable, which would allow studios to benefit even if they do not have tax liability in the state.
The MPA represents six studios — Disney, Netflix, Warner Bros., Sony, Universal and Paramount — and has led the charge in pushing for increases in state tax credits across the country over the last two decades. The organization funded the report, which was prepared by the Los Angeles Economic Development Corporation.
The report studied “Program 2.0,” the $330 million annual credit that ran from 2015 to 2020. The authors used a multiplier to estimate the direct and indirect economic benefits from the credit, finding that the program generated $12.4 billion in direct spending and $21.9 billion in total economic output.
The California Film Commission, the state agency that administers the credit, has also studied Program 2.0, but came up with a significantly lower estimate. In a report in December 2020, the state agency estimated that the program’s $1.5 billion in credits was on track to generate $11.2 billion in direct spending. The LAEDC report examines only $915 million in credits — that is, more than a third less — but finds a direct impact that is $1.2 billion greater than the state’s estimate.
Alex Medina, a spokesman for the LAEDC, said on Friday that while the MPA funded the report, its analysis and conclusions are the work of the LAEDC.
“We’re an independent organization with an unbiased opinion,” Medina said.
The MPA and the LAEDC held an event on Friday at Warner Bros. Ranch in Burbank to announce the report. The event attracted political leaders from Sacramento, including Lt. Gov. Eleni Kounalakis, several legislators, and Dee Dee Myers, the former Warner Bros. communications chief who is now the director of the governor’s office of Business and Economic Development.
Several of the speakers made a case for the tax credits, arguing they had helped stop runaway production and generate good-paying jobs.
“The industry earns every dollar and then some,” Myers said.
The LAEDC has studied the state’s credit twice before, using the same methodology. In 2011, the report estimated that each dollar of tax credit generated a return of $1.13 in state and local tax collections. In 2014, the LAEDC estimate was $1.11 in state and local taxes for each dollar in credits. The newest report pegs the return at $1.07.
The state Legislative Analyst’s Office disputed the LAEDC’s findings in 2012, arguing that the return is less than a dollar, and “perhaps well under $1.00,” claiming that the report failed to account for the “opportunity cost” of not spending state resources on other priorities. The office expanded on its critique in a 2016 report, arguing economic impacts are inherently difficult to model with accuracy.
“There is no way to directly observe how and how much the economy has changed due to the film tax credit,” the office concluded.
More recently, the state auditor’s office in Georgia issued a report in January 2020 arguing that the economic benefits of that state’s credit had been significantly exaggerated. Georgia has by far the largest production credit in the country, issuing $1.2 billion in credits last year.
Last year, with California experiencing a historic surplus, the Legislature passed a temporary, two-year increase of $180 million for TV productions, and created a new $150 million credit for soundstage construction. The underlying $330 million annual tax credit is authorized through 2025, but lawmakers have introduced a bill — SB 485 — that would extend the credit through 2030.
Sen. Anthony Portantino, the author of SB 485, said Friday that he is surveying industry stakeholders to get a better sense of how to proceed with the program. As written, the bill would maintain funding at the $330 million level, but Portantino said that figure is just a placeholder.
“I’m hoping to expand it,” he said.