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California Tax Credit Program Faces Legislative Setbacks

A vibrant representation of California's film and television industry, essential for local economy.

News Summary

California’s film and television tax credit program is at risk as lawmakers backtrack on a proposed increase from $330 million to $750 million. While both AB 1138 and SB 630 progressed through committees, the removal of the cap raise has alarmed industry advocates. Supporters, including Senator Ben Allen and Assemblyman Rick Chavez Zbur, emphasize the need for a competitive incentive to attract production. The ongoing legislative discussions could still see amendments, with various unions actively lobbying for the expansion amid concerns of corporate welfare effects.

California’s film and television industry faces uncertainty as lawmakers have recently taken a critical step back regarding the proposed expansion of the state’s tax credit program. The legislation aimed to increase the program cap from its current limit of $330 million to a significantly higher $750 million, a move that was initially supported by Governor Gavin Newsom. However, the current draft of the bills, AB 1138 and SB 630, has removed any mention of this cap increase, casting doubt on the program’s future.

The legislative journey of the bills continues as they navigate through the appropriations committees in both the Assembly and Senate. Though both bills have successfully advanced through these committees, the absence of the $750 million reference raises concerns about the overall effectiveness and attractiveness of the tax credit program to producers. However, there is a possibility that this figure could be reintroduced later in the budgeting process.

Senator Ben Allen, who is responsible for the Senate version of the bill, has expressed disappointment at the recent changes, underscoring the need for a modernization of the program to ensure that California remains competitive within the entertainment industry. Meanwhile, Assemblyman Rick Chavez Zbur, author of the Assembly version, remains hopeful about the overall support for the increase among legislators, suggesting that bipartisan backing exists for the initiative.

The modifications to the bills come during a notably busy period in the legislative calendar, coinciding with votes on a multitude of other bills. Governor Newsom had reiterated his commitment to increasing the tax credit program shortly before the appropriations committees cast their votes, indicating ongoing executive support for this initiative.

As the deadline for passing a budget looms with a requirement from the legislature to finalize by June 15, there is potential for some funding concerns to be addressed later through “trailer bills.” Various representatives from entertainment unions have actively lobbied for the expansion, emphasizing the vital importance of enhancing California’s competitive standing against incentive programs offered by other states.

The proposed legislation aims not only to increase the tax credit rate from 20% to 35% for qualified production expenses but also up to 40% for productions based in economically disadvantaged areas or outside of Los Angeles. Additionally, the planned expansion of the program would broaden its scope to include animated films, television shows, sitcoms, and large-scale competition shows, with potential amendments relating to music scoring eligibility.

A notable aspect of this legislative push is the unanimous approval of SB 630 by the Senate Revenue and Taxation Committee, which has since moved on to the full Senate for consideration, while AB 1138 has also received approval from the Assembly’s Arts, Entertainment, Sports, and Tourism Committee as it progresses to the full Assembly. The leaders of this movement report that over 100,000 letters have been sent to lawmakers advocating for the passage of the bills, indicating strong support from both studio executives and union members alike.

A coalition of labor unions supports the legislative efforts, arguing that the safeguarding of union jobs is crucial to preserving California’s entertainment industry. However, critics of the tax credit program raise concerns, labeling it as corporate welfare that may not produce the expected economic returns.

Currently, California’s film and television tax incentive program is capped at $330 million annually, which, if expanded, would position it as the second-largest incentive pool in the United States, trailing only Georgia. Advocates for the tax credit expansion argue that it will facilitate significant economic benefits that extend beyond the entertainment sector to local businesses and the greater economy.