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Kevin Klowden
Executive Director, Center for Regional Economics and California Center
California and Entertainment & Sports and Global Economy and Regional Economics and Technology
Kevin Klowden is the executive director of the Milken Institute’s Center for Regional Economics and California Center. He specializes in the study of key factors that underlie the development of competitive regional economies (clusters of innovation, patterns of trade and investment, and concentration of skilled labor), and how these are...
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Incentives to reel in filmmakers are worth the money
By: Kevin Klowden
August 01, 2011
   
   
Recently, a column by Michael Hiltzik of the Los Angeles Times expressed skepticism about California's film incentive program. His main beef is with a recent study from the Los Angeles Economic Development Council showing that the tax credits, which cost $200 million over two years, have produced $3.8 billion in economic benefits and 20,000 jobs.

I'll leave Hiltzik's criticisms of the study's sponsorship and methodology to be addressed directly by the LAEDC. But the column does raise some important questions about the nature of the incentives themselves. Are they worthwhile, and could they be structured differently? The answer to both questions is a clear yes.

In a period of high unemployment, offering tax credits to productions that actually spend money and create jobs here in California is a very good investment. Because almost all direct and indirect employees who work on the productions live here in California, we are in a position to capture a far greater amount of tax revenue from productions than virtually any other state, even with an incentive level below that of New York, our main competitor.

The first of two key issues to understand is that we've consistently been losing productions -- to Canada since 1997 and to other states since 2005. The other is that we don't have to match the costs of filming in other locations - we just have to reduce our own costs enough so that producers, directors, actors and crew who live in L.A. can stay here in their own homes, with their own families, and support the additional jobs of caterers, carpenters and others who do not travel out of state.

Hiltzik questions whether scarce state dollars should be shifted from the film incentive program to support higher education. We all agree that education deserves more money. But the issue here is jobs -- ones that pay more than the state average. An investment in retaining film production is not only likely to see a significant amount of the money returned to state coffers through revenue that would have been diverted to other states, but also helps to retain California's core employment base, which has clearly been eroding for a number of years. There are very few other places where this money could be utilized to aid the state economy in the here and now that would provide stronger results.

As far as the structure of the incentives, the main issue is not figuring out which productions are most deserving. California's incentives already exclude above-the-line salaries (for stars, directors and the like) and they can't be collected until after the films are completed, two facts that go a long way to ensuring the money reaches its intended targets.

The key to restructuring the incentives lies in realizing that the California Film Commission hands out its entire allocated budget of $100 million in credits in less than a week's time, and that several major categories of productions (such as new network shows, commercials and films with budgets above $75 million) are excluded entirely due to political considerations that made it possible for the original program to pass.

By comparison, New York offers more than $400 million in credits and was willing to renew its incentives at that level. The Milken Institute is currently working on a study examining this issue: how to expand and revise the incentives to create and sustain more jobs in the state. In the end, without the jobs, we won't have the tax base we need in the future.