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California's loss of entertainment jobs will be harder to reverse as new production hubs emerge, according to new Milken Institute report
Changes to the state's incentive program could help keep jobs
For Immediate Release
Feb 27, 2014

LOS ANGELES -- California's stronghold on the entertainment industry is loosening as production jobs are lured to other locations due to production credits and other tax breaks. Between 2004 and 2012, the state lost more than 16,000 jobs in filmed production employment -- a more than 10 percent drop. Meanwhile, New York, California's main rival, added more than 10,000 such jobs. These jobs contribute to state revenues and provide sustainable incomes that result in significant local spending. In California, they are high-paying middle-class positions that pay more than $95,000 on average.

A report from the Milken Institute's California Center determines what can be done to make California more competitive. "A Hollywood Exit: What California Must Do to Remain Competitive in Entertainment -- and Keep Jobs" examines the incentives of New York and other states as well as Canada and other countries. One conclusion: the areas not covered under California's current incentive program, namely, big-budget movies, hour-long network dramas and visual effects, have been the fastest to flee the state.

The report's authors make recommendations for improving California's incentive program, based on what's working elsewhere. Suggestions include raising the total amount of funds available to a level that allows for eliminating the current lottery system. The state should also award credits on a rolling basis throughout the year, instead of only at one point tied to the state's fiscal calendar.

"With film production showing itself to be increasingly mobile, California should not attempt to capture or keep productions that are looking for the highest possible incentives," said Kevin Klowden, director of the Milken Institute's California Center. "Instead we suggest ways for California to leverage its strategic advantages, namely serving as the headquarters of most studios, distributors and producers, its role as home to the largest concentration of entertainment talent in North America, and its strong existing infrastructure."

Other suggested improvements to the incentive program include ensuring a smooth evaluation process, supported by an application fee charged to larger productions to cover the cost of new employees at the California Film Commission who handle the evaluation of submissions. The state could also restructure the credit to align with television production schedules and dedicate a portion to hour-long TV dramas, which create the most jobs.

"We saw repeatedly that technological advances have not only changed the entertainment revenue stream as studios reach viewers in more ways than ever," said Klowden, "but technology also allows more jobs to be portable -- which lets key functions be handled nearly anywhere."

Another way to support California's entertainment employment base would be to capture blockbusters, allowing movie with budgets over $75 million to become eligible for incentives. Total credits for larger productions could be capped to ensure that no single film takes a disproportionate share. Further, because in-state productions outside of the LA area have dropped off nearly completely, report authors recommend extending an additional 5 percent credit to productions taking place outside the union-designated 30 Mile Zone around LA. This would help make up for the additional transportation and lodging cost stemming from working in other locations.

One of the biggest changes the authors propose would be the inclusion of digital visual effects and animation at the usual 20 percent rate available to filmed productions. This would offset a cost disadvantage faced by visual effects companies, including those in the San Francisco Bay Area.

The authors also recommend that the state establish a digital infrastructure investment credit as part of its research and development tax credit, rather than the filmed production incentive. According to the report, as California works to encourage investment in the filmed production infrastructure, it can also provide a research and development credit to production companies, one intended to create in-state research to keep California at the cutting edge of digital entertainment.

"A Hollywood Exit: What California Must Do to Remain Competitive in Entertainment -- and Keep Jobs," by Kevin Klowden, Priscilla Hamilton and Kristen Keough is available for download at no charge.