On Sunday, Oct. 27, Gov. Gavin Newsom unveiled plans to more than double California’s current cap for a program that provides tax relief to the entertainment industry. It’s an aggressive bid to revitalize production across the state after it was decimated by the strikes and curb the yearslong flight of films and television series away from the region.
If passed, the subsidy would be the most generous offered by any state except Georgia, which doesn’t have a ceiling on the amount it gives to productions per year. Industry folks and allies applauded the long-awaited measure amid an escalating tit-for-tat incentives race to host Hollywood. “This industry is our rock,” says Los Angeles mayor Karen Bass, “and we’ve lost more and more of it to other states and overseas.”
Added Colleen Bell, director of the state film commission, “Everyone is in the business of luring production away from California.”
Whether those productions now opt to shoot in California at historically comparable levels will largely swing on other changes to the program outside of increasing the cap from $330 million to $750 million a year. Everything is on the table, Bell says, from broadening the types of expenditures and categories of production that qualify for tax credits to upping the maximum amount a single title can receive in subsidies.
Ellen Goldsmith-Vein, chief executive of production company Gotham Group (Maze Runner, Juror #2) and a member of a L.A. taskforce convened by Bass to promote recovery of the industry in iconic film hub, calls the proposal a “big swing and a really big first step in reversing runaway production” but notes that the degree of its success will depend on details yet to be finalized. “Everybody is looking for additional incentives around above-the-line and some other things,” she explains.
One idiosyncrasy to California’s film and TV tax credit program has been leveraged by competing jurisdictions to coax productions into leaving: It’s the only major film hub to bar any portion of above-the-line costs — like salaries for actors, directors and producers — from qualifying for tax credits. After all, why would Tom Cruise shoot the next Mission: Impossible installment in Los Angeles when he can get a chunk of his salary back by filming in the U.K.?
“It’s critical,” says Joe Chianese, senior vp of Hollywood payroll service company Entertainment Partners. “It’s very important to California remaining competitive.”
It’s not just big-budget studio projects that will benefit allowing productions to claim some incentives for star salaries, according to some experts. By doing so, that additional tax relief may make the difference in lining up financing for independent projects, says Patrick Rizzotti, president of film financing company Blue Fox Financing. “It’s almost become a necessity for some of these producers to go to certain states and countries just so they close financing,” he adds. Rizzotti notes an uptick in productions closing deals for titles shooting in New York after the state last year increased the cap on its program, which also featured changes allowing some above-the-line costs to qualify.
Another change some industry veterans want to see: Allowing unscripted productions to qualify for tax relief. On-location shooting of reality television in L.A. dropped by 56 percent in the third quarter of 2024 compared with the same period in 2023, following an even lower number of shoot days in the second quarter of the year. Nonfiction programming — typically favored by companies because it’s much cheaper to make than scripted entertainment — is not currently eligible for California’s film production tax credit, as it is in several other states, such as Texas, Georgia and Louisiana, a fact that IATSE Local 80 business manager DeJon Ellis Jr. emphasizes.
“Reality shows employ a lot of our people, and I think they should be able to qualify,” he says.
Other categories that currently can’t benefit from California’s program include multi-camera sitcoms with audiences, animation projects and visual effects work. The California Film Commission has specifically cited the absence of a standalone tax credit for VFX work to the governor’s office. Several productions outsource postproduction to countries that offer generous subsidies on this front, resulting in many VFX companies based in the state creating offshoots overseas.
Canada and Australia offer the most lucrative tax relief for this type of work. Productions can get at least 30 percent of their post, digital and VFX spend back in those regions. In March, the U.K. unveiled a five percent bump and removal of the 80 percent cap for VFX costs in the country to stay competitive.
Moreover, “We also have a commercial industry that has been here in Los Angeles for many, many years,” says Teamsters Local 399 principal officer Lindsay Dougherty. “That’s not included in the film and television tax credit.”
Of course, no changes to the program will move the needle if studios and streamers decide against producing their projects in the state. Says Directors Guild of America national executive director and western executive director Rebecca Rhine, “We should seek from the studios and the employers a commitment to keep work in California.” She adds, “This should encourage them to do so.”
For L.A., Newsom’s proposal would almost surely be a boon for industry workers and the ancillary businesses that at least in part rely on production. Amid the dramatic decline in local production, advocates for Los Angeles-area entertainment workers are preparing to lobby legislators to support the change. For the rest of the state, not so much. California lawmakers’ appetite to further subsidize Hollywood remains to be seen, especially when funds can be directed to other urgent needs, like housing and homelessness. Coupled with a looming budget deficit, it could be a tough sell.
Most economists and budget watchdogs are skeptical film tax credits are the jobs and economy stimulators that politicians claim. An analysis of the California film and TV tax credit program conducted by the state last year found that it’s not a reliable mechanism to grow the state’s overall economy. While each dollar spent for film tax incentives returned $1.07 in government revenue, it said that the figure is likely significantly overstated because it was assumed that productions receiving tax credits wouldn’t have filmed here if it didn’t secure the credit. Other studies indicated that each $1 returned $0.20 to $0.50 in state revenue.
One of the more optimistic estimates from a study the review drew from concluded that each dollar spent in incentives resulted in an increase of $2 to $4 in earnings for workers. At the same time, research on other types of public spending, like K-12 education and workforce development, suggested comparable or better benefits.
When it comes to changes to the preexisting program, Thom Davis, president of the California IATSE Council, notes that there’s a delicate balance to strike. Stakeholders want to create jobs without putting an undue burden on the state’s finances. “As it is now, the way the program’s designed, it’s a net positive for the state. So we want to maintain that,” he says.
This story first appeared in the Oct. 30 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
