The Breakdown | Explaining Southern California's economy
Business & Economy

California's US reps urge state to extend film tax incentives, but others ask 'Why?'

Some real members of Congress from California are urging the state to put more money into competing for productions like the Netflix show
Some real members of Congress from California are urging the state to put more money into competing for productions like the Netflix show "House Of Cards," starring Kevin Spacey.

As 29 members of California's Congressional delegation signed a letter urging state legislative leaders to reauthorize and enhance the state's film and TV production tax incentive program, others are questioning whether such industry-specific measures are a good idea.  

At issue is a bill to extend the credits, AB 1839, which has made its way through the California Assembly and is awaiting consideration by the state Senate Appropriations committee as early as next week. California's current tax credit program is set to expire next year.

Several members of Congress, led by Rep. Adam Schiff (D-Burbank), signed a a letter to State Senate President Darrell Steinberg and Assembly Speaker Toni Atkins:

"As you consider reauthorizing the existing credit, we urge you to enhance it to be more nationally competitive. Among the enhancements to the current credit that would help are substantially increasing the overall pot allotted, raising the cap that prevents blockbuster films from competing, and allowing hour long television dramas to qualify for the credit." 

The 29 members signing the letter — all Democrats — were Schiff, Judy Chu, Karen Bass, Julia Brownley, Tony Cárdenas, Lois Capps, Anna Eshoo, Sam Farr, John Garamendi, Janice Hahn, Mike Honda, Jared Huffman, Barbara Lee, Zoe Lofgren, Alan Lowenthal, Doris Matsui, George Miller, Jerry McNerney, Grace Napolitano, Lucille Roybal-Allard, Linda Sanchez, Loretta Sanchez, Brad Sherman, Eric Swalwell, Mark Takano, Mike Thompson, Juan Vargas, Maxine Waters and Henry Waxman.

Should the state spend more on film and TV?

But a report from the state's Legislative Analyst's Office questions whether California should be spending more to compete in the tax incentive arms race:

We generally view industry-specific tax expenditures — such as these film tax credits — to be inappropriate public policy because they (1) give an unequal advantage to some businesses at the expense of others and (2) promote unhealthy competition among states

(The report was cited in the congressional letter as finding that only 52 percent of the country's film and television production jobs are now in California, down from 65 percent just a decade ago.)

While the report also gives reasons to consider subsidies, it adds a warning: "If the Legislature wishes to continue or expand the film tax credit, we suggest that it do so cautiously."

Joseph Henchman of the Tax Foundation asks what California would get from film and television producers in return for increasing its tax incentives.

"What's happened in the past is these same companies have shopped around to other states and said, 'If you offer us a deal, we'll move our productions from California,'" Henchman said. "If California ups the ante and says, 'All right, you've been disloyal, and you're taking productions out of the state. Here's more money,'... is the industry actually going to promise that X percent of productions are going to stay in or come back to California? Or are they just going to keep doing what they're doing?"

Could Congress call 'Cut'?

Henchman, who participated earlier this year in a panel discussion sponsored by the Milken Institute and KPCC, writes in a blog post that Congress has the power to stop all states from using tax incentives and subsidies to attract productions.   

"Other states are disrupting interstate commerce, since productions are just moving from one state to another without any net national increase," Henchman writes. "Just as Congress has used its power to stop states from taxing interstate travel into oblivion, Congress has the power to stop other states from doing this." 

Henchman takes the members of Congress who signed the letter to task for not holding hearings on that potential policy direction.  

For his part, Schiff calls that a remote possibility that's not worth pursuing.

"You can imagine the hue and cry there would be if the federal government tried to tell states they couldn't lower taxes and they couldn't incentivize certain industry," Schiff told KPCC. 

"Yes, it would be nice if we had a national policy where states weren't competing with each other, but that's simply not possible, not going to happen," Schiff said. "So in the absence of that, we ask ourselves: 'Are we willing to be competitive?'"

The members of Congress do not suggest a specific amount by which the tax credit "pot" would increase, and the state legislators who back the expansion bill have so far avoided a specific amount as well.

California's program currently allots up to $100 million a year in tax credits to qualifying film and television productions that shoot in the state. But with New York offering more than four times that, many supporters believe California's program doesn't offer nearly enough to compete. 

"We're now at a point where we retain almost none of the feature film business, we've lost most of the hour-long drama business, and new television shows are more likely to start somewhere else than they are in L.A.," said Schiff. "This means the loss of tens of thousands of good paying jobs."