RunAway Production + Ca. subsidies

[wolfvid]

2 points of view:

Dan Morain: Revenue down and lawmakers seek tax breaks?

By Dan Morain

dmorain@sacbee.com

Published: Wednesday, Mar. 7, 2012 - 12:00 am | Page 13A

Last Modified: Wednesday, Mar. 7, 2012 - 8:54 am

http://www.sacbee.com/2012/03/07/4316843/revenue-down-and-lawmakers-seek.html

Some Democratic legislators evidently haven't gotten the word.

No matter that California has a budget deficit of $9.2 billion, or that Gov. Jerry Brown is contemplating deeper cuts in welfare, health care and universities if voters fail to approve his $5 billion tax initiative in November.

While Brown and other advocates are asking voters to approve anywhere from $5 billion to $10 billion more in taxes this November, several legislators are seeking to enhance their political standing by offering a new array of tax breaks.

Any good politician knows that it's so much easier to vote for a tax break than it is to raise a tax. They can't help themselves, especially when Hollywood beckons, or when there is the potential, no matter how remote, that a tax credit might persuade a business to hire someone.

At least three bills would extend California's $100 million-a-year tax credit for producers who agree to film their movies and television shows in the state. There's talk, though no bill yet, of extending the credit to encourage producers of commercials to tape their spots in the Golden State. There is no talk, however, of extending it to porn.

Lawmakers created the movie tax credit in 2009, as a five-year, $100 million-a-year incentive to keep productions in California.

Studios, producers and directors love it, as do unions whose members work in the industry.

Assemblyman Felipe Fuentes, a San Fernando Valley Democrat, pushed through a bill at the end of last year's session to extend the $100 million credit by another year.

He is back, seeking a five-year extension at an overall cost of $500 million. Sen. Ron Calderon, a Democrat from Montebello, is offering a Senate version, and Sen. Tony Strickland, R-Moorpark, is offering his take.

Politics are paramount. Fuentes is running for a Los Angeles City Council seat, and Hollywood figures and unions that represent film crews are among Fuentes' supporters, having donated at least $30,000 to his various campaign committees last year.

"This is about protecting California's signature industry, nothing more, nothing less," Fuentes spokesman Ben Golombek said.

Whether the credit persuades producers to film here, or merely gives them money for doing what they would have done anyway, is not clear. Fuentes has rejected attempts by skeptics to require an independent study of the credits.

Unions, which represent much of the film industry, fight to preserve the film tax credit, convinced that it helps employ union workers. But they battle another tax break, enterprise zones, a $500 million-a-year giveaway to business.

In enterprise zones, businesses can claim tax breaks of up to $37,440 for hiring a worker, even if that hire took place years earlier. The zones are supposed to be term-limited, at 15 years. But tax breaks almost never disappear.

Assemblyman Luis Alejo, D-Watsonville, is pushing legislation that would extend an enterprise zone due to expire in his backyard, Watsonville.

He will have plenty of support. There are 53 such zones spread around the state, in Democratic and Republican districts. A formidable lobby coalition representing the zones defeated Brown's effort last year to abolish them. Brown likely will try to rein them in again this year. Don't bet against the zones.

In a striking example of how enterprise zones operate, VWR International, owned by the private equities firm Madison Dearborn, announced last year that it would close its warehouse in Brisbane, where workers are represented by the Teamsters, and reopen this year in Visalia, where there is an enterprise zone.

VWR, which distributes medical supplies, has not agreed to grant transfer rights to current employees. In Visalia, however, VWR will be eligible for enterprise zone tax credits of up to $37,440 for each new employee it hires.

After VWR announced its plans, Assemblyman Jerry Hill, a Democrat who represents Brisbane, introduced a bill to bar companies that move from one part of the state to an enterprise zone in another part of the state from claiming credits unless they actually increase the number of employees.

Hill had support from the California Labor Federation and Teamsters, as well as unions representing longshoremen, firefighters, nurses, machinists, and others.

There is a perception that the California Legislature is controlled by organized labor. Labor wins many battles, but not this one.

The California Association of Enterprise Zones and California Chamber of Commerce opposed Hill's effort. Hill's bill failed to get out of its first committee.

"The irony is that the people in Brisbane who lose their jobs are paying taxes to subsidize their replacements in Visalia," Hill told me.

Numerous other tax breaks have been proposed this year. Calderon hopes to give businesses a credit for hiring veterans. Sen. Mimi Walters, R-Laguna Niguel, seeks to give credits to manufacturing companies that hire disabled people.

The ideas all have appeal. They're feel-good measures to give favors to favorite constituents. But legislators don't dare tackle truly complicated matters like a broad overhaul of the taxation system. That would be much too difficult.

Read more here: http://www.sacbee.com/2012/03/07/4316843/revenue-down-and-lawmakers-seek.html#storylink=cpy

Columnist Dan Morain: Willfully Ignorant or Just Stupid?

March 8, 2012

http://www.sacbee.com/2012/03/07/4316843/revenue-down-and-lawmakers-seek.html

I find it endlessly frustrating how a relatively small number of ignorant, seemingly misinformed people in California can wind up hurting the state. Take journalists like Dan Morain, who seems to have abandoned any notion of responsible journalism in favor of partisan hyperbole. Morain seems more interested in getting a gig on FOX News than serving the public interest with informed journalism in his reporting.

Morain clearly has a personal animus towards Democrats and Hollywood. Morain’s recent op/ed in the Sacramento Bee undermining the need for extending California’s film incentive is odious on many levels:

Some Democratic legislators evidently haven’t gotten the word….

While Brown and other advocates are asking voters to approve anywhere from $5 billion to $10 billion more in taxes this November, several legislators are seeking to enhance their political standing by offering a new array of tax breaks….

At least three bills would extend California’s $100 million-a-year tax credit for producers who agree to film their movies and television shows in the state. There’s talk, though no bill yet, of extending the credit to encourage producers of commercials to tape their spots in the Golden State. There is no talk, however, of extending it to porn.

Why single out the Democrats? Is Morain unaware the bill has bi-partisan sponsors? Is he unaware that just 3 Sacramento lawmakers voted against extending the California film incentive extension last year and that two of them were Democrats? If anything, the Republicans have been more helpful than Democrats on getting film incentives passed. Morain is being an ass for trying to spin this as a partisan issue.

Incredibly, he gives Republicans a pass even though one of their own introduced a new bill to extend the protective film incentive, which is California’s only defense against runway production:

Lawmakers created the movie tax credit in 2009, as a five-year, $100 million-a-year incentive to keep productions in California.

Studios, producers and directors love it, as do unions whose members work in the industry.

Assemblyman Felipe Fuentes, a San Fernando Valley Democrat, pushed through a bill at the end of last year’s session to extend the $100 million credit by another year.

He is back, seeking a five-year extension at an overall cost of $500 million. Sen. Ron Calderon, a Democrat from Montebello, is offering a Senate version, and Sen. Tony Strickland, R-Moorpark, is offering his take.

Politics are paramount. Fuentes is running for a Los Angeles City Council seat, and Hollywood figures and unions that represent film crews are among Fuentes’ supporters, having donated at least $30,000 to his various campaign committees last year.

Morain’s suggestion that California unions “love” film tax credits is problematic. Morain implies that unions love film incentives so much, they gave Fuentes $30,000 to buy the bill. Morain ignores the fact that Fuentes lives in and represents a district where much the film industry and these union members live. In short, Fuentes could just be representing the interests of the people in his district, aka his job. And in terms of donations, the California film unions have used the lion’s share of their spending to OPPOSE the legal existence of film incentives. The Teamsters alone gave $100,000 to the effort to declare Canadian film tax credits illegal with a trade action. SAG also spent $50,000 on the trade remedy.

In short, California film industry unions have spent much more money to oppose the existence of film incentives than they have to create them. Why? Because they, like the entire State of California, are getting killed by runaway production to locations that offer them. Film incentives were the cause of the problem and, as such, the root cause of the disaster was the first thing they tried to address. It did not work. Another solution to runaway production, therefore, is needed.

California industry workers are not asking for film incentives because it’s some sort of windfall or pork subsidy gift. Rather, they are pleading for them as their only available means of defense. California is being fired at with howitzers. All the California industry workers want is a handgun to defend the state.

Morain seems totally unaware runaway production is a problem, much less a disaster, hitting the state for almost 15 straight years:

“This is about protecting California’s signature industry, nothing more, nothing less,” Fuentes spokesman Ben Golombek said.

Whether the credit persuades producers to film here, or merely gives them money for doing what they would have done anyway, is not clear. Fuentes has rejected attempts by skeptics to require an independent study of the credits.

Unions, which represent much of the film industry, fight to preserve the film tax credit, convinced that it helps employ union workers.

Morain is either oblivious to fact, or willfully ignoring it. First, runaway production is happening and it is causing damage. As I note in my new law review, the statistics in California are sobering:

• In 2003, over 66 percent of studio feature films were shot in California. By 2010, that number had dropped to less than 40 percent.
  
• In the last 15 years, the number of on-location shooting days for feature films in the Los Angeles area dropped nearly 65 percent, according to FilmL.A.
  
• In 2005, California captured 82% of all television pilot production activity. In 2011, however, it captured just 51%.
  
• In 2000, Los Angeles County film industry workers earned 27% more per month than their non-L.A. counterparts. By 2009, after a decade of unabated runaway production of high-budget films and shows (which offer the high-paying jobs), L.A.-based industry workers earned 13 percent LESS per month than their counterparts elsewhere, according to the California Research Bureau.
  
• From 1996 to 2009, the number of Californians employed in the high-skill and high-wage visual effects industry declined over 30% as jurisdictions elsewhere used targeted visual effects incentives to capture the industry from the state.
  
• According to the Milken Institute, since Canada enacted the first tax credit program in 1997, now copied in roughly 40 states and dozens of nations, California has lost 36,000 jobs as a result.
  

Morain’s suggestion the incentive is a wasteful reward to producers for something “they would have done anyway” is belied by reality. Indeed they will still make movies, they will just make them someplace other than California in the absence of a modest credit from their home state. Why on earth would they stay when Louisiana is writing $35 million checks for crap like “Green Lantern”? It’s painfully obvious Morain doesn’t know what the hell is talking about. This makes his column all the more irresponsible. If Morain needs further evidence production dollars will leave the state if they don’t qualify for California’s incentive, he should read the independent study from UCLA.

The UCLA research team looked at all of the projects that had applied and were wait-listed for California’s film incentive. Of the 14 total projects that never got California credits but were ultimately produced, 91.6% of their combined budgets were spent in other states — all of which offered their own film incentive programs. Empirically, it would NOT “happen in California anyway.”

I do agree with Morain on two points. First, I agree that ALL states offering film incentive should have annual economic impact reports prepared by a unbiased state agency or third party. All reports should include a cost vs. benefit analysis. Second, I agree that offering a separate incentive to the commercial producers would be a stupid waste of precious state resources. Commercial activity in California hit a record high last year. Best. Year. Ever. Film incentives are meant to prevent runaway production. Commercials are not running away. If the commercial producers get greedy and ask for an unneeded handout, it will hurt the chances of the film incentive getting extended.

The vast majority of California’s lawmakers, Democratic and Republican alike, should be applauded for taking action to address an economic catastrophe that is runaway production.

[David Waelder]

The devil is always in the details.

While it's true that arguing for subsidies in a climate of constricted budgets seems crazy, that's not how it all plays out in the real world.

The tax credit sponsored by Assemblyman Felipe Fuentes doesn't actually pay out any money, or credit any tax expenditures, right away. The credit is earned only after principle photography wraps and the expenditures for local crew people are confirmed. In practice, this means that the tax credits are not actually awarded in the same year as the expenditures. In some cases, the credits might not be awarded for several years.

This means that the effect on the current budget of any film credits is exactly zero. No teachers, no firemen, no policemen need to be laid off to support the tax credit because a production shot in 2012 won't be eligible for a credit before 2013 or 2014.

It is true that a credit earned must be settled eventually and the tax earnings for California will be diminished sometime. But, dreadful as the present times are, severely restricted tax revenues are not likely to continue into the indefinite future. There is some risk to the program but the benefit of keeping filming activity in the state and helping technicians ride out the recession seems worth a bit of risk.

David