TV Town
As a tax-incentive bill languishes in the state legislature, film production continues to flee Los A
By Dean Kuipers
Any one of an army of under-employed production assistants, stylists, set-builders, and grips will tell you that film and commercial production fleeing Los Angeles for less-expensive locations - known as runaway production - has made for lean times in the city. But the effects are palpable even for those not in the biz. A study this August by the Los Angeles Economic Development Corporation shows that runaway production is costing the city and state hundreds of millions in tax dollars and billions in total economic output.
Despite a focused joint effort by studios, producers, and unions to restore California and Los Angeles as affordable filming options, the situation continues to worsen.
"Excluding television, I think it is getting worse," says Amy Lemisch, director of the California Film Commission, a state governmental body.
"I'll tell you what I've seen: Los Angeles, or California, has become a television town," she adds. "Television production, in general, is still primarily based here. But movies of the week and feature films, that is no longer the case. In fact, only 25 percent of studio feature films are shot in California."
For producers, many of whom acknowledge they'd rather work in town, the bottom line creates its own logic. According to a 1999 report contracted by the Directors Guild of America (DGA) and the Screen Actors Guild (SAG), about 80 percent of runaway productions went to Canada - primarily Vancouver and Toronto - to take advantage of the exchange rate and tax incentives offered by the Canadian government. In 2001, a U.S. Commerce Department report said that, in 1998, overall runaway activity from the states amounted to a loss of $10.3 billion from the U.S. economy, and - since about 70 percent of that production would have happened in California, and almost all of that in L.A. - Los Angeles took the worst hit.
But now that Canada has proven Hollywood will go just about anywhere for cheap production, it has some stiff competition - much of it from other states. In the past two years, Louisiana, New Mexico, Illinois, and New York have pulled in a significant number of productions by offering incentive packages that make their states competitive with Canada. Louisiana, for instance, offers a 25 percent transferable tax credit on qualifying spending within the state, a 10 percent credit on total payroll of Louisiana residents, plus a 4 percent sales and use tax exclusion. New Mexico holds out a 15 percent refundable tax credit on in-state production, with 80 percent of the refund given in advance, plus interest-free loans of up to $15 million and job-training funds. Nine other states and Puerto Rico have now jumped into the game in the last two years, offering competitive packages.
Hollywood has responded to this threat by caucusing with Governor Arnold Schwarzenegger and state Assembly Speaker Fabian Núñez (D-L.A.) to generate an Assembly bill, AB777, which would create a 12 percent refundable credit on qualifying expenditures for productions working at least 75 percent of shooting days in the state. The bill, however, failed to move out of committee during this year's session and is now awaiting revival next year, apparently a victim of the state's chronic budget shortfalls, which have many state legislators unwilling to risk revenues by extending tax credits.
"When we talk to legislators, especially Republicans, they're big on creating incentives to keep business in California; they're just not always as big on the entertainment industry being at the top of that list, as opposed to agriculture or tech industries," says Pamm Fair, deputy executive national director at SAG.
Legislators, says Lemisch, may be missing the real point, which is lost revenue and economic activity to the state. The August study by the L.A. Economic Development Corporation breaks down the expanded effects of production in the city. One average television commercial, for example, generates $1,600,000 in economic output to the region, and an estimated $47,000 in state taxes. A big-budget feature film like Peter Jackson's upcoming King Kong, which is the fourth picture he's shot for significant savings in New Zealand, would create almost $200,000,000 in overall economic output here and $10,590,000 in state revenues.
AB777 has been backed by a unique management-union coalition called the Runaway Production Alliance, comprising the Motion Picture Association of America, the DGA, SAG, and a vast array of guilds representing everyone from commercial producers to film marketers to stagehands. The same alliance helped pass federal legislation, signed by President George W. Bush in 2004, which provides a write-off of all production costs for projects costing less than $15 million and a three-year write-off for projects in excess of $15 million.
The alliance hopes the state bill, in combination with the existing federal legislation, would leverage Los Angeles's obvious advantages in terms of talent pool, production facilities, and work crews. And they're looking to the governor - an actor and a SAG member - for leadership.
"Arnold has been very supportive of this bill," says Fair. "I think it's difficult, because he's an icon in this industry, as a performer, but he's the governor now. It's trying to keep the balance for our industry, which is critical for our state, without it looking self-serving."
Others are less forgiving of the governor. One union representative who could not be identified for the record says, "In 2005, the Republicans did not back Schwarzenegger, and, frankly, he didn't really do the job. We kind of looked around, and said, 'Where the hell is he?'"
By not acting, the state may also be losing important momentum in a global price war in which revisions to incentive packages now come with every currency fluctuation. Last year, when the U.S. dollar tanked against the Canadian dollar, Vancouver and Toronto reacted within two weeks to raise the level of their incentive packages in order to maintain their advantage.
One bright spot in L.A.'s near future, say both producers and union executives, is the recent election of a film-friendly mayor.
"Mayor Villaraigosa is proposing waiving fees for filming in all city buildings, and the mayor also supports state legislation that provides incentives for productions that stay in Los Angeles," says Diana Rubio, spokesperson for the mayor.
That legislation, of course, is a statewide bill, but the idea that most of the benefit would be to Los Angeles may explain the lack of support from outlying Republicans. Likewise, union executives, many of whom also represent entertainment-industry workers in other states and even in Canada, say they must keep the big picture in mind, which is job creation everywhere. But creating new jobs and fledgling production infrastructure in, say, New Mexico, can't compare to retaining what already exists here. SAG, for instance, has 60,000 Californian members, most of them in L.A.
"Whether it's low-budget or studio people, they say to me: 'We would rather be here,'" says Lemisch, whose office is in L.A. "We don't have to offer what everybody else is offering. We just need to do something to get it close."Published: 11/23/2005
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