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Los Angeles, California

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Observer at Large

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Like sirens calling from a distance, production incentives are alluring to producers but sometimes dangerous to workers. After all, who can resist when Ontario provides an 18-percent refundable tax credit on local labor on top of Canada’s 16-percent rebate? Florida will give you up to $2 million as a cash rebate based on what you spend there. South Carolina will cut you a check for 30 percent of your in-state supplier expenses. The government of Western Australia kicks in $500,000 to get Aussie director Baz Luhrmann to shoot in its region.Is this good business? Helpful to workers? Or a rush to the bottom?Twenty-eight states, several cities, numerous countries and all the Canadian provinces have enacted some type of incentive legislation to spur production. Several measures have been floated in California over the last few years but none of them has been successful. The last one, AB 777, introduced by Los Angeles area Assembly Speaker Fabian Nunez, died in the State Senate.When these previous measures were first moving through the legislature, political columnist Dan Walters of the Sacramento Bee wrote: “Although the legislation purports to limit benefits to productions that would otherwise be filmed elsewhere, in fact there is almost no way to enforce that proviso. The film industry is famous—or infamous—for its creative accounting techniques that can turn obvious profits into paper losses, so fooling a bunch of state bureaucrats would be child’s play. It is, in other words, highly unlikely that a subsidy from Sacramento will have any real-world impact, no matter how the books are cooked, other than putting some taxpayer cash in somebody’s pocket.”In her budget brief published in August, 2005, Jean Ross, director of the nonprofit, nonpartisan California Budget Project argued that there were alternatives for subsidizing movie production, including grant or rebate programs that could be carefully crafted to apply only to productions that would have gone out-of-state in the absence of assistance. Of course, a mechanism for such decisions could be problematic.Production incentives have failed to pass in California under both Democrat and Republican Governors. They have been unsuccessful in the legislature mostly because they were seen as subsidizing a rich industry based primarily in the Los Angeles area. We know that’s not true. It is the working men and women and the vendors and suppliers who are impacted by location decisions.But what sets California apart from other states and many countries is that it still has the world’s preeminent production infrastructure and workforce—so why not craft an incentive that maintains and enhances that position?I’m no tax expert (my accountant will attest to that), but I think a case could be made for developing some type of incentive for using California sound stages, labs and postproduction facilities. If the state could affect the bottom line enough by subsidizing bricks and mortar (and the workers inside those bricks and mortar), a company might be more likely to stay for everything.Another option would be a wage-based tax credit based on a cluster of below-the-line occupations. For example, our recent study on multimedia artists and animators showed that 55 different California industries employ workers with these skills. Camera operators are employed by 31 different industries as are sound engineering technicians. These occupations each have a distinct government code and would be relatively easy for the State tax agency to identify. This would also mean that any incentives would benefit more than one industry and in more than one part of the State.At this point in the global competition, California still has the edge in infrastructure and workforce. We are a different animal and we need to act like one. Let California tap into its long history of innovation and devise a production incentive that is fair and sustainable, and that has a positive impact on the State’s bottom line and that of its citizens.

Written by Kathleen Milnes

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