Schwarzenegger Factor: Impact on the Industry

By Jack Egan
Partisan issues aside, the election of Arnold Schwarzenegger as California governor is cheering many in the entertainment industry in Los Angeles who hope that, as one of their own, he will do something to curb runaway production and keep jobs from leaving Hollywood.
At the same time, both union executives and producers recognize that Schwarzenegger has far more daunting issues to deal with in Sacramento, starting with California’s yawning budget gap. So, at a time of fiscal constraint, pushing for tax break legislation for Hollywood is unlikely to be his first priority. But at the least, he’s expected to exhort and arm-twist.
“He understands the issues and he’s lived them so he will have a knowledgable opinion,” says Mandalay Pictures topper Peter Guber, who has frequently shot projects abroad. “The issue has been joined and will be addressed in some way. But whether it will be high on his agenda I can’t answer.”
Schwarzenegger not only made “bringing jobs back to California” his main campaign plank during the recent recall contest, he indicated that commitment applied to Hollywood as well. And several times on the stump he reminded audiences he had taken an $8 million salary cut on Terminator 3: The Rise of the Machines.
“I put in personal money of mine,” Schwazenegger told the California Chamber of Commerce in a September speech. “The producers and the heads of departments were willing to shave a little bit off the budget and we were able to film Terminator 3 right here in Los Angeles” after lensing of the production had already been set for Vancouver. “And at the same time [we] helped create jobs – hundreds of new jobs – and that’s what I want to do as governor.”
But Schwarzenegger, who has frequently starred in pictures shot abroad, was not consistently opposed to runaway production during the campaign. When addressing Latino audiences he wooed them by saying how much he liked shooting in Mexico and noted he had done three films there.
Moreover, Schwarzenegger was initially willing to shoot T3 in Vancouver, where he had done The 6th Man. The catalyst for changing the locale from Vancouver to Los Angeles, was production manager Sharon Mann. At risk of losing her own job if the film went to Canada, she rebudgeted the movie for an all-L.A. shoot on her own initiative. “When it became clear that it was a small amount of millions difference to stay here, it got the producers’ attention,” Mann told the Los Angeles Business Bureau in May 2002.
Intermedia, the production company financially backing T3 was in turn able to negotiate significant cost reductions with local vendors such as Panavision and Special Effects Unlimited interested in the extra business. The Los Angeles Center Studios, where T3 would be shot, also kicked in with an array of production service discounts. And Schwarzenegger who initially resisted taking a salary cut, agreed to an $8 million reduction, which helped clinch the deal.
While the key role played by production manager Mann was acknowledged in a full-page Variety ad paid for by several West Coast locals of IATSE to thank her for getting T3 done in L.A., Schwarzenegger’s salary concession earned him a lot of positive publicity and also some union credit.
“He really worked hard to keep Terminator 3 here in L.A.” declares Kathy Gramezy, director of government and international affairs for the Directors Guild of America. “And he knows that our industry is not just the folks who appear on the red carpet. He knows who works on a set, and he knows that it is below-the-line members who are hurt the most by runaway production.” Given the size of the state deficit, “it can hardly be expected that a huge incentive program to keep film production jobs in Hollywood is suddenly going to appear,” she adds. But, in her view, some important and specific things can be done by Gov. Schwarzenegger “such as using the bully pulpit—or supporting the film commission—that don’t cost money but send a message, and the message alone makes a big difference.”
Due to the fiscal crisis, the California legislature in June reduced the state film commission’s budget by 60 percent and eliminated the entire $8 million California First program, which was aimed at reducing runaways. Also adding urgency, a recent report from the EIDC shows location shooting in Los Angeles remains in a slump, with a 55.6 percent decline in September for movies compared to the same month in 2002, though television showed an uptick.
Schwarzengger might try suasion on producers who want to film abroad. But his predecessor, Gray Davis, went to the mat last year to push a bill strongly backed by a broad segment of Hollywood’s producers and guilds. It would have provided significant tax incentives for films shot in Hollywood in order to level the playing field with states like New Mexico and Louisiana, which have enacted huge subsidies to attract filming. But the bill died in the state legislature last year when John Burton (D-S.F.), the influential president pro tem of the Senate, opposed passage, arguing it was the wrong time to be handing out tax breaks to the movie business when the state was reducing social services. With Schwarzenegger as governor, such legislation would have to reintroduced and is likely to run into similar opposition.
There’s a better chance on the federal level, where tax incentives to deter runaway production are part of a larger corporate tax-cut bill now making its way through Congress. The Senate version would provide $250 million in incentives to keep low- and mid-budget films from leaving the U.S. for other locales like Canada and Eastern Europe. It also rewards studios with faster depreciation write-offs on films where most of the spending for services takes place in this country. The House bill with a somewhat different approach to curbing runaway production happens to be co-sponsored by California Republican representative David Dreier, a key Schwarzenegger backer and intimate who was in charge of his transition
“Any tax break can’t just maintain the status quo; to pass it has to be seen as actually adding to production and jobs,” says Tom Pollock, a managing partner of Montecito Picture Company, and former head of Universal studios. “Emptying the Treasury for what’s perceived as a tax break given to rich people will not play well.” Runaway production, he says, is also driven by factors that aren’t under the governor’s control, such as the changing value of the dollar against other currencies.
In recent years, the cheap Canadian dollar made it much cheaper to shoot up north. That factor weighed as heavily as tax subsidies in turning Canada into Public Enemy Number One for Hollywood unions. But in the past 12 months that trend has reversed dramatically, with the “looney,” as it’s known, going from being worth 65 cents to the U.S. dollar to 75 cents. That’ cut 15 percent from the cost advantage enjoyed by Canada over Hollywood.
“The best thing Arnold Schwarzenegger can do,” adds producer Pollock, “is to improve the overall job climate in California and the motion picture business will take care of itself.”
That argument will not satisfy Hollywood unions, which believe their members will remain disadvantaged against other states and countries without the enactment of significant breaks for shooting in their turf. Incoming Gov. Schwarzenegger may get away for a while by just jawboning for jobs in Hollywood, but at some point he’ll be pressed to do something tangible to terminate runaway production.