California lawmakers say provision in state budget could undo film and TV tax credit program
After years of trying to bring the film industry back to Hollywood, it seemed that the recently passed tax incentive program was working for California. Now, more than 40 state lawmakers are warning that a provision buried in the new state budget could undo their progress.
According to the California Film Commission, the first year of the state's expanded film and tax credit program delivered $6.6 billion in production spending and created almost 35,000 cast and crew jobs.
Lawmakers say that a cap on corporate tax credits buried inside the state budget accidentally applies to the same program they built to protect those jobs and bring the revenue back to the Golden State.
Frank Uchalik, who owns Heritage Props in North Hollywood, has been in the business for more than 30 years. He says that when productions slow down or leave the area, businesses like his feel it first.
"I just think the pie is getting smaller. There are prop houses closing down," Uchalik said. "Resources have to shrink. I think it'll be a nice little profitable market for the people that are left."
He said that the expanded tax credit program brought some relief, but he still had to evolve his business to become more than just a prop shop to stay afloat. He says that other business owners may not have the time or flexibility to wait for things like tax incentives to start coming in.
"Passing the legislation, then enacting the legislation, then projects in development, getting those taxes. I mean, we're talking years sometimes before it trickles down to a business like this," Uchalik said.
The provision in question, Senate Bill 122, caps how much of a tax credit any company can claim in any given year at $5 million. For large productions that were eligible for up to $35 million in credits, lawmakers say that effectively cuts the value of California's program in half.
More than 40 state legislators from both parties signed a letter to Gov. Gavin Newsom demanding a fix before the end of the current legislative session in nearly six weeks.
Assemblymember Rick Chavez Zbur (D-Hollywood), who co-wrote the legislation that expanded the film and television tax credit, says that the cap appears to have been an oversight, and that members believed the film program was exempt.
"We've taken a 35% tax credit, which we thought was effectively equivalent to a 30% tax credit in other states, ... that's dropped down to some place between 15% and 20%, and that just makes the California program non-competitive," he said.
He also believes the fix is simple, with a one-sentence bill that should carve the film and TV jobs program out of SB-122 entirely.
"I think it starts hurting productions now, so that's why I think we have to fix it in the next month and a half," Zbur said.
Newsom's office shared a statement on the matter on Monday evening. In part, it said: "The tax credit limitation is part of a broader fiscal proposal to ensure the state can continue making strategic investments while maintaining long-term fiscal stability."
They went on to add that the administration will work with industry and legislative partners to ensure that the program remains competitive, but didn't explicitly commit to a fix.
