California Governor Gavin Newsom has announced a bold proposal aimed at revitalizing the state's film and TV industry by significantly enhancing its tax credit program. In a statement released Sunday, Newsom revealed his plan to more than double the annual tax credit allocation to $750 million from its current $330 million. Should it get approval from the state Legislature, this increase could be implemented by July 2025, positioning California ahead of New York as the state with the largest capped film incentive program. Emphasizing California’s role as the epicenter of entertainment, Newsom highlighted the potential benefits of this expansion, noting it could keep productions local, create thousands of well-paying jobs, and strengthen the connections between California communities and its prestigious film and TV industry.
This initiative arrives at a time when industry leaders feel mounting pressure to act; Hollywood's recovery post-pandemic has been sluggish due in part to last year’s strikes involving writers and actors. Compounding these challenges, more productions have been opting for locations outside California that offer more generous tax incentives, thus impacting the local industry significantly. According to the governor’s office, a significant 71% of projects that were turned down by California's tax credit program ended up filming in other states. The state's film and TV tax credit program began in 2009 to prevent production from moving out-of-state, initially capped at $100 million per year.
This limit was raised to $330 million five years later, granting studios credits of up to 25% for eligible production costs like set construction and crew wages. These credits can offset any tax liabilities in California. In 2023, Newsom extended the program for five years and introduced a provision allowing studios to receive cash payments if their credits surpassed their tax liabilities. Despite the proposed increase, the enhanced program maintains several restrictions, such as disallowing the inclusion of actor salaries, unlike competitors like Georgia that do not impose such limits. Some critics in California oppose expanding the incentives, arguing it could divert resources from essential sectors like education and healthcare.
Recently, figures within Los Angeles' entertainment sector have advocated for increased funding to mitigate runaway production and promote job growth. Industry analysts agree that California’s relatively modest incentives have contributed to it losing ground to places like Georgia, New York, Canada, and the UK—recognized global hotspots for film production. Georgia, notably a favorite for major productions like those from Marvel and Netflix, offers unlimited incentives. Mike DeLorenzo, president of Santa Clarita Studios, recently commented on the situation, indicating that despite having some of the world’s leading filmmakers, Los Angeles is at risk of losing its edge due to inadequate tax credits.
Additional contributors to Southern California’s downturn in production include a wider pullback from industry players amid the ongoing streaming wars and budget cuts by leading media companies. FilmLA's report earlier this month showed a 5% drop in film permit activity in Los Angeles during the third quarter of 2024 compared to the previous year, attributed partially to the impact of the Hollywood strikes on scripted productions. This report incorporated contributions from Stacy Perman of the Times.
