Is California’s film and TV tax credit in danger? Unions say so

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SACRAMENTO —

As a film enthusiast with a deep connection to the California film industry, I can’t help but feel alarmed and disheartened by the potential impact of the Taxpayer Protection and Government Accountability Act on our beloved industry. Having grown up in Los Angeles, I’ve witnessed firsthand the decline in film production in California due in part to the weakness of our state’s tax credit program compared to more attractive offers from competitors.

Unions are keen on negotiating the removal from the 2024 ballot of a proposed measure, as they claim it may eliminate a California program granting over $500 million in annual tax credits to television and film industries.

As a movie buff, I’ve noticed some claims being made by unions regarding a measure on the November ballot. They’re trying to put pressure on businesses supporting this measure to reach a deal and potentially remove it from the ballot during the intense negotiation period at the state Capitol. If the concerns about tax credits gain traction, movie studio executives could become influential figures in the opposition campaign.

The movie and TV industry is already facing significant challenges due to the COVID-19 pandemic, two major strikes, and ongoing contraction. The loss of film and television tax credits would add to these difficulties and make recovery more challenging.

“Thom Davis, president of the California branch of the International Alliance of Theatrical Stage Employees (IATSE) in Hollywood, warned that this matter could cause significant damage to our industry and the employment opportunities it provides, as well as impacting related jobs,” is one way to paraphrase the original statement.

To date, none of the film production companies have aligned themselves with the protest movement spearheaded by the Service Employees International Union California, the California Teachers Association, the Northern California Regional Council of Carpenters, and the State Building & Construction Trades Council of California.

As a film enthusiast, I tried reaching out to Warner Bros. Discovery and the Motion Picture Association for their take on the latest industry news, but they both remained tight-lipped, declining to comment. On Tuesday, I also reached out to other major studios like Disney, NBCUniversal, Sony, Paramount, and Netflix, hoping to hear their perspectives as well. However, I haven’t received any responses from them yet.

The California Business Roundtable, in support of the proposal, countered the unions’ assertions. According to them, the film credit taxes are a reduction rather than an addition, and will remain unaltered by the proposed ballot measure.

“For several weeks, Rob Lapsley, president of the California Business Roundtable, has anticipated the use of frightening methods to unsettle us.”

Labor unions and Democrats strongly oppose the removal of the Taxpayer Protection and Government Accountability Act from the November ballot. They fear that if this proposal passes, it could shift the power dynamics in Sacramento to their disadvantage.

Lapsley’s group and the Howard Jarvis Taxpayers Association are advocating for a proposal that takes away the power of the Legislature and governor to impose taxes without a statewide vote. This might impact both state and local finances, making it harder for the governor and legislators to fund new initiatives or manage economic downturns without compromising their own plans.

The proposed measure could significantly limit the government’s capacity to fund essential services and infrastructure projects in California, including addressing issues like climate change, an aging population, and the advancement of artificial intelligence. Keely Bosler, a former finance department head assisting the opposing camp, made this observation.

In September, Gov. Gavin Newsom and Democratic legislators asked the California Supreme Court to step in and review a proposed change to the state constitution. They argued that because this change significantly alters the constitution, it should have received a two-thirds approval vote in the Legislature before being presented to voters in November. The court listened to arguments on the case in May and may make a decision soon on whether to remove the measure from the ballot.

The lawyers representing both sides in the campaign debate whether the proposed measure will affect film and television tax incentives.

As someone who has lived in a community where local fees and taxes seemed to increase at an alarming rate without much consultation or transparency from our government, I wholeheartedly support this measure. Previously, local governments had the power to approve fee increases administratively, which left many residents feeling powerless and frustrated. But with this proposed change, voters will have a greater say in how their hard-earned money is spent.

At the state level, increases in fees, typically endorsed by state agencies and boards, will necessitate a majority vote among legislators for approval. Additionally, this ballot measure proposes broadening the prerequisites for implementing a statewide tax hike. Currently, such an action can be executed with a two-thirds legislative vote. However, under this proposal, California voters’ approval, representing a majority, is also mandatory.

This proposal broadens the scope of what is considered a tax and limits how fees can be used, specifically for covering only the expenses related to the service provided. Consequently, it may prevent the government from shifting revenue towards other projects or expenditures.

As a fan of California’s film and TV industry, I can’t help but express my concern over potential threats to the state’s tax credit program following its recent overhaul in 2023. The proposed ballot measure includes a provision that could jeopardize the program if any changes result in new or higher taxes for taxpayers. This means that for any amendments to pass, they must be approved by at least two-thirds of the Legislature and gain a majority vote from the people. In simpler terms, it might prove challenging to make adjustments to this program without securing broad support from both legislators and voters.

Any taxes or exemptions instituted between January 1, 2022, and the enactment of this law that don’t follow the established rules will become invalid one year after the law’s passing. However, these taxes or exemptions can still be in effect if they are reinstated while adhering to the necessary requirements.

Critics have argued that passing the ballot measure in November could lead to the cancellation of California’s Film and TV Tax Credit Extension Bill (SB 132), enacted in 2023. This law, which takes effect in 2025, includes a five-year extension and a new refundable feature that allows eligible studios to receive direct payments from the state. However, opponents are raising concerns about potential future funding for the tax credit program since SB 132 hasn’t been implemented yet.

During the closing stages of budget talks at the Capitol, unions started issuing warnings. Newom and Democrats were in the midst of negotiations with each other, as well as unions and various other interest groups. The discussion centered around postponing the minimum wage increase for healthcare workers from $25 to $1 an hour, and suspending tax credits for businesses to help California bridge its $45-billion budget gap.

Discussions surrounding the 2024 ballot measures frequently intermingle with those talks. According to state legislation, initiators hold the power to pull their proposals from the ballot prior to the June 27 qualification cut-off. Lapsley expressed his readiness for dialogue regarding the specifics of his measure with adversaries; however, such engagements have yet to materialize.

“Lapsley made it clear that we value dialogue with anyone who is open to a conversation,” or “According to Lapsley, we place great importance on engaging in talks with those willing to listen.”

But Lapsley has also been adamant about the need for his proposal.

“The Taxpayer Protection and Government Accountability Act holds significant value for the statewide business community in the long run, serving as a counterbalance to a permanently progressive two-thirds supermajority Legislature. While there may be debatable aspects at present, our stance remains that this is essential, allowing us to press on.”

As a devoted cinephile, I can’t help but express my excitement about how the proposed changes to the film tax credit might impact the industry from my unique perspective. These modifications could potentially prove to be a persuasive reason for unions to get involved.

Each year, California grants approximately $330 million to around forty entertainment firms that shoot their projects there. However, this figure is comparatively smaller than the enticing tax incentives provided by filming locations in other states and nations, making California’s offer less alluring for businesses seeking to compete with Hollywood.

Experts and people in the know point out that California’s tax credit program is not strong enough as one factor contributing to a decrease in film and television production in the state. According to a report by the Otis College of Art and Design, Los Angeles saw an 8% decline in domestic film and TV employment last year, making it less competitive compared to cities like Atlanta and New York.

As a devoted cinema enthusiast, I can tell you that turning SB 132 upside down would bring “utter destruction” to our local entertainment industry. The film crews I represent in Hollywood have been struggling mightily since last year’s work interruptions and the slow resumption of production.

“California would just not be able to compete anymore,” Davis said.

“He remarked, “The entertainment workers are wondering why such treatment is being inflicted upon them. It feels like a direct assault on a personal level.””

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2024-07-18 22:27