2022 has brought us a somewhat unexpected fight- one to attract in-state investment through offering the right tax incentives to bring the crowded production market to their doorsteps. While California has long been a filming location of choice, and it does offer an interesting tax credit program, it could have lost up to $1B in production-related spending by simply not being competitive enough this year. Blake & Wang entertainment lawyer and industry insider, Brandon Blake, brings the stats to the table for us.
Does the Tax Incentive Program Need More Funding?
This is the key question we imagine the state asking itself right now. The California Film Commission certainly believes so! Currently the State of California offers $420M a year in film incentives- and it falls far short of the demand for filming space there. To put that in perspective, it’s identical to New York, despite that locale’s far smaller film industry. Georgia, one of the hottest upcoming location shoot areas, offered $1.2B in 2021.
Of course, this doesn’t mean the California filming industry is at a standstill! We saw solid growth this year, with project receiving the tax credits under the scheme growing by $200M. Estimated total spend for the program (currently in its 3rd iteration) is expected to top $6.2B. Other than its questionably limited scope, the tax credit program is working as intended.
Strong Growth, but Missed Opportunities
The current report suggests that the state is netting a solid return for every dollar spent on film incentives- averaging about $24 in economic output, $16 in GDP, $9 in wages, and $1 in tax revenue per dollar spent in the program. However, the stats are also clear that the funding for the program is abysmally short at present. It suggests about 77% of the production spend from projects which tried to leverage the credit but were denied went out of state, and of the 28 projects denied, 16 chose to move production elsewhere- equaling $951M in missed production spend. For a greater breakdown, let’s look at where they went:
- Georgia ($130M)
- New York ($254M)
- New Mexico ($28M)
- Louisiana ($2M)
- Other US Locales ($299M)
- Canada ($88M)
- International Locations ($150M)
But this isn’t the full picture. Let’s not forget the losses in post-production spending, particularly visual effects and virtual production, that are brewing missed due to the state’s lack of a separate, stand-alone visual effects credit. California is the only major production state to miss this VFX credit from its incentive program. Does it matter? Yes. Globally, VFX spend is topping $7B, and that’s anticipated to hit nearly $11B by 2025. It’s become a cornerstone of the motion picture industry, but without a targeted incentive, California misses out.
Despite the solid growth shown by the tax incentive program in the state this year, it’s hard not to imagine what ‘could have been’ if the program was more robust, catered to VFX incentives too, and generally better funded. For a state that has been a cornerstone of the production industry for decades, it seems short-sighted indeed.