Editorial: How to keep Hollywood in Hollywood

Faced with a crisis of “runaway production� that is threatening one of Los Angeles’ signature industries, California lawmakers are poised to quadruple the amount of money available to help persuade film and television productions to remain in the state. But before legislators and Gov. Jerry Brown expand the annual film tax credit program to $400 million, they must assure taxpayers that the money will deliver the greatest number of jobs and the highest public benefit.

For the last six years, California has relied on a lottery to dole out $100 million a year in film tax credits. Productions were selected for subsidies with no consideration of how many people would be employed or how much would be spent locally. More than half a billion dollars have been awarded based on the luck of the draw. That’s not a smart way to target economic development funds, and the initial decision to keep the lottery system intact cast a shadow over Assembly Bill 1839, an otherwise strong proposal that The Times has supported. AB 1839 would increase the amount of money available for tax credits and expand the program to include big-budget movies and certain TV programs that were previously excluded.

Now, a last-minute amendment by state Sen. Kevin de León (D-Los Angeles) would remove that shadow by replacing the lottery with a competitive system that would award incentives to the productions that create the most new jobs and the greatest economic impact. This improvement, including a points-based system to judge the merit of applications, would give Californians more confidence that their tax dollars were being used to greatest effect. And that’s important. There is still considerable — and understandable — pushback from people concerned about subsidizing Hollywood at the expense of social services, education and other state programs. Others worry that California is engaging in an unwinnable race to the bottom as states and countries seek to steal film and TV production from one another. We share some of those concerns.

But the reality is that there is a worldwide competition on, with generous tax breaks being offered to film and television productions that shoot in New York, Georgia and nearly 40 other states as well as Canada, Australia, Iceland, most European Union countries and elsewhere. The availability of subsidies means major movies often won’t get made without the promise of a tax credit. California can’t rely on its talent pool or climate anymore to attract filming, and, as a result, the state has in recent years hosted far fewer of the high-value productions that provide local revenue and middle-class employment. In L.A. County, feature film production has fallen by half since 1996, and the region’s share of TV pilot production has fallen 73% since its peak in 2007. Over the last decade, California lost 16,000 entertainment jobs that pay, on average, $98,000 a year. That loss has a ripple effect, reducing business for prop houses, sound stages, caterers, dry cleaners, security companies and all the people who earn a living on entertainment industry spending.

As legislators and the governor negotiate the final details of AB 1839, they must focus on the long-term sustainability of the entertainment industry in California. That means backing films and TV shows that produce lots of jobs, but also supporting the lower-budget and independent productions that are the training ground for the next generation of professionals. The California Film Commission, which would develop the scoring criteria, should include production spending as a factor in addition to job creation, because it captures the equipment, supplies and rentals that are part of the larger industry economy, beyond the direct hires on film and TV shoots.

Finally, the new, competitive system must be impartial. That was the biggest advantage of the lottery system, and in dismantling it, California should not create a new cottage industry of tax credit lobbyists using political influence to seek benefits for favored clients. There should be a clear application and scoring process, with results evaluated by independent, qualified commission staff, and penalties for productions that overstate their job creation to game the competition. There also must be oversight, including audits, to ensure that the system is unbiased and free of corruption. If taxpayers are to be asked to give financial incentives to private industry, lawmakers should at least guarantee that the state is getting the most economic development bang for the tax subsidy buck.

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