With an industry, crew and talent infrastructure of longstanding renown, and diverse locations spanning every backdrop imaginable, California has been perennially regarded as a dream host for filmmaking. Nonetheless, the reality of increased competition from other states and countries has the Golden State with a dream of its own–making a proposed economic incentives program a reality spanning features, TV and commercials.
Indeed many competing states and nations have significant tax credits and other perks. But adding impetus to California’s quest is the New York commercials initiative that just passed (see front page story), providing a mix of tax credits funded to the tune of $7 million from the State of New York, and $3.5 million slated to be set aside by New York City.
“All the states figure into the competitive equation,” relates California Film Commission (CFC) director Amy Lemisch. “States like Louisiana and New Mexico did not have a huge amount of filming before they enacted their incentives. But New York represents more of a parallel to California, which hosts a lot of filming business. New York too does a significant amount of filming business but still saw the need for incentives.”
Lemisch would like to see the latest development in the Big Apple spur on support from California legislators for Assembly Bill 777, a tax incentives package designed to encourage production of features, telefilms and commercials in the Golden State.
Per AB 777, a refundable tax credit of 12 percent would be applied to qualified wages, as well as to certain production and post expenditures incurred in the making of commercials in California. The tax incentive, if passed, would apply to new commercialmaking business for California, meaning that the qualifying expenditures for a production house would be those that exceed the amount that the company spent in California during the previous year. The program for commercials is tied to annual spending by a company instead of being paid out on a per-project basis.
Lemisch describes herself as “cautiously optimistic” over prospects for passage of the measure, which is currently up for consideration in the State Senate. The bill initially gained passage in the State Assembly, and then went to the Senate where it has been amended. If this amended version clears some Senate committee hurdles and a full floor vote, it would then go back to the Assembly for approval. There is support in the Assembly as underscored by the fact that the original bill’s author is Assembly Speaker Fabian Nunez (D-Los Angeles). If passed in the Assembly, the measure would then need the signature of Gov. Arnold Schwarzenegger (R-CA), who has been a proponent of the filming incentives.
However, the passage is not a fait accompli as the state is in murky political waters to say the least. Also the granting of a tax break to the filmmaking industry might be difficult for some legislators to reconcile at a time when California faces a major budget deficit that could translate into further cuts in core services.
EXISTING INCENTIVES California does have a couple of incentive programs in place that impact the spotmaking sector, one being the longstanding State Theatrical Arts Resources (STAR) partnership which makes designated state-owned and controlled surplus property and unused real estate assets available to filmmakers for no or a low fee. These properties for lensing include historic homes, hospitals and office buildings throughout the state.
The CFC administers the STAR program. Lemisch reports that STAR recently helped a budget-challenged Noggin TV series enter its second season by providing a closed correctional facility as a site for extensive filming. She adds that assorted commercials have plugged into the STAR inventory of properties.
The other alluded to existing incentive in California took effect last year in Los Angeles. In late ’04, the City Council passed a business tax reform package, which included an initiative that provides relief to many small and medium-sized production houses that shoot in Los Angeles. Many of these shops are primarily involved in spotmaking.
The measure, which took effect in July ’05, restructured how the city business tax applied to the production community. The city’s business tax code had previously been tied to a yearly per company cap of $4.2 million on gross production costs incurred when lensing in Los Angeles. A production house that met or exceeded that cap had to pay an annual city business tax of $12,700. Thus, boutique houses often found themselves paying the same amount in business taxes as major motion picture and TV studios.
The reform initiative attached that maximum tax to a higher cap: $12 million in annual gross production costs on Los Angeles shoots per individual company. This means that many commercial production houses end up paying a considerable lower amount in business tax. The savings become greater for those entities that maintain more than one commercial production company. The collective business tax savings for two or more sister/satellite spot shops would translate to a fairly significant sum.
Additionally the reform raised the $50,000 gross production cost floor–under which production companies paid a minimum tax ($147)–to a much higher level, $2.5 million. This again resulted in savings for smaller shops that shoot a limited number of jobs in Los Angeles.
Cities generally impose business taxes on companies–local or from other towns and states–that conduct business within city limits. This applies to different business sectors, not just entertainment and media production. Production houses based in other cities and states are all subject to the business tax if they annually lens a certain minimum dollar amount of production in Los Angeles. Thus the business tax reform, which came about in large part due to lobbying and behind-the-scenes efforts by the Association of Independent Commercial Producers (AICP)–favorably impacts most spot production companies that shoot in Los Angeles.
CFC While the aforementioned STAR program has opened up properties that hadn’t been readily available for filming before, the CFC has perennially provided and continues to offer state-owned property–such as roads (for assorted car commercials) and state parks and beaches–free of permit charges and location fees.
Lemisch also cites assorted other state-owned properties in Northern and Southern California that have proven popular with the ad industry. One is a building–the Caltrans headquarters in downtown Los Angeles. The stark, contemporary structure has primarily hosted commercials, along with scenes from The Island, a feature film directed by Michael Bay, whose roots are in commercialmaking.
According to Lemisch, commercials account for about 25 percent of film permits issued by the CFC. Helping to facilitate this business are Film Liaisons In California Statewide (FLICS), a network of local film commission offices throughout the Golden State. Lemisch describes these assorted liaisons as “troubleshooters” whom producers can call upon for help, information and services. From West Hollywood to San Francisco, Monterey County to Modesto, San Diego to Santa Barbara, Oxnard to Orange County, Marin County to Humboldt, the FLICS network is extensive.
At press time, the CFC had a breakfast reception slated for this week which will bring FLICS representatives from throughout the state together with executive producers and producers spanning long form and commercials. There are more than 50 FLICS liaisons in California. Started by the CFC years ago, the FLICS organization has since become a nonprofit organization unto itself. Lemisch serves on the FLICS board, which is chaired by Ray Arthur of the Ridgecrest Regional Film Commission.
HANDLE WITH CARE It’s hard to get a firm handle on the exact number of commercials produced in California, acknowledges Lemisch. However, there’s been a steady annual barometer of at least some of the work done in Los Angeles based on film permits secured by FilmL.A. (formerly the Entertainment Industry Development Corp.–EIDC).
Based on those lensing permits, the finally tally for spots in calendar year ’05 was 6,983 production days which is 280 days or a little more than four percent more than the total for ’04.
The FilmL.A. figures represent the number of film-permitted, on-location production days in the City of Los Angeles, Diamond Bar, South Gate and West Hollywood, unincorporated areas of Los Angeles County, the Angeles National Forest, and in more than 800 facilities operated by the Los Angeles Unified School District. The tally of filming days does not include production that occurs only on soundstages or in surrounding cities. Permit applications handled by FilmL.A.–which oversees the joint Los Angeles City/County Film Office–account for an estimated 80 percent-plus of on-location shooting in Los Angeles County.
The ’05 spot production performance continues a fairly steady growth path for commercialmaking in Los Angeles since the large drop-off of ’00. Indeed spot biz plummeted precipitously in ’00, which is when the six-month actors’ strike against the advertising industry took place. That strike arguably exacerbated what had already been a deepening runaway commercial production problem with American spots scurrying to Canada and overseas for production. The resulting negative impact on the U.S. economy, including in such markets as Los Angeles and New York, was felt well after that strike was settled.
Keep in mind that the current actors’ contract is set to expire in October. Suffice it to say that the Screen Actors Guild (SAG)/American Federation of Television and Radio Artists (AFTRA) commercials contract is of prime industry concern and the hope is that negotiators on both sides of the table can learn from the past.
Per FilmL.A. statistics, overall growth spanning theatrical feature, TV program and commercial on-location days in ’05 amounted to about four percent as compared to ’04. This marked a leveling off of the bullish 19 percent increase in ’04 when stacked up against ’03.
FilmL.A. president Steve MacDonald says that while rising demand for entertainment content is fueling increased production around the world, L.A.’s significant slowdown in growth is an indication that production is being lost to other regions.
This brings us back to where this story began–on the subject of incentives. “A four percent annual rise in production should not be interpreted as a sign of L.A.’s competitive success,” relates MacDonald. “Other jurisdictions, such as New York City, are celebrating dramatic growth in production activity thanks to very aggressive incentive programs [for features and TV programs]. We’re concerned L.A. isn’t capturing its share.”
MacDonald notes that in just the past few years, 20 states in the U.S. along with an increasing number of locales around the globe have begun to offer economic and other incentives to lure entertainment production.
