By JACK EGAN
Variety
Competition in U.S. and abroad shifts policy
The state well known for its earthquake activity has undergone a seismic shift in the way it supports one of its major industries. Many other states -- as well as Canadian provinces and other countries -- could end up feeling the aftershocks.
After refusing for years to get on the incentives bandwagon, California recently decided to jump onboard. A five-year, $500 million tax-break plan for California's entertainment industry, with an annual $100 million limit, was slipped into the state budget recently passed in Sacramento. Gov. Arnold Schwarzenegger, long a proponent of helping Hollywood, signed the bill in late February.
The objective of the provision is to counter an accelerating flight of feature film and television shoots, and the jobs that go with them. Roughly 40 states, as well as Canada and many other foreign locales, now dangle some kind of financial lure to attract productions, many of which, it's argued, might otherwise be based in Los Angeles.
But now that California has a subsidy program, the question is how successful will it be? Will it actually attract new production, or will it simply slow the stampede out of town?
There won't be a definitive answer for maybe a year. July 1 is when the first incentives are handed out, with applications accepted on a first-come, first-served basis, and winners will be determined by a daily lottery.
Honchos at other production centers with significant tax subsidies -- such as New York, Louisiana, New Mexico and Vancouver -- say the new breaks might help California recoup some productions, but they downplay any impact it will have on their own film and television activity.
"I think the California government passed the entertainment incentives to send a message that we would like you to stay here, and I think it achieved its purpose," says Alan Suna, chief executive of Silvercup Studios in Queens, the biggest production facility in New York. "But I don't think it's going to be a game-changer."
"I believe it will have some positive impact on the business in California," says Peter Leitch, head of North Shore and Mammoth studios in Vancouver -- a city that has come to be known as Hollywood North. "But we don't worry much about what the rest of the world does -- we're mainly concerned that we're offering very competitive pricing as well as attractive incentives," adds Leitch, who is also the chairman of the British Columbia Film Commission.
In recent years, tax subsidies have come to trump other considerations when producers make a decision on where to locate a shoot, according to Mary Nelson, chairman of the Assn. of Film Commissions Intl. (AFCI). "Where it used to be location, quality of the crew and infrastructure, now the first factor everyone considers is how much money is it going to cost me and what kind of break can I get for filming there," she says.
Factors that helped push the recent passage of the California tax credit, after it had been bottled up in legislative committees for years, included last year's move by ABC hit "Ugly Betty" from Los Angeles to New York. This caused quite a stir among crew members.
In addition, a recent report from FilmLA, the local permitting agency, said feature production days in the area in 2008 dropped to the lowest level since records started being kept in 1996.
Another impetus came when the local industry -- despite its many advantages and its position as the largest in the world -- found it wasn't even in the running for many projects because it lacked a tax incentive program.
"When people stopped even doing a comparison budget for California, that's when you had to stop and say, hey, we've really got to do something about this," says Amy Lemisch, the executive director of the California Film Commission, who will be administering the program.
"There is no place in the world like Los Angeles as far as getting everything and everyone that you want locally, no matter how many movies are shooting here," says Katherine Courtney, the executive vice president of physical production at the Film Co., an independent movie producer.
Even though she currently has a script that takes place in California, "I didn't do a California budget because we couldn't afford to do it in Los Angeles, so I went straight for the incentive states," she says.
But that will change. "Come July, I'm going to look at every movie that we have, provided it works creatively for Los Angeles, in order to try to keep it at home," says Courtney, who is also on the board of the Producers Guild and in charge of its FilmUSA committee.
The new California incentives are less generous and more limited in scope than those available in other states. They apply only to expenditures for crew and local vendors, and exclude the portion of the budget allocated for actors, directors, writers and producers.
For new films and television shows that shoot in California, an available 20% credit covers features with production budgets between $1 million and $75 million, telepics or miniseries with a minimum production budget of $500,000, and new television series for original distribution on cable with a minimum budget of $1 million. For a television series that relocates to California, the credit is 25%. At least 75% of the shooting days or three-quarters of the project's budget must be spent in California.
Of the $100 million available each year, the provision requires one-tenth be made available for smaller films, with budgets up to $10 million.
One downside to California's plan is its inherent element of risk. Entertainment attorney Peter Dekom, who helped design and launch New Mexico's successful incentivized film and television industry, cites the shortcomings of California's $100 million-a-year limit.
"Whenever a state puts a cap on benefits, it takes out the predictability of budgeting," he says. "If there is any risk a production (wont) get the California credit, or it's deferred for a year, it will tend to head to a state that has more certain tax breaks." In New Mexico, there is no cap and the program has no expiration date.
That's also the case in Louisiana, which in less than seven years has grown into the third-biggest production center in the country after Los Angeles and New York because of its lucrative tax breaks. "A producer knows that there won't be a line waiting for tax credits, and there's not going to be a question that we have enough money," says Chris Stelly, director of film and television for the state.
New York, another state with caps, in March embarrassingly ran out of the $460 million it had budgeted only 10 months earlier for incentives, an amount that was supposed to last for five years. The state's Legislature has since allocated another $130 million for another year of incentives, but that's being criticized for being too short a time frame to attract productions that are looking for more predictability.
The sudden absence of 30% tax credits caused several TV series, including "Fringe," to bolt, and pilots for the new season to vanish. "We had 19 pilots shoot in New York in 2008," says Silvercup's Suna, "but so far this year there haven't been any."
California may have to learn the same lesson if its $100 million in tax credits rapidly runs out.
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