MasterChef. Supergirl. The Kelly Clarkson Show. All of these productions were initially filmed in California, but were convinced to abandon at least in part due to more lucrative tax credits in other regions. Now, as Hollywood's runaway production and cost-cutting threaten the state's control of the film and television business, Gov. Gavin Newsom is taking action.
An initial budget proposal appears to significantly increase California's current limit for a program that provides tax relief to manufacturers across the industry from $330 million to $750 million a year, Newsom will reveal Sunday. The expansion would provide the industry with up to $3.75 billion in tax credits over five years starting in 2025.
If approved, the subsidy would be the most generous offered by any state except Georgia, which has no cap on the amount awarded to productions each year. That includes New York, Hollywood's second-most popular destination as California has increasingly jostled for productions in a highly competitive incentive race to attract Hollywood dollars.
“This means film production can stay,” says Los Angeles Mayor Karen Bass. “It means that all the jobs that would be lost, because they would go to another state or overseas, would stay here.”
Further changes to the program have yet to be finalized. Any changes could affect the maximum amount a single production can receive in tax breaks and which types of expenses are eligible for the incentives.
“We will consider a number of additions and potential fixes to the existing program,” says Colleen Bell, director of the California Film Commission, which oversees film and television production across the state. “Everyone is about luring manufacturing away from California. We must invest in our leadership and preserve jobs for Californians so they can do the jobs they love to do and put a paycheck in their pocket.”
The move comes after months of entertainment industry workers in the Los Angeles area speaking out about a lack of job opportunities in the iconic production hub. In the wake of the 2023 writers' and actors' strikes, local crew members and creatives described an anemic return to production as major companies sought to cut costs and the Peak TV era came to a screeching halt.
For some of these workers, the financial hardships during the strikes and their aftermath have been significant: people have sold homes, lived without cars and campers, and frequented food banks, with some abandoning the business entirely for other industries. Increasing tax incentives for productions across the state emerged as a proposed remedy to the situation in June during union negotiations for crew members who belong to the Los Angeles-area Hollywood Basic Crafts union coalition.
A month later, Bass formed a task force to promote the industry's recovery in Los Angeles after production was disrupted by the pandemic, strikes and industry downturns. Among his top priorities is expanding the state's film and TV tax credit program.
“This was the number one item on their agenda,” Bass says.
New data released on October 16 shows that filming in Los Angeles is approaching historically low levels, with the three-month period from July to September seeing the fewest days of filming this year. The figure is even lower than the number of shootings that occurred in the region during the same period last year, when industry was at a standstill due to the workers' strike. Among the biggest reasons for concern is the sharp decline in unscripted television production. In the latest quarter, recoveries for this category decreased by approximately 56% compared to the same period last year. Filming for television shows, long a staple of filming in the area, continues to decline as each category of scripted production follows historical norms.
Rebecca Rhine, associate national executive director of the Director's Guild of America and executive director West, points out that manufacturing in the state is currently in “real danger.” He adds that the governor's proposal “provides important recognition that this is an industry we want to keep in California.”
According to Rhine, the DGA and other industry unions have “spent a lot of time” talking to the Newsom administration about their concerns about manufacturing: “the high level of unemployment, the amount of work leaving the country, the inability to compete effectively with incentives elsewhere,” he says. “And I think the governor was listening.” Rhine points out that the film industry provides middle-class jobs with benefits to industry workers and brings work to various local vendors and indirect beneficiaries in the state, from dry cleaning services to florists.
Newsom's proposal aims to mitigate one of the biggest problems with California's film and TV tax incentive program: too many productions applying for the subsidies. These projects, once rejected, leave for other states and countries. Since 2020, the state has lost $1.6 billion in expenses from productions that applied for but did not receive a tax credit, according to the California Film Commission.
“There's no denying that one of the primary considerations for where to shoot projects is whether they receive a tax credit,” Bell says. “Our program has been oversubscribed for a long time. We have this limit so we've had to turn away qualified productions who then go and take their projects elsewhere, along with jobs for Californians.”
With tax credits, productions may be more easily able to bear higher costs for labor and filming permits, among other things, in California compared to other regions.
However, the state will continue to face stiff competition. The 20% base credit offered by California is lower than that of most competitive film centers, including New York, New Mexico and the United Kingdom. It is also the only major production center that excludes any part of the above-average costs, such as salaries for actors, directors and producers from benefiting from incentives. It's an idiosyncrasy that the UK and Canada, another filming hotspot that has the added benefit of favorable exchange rates and lower labor costs, have exploited to become major destinations for feature films.
Additionally, California does not offer a stand-alone tax credit for visual effects. Several productions outsource postproduction work to countries that offer generous subsidies on this front, resulting in many state-based VFX companies setting up subsidiaries abroad.
Canada and Australia offer the most lucrative tax breaks on this front. Productions can recoup at least 30% of post, digital and VFX spend in those regions. In March, the UK announced a 5% increase and removal of the 80% cap for VFX costs in the country to remain competitive.
In addition to raising the cap, the California Film Commission cited the lack of a tax credit exclusively for VFX work to the governor's office. “We're here to win it,” Bell says.
Compared to California, other regions have weathered the industry contraction better. Some data indicates that competing international film centers are seeing stable, or in some cases slightly increasing, filming levels. Last quarter, the United Kingdom and Canada saw more live-action, scripted titles with budgets of $10 million or more actively filmed within their borders, according to data from industry intelligence platform ProdPro.
And it's not just areas outside the United States. New York has proven more resilient than California, recording about 75% of shooting levels in 2022.