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EXCLUSIVE: A decade after the last major overhaul of California’s film and TV tax credits program, Gov. Gavin Newsom today will unveil a massive increase in the incentives to jump start work and production in the home of Hollywood.
In an announcement this afternoon at Raleigh Studios, the Governor will reveal that he aims to boost the state’s tax credits from their present level of $330 million a year to around $750 million annually, I’ve learned
The whooping increase will not take place immediately, and is subject to approval by the Democratic majority legislature in the Golden State’s 2025-2026 budget. However, in this election year of close down ticket races, Sunday’s announcement is intended to swell confidence locally for an industry and a workforce that has seen production in L.A. and across the state dramatically shrink and jobs dry up over the last year or so, sources say..
To that end, Gov. Newsom will be joined at today’s press conference by L.A. Mayor Karen Bass and a praetorian guard of labor leaders, below-the-line workers, state officials, and industry advisors. Mayor Bass has been a big proponent of increasing the state tax credits to offset the “slowing,” as the Mayor told Deadline in August, of production in the city. With L.A. production down double digits in 2023, Bass has also floated the notion of a local tax credit.
Regardless of if that idea ever becomes a reality, it was been clear even before last year’s labor unrest that something needed to change with the state tax credits program
“The program is oversubscribed and out of date” an insider exclaims of California’s current big and small screen program, which offers 20 – 25% tax credits for studio/streamer films, indie films, new TV series and relocating shows. “So many productions don’t even apply because there is such a slim chance they’ll be successful. And the industry the crews, and content delivery methods have changed dramatically over the past 10 years, so what the state offers doesn’t meet basic needs, and barely competes with Atlanta or Canada.”
Besides pumping up the bottom line, today’s increase proclamation by Gov. Newsom will change nothing else about the California Film Commission administered program, I’m told. No new categories, no new percentages, nada.
In fact, leaving everything as is besides the money, the expectation from Sacramento and its studio, streamer, guild and civic allies is that the revitalized program will be perceived as more accessible than ever by potential applicants desiring tax credits and the ability to plan ahead with projects. Term-limited Newsom will likely encounter little difficulty getting the increase passed as a part of next year’s budget deal. Politicians had to cut a lot of pork and progressive programs this year to bring down the state’s estimated $46.8 billion deficit, but the film and TV tax credits weren’t touched.
In part, that was because the program has proved a money maker for the state in the big picture.
Even as the media industry started to slow down, a 2022 report by the Los Angeles Economic Development Corporation asserted that “for every tax credit dollar allocated, the state benefitted from at least $24.40 in economic output, $16.14 in gross domestic product, $8.60 in wages and $1.07 in state and local tax revenues.”
Those are the kind of numbers you can expect Gov. Newsom to bring up later today.
Also, besides the more than doubling of California’s credits, which were established in their current form in 2014, the increase will make the Golden State the top capped source for production tax incentives in the nation — at least on paper. Presently, with a $280 million expansion last year, New York state offers about $700 million in capped incentives. However, that number is augmented by a patchwork quilt of other offsets and exemptions available to productions in various specific jurisdictions in the Empire State.
While states like New Jersey, Nevada, and Utah have been putting more tax credit money on the table, Louisiana and Georgia still remain among the top rivals to California. Coming out of the shut down of production during the 2023 WGA and SAG-AFTRA strikes and industry wide layoffs and cost-cutting measures, the Peach State, like California, hasn’t anywhere nearly fully rebounded. Having said that, while California has more production than anywhere else overall, Georgia, and specifically Atlanta, still attracts more big budget productions on average that anywhere else in the U.S.A.
It doesn’t hurt that costs in Georgia are generally much lower than on the West Coast, and that the state has an uncapped incentive program that ranges from around $900 million to $1.2 billion per annum. Movies or TV shows that shoot in the Southern state receive a 20% base transferable tax credit. As accounting execs at Disney, Netflix and everyone else in town will tell you with no small sense of disbelief, productions also easily receive a 10% Georgia Entertainment Promotion “uplift” if they include the state logo in their credits for five seconds or, according to the Georgia Department of Economic Development, an “alternative marketing promotion.
This new increase recommended Sunday by Gov. Newsom will certainly shake up the tax credit status quo.
Part of that takes the risk that other states, Canadian provinces and more competitive than ever European nations will now up their offering too. The flip side, as has almost occurred in Georgia on more than one occasion, is that some states could lower their cap and incentives to avoid budget busting to stay competitive. Certainly, it is hard to see New York jacking up their credits to best California after having just done so just a year ago.
Previously a paltry $100 million lottery determined effort, California’s program was overhauled and signed into law by a reelection seeking Jerry Brown in 2014. Spotlighting job creation, the program also put a premium on snagging TV shows from the likes of Vancouver, NYC and Atlanta, as well as finally allowing big budget movies to be eligible to apply. Coming out of the ghost town the pandemic made L.A. into, Gov. Newsom and the legislature bopped up the incentives program in 2021 to $420 million for two years and added further credits for the construction of more soundstages.
Against that backdrop and with little new production to fill those new soundstages, the latest renewal of the state film and tax credit, SB 132, passed the legislature overwhelmingly last year. The renewal extended the so-called 4.0 program for five more years starting in 2025, with that $330 million allocated in annual incentives now refundable for tax liability. Yet, even with that longer term peace of mind in place, things only got more bleak for Hollywood and instability hovered over the 700,000 jobs, according to the state, that benefit from the industry.
One major complaint TV productions in particular have had about the amount of money there for small screen projects is that more and more of it is actually unavailable. That’s because the vast majority of past successful applicants are grandfathered in year after year as long as they remain on the air or online, leading to application periods when just a couple of new shows see any credits.
Looking at the program’s books, there is $132 million available for applicants of new TV series, mini-series, recurring and pilots in the film and TV tax incentives cookie jar every year, with another $56.1 million for relocating TV series. On the film side, the breakdown is $115.5 million a year on average for feature films, plus $10.56 million for independent films with budgets over $10 million and $15.84 million for independent films with budgets under $10 million.
With that, and today’s more than doubling of the current film and TV tax credit program, the last application period for the television categories closed on October 23, with a November 25 approval date. On the film side, the next application round is from January 25-27, 2025, with successful applicants for set to be notified on March 3, 2025.
