State Net Capitol Journal – February 10, 2014; California Needs Bigger Entertainment Tax Credits?

Budget & Taxes

CA NEEDS BIGGER ENTERTAINMENT TAX CREDITS? Hollywood has long been the capital of the film industry. But California Assemblyman Raul Bocanegra (D) said the state needs to boost its film and TV tax incentives to keep productions from being lured away to other locations.

"For far too long, we thought the good weather and just being California was good enough, and it's not," he said.

The latest installment of "The Hunger Games" trilogy, for instance, was shot in Georgia, which offers $200 million a year in entertainment tax credits, twice what California offers. And the "Breaking Bad" TV series moved from California to New Mexico, which offers television shows and films a 30-percent tax credit, compared to California's rate of 20-25 percent. And there are more than 30 other states vying for such projects with incentives of their own.

"California is now just trying to recover the loss that was created by this tax war," said Paul Audley, president of Film LA, an organization that helps studios secure location permits. "California is really just trying to restore its signature industry against an onslaught of free money from other states."

Bocanegra, who plans to introduce legislation to increase the state's entertainment tax incentives this month, said the amount of the increase isn't likely to bring it on par with the $420 million in tax breaks offered by New York.

"Do I think we need to compete dollar-for-dollar, California against New York? No. But we certainly need to be in the game, and right now, we're not in the game," he said. "We became complacent...over time, while our program became outdated."

Critics of the tax credits, like Joseph Henchman at the conservative-leaning Tax Foundation, said they don't generate real economic growth on a national level because the production locations keep shifting around the country. And even for individual states, he said, the competition to offer the best deal means their average return is a net loss.

"They lose between 70 [cents] and 90 cents for every dollar they spend on credits," he said.

But Lee Thomas, director of Georgia's Film, Music and Digital Entertainment Division, said studies that indicate the long-term economic returns from entertainment tax credits may not justify their cost don't hold true in states that develop an entertainment community alongside their credit programs.

"It's market by market. There are certain places that came out with really high tax credit programs, and they didn't have the infrastructure to support a film production center," she said. "Because we have a robust crew and infrastructure here, it's good for the producers and good for the state. We're seeing people put down roots."

A government study in Louisiana revealed that its incentive program injected $1 billion into the economy and generated 14,000 jobs in 2012, while costing it only $236 million. Chris Stelly, executive director of the state's entertainment bureau, says the state has managed to build a community that is a real alternative to California rather than just another temporary shooting location.

"I wouldn't say that we're trying to become the Hollywood of the South...we really want to be doing this on our own so we can diversify our economy," he said.

Research suggests the unfavorable studies about entertainment tax incentives don't apply to California either. A UCLA study found that the state's current program generated $1.04 in economic return for every dollar spent. A separate study by the Los Angeles County Economic Development Corp. placed that figure even higher, at $1.13.

And California has a distinct advantage over many of the other states currently providing such incentives, according to Film LA's Audley.

"All of these companies want to work where they live so people aren't leaving their families behind and sleeping in strange beds," he said. "They live here, and they want to work here."

With Bocanegra's forthcoming measure already having earned the backing of local unions and broad bipartisan support, Hollywood may continue to be the primary location for that work. (POLITICO)

IA COULD OUTSHINE FL IN SOLAR POWER: Iowa could generate 7 million gigawatt hours of solar photovoltaic energy, an amount that far exceeds the 57,000 gigawatt hours generated in the state by coal, gas, wind and nuclear energy combined in 2010, according to a report released last month.

"The potential for solar in Iowa is quite significant," said Nathaniel Baer, energy program director for the Des Moines-based Iowa Environmental Council, which released the report.

The report said the amount of energy the state could realistically produce would actually place it 16th in the nation, ahead of Florida and Georgia, "even though as much or possibly more sun reaches those states."

Baer said it was difficult to determine exactly where the state currently ranks in solar power generation.

"We're kind of lumped in with a third of states that lag from behind," he said.

But Iowans are already beginning to embrace solar power. The state's $1.5 million solar tax credit program, established to spur investment in the construction of solar arrays, was maxed out last year, and the state carried over $471,000 in tax credit requests into this year.

Baer said if the state added 300 megawatts of solar energy annually over the next five years it could create an average of 2,500 jobs each year and generate enough energy to power 39,000 homes for a year. (DES MOINES REGISTER)

BUDGETS IN BRIEF: OHIO Gov. John Kasich (R) has threatened to veto any fracking-tax bill that fails to pass "the smell test in terms of what I think is fair." The state's GOP-controlled Legislature introduced a fracking-tax measure in December (HB 375) that was shaped by the oil and gas industry (COLUMBUS DISPATCH, STATE NET). • In his State of the State address last week, MAINE Gov. Paul LePage (R) called for a statewide referendum on whether the state should lower taxes by at least $100 million and reduce spending by another $100 million. With Democrats in control of both chambers of the state's Legislature, a citizen-initiated measure would likely be the only way such a proposal would go before voters (BANGOR DAILY NEWS, STATE NET). • PENNSYLVANIA Gov. Tom Corbett (R) proposed a new $240 million grant program for K-12 education and reduced pension contributions in the $29.4 billion spending plan he unveiled last week (PITTSBURGH POST-GAZETTE, STATE NET).

- Compiled by KOREY CLARK

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