State Net Capitol Journal – June 16, 2014; Battle Royal Over Hollywood Tax Breaks In States

State Net Capitol Journal – June 16, 2014; Battle Royal Over Hollywood Tax Breaks In States

Budget & Taxes

SNCJ SPOTLIGHT: The bulk of the filming for the 2011 Hollywood blockbuster "Battle: Los Angeles" wasn't actually done in Los Angeles. It took place in Baton Rouge and Shreveport, Louisiana. And only six days of shooting for the upcoming "San Andreas," about a helicopter pilot who rescues his daughter in San Francisco following a major earthquake, will take place in that city. The rest of the $100 million production will be filmed in Australia.

Those are just two examples of the ongoing flight of Hollywood from California to other states and other countries. That exodus, which has been given the name "runaway production," is being driven by tax breaks. And those incentives are spurring battles not only between states but within them.

There is no denying Hollywood's exodus from its home state. In 1996, 20 of the 50 top-grossing movies were filmed in California. Last year, only four were shot there. And movie production has plummeted 60 percent in L.A. over the past 15 years.

"The tourists still come but what they're looking at is the past. It's an illusion," said Michele Burke, an Academy Award-winning makeup artist. "The big films are not being made here. Everything has changed."

L.A. hasn't fared much better with television production. In 2005, 80 percent of TV dramas were shot in L.A. County. By 2010, the rate had dropped to 50 percent. And only two of last fall's 23 new dramas were shot there.

L.A.'s mayor, Eric Garcetti, has called the trend a "civic emergency."

"Entertainment is L.A.'s signature industry, and we can't afford to lose it," he told the Observer. "It's about more than just Hollywood actors and stars — it's an industry of over 500,000 good-paying, middle-class jobs like electricians, carpenters and caterers, and I'm committed to doing everything I can to keep filming here in L.A."

California's loss has been other states' gain. The Milken Institute published a report in February indicating the state has lost more than 16,000 production jobs since 2004, while states with more lucrative incentives, including Louisiana, North Carolina and Texas, have together gained that many production jobs and more. Last year, more studio feature films were shot in Louisiana than in California for the first time — 18 versus 15 — according to the private, nonprofit FilmL.A., which monitors film permitting. Louisiana offers a tax credit of 30 percent on qualified direct production expenditures, while California's credit is either 20 or 25 percent, depending on the type of production.

On the small-screen front, New York reportedly lured NBC's "Tonight Show" from Burbank to Manhattan with a tax credit amounting to $20 million per year. And CBS' selection in April of Stephen Colbert to replace David Letterman as the host of the "Late Show," sparked a feud between L.A. Mayor Garcetti, who wanted the show to move to his city, and New York Gov. Andrew Cuomo (D), who wanted it to remain in New York City.

But the battles over production tax incentives aren't just being waged between cities and states. Within various state legislatures across the country, lawmakers are wrestling with the efficacy of such incentives and how big they should be.

The Motion Picture Association of America maintains the more than $1 billion in film and TV production tax incentives states offer helps support an industry that provided 1.9 million private-sector jobs and $43.1 billion in wages in 2011.

"Tax incentives are creating jobs and promoting economic activity," said Vans Stevenson, the MPAA's senior vice president of state government affairs. "You see so many success stories because there is a significant return on investment, and that is true across the country."

But critics of the incentives, like the nonprofit Tax Foundation, contend that although supporters try to justify them with "fanciful estimates of economic activity," they generally just shift production from one place to another without actually producing a net increase in either economic activity or jobs.

"They're learning that the incentives don't live up to the claims of their proponents," said Tax Foundation economist Scott Drenkard. "The main reason they are popular is they're a little bit sexy. They give politicians the ability to rub elbows with movie stars."

Some state lawmakers, however, don't seem to find the incentives particularly alluring. For instance, before adjourning in April, Maryland's House and Senate split over, and ultimately failed to pass, a $3.5 million tax credit sought by the production company behind the Netflix series "House of Cards."

In California, a coalition of studios and entertainment unions is pushing for expansion of the state's production tax incentive program to make it more competitive with the 38 other states that offer such programs (see Bird's eye view). The bill — AB 1839 — was passed by the state's Assembly in May, according to LexisNexis State Net's legislative database. But the recent indictment of California Sen. Ron Calderon (D) for allegedly taking a bribe from an undercover F.B.I. agent posing as a Hollywood producer to support film incentive legislation hasn't helped the measure's chances in the Senate.

"It certainly casts a dark cloud over the whole subject," said California Sen. Lois Wolk (D). "We should not be considering a renewal or expansion of the very same legislation that was and may still be at the center of an ongoing F.B.I. investigation into corruption in the Legislature."

But film producers haven't given up on the state. The California Film Commission said this month that it received nearly 500 applications for the state's film and TV tax subsidies program, over 100 more than last year.

"This year's dramatic growth in the number of applications reaffirms that California is the preferred choice for projects of all types and sizes," said the commission's executive director, Amy Lemisch. "The industry wants to base productions in California, but incentives now drive those decisions."

The California program's $100 million annual allocation was only enough to fund 23 projects, which were selected by a lottery system, as the program requires. AB 1839 would significantly expand the program, making even major studio productions with budgets of up to $100 million eligible. And although the California Senate may not currently be inclined to pass that measure, its supporters appear ready for a fight worthy of a Hollywood production.

At a labor rally earlier this year, Steve Dayan, secretary-treasurer of Local 399 of the Intl. Brotherhood of Teamsters, said his union was willing to repeat its action of 15 years ago: encircling the state's Capitol with 200 trucks to press for incentives.

"We are not going to let other states poach our jobs," he said.

At the same rally, Maria Elena Durazo, secretary-treasurer of the L.A. County Federation of Labor, vowed her union would not let the entertainment capital of the world go the way of America's automaking capital.

"We are going to stand with you to make sure Hollywood does not become Detroit," she said. "I'll be damned if we're going to stand by and see the last film industry worker here turn out the lights. Hell, no!" (NEW YORK TIMES, VARIETY, OBSERVER [LONDON], LOS ANGELES TIMES, STATE [COLUMBIA], MILKEN INSTITUTE, STATE NET)

MOST STATES OFFER FILM PRODUCTION TAX INCENTIVES: Thirty-nine states have tax incentive programs for film, television and other media productions, according to the National Conference of State Legislatures. However, Connecticut imposed a two-year moratorium on providing incentives for feature films in July 2013. And the programs in Idaho and Oklahoma currently have no funding.

STATES HOPING TO SELL 'OPEN DATA': Last month, a couple of web designers were awarded a $25,000 prize by the state of Colorado for developing an online tool to help businesses determine the best place to set up shop. The tool, dubbed "Beagle Score," is able to rate locations on the basis of taxes and incentives, zoning requirements and even the location of potential competitors, drawing on about 30 data sets posted online by the state and its municipalities.

Beagle Score is an example of how states and other jurisdictions are encouraging entrepreneurs to turn raw government data posted on "open data" websites into products the public will buy.

"The [Colorado contest] opened up a reason to use the data," said Sean Wittmeyer, one of Beagle Score's developers. "It shows how 'open data' can solve a lot of challenges.... And absolutely, we can make it commercially viable. We can expand it to other states, and fairly quickly."

At least 39 states and 46 cities and counties have established open-data sites since the states of Utah and California, and the cities of San Francisco and Washington, D.C., first did so in 2009, and new sites are cropping up almost daily, according to the federal site, Data.gov. State and local governments are also sponsoring "hackathons," "data paloozas," and challenges like Colorado's to solicit ideas for how to present their data more effectively as well as mine it.

Open-data advocates estimate there's a multibillion-dollar industry in the conversion of raw government data into products for consumers and industries that could range from a simple mobile phone app identifying every stop sign a motorist will encounter on a trip from one town to another, to a complex tool that generates farm insurance policies from weather and crop data. (STATELINE.ORG)

OH ADOPTS DON'T ASK, TELL POLICY ON BUSINESS TAX OVERPAYMENTS: The Ohio Department of Taxation failed to refund $34 million in taxes overpaid by local businesses since 1999, owing to the fact that state law requires refunds only upon request and allows the state to keep any money not claimed within three to four years.

That's about to change, however, thanks to the Legislature's overwhelming passage — and Gov. John Kasich's (R) expected approval — of SB 263, which will require state tax officials to automatically notify businesses and issue them refunds when they pay too much in taxes. The measure will also allocate $682,000 in fiscal year 2015 for the work that will be involved in making those notifications.

Meanwhile, the state has been working on identifying and notifying businesses that have overpaid taxes in the past and has returned nearly $29 million of the $34 million in overpayments it has collected. (CLEVELAND.COM, STATE NET)

BUDGETS IN BRIEF: KANSAS officials' underestimation of the full impact of income tax changes made in 2012 and 2013 contributed to the state missing revenue estimates by over $300 million, according to the nonpartisan Kansas Legislative Research Department. Gov. Sam Brownback (R) and the Kansas Department of Revenue have repeatedly claimed the $310 million shortfall was primarily the result of a federal capital gains dropoff (WICHITA EAGLE, STATE NET). • Boosted by the 4/20 pot holiday, recreational marijuana sales in COLORADO reached about $22 million in April, an increase of about 17 percent over March sales and an increase of about 58 percent over sales in January (ASSOCIATED PRESS, GAZETTE [COLORADO SPRINGS]). • TEXAS cattle ranchers cast votes this month on whether to impose a $1 state "checkoff" tax on top of the $1 federal checkoff on each head of cattle they sell to fund beef research and promotion (NATIONAL PUBLIC RADIO).

- Compiled by KOREY CLARK

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