California’s film industry has faced challenges due to labor issues and disruptions. To address this, Governor Gavin Newsom announced a plan to increase the state’s film tax incentive program to $750 million annually. This proposal, if approved, would more than double the current cap of $330 million, making California one of the most competitive states for film production incentives, second only to Georgia. The increased funding would begin on July 1, 2025.
Why States Offer Film Incentives
Film incentives are designed to create jobs and stimulate local economies. Productions bring work for electricians, hairstylists, and other crew members while spending money locally on hotels, restaurants, and services. These programs aim to make states attractive to filmmakers while boosting economic activity in communities.
The Cost of Incentives
Although effective at attracting productions, film incentives are costly for taxpayers. Studies show the tax revenue generated is often much less than the amount invested, sometimes as low as a quarter or even a dime for every dollar spent. In some cases, the cost per job created exceeds $100,000, raising concerns about their overall economic efficiency.
How Incentives Are Offered
States use various methods to support film productions. Some provide direct cash rebates or grants, while others offer tax credits. Depending on the state’s policy, these credits can be used to reduce tax liabilities, converted into refunds, or sold to other companies.
Selling Tax Credits for Cash
Studios often sell transferable tax credits to businesses with high state tax bills. By selling these credits at a discount, studios receive cash, and buyers get tax savings. This system allows companies unrelated to the entertainment industry, such as Best Buy or U.S. Bank, to benefit from film incentives.
Tracking the Money
Following the money behind these incentives is tricky. Since the funds never reach the state treasury, measuring how much revenue is forgone is difficult. This lack of visibility can make the programs politically appealing but raises questions about transparency and accountability in managing public funds.