BILL ANALYSIS AB 1696 Page 1 ASSEMBLY THIRD READING AB 1696 (Bass) As Introduced February 23, 2007 Majority vote ARTS, ENTERTAINMENT, SPORTS 7-1 APPROPRIATIONS (vote not available) ----------------------------------------------------------------- |Ayes:|Karnette, Coto, Davis, De | | | | |Leon, Plescia, | | | | |Strickland, Swanson | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Sharon Runner | | | | | | | | ----------------------------------------------------------------- SUMMARY : Creates an unfunded grant program to be administered by the California Film Commission (CFC) to encourage filming motion pictures and commercials in California. Specifically, this bill : 1)Authorizes the allocation of an unspecified amount to the CFC to fund grants that encourage filming motion pictures and commercials within California. 2)Defines qualified wages, qualified amount, qualified entity, qualified individual, qualified motion picture, qualified property, and other related film production terms for the purposes of establishing and administering the grant program. 3)Specifies the duties of the Director of the CFC in the administration of the program 4)Requires the CFC to adopt regulations to implement the act no later than March 1, 2008. 5)Sunsets the act on January 1, 2018. 6)Requires the CFC to annually report to the Legislature, beginning no later than June 1, 2009, on the diversity of the workforce of employed by grant recipients. AB 1696 Page 2 7)Requires the Business, Transportation and Housing Agency (BT&H) to report to the Legislature no later than December 31, 2011 on the economic impact created by this program. EXISTING LAW : 1)Forms the 26-member CFC within the BT&H, that is directed to promote, increase, and retain the production of filmed entertainment in California. 2)Requires the CFC to develop and oversee the implementation of a Cooperative Motion Picture Marketing Plan and to offer state resources to local film commissions and local government liaisons to the film industry, for the purpose of marketing their locales to the motion picture industry. 3)Authorizes the State Theatrical Arts Resources Partnership to provide filmmakers access to unused state properties, such as health facilities and vacant office structures, at no charge or at a nominal fee. 4)Creates the Uniform Permit Assistance Act that directs the CFC to, with input from the motion picture industry and local and state government, develop and adopt a model process for granting film permits. 5)Requires the Employment Development Department, in consultation with the film and movie industry, BT&H, and CFC, to research and maintain data on film industry employment. FISCAL EFFECT : Unknown COMMENTS : 1)Background . It is the intent of the author to "create an atmosphere where film industries will not only stay but will relocate to this state; thus, providing more high paying, highly skilled jobs which are specialized for the film industry and economic stimulus to the local economies?The film production industry in California accounts for approximately 50% of the total United States motion picture output and is the eighteenth largest industry sector contributor to California's gross state product. The dominance that California has enjoyed for so many decades is slowly being AB 1696 Page 3 eroded by progressive policies from other states within this country, such as Louisiana, and foreign countries, such as Canada. These states are now beginning to enjoy an industry that is capital and labor intensive, non-polluting, and creates high wage jobs." 2)Runaway Production . At the state level, "runaway productions" are film or television productions that are developed for initial exhibition or broadcast in California, but that are actually filmed in another state or country in order to achieve lower production costs. A number of other states have adopted or are adopting measures, including tax credits, to attract film production. Within California, a number of bills have been introduced over the past few years, including at least three during the 2005-06 session that addressed runaway production. Various entities (state & local governments, nonprofits, labor unions and the film industry, among others) indicate that tax credits and other incentives to produce films outside California have resulted in film production moving out of California and into other states and countries. According to the Los Angeles Economic Development Commission (LAEDC): Most people think of film production running away to Canada, though Europe was a quite popular destination for a while (and Romania is currently in). However, run-away production to other states has become a more significant challenge to California's film industry. This trend impacts not only production activities in the Los Angeles area, but film commissions around the state that have also been facing this competition. LAEDC tracked the location of major photography on feature film production from [2003 to 2005]. Two things stood out from this informal survey. One, when productions leave California, the major studios still tend to go offshore rather than to other states. In many cases, these decisions are due to story considerations, but the financial benefits are still important components of the decision. The second trend is that independent AB 1696 Page 4 producers are increasingly going elsewhere in the U.S. Other states have been busy offering new incentives or increasing the level of existing incentives for filming in their jurisdictions. More worrisome are the efforts to develop production facilities to lure more of the production process. For example, in New Mexico, there are plans to build a $60 million film, TV, and digital media production facility in Albuquerque. New York is working on a studio complex. Many of the independent films will probably never see the inside of a theater complex, but some recent high-profile films (Sideways and Million Dollar Baby) started life as independent productions. For these films, costs of production are very important? LAEDC conducted research for the California Film Commission on the job and state tax revenue implications of run-away production. On a "mid-budget" film ($17 million), 304 direct and indirect jobs were created and $1.2 million state sales and income taxes were generated. For a "large budget" film ($70 million), 928 direct and indirect jobs were created, while $10.6 million in state taxes were generated. These were conservative estimates. 3)Work in Progress . This bill is not fully developed. Significant policy questions exist, including the appropriateness of issuing grants from state funds to private entities within the film entertainment industry and the vast authority granted to the Director of CFC, which would be exclusively authorized to issue those grants. However, the author indicates that this measure is a work in progress and would like to have more time to further explore the policies of other states and countries that are continuously trying to lure away California's film productions, and to work with the affected industries on the best approach to address runaway production. AB 1696 Page 5 4)Current & Prior Legislation : SB 740 (Calderon), of 2007 proposes a wage-based, refundable tax credit of up to 15% for qualified filmed productions in California. Pending consideration in the Senate Committee on Revenue and Taxation. AB 777 (Nunez), of 2005-06 proposed a wage-based, refundable tax credit of up to 15% for qualified filmed productions in California. Held in Senate Committee on Revenue and Taxation. AB 1830 (Cohn), of 2003-04 would have authorized tax credits between 2006 and 2012 in an amount equal to 15% of qualified wages paid or incurred for services performed, with respect to the production of each qualified motion picture. Held in this committee. AB 2747 (Wesson), of 2002 would have provided a wage-based, refundable tax credit of up to 15% for qualified filmed productions in California. Failed passage in Senate Appropriations Committee. AB 502 (Frommer0, of 2002 would have guaranteed loans up to $750,000 for films with a maximum budget of $10 million which spent at least 50% of the production budget on goods and services derived in the state. Held in Senate Appropriations Committee. AB 358 (Wildman & Kuehl), of 2000 would have provided a refundable income and corporation tax credit for 10% of eligible wages paid for motion pictures and TV programs produced in California. Held in Senate Appropriations Committee. Analysis Prepared by : Dana Mitchell / A.,E.,S.,T. & I.M. / (916) 319-3450 FN: 0001030