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
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          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  








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            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  








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                   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.









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           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


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