BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1069 (Fuentes)
Hearing Date: 08/25/2011 Amended: 07/13/2011
Consultant: Mark McKenzie Policy Vote: G&F 9-0
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BILL SUMMARY: AB 1069 would extend the applicability of the
California Film and Television Tax Credit (film tax credit) for
five years, thereby authorizing the allocation of an additional
$100 million annually in tax credits to qualified productions
from July 1, 2014 until July 1, 2019.
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Fiscal Impact (in thousands)
Major Provisions 2013-14 2014-15 2015-16 Fund
Tax credit extension $11,000 $49,000 $83,000 General*
Film Commission Approximately $200/yr in ongoing
staffingGeneral
LAO study Unknown one-time costs (see
comments)General
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* Additional aggregate revenue loss of $357 million over future
fiscal years.
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STAFF COMMENTS: SUSPENSE FILE.
The February 2009 state budget agreement included a package of
legislation that consisted of both temporarily tax increases
(ABx3 3 (Evans), Chapter 18 of the 2009-10 Third Extraordinary
Session) and tax expenditure incentives intended to create or
retain jobs in California (AB x3 15 (Krekorian) and SB x3 15
(Calderon) Chapters 10 and 17, respectively, of the 2009-10
Third Extraordinary Session). The latter bills are identical,
and both included provisions for an elective single-sales factor
apportionment formula, a new Jobs Tax Credit, and the California
Film and Television Tax Credit Program.
Existing law, beginning with the 2011 tax year, allows a 20
percent credit of qualified expenditures attributable to the
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production of a qualified motion picture in California, or 25
percent of expenditures if the production is an independent film
or a television series that relocated to California. Qualified
motion pictures include the following productions in which at
least 75 percent of production days occur in state, or 75
percent of the production budget is incurred on services,
purchases, or rentals in California: feature films, movies of
the week, miniseries, new or relocated television series, and
independent films.
Existing law authorizes the California Film Commission (CFC) to
allocate $100 million in tax credits annually, with $10 million
dedicated each year for independent films, on a first-come
first-served basis, for the 2009-10 through the 2013-14 fiscal
years. Projects that receive a credit allocation must commence
shooting within 6 months and complete production within 30
months. CFC issues a credit certificate for qualified expenses
upon completion of the production. Any amounts unallocated in a
fiscal year, and any amounts allocated but not certified, may be
allocated in the following year. Credits may be claimed for
taxable years on or after January 1, 2011 and unused credits may
be carried over for six years. Certified credits may be claimed
by taxpayer directly, assigned to another member of a unitary
group, or applied against sales and use tax liabilities. Tax
credits certified for independent films may be sold to an
unrelated party.
AB 1069 would authorize the CFC to allocate $100 million in tax
credits annually from 2014-15 through the 2018-19 fiscal year,
require CFC to report specified information to the Legislative
Analyst's Office (LAO), and require the LAO to report to the
Legislature on the impacts of the movie tax credit. The bill
would also make several clarifying corrections to address
technical considerations raised by the Franchise Tax Board, and
repeal duplicative provisions enacted by ABx3 15.
The CFC's July 2011 Progress Report on the California Film and
Television Tax Credit Program provides the following summary of
activity:
2009-10: $172 million in credits allocated over two funding
cycles to 69 projects with estimated aggregate project
expenditures of $1.1 billion.
2010-11: $124 million in credits allocated to 52 projects with
estimated aggregate project expenditures of $967 million.
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2011-12: $104 million in credits allocated to 29 projects ($66
million of which is "reserved" for 11 pending projects) with
estimated aggregate project expenditures of $740 million.
Demand for credits far exceeds supply; available allocations
were oversubscribed for all funding cycles, and the 2010-11
and 2011-12 amounts were oversubscribed on the first day of
availability.
As of August 9, 2011, approximately $47 million in tax credit
certificates have been issued to date for 35 productions. The
CFC also indicates that credit allocations to date have varied
in size; the smallest allocation was $74,000, while the largest
was $11 million. The average allocation amount is nearly $2.7
million.
The CFC report also cites an economic impact study conducted by
the Los Angeles Economic Development Corporation (LAEDC) on the
first 77 projects that received an allocation of tax credits.
The study concluded that during the first two years of the film
tax credit program, the credit generated more than $3.8 billion
in economic output, supports over 20,000 jobs in California, and
will return $200 million to state and local governments. Staff
notes, however, that the study is based on an analysis of only 9
productions, and assumes that productions would not have taken
place absent the incentives. There does not appear to be
sufficient data to support this assumption. Studies conducted
on film industry tax incentives provided in other states
conclude that state revenues generated per dollar of tax
incentive ranged from a low of $.13 for Louisiana to $1.10 for
New York.
Since the credit is intended to retain movie production in
California, and the credit is heavily oversubscribed, staff
recommends that the bill be amended to delete provisions that
provide for a first-come first-served allocation process and
instead require a competitive allocation process that provides
for more scrutiny of whether a project is likely to be filmed
elsewhere absent a subsidy. Currently, a television series that
relocated to California is the only type of production that is
required to make a finding that the subsidy is the primary
reason for filming in the state in order to qualify for a tax
credit allocation. Staff notes that, according to film tax
credit regulations, these productions need only to self-certify
that they would have filmed elsewhere absent the credit.
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ABx3 15 and SBx3 15 both included an uncodified requirement that
the Business, Transportation and Housing (BTH) Agency report to
the Legislature by December 31, 2015 on the economic impact of
the film tax credit, six months after the primary allocations
cease. The BTH Agency is required to consider the number and
increase or decrease of qualified motion pictures produced in
the state, the total qualified wages paid or incurred in the
state, and the level of employment in the production industry.
Staff notes that these considerations alone are insufficient to
determine the impact the credit has had on the industry or the
broader economy in California.
AB 1069 would require the CFC to provide the following
information to the LAO for purposes of conducting a study of the
efficacy of the credit: applicant expenditures, financial
details of the applicant, sales and use taxes paid by the
applicant, evidence that filming would have occurred elsewhere
absent the credit, lists of other members of an applicant's
controlled group, number of applicants and credit recipients,
and amount of qualified wages paid on the qualified project.
The bill would require the LAO to conduct a study to assess the
total economic activity generated by productions receiving
allocations and claiming credits, as specified, including
direct, indirect, and induced activity, and any impacts
resulting from deferred claiming of the credit. The LAO would
likely dedicate up to 1 PY of existing staff time to complete a
comprehensive study of the impacts of the film tax credit.
The bill does not include a deadline for CFC to report
information to the LAO, or for the LAO to report back to the
Legislature, and the current BTH reporting requirement would not
provide information for the Legislature's consideration until
six months after the current tax credit authority expires. AB
1069 proposes to extend the credit for five additional years,
authorizing an additional $500 million in General Fund
expenditures, without an independent evaluation of the efficacy
of the current credit. Staff notes that, absent a study that
can effectively determine the extent to which the credit had a
direct impact on production that would have occurred elsewhere
absent the subsidy, the Committee may wish to consider whether
continuing the film tax credit represents the highest and best
use of General Fund resources in a time of ongoing budget
deficits.
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The CFC was authorized to add 3 PY of staff in the fiscal year
following enactment of the film tax credit, but reports that 2
PY are currently dedicated to administering the program. AB
1069 would result in ongoing staffing costs of approximately
$200,000 from 2014-15 through 2018-19.
Staff notes that allocations under the current film tax credit
program are authorized until July 1, 2014, and credits will not
begin to be claimed until next year for the 2011 tax year. The
Committee may wish to consider whether it is premature to extend
a program that won't expire for nearly three years.