BILL ANALYSIS Ó AB 2026 Page 1 ASSEMBLY THIRD READING AB 2026 (Fuentes) As Amended August 13, 2012 Majority vote. Tax levy ARTS, ENTERTAINMENT, SPORTS 8-0 REVENUE & TAXATION 8-0 ----------------------------------------------------------------- |Ayes:|Campos, Beth Gaines, |Ayes:|Lara, Harkey, Beall, | | |Achadjian, Butler, | |Charles Calderon, | | |Carter, Gatto, Mendoza, | |Cedillo, Fuentes, Gordon, | | |Monning | |Nestande | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- APPROPRIATIONS 16-0 ----------------------------------------------------------------- |Ayes:|Fuentes, Harkey, | | | | |Blumenfield, Bradford, | | | | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, | | | | |Solorio, Wagner | | | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Extends the operation of the California Motion Picture Tax Credit (Film Tax Credit) for two years, thereby authorizing the allocation of an additional $100 million annually in tax credits to qualified productions from July 1, 2015, until July 1, 2017. Specifically, this bill : 1)Authorizes the California Film Commission (CFC) to allocate annually the motion picture tax credits, under both the Personal Income Tax (PIT) and the Corporation Tax (CT) Laws, to qualified applicants for two additional fiscal years (FYs), from July 1, 2015, until July 1, 2017. 2)Extends the existing $100 million-per-FY limitation on the aggregate amount of motion picture tax credits that may be allocated by the CFC in any FY, through and including the AB 2026 Page 2 2016-17 FY. 3)Requires the Legislative Analyst's Office (LAO) to prepare a report evaluating the economic effects and administration of the Film Tax Credit and provide the report to the Assembly Revenue and Taxation Committee, the Senate Governance and Finance Committee, and the public. 4)Revises the types of information required to be included in an application for a Film Tax Credit allocation and specifies that certain tax information obtained by the CFC from a qualified taxpayer prior to the issuance of a credit certificate shall remain confidential, as provided. 5)Requires the CFC to post annually on its Internet Web site, and make available for public release, specified information, including a list of qualified taxpayers and the tax credit amounts allocated to each qualified taxpayer by the commission. 6)Takes effect immediately as a tax levy. FISCAL EFFECT : The Franchise Tax Board (FTB) staff estimates that this bill will result in an annual General Fund (GF) revenue loss of $5.1 million in FY 2014-15, $22 million in FY 2015-16, and an additional $161 million in future FYs as a result of extended tax credit benefits. According to the Assembly Appropriations Committee, extended staffing costs at the CFC would be approximately $300,000 annually, through 2016-17, for continued administration of the tax credit program. In addition, the staff estimates costs to the LAO of approximately $75,000, likely absorbable, associated with preparing a report on the economic effects and administration of the credit program. COMMENTS : Author's Statement . The author provides the following statement in support of this bill: "California suffered both job and financial losses as hundreds AB 2026 Page 3 of productions have left the state to seek incentives offered elsewhere. A phenomenon commonly referred to 'run-away production.' In addition to the international competition from Canada, Australia and most EU nations, over 40 U.S. states offer meaningful financial incentives to the film industry successfully luring production and post-production jobs and spending away from California. "In February 2009, the California Film & Television Tax Credit Program was enacted as part of a targeted economic stimulus package to increase production spending, jobs and tax revenues in California. AB 2026, in seeking a two-year extension to the existing law, acknowledges that the Program has been successful in its goal to retain and increase film and television production occurring in California." California Motion Picture Tax Credit Program: Background . In February 2009, the California Film & Television Tax Credit Program (Film Tax Credit Program) was enacted as a part of an economic stimulus plan to promote production spending, jobs, and tax revenues in California. Originally, the program was scheduled to sunset in 2013-14 FY, but was extended by the Legislature in 2011 for one additional year - until FY 2014-15. ƯAB 1069 (Fuentes) Chapter 731, Statutes of 2011]. Although a bill creating some sort of a tax incentive for the motion picture and television production in California had been introduced almost every legislative session long prior to 2009, the existing film tax credit program was initially recommended by then Governor Schwarzenegger in his 2009-10 budget proposal. Unlike other proposals in the past, the existing film tax credit is targeted, capped and allocated. In many respects, it is similar to a grant program. It is effective only for six FYs, from FY 2009-10 until FY 2014-15, and only $600 million total has been allocated to this credit over the life of the program. The CFC is required to allocate and certify the credit on a first-come first-serve basis, up to $100 million every FY. Is the Film Tax Credit Program Effective in Achieving the Stated Goal ? With the current financial state of the California economy, all state programs affecting the General Fund are under scrutiny to ensure that the programs are effectively achieving desired results. The film and television industry has been a AB 2026 Page 4 large source of employment and revenue for the state and losing the industry could be detrimental to the California economy. The main goal of the Film Tax Credit Program is to prevent runaway production and retain production already being filmed in California. The Film Tax Credit Program is a relatively new program, and whether the Program has been successful in achieving its main goal is up for debate. The CFC's July 2011 Progress Report on the Film Tax Credit Program 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. The study indicates that the credit returns $1.13 for each dollar spent. The UCLA Institute for Research on Labor and Employment (UCLA-IRLE) analyzed the LAEDC study and concluded that the state may recover a more modest $1.04 to state and local governments per dollar of tax credit. The UCLA-IRLE study attributed the reduced benefit to the LAEDC assumption that all productions that received a credit allocation would have otherwise filmed elsewhere. Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN: 0004806