BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2026
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          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
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            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 








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          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 








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          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