BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  AB 1839
                                                                  Page  1

          Date of Hearing:   March 25, 2013

                                   INTERNET MEDIA
                               Ian C. Calderon, Chair

             AB 1839 (Gatto and Bocanegra) - As Amended:  March 19, 2014
          SUBJECT  :   Income taxes:  qualified motion pictures.

           SUMMARY  :   Extends for five years the requirement that the  
          California Film Commission (CFC) annually allocates tax credits  
          to qualified motion pictures, as specified, continuing through  
          the 2021-22 fiscal year and would recast these credits as  
          Personal Income Tax Credits beginning on and after January 2016.  
           Removes the $75 million dollar cap on the budget for a  
          qualified motion picture and instead places a cap on the amount  
          of credits a qualified motion picture is eligible to receive, as  
          specified.  Expands the portion of the program which covers  
          television series beyond the current cable-TV only eligibility,  
          to include all television series, as defined, regardless of  
          broadcast media. Provides a new incentive for productions  
          located outside of the Los Angeles zone, as specified.  Makes  
          various technical changes.  Specifically,  this bill  :
          1)Extends the requirement in law that that CFC annually issue  
            tax credits to qualifying motion picture productions, as  
            specified, through the 2021-22 fiscal year.  (See Existing Law  
            for a detailed explanation of the film tax credit program). 

          2)Declares that the credit shall be 20% of the qualified  
            expenditures attributable to the production of a qualified  
            motion picture in California, including, but not limited to:

             a)   A feature, up to $100,000,000, or;

             b)   A television series in its second or subsequent years of  
               receiving a tax credit allocation pursuant to this section.

          3)Defines a "Qualified motion picture" to mean a motion picture  
            that is produced for distribution to the general public,  
            regardless of medium, that is one of the following:

             a)   A feature with a minimum production budget of  


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             b)   A movie of the week or miniseries with a minimum  
               production budget of $500,000.

             c)   A new one-hour television series of episodes longer than  
               40 minutes each of running time, exclusive of commercials,  
               that is produced in California, with a minimum production  
               budget of $1,000,000 per episode.

             d)   An independent film.

             e)   A television series that relocated to California.

             f)   A pilot for a new television series that is longer than  
               40 minutes of running time, exclusive of commercials, that  
               is produced in California, and with a minimum production  
               budget of $1,000,000.

             g)   Requires the CFC to increase the applicable percentage  
               by 5%, not to exceed a maximum of 25%, if the qualified  
               motion picture incurred or paid the qualified expenditures  
               relating to original photography outside the Los Angeles  

          4)Provides the following definitions:

             a)   "Applicable period" means the period that commences with  
               preproduction and ends when original photography concludes.  
                The applicable period includes the time necessary to  
               strike a remote location and return to the Los Angeles  

             b)   "Los Angeles zone" means the area within a circle 30  
               miles in radius from Beverly Boulevard and La Cienaga  
               Boulevard, Los Angeles, California, and includes Agua  
               Dulce, Castaic, including Lake Castaic, Leo Carillo State  
               Beach, Ontario International Airport, Piru, and Pomona,  
               including the Los Angeles County Fairgrounds.  The Metro  
               Goldwyn Mayer, Inc. Conejo Ranch property is within the Los  
               Angeles zone.

             c)   "Original photography" includes principal photography,  
               additional unit photography, and reshooting original  


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             d)   "Qualified expenditures relating to original photography  
               outside the Los Angeles zone" means amounts paid or  
               incurred during the applicable period for tangible personal  
               property used or consumed outside the Los Angeles zone and  
               relating to original photography outside the Los Angeles  
               zone and qualified wages paid for services performed  
               outside the Los Angeles zone and relating to original  
               photography outside the Los Angeles zone.

          5)Restructures and increases the allocation from 20% to 25% of  
            the qualified expenditures relating to music scoring and music  
            editing attributable to the production of a qualified motion  
            picture in California.

          6)Requires the CFC to set aside the lesser of 10% of the amount  
            specified in subparagraph (A) of paragraph (1) or $20,000,000  
            of tax credits each fiscal year for independent films, as  

          7)Further requires the CFC to set aside up to $30,000,000 of tax  
            credit each fiscal year for television series that relocated  
            to California, as specified.

          8)Make various technical changes.

           EXISTING LAW  : 

          1)   Establishes a motion picture production tax credit, equal  
          to either:

             a)   20% of the qualified expenditures attributable to the  
               production of a qualified motion picture, or;

             b)   25% of the qualified expenditures attributable to the  
               production of a television series that relocated to  
               California, or an independent film.  

          1)Defines "independent film" as a film with a budget between  
            $1million and $10 million produced by a non-publicly traded  
            company which is not more than 25% owned by publicly traded  

          2)Requires the CFC to administer a motion picture production tax  
            credit allocation and certification program, as follows: 


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             a)   Taxpayers will first apply to the CFC for a credit  
               allocation, based on a projected project budget. 

             b)   Upon receiving an allocation, the project must be  
               completed within 30 months. 

             c)   The taxpayer must then provide the CFC with verification  
               of completion and documentation of actual qualifying  

             d)   Based on that information, the CFC will issue the  
               taxpayer a credit certificate up to the amount of the  
               original allocation.  

          3)Defines "Qualified motion pictures" as one produced for  
            general distribution to the public, and include feature films  
            with budgets between $1 million and $75 million; Movies of the  
            Week with a minimum budget of $500,000, and new television  
            series with a minimum production budget of $1 million. 

          4)Requires that in order to be eligible for the credit, 75% of  
            the production days must take place within California or 75%  
            of the production budget is incurred for payment for services  
            performed within the state and the purchase or rental of  
            property used within the state.  

          5)Declares that the credit is not available for commercial  
            advertising, music videos, motion pictures for non-commercial  
            use, news and public events programs, talk shows, game shows,  
            reality programming, documentaries, and pornographic films

          6)Requires that the CFC allocate $100 million of credit  
            authorizations each year during the period 2009-10 through  
            2015 on a first-come, first-served basis, with 25% of the  
            allocation reserved for independent films.  

          7)Declares that any unallocated amounts and any allocation  
            amounts in excess of certified credits may be carried over and  
            reallocated by the CFC. 

          8)Provides that qualifying taxpayers could claim the credit on  
            their tax return filed with the Franchise Tax Board (FTB)  
            under either the Personal Income Tax or Corporation Tax.  


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          9)Provides further that taxpayers may use certified credits in a  
            number of ways, they may;

             a)   Claim it directly;

             b)   Assign it to another member of their unitary group;

             c)   Sell the credits to other taxpayers, or;

             d)   Elect to apply the credit against their sales and use  
               tax liability.  

          10)Specifies that the CFC will allocate $100 million of credit  
            authorizations each year during the period starting July 2015  
            until July 2017 on a first come first served basis.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           1)Author's statement  :  According to the author, "Hollywood is  
            internationally celebrated as home of the entertainment  
            industry, having established itself as a film-making locale by  
            the early 1900s.  The entertainment industry creates hundreds  
            of thousands of good paying middle class jobs and billions in  
            economic activity throughout California each year, and  
            hopefuls still flock to the area with dreams of being  
            'discovered.'  Unfortunately, the film industry's last big  
            peak occurred in 1997, and the steady, local jobs offered by  
            the industry have been under constant attack.

            "Since the late 90s, film production has been lured across  
            state lines to other states and nations that have sought to  
            attract the notoriety, tax revenues, and workforce.  There are  
            now more than 40 states and numerous other countries that  
            offer incentives, almost all of which are substantially larger  
            than California's.  In the last 15 years, film production has  
            dropped nearly 50% in California.  In 2013, 21 of the 23 new  
            prime time series were filmed outside of California.  When  
            production leaves California, those left jobless are not the  
            top-tier talent, such as the actors and producers, who are  
            often shipped to the filming locations.  Instead, the below  
            the line and behind the scenes workers take a hit, as do the  
            ancillary businesses that serve the production sites and  
            teams, such as the caterers, hotels, set construction  


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            companies, restaurants, etc.

            "In an effort to combat production flight, in 2009, the  
            Legislature passed the California Film and Television Tax  
            Credit Program to promote film production and create and  
            retain jobs in California.  Since 2009, California has  
            allocated $100 million a year to eligible film and TV  
            productions that meet specific criteria.  To date, more than  
            270 projects, contributing more than $4.75 billion in economic  
            activity and creating more than 51,000 jobs, have benefitted  
            from the program.  Tax revenue generated from filming helps to  
            pay for teachers, police officers and infrastructure  
            throughout California. 

            "However, while California's incentive program has been fully  
            subscribed to, at least 43 other states and international  
            governments offer tax incentives for film and TV production.  
            As more and more states create attractive production incentive  
            programs, filming in California becomes less and less  
            attractive, and when the production goes elsewhere, so do the  
            jobs, tax revenue, local spending, and tourism that accompany  

            "By creating a more robust and better targeted incentive  
            program, the California Film and Television Job Retention and  
            Promotion Act will help keep more feature and television  
            production in the state, guaranteeing thousands of well-paid,  
            highly-skilled jobs in our local economies."

           2)Existing Film Tax Credit Program  :  In 2009, the Legislature  
            approved, and Governor Schwarzenegger signed, the California  
            Film & Television Tax Credit Program (Film Tax Credit Program)  
            as a part of the 2009 Budget plan to promote film production  
            and to create and retain jobs in California [SBX3 15  
            (Calderon), Chapter 17, Statutes of 2009-10 Third  
            Extraordinary Session, and ABX3 15, (Krekorian), Chapter 10,  
            Statutes of 2009-10 Third Extraordinary Session].

            The CFC allocates $100 million in credits for qualified  
            production expenditures annually - $10 million of which is set  
            aside for qualified production expenditures incurred by  
            independent films.  Qualified taxpayers are allowed a credit  
            against income and/or sales and use taxes, based upon  
            qualified expenditures.  Credits are not refundable, and only  
            tax credits that are issues to an "independent film" are  


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            transferrable to an unrelated party. 

            Qualified expenditures are costs that must be incurred in the  
            State of California.  They include crew and staff salaries,  
            wages and benefits (not including wages and benefits paid to  
            writers, directors, music directors/composers/producers, and  
            actors), cost of rental facilities and equipment, and costs  
            such as lodging, food, wardrobe and construction. 

            To apply for the California Film and Television Incentive  
            Program, a "qualified motion picture" must be one of the  

            a)   Eligible for 20% Tax Credit -

                     A feature film with a production budget of no less  
                 than $1 million and not more than $75 million.

                     A movie of the week or miniseries with a production  
                 budget of no less than $500,000.

                     A new television series licensed for original  
                 distribution on basic cable with a production budget of  
                 $1 million minimum and with a running time of no less  
                 than 60 minutes (including commercials).

            b)   Eligible for 25% Tax Credit -

                     A television series, without regard to episode  
                 length or media distribution outlet (basic cable, premium  
                 cable, or network broadcast), that filmed all of its  
                 prior seasons outside of California and that chooses to  
                 relocate to California.

                     An "independent film" (with a production budget of  
                 at least $1 million and a maximum qualified expenditures  
                 budget of $10 million; must be produced by a company that  
                 is not publicly traded and that publicly traded companies  
                 do not own more than 25% of the producing company).

            The film must also have 75% of its production days take place  
            in or total production budget spent in California. 
            In an effort to ensure fairness, the oversubscribed program is  
            operated in a lottery manner. Applications for tax credits are  
            due to the CFC at the beginning of June, and the CFC holds a  


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            drawing at the end of the month to select the films that will  
            be issued credits.  The number of applicants for credits far  
            exceeds the available funds for credits:  in 2012, only 27  
            projects out of the 322 applicants that applied were selected.

            After the applications for credits have been received and the  
            "qualified motion pictures" have been selected for the  
            available credits, the CFC issues a credit allocation letter  
            reserving an amount of tax credits to an applicant based upon  
            projected qualified expenditures. If a project is approved for  
            a credit, the project must shoot within 6 months and be  
            completed within 30 months from the date that the application  
            was approved.

            Upon completion of the project, and before the Tax Credit  
            Certificate is issued, the applicant must provide to the CFC  
            several documents, including a list of qualified expenditures  
            that has been reviewed by a trained CPA. The CFC reviews the  
            documents with the applicant to determine if all criteria has  
            been met, at which time the CFC will issue the credit  
            certificate. The credit allows the taxpayer to claim the  
            credit on their file tax return with the Franchise Tax Board  
            under the personal income tax or the corporate tax law.

           1)Major Changes Proposed to the Film Tax Credit Program Under AB  
            1839  :  As noted above, the current motion picture and  
            television production incentive provides a 20% tax credit for  
            feature films with budgets between $1 million and $75 million;  
            for movies-of-the-week and mini-series with a minimum budget  
            of $500,000;  and for one-hour television series that air on  
            basic cable channels.  The current program provides a 25% tax  
            credit for any TV series, regardless of where it airs, that  
            relocates to California.  The current program allocates $100  
            million to qualified production annually, of which up to $10  
            million is set- aside for productions made by independent (not  
            publicly traded) companies.  The current program has two more  
            $100 million annual allocations left before it sunsets, on  
            July 1, 2014 and July 1, 2015.

            Currently, eligible applicants can receive a 20% tax credit on  
            qualified expenditures.  Under    AB 1839, eligible applicants  
            will be expanded to include:

             a)   A feature film with a minimum budget of $1million with  
               no maximum; qualified expenditures limited to $100 million.


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             b)   Any television series (with episodes longer than 40  
               minutes) regardless of how it is distributed (basic cable,  
               premium pay cable, network, Internet); minimum budget of  
               $1million per episode.

             c)   A pilot for a TV series with a minimum $1 million budget  
               and longer than 40 minutes.

             d)   A movie of the week or mini-series with a minimum budget  
               of $500,000.

             e)   A television series relocating to California can receive  
               a 25% tax credit for the first year of relocation to  
               California and a 20% credit for subsequent years (Currently  
               they receive 25% for the entire run of the series).

             f)   A qualified production filming outside the Los Angeles  
               zone can receive a 25% (5% increase) on expenditures  
               incurred outside the Los Angeles zone.

             g)   Defines "Los Angeles zone" to mean the area within a  
               circle 30 miles in radius from Beverly Boulevard and La  
               Cienega Boulevard, Los Angeles, California and includes  
               Agua Dulce, Castaic (including Lake Castaic), Leo Carillo  
               State Beach, Ontario International Airport, Piru and Pomona  
               (including the Los Angeles County Fair Grounds).  The  
               Metro-Goldwyn-Mayer, Inc. Conejo Ranch property shall be  
               considered as within the studio zone

             h)   Music scoring and editing for a qualified production can  
               receive a 25% (5% increase) on those qualified expenditures  
               in California.

             i)   A set aside for relocating TV series of up to $30  
               million, and; 

             j)   A set aside for independent productions (non-publicly  
               traded companies) of up to 10% of the allocation or $20  
          1)Legislative and Oversight Hearings of Arts, Entertainment,  
            Sports, Tourism & Internet Media (AEST&IM) and Revenue &  
            Taxation Committees  :  The issue of film production tax credits  
            has come before this committee many times, in many years, in  


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            many versions.  (Please see, Comment 9 below).  The Committee  
            has also studied this issue extensively, both alone and with  
            the Committee on Revenue and Taxation. 

            On March 21, 2011, a Joint Oversight Hearing of the Assembly  
            AEST&IM and the Assembly Revenue and Taxation Committees was  
            held on, "California's Film Credit Under the Spotlight:  A  
            Review of the Film and Television Tax Credit Program."  This  
            was followed by the Revenue and Taxation Committee Oversight  
            Hearing on "Assessing Tax Expenditure Programs in Light of  
            California's Fiscal Challenges" on February 22, 2012, where  
            the Film Tax Credit was again analyzed.  On October 9, 2013,  
            yet another Joint Oversight Hearing of the Assembly AEST&IM  
            and the Assembly Revenue and Taxation Committees was held,  
            entitled "A Review of the California Film Tax Program."   The  
            topics of discussion in the many hearings followed the same  
            general themes. Below is a capsule of some of the findings  
            which came from these many reviews of the Film Tax Credit  

              a)   Run-away Production  :  From the 2011 Joint Informational  
               Hearing:  At the state level, "run-away 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 (forty two at last count) have  
               adopted or are adopting measures, including tax credits, to  
               attract film production.  Various entities (state & local  
               governments, non-profits, 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).  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  


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               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 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. 

               "LAEDC conducted research for the CFC 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." 

               According to the CFC, "In 2003, 66% of studio feature films  
               were filmed in California. In 2009, only 38% of studio  
               films were filmed in state.  San Francisco film and TV  
               production employment dropped 43% between 2001 and 2006. 

               "The Los Angeles region experienced a steady decline in  
               feature film production days in 11 out of the last 13  
               years.  However, Film L.A., the permitting agency for Los  
               Angeles, reported that in 2010, feature film production  
               posted a 28.1% fourth quarter gain and a year-over-year  
               gain of 8.1%.  "The annual increase can be wholly  
               attributed to California's Film and Television Tax Credit.   
               The Program attracted dozens of new feature film projects  
               to Los Angeles, which were responsible for 26% of local  
               feature production for the year.  Were it not for these  
               projects, 2010 would have been the worst year on record,"  
               reported Film L.A. in their Jan. 11, 2011 release.  These  


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               numbers are an excellent early indicator that the incentive  
               program is having an immediate impact on production levels 

             b)    Testimony Presented to the Committees by the CFC  
               Included the Following Information on the Economic Impacts  
               of the Current Film Tax Credit Program  :  To date, $600  
               million in tax credits have been allocated (reserved)  
               resulting in:  Total aggregate direct spending by Program  
               projects:  $4.7 billion Total wages paid / to be paid by  
               Program projects: $1.48 billion.  (This paragraph was  
               updated to include current figures).

               In addition to the economic figures above, the CFC  
               presented testimony at the 2011 Joint Informational  
               hearing, which included the following testimony about the  
               motion picture industry's general contribution to the  
               state's economy, "The motion picture industry is an  
               essential source of economic activity, tax revenue, jobs  
               and tourism for California contributing $38 billion dollars  
               annually to our state's economy and supporting nearly  
               250,000 well-paying direct jobs - with health benefits. 

               "For instance:  An average $70 million dollar feature film  
               generates $10.6 million in state sales and income taxes.   
               The average daily shooting costs on a feature film or TV  
               series range from $100,000 to $250,000 per day. (That's  
               actual dollars that each production spends on groceries,  
               hotel rooms, gas, building supplies, props and payroll).  A  
               typical film shooting outside of Los Angeles County will  
               spend on average $50,000 per day in a local community.  The  
               average salary for production employees is $75,000, well  
               above the national average."

             c)    California Research Bureau (CRB) Data Demonstrates That  
               Loss of Feature Film Productions Drove Down Wages, Even  
               Though Production Days of Other Categories (Such as Reality  
               Television) Increased  :  As background material for the 2011  
               Joint Oversight Hearing, and in support of their testimony,  
               the CRB prepared a briefing packet that updated some basic  
               data on employment, wages, and production in California's  
               movie and video production industry; surveyed state Movie  
               Production Incentive (MPI) programs nation-wide; and  
               surveyed the scholarly and official state literatures on  
               the operation and effects of MPIs. 


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               The CRB researchers offered their report with the caveat  
               that time and staffing constraints limited the  
               comprehensiveness of our response.  The following is  
               excerpted from that document:  "The industry as a whole  
               showed modest growth over the first half of the decade  
               through 2004, a flat trend through 2007, declined in  
               2008-9, followed by a sharp recovery in 2010.  In  
               California outside of Los Angeles County, the industry  
               peaked in 2002, showed slow employment declines through  
               2007, and then rebounded in 2008-9. 

               "However, employment growth in Los Angeles County was  
               coupled with relative and absolute declines in average  
               industry wages.  Los Angeles County movie industry  
               employees earned, on average, 27 percent more per month in  
               2000 than their non-L.A. counterparts ($4,279 - or $5,349  
               in 2009 dollars, vs. $3,370 - $4,213 in 2009 dollars).  In  
               2009, the average L.A. County industry employee earned 13  
               percent less per month than his non-L.A. counterpart  
               ($3,754 vs. $4,232).  Thus, in real terms, the L.A. average  
               has dropped 30 percent, declining almost every year,  
               whereas the non-L.A. County average grew by a scant 0.45  
               percent for the decade. 

               "Further, according to this data, feature film production  
               has declined since the beginning of the 2000s both in  
               absolute terms as well as in relative terms.  Television,  
               which accounted for 23 percent at the start of the decade,  
               now takes more than 40 percent of the total production  

           2)LAO study of the Film Tax Credit Program due in 2016  :  In  
            addition to the bill and Informational Hearing noted above and  
            below, AB 2026 (Chapter 841, Statutes of 2011), provided that  
            the LAO must provide to the Assembly Committee on Revenue and  
            Taxation, the Senate Committee on Governance and Finance, and  
            the public, on or before January 1, 2016, a report evaluating  
            the economic effects and administration of the tax credits.

            AB 2026 authorized the LAO, in researching the reports, to:

             a)   Request and receive all information provided to the CFC  
               pursuant to state law.


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             b)   Request and receive all information provided to the FTB  
               relating to the sale or assignment of credits, and;

             c)   Request and receive all information provided to the  
               board pursuant to state law. 

            AB 2026  also required CFC, the board, the FTB, the Employment  
            Development Department, and all other relevant state agencies  
            to provide additional information, as specified by the LAO, as  
            needed to research the reports.

            The bill authorized the LAO to publish statistics in  
            conjunction with the reports required, derived from  
            information provided to the LAO, if the published statistics  
            are classified to prevent the identification of particular  
            taxpayers, reports, and tax returns and the publication of the  
            percentage of dividends paid by a corporation that is  
            deductible by the recipient.

           1)Recent Private Studies Support but Recommend Improvement of  
            the Film Tax Credit Program  :  Private entities have also  
            studied the California Film Tax Credit Program, including a  
            UCLA report from the nonprofit think tank the Headway Project,  
            There's No Place Like Home Bringing Film & Television  
            Production Back to California, which verifies the positive  
            economic impact of California's Film & Television Tax Credit  
            Program, and makes suggested improvements.  Key findings  
            include that there remains a very strong correlation between  
            tax credits and where film and TV producers go to shoot their  
            projects, and while tax credits are not the only factor in  
            deciding where a project should be shot, they appear to be the  
            most powerful. The authors of the study conclude that the  
            program "is creating jobs and is likely providing an immediate  
            economic benefit to the state."  

            FilmL.A. also released a recent study which found the impacts  
            of runaway production continue and will worsen without  
            expansion of the Film Tax Credit Program, see California Ranks  
            Fourth in Total Live Action Film Project, Job and Spending  
            Counts.  "According to data provided to FilmL.A. by the  
            California Film Commission, from 2010-2013 a total of 77 film  
            projects applied for but were not awarded California state  
            film incentive and then went on to complete production. Most  


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            of these projects fled the state; more than 66 percent (51  
            count) of these projects eventually filmed outside of  
            California in places were (sic) incentives were available?The  
            loss for the California economy exceeded $914 million." The  
            report concludes, "California's film and television tax credit  
            program is a good investment, but needs to be extended and  
            restructured to keep the entertainment industry from fleeing  
            the state."

            The Milken Institute also recently released a study which was  
            entitled, "A Hollywood Exit -What California Must Do to Remain  
            Competitive in Entertainment - and Keep Jobs."  In the study,  
            researchers confirmed that production flight has continued,  
            despite the presence of the California Film Tax Credit  
            Program.  They also confirmed that California cannot win, and  
            should not attempt to win, an all-out tax incentive race to  
            enact the highest incentive program.  Rather, Milken  
            researchers suggest that California build on its strengths of  
            being the established global leader in film production and  
            preserve its core employment base and infrastructure.  In  
            order to do this, they make the following recommendations  
            which track closely with those of the other studies author's:

             a)   Reduce the uncertainty involved in the filmed production  

               i)     Increase funding:  Raise the total amount of  
                 available annual funds in the state's filmed production  
                 credit to a level that allows for the elimination of the  
                 annual lottery and for the awarding of credits on a  
                 rolling basis throughout the year rather than at one  
                 arbitrary point tied to the state's fiscal calendar.   
                 This level should be high enough to eliminate the need  
                 for the lottery but should also have a clear annual  
                 ceiling to avoid creating unpredictability for the  
                 state's general fund.  The newly raised level of funding  
                 should also be divided into specific allocations to  
                 maximize the impact across the economy and allow for  
                 productions not eligible for the current incentives to be  

               ii)    Remove sunset:  California legislators should  
                 eliminate the sunset date of film production incentives  
                 in favor of a periodic review process, similar to that  
                 used by New York, to allow the state to make adjustments  


                                                                  AB 1839
                                                                  Page  16

                 to the total pool of money (based on economic conditions  
                 and competition) that will take effect after two years.   
                 By establishing certainty in the incentives as well as a  
                 review process that can make rational adjustments, the  
                 state would encourage studios and film companies to make  
                 larger commitments to the local infrastructure and can  
                 avoid the pitfalls of sudden policy reversals seen in  
                 states such as Michigan. 

            b)   Ensure a smooth evaluation process: 

               Establish an application fee for productions over $3  
               million that will be dedicated to providing new employees  
               at the CFC who will handle the evaluation process.  The fee  
               can be weighted to the size of the application, with a  
               minimum application fee for smaller productions scaled up  
               somewhat for larger productions.  This funding would be  
               dedicated to the hiring of evaluation staff at the CFC and  
               could be diverted to the state general fund. 

            c)   Restructure the credit to align with television  

               Dedicate a portion of the fund to hour-long dramatic  
               television, including miniseries, and ensure that network  
               television is explicitly included.  Establish a rolling  
               allocation in order to align the fund availability with  
               television filming schedules, particularly in the period  
               when networks determine their fall schedules.  Strongly  
               consider emphasizing new productions and eliminating the  
               provision for relocating ones, while continuing to offer  
               coverage to existing television shows as long as they are  
               renewed on a timely basis.  In addition, a dedicated pool  
               of money separate from television funding should be  
               established for films, as well as movies of the week and  
               other non-recurring productions. 

            d)   Capture blockbuster productions: 

               Movies with budgets over $75 million should become eligible  
               for filmed production incentives.  Total credits for larger  
               productions can be capped to ensure that no one film takes  
               a disproportionate share.  Big-budget films could remain  
               eligible for the incentives provided they spend a  
               to-be-determined minimum in the state.  This will encourage  


                                                                  AB 1839
                                                                  Page  17

               productions to shift a significant portion of high-value  
               filming to California, and by including visual effects as  
               recommended below, the state can more readily meet a  
               threshold for a total percent of the budget spent in the  

            e)   Encourage production across the state: 

               Productions outside the union-designated 30 Mile Zone  
               around Los Angeles suffer a clear cost disadvantage.  These  
               projects are exposed to higher costs for on-location  
               filming or higher union travel rates.  To mitigate this  
               expense, productions that film outside of the zone should  
               be eligible for an additional 5% credit.  This has been  
               implemented to clearly positive effect in New York to  
               encourage productions outside the immediate vicinity of New  
               York City.  This will stimulate productions in formerly  
               busy locations such as San Francisco and encourage scouting  
               of diverse locales throughout the entire state. 

            f)   Embrace digital effects and innovation: 

               i)     Digital visual effects and animation expenditures  
                 should be made explicitly eligible for filmed production  
                 incentives at the 20 percent rate.  This would offset a  
                 cost disadvantage faced by local visual effects companies  
                 - particularly those in the San Francisco Bay area that  
                 do not qualify for the current incentives - and encourage  
                 additional expenditures in the state. 

               ii)    Establish a digital infrastructure investment credit  
                 that is part of the state's research and development tax  
                 credit rather than the filmed production incentive.  As  
                 California works to encourage investment in the filmed  
                 production infrastructure, it can also provide a research  
                 and development credit to production.

           2)Arguments in Support  :

            This bill has generated an unusual amount of correspondence.   
            The Committee received a stack of letters approximately six  
            inches tall from individuals urging support.  In addition many  
            business and industry related labor organizations have written  
            urging passage. Therefore, it is impossible to express or  
            share every aspect of support.  Below is a summary of major  


                                                                  AB 1839
                                                                  Page  18


            The bills main supporters come from the entertainment labor  
            community.  Typical of their support is the California Labor  
            Federation, who write to say, "California's film tax credit  
            has a proven track record of creating and retaining jobs in  
            the film industry.  According to the CFC, in the first two  
            years alone, the tax credit program has generated more than  
            20,000 jobs and $3.8 billion in economic activity since 2009.   
            There are not just high paid actors and directors the credit  
            has helped.  The majority went to 'below the line' workers,  
            those who have good, middle-class jobs working on sets, doing  
            lighting, technical work, hauling props, and setting up  
            locations.  These are the workers who are most hard-hit by job  
            loss in the industry and the least able to scrape by with no  

            Other key proponents of the measure are the studios who  
            produce film and television programming.  Their line of  
            argument for support is well stated by the Motion Picture  
            Association of America, (MPAA), which claims, "California's  
            existing incentive has been successful in attracting feature  
            films with a budget below $75 million and one-hour television  
            series that air on basic cable channels.  The CFC reports that  
            269 film and television projects have qualified for the tax  
            credit program, resulting in spending of more than $4.7  
            billion in California's economy, including $1.48 billion in  
            wages to California workers.

            "But the current program is not open to large budget films and  
            one-hour television series that are seen on the networks, pay  
            cable channels and Internet sites.  As a result, many of these  
            projects are produced and the thousands of good paying middle  
            class jobs they generate are located outside California.  For  
            example, in 2012 and 2013 only one movie, of the 54 released,  
            with a budget exceeding $75 million was made exclusively in  
            California.  And only 11 of those 54 large budget feature  
            films shot some of the project in California.

            "The situation is similar with regard to television series.   
            California used to be the filming location for 64% of the  
            one-hour television series, but the competition from other  
            states has eroded California's dominance and in 2013, the  
            state was the location for only 28% of the one-hour series.   
            AB 1839 addresses this by expanding the incentive program to  


                                                                  AB 1839
                                                                  Page  19

            include large budget features, up to $100 million of qualified  
            expenditures, and to one-hour TV series, regardless of where  
            they are aired or broadcast.

            "And we support the five year extension of the incentive  
            program contained in your bill.  Planning for both motion  
            picture and television productions can occur several years in  
            advance, and productions rely on the certainty that the  
            incentive will be available as location decisions are made."

            Small business which cater to the entertainment community  
            share common concern with the Motion Picture & Television  
            Mobile Catering Association (MPTMCA), who strongly support  AB  
            1839, saying, "A healthy and strong film industry here in  
            California is critical to the survival of our businesses and  
            association.  But the reality is that over the past decade we  
            have watched film and television production 'run away' from  
            California in favor of tax incentives offered first in Canada,  
            then in other countries like Australia and the UK, and  
            finally, and overwhelmingly, to other states. ?  Thanks to the  
            Legislature and the Governor, we do have the current  
            California production incentive, without which the picture  
            would be much bleaker.  But it is limited in both eligibility  
            and funding - only about 50 projects a year receive the  
            credit.  In 2013, 348 productions who had applied and wanted  
            to film in California were waitlisted.  Of course, many of  
            them then had to leave to film elsewhere - taking with them  
            the vendor contracts, revenue for my business, and jobs from  
            my employees that would have otherwise have been funneled into  
            the California economy."

            Marin Convention & Visitors Bureau and Film Resource Office,  
            writes in support, sharing a theme of Northern California  
            Cities and Counties, sharing "Production work takes place all  
            over our state.  It is not just a Los Angeles-based business.   
            Wherever a film crew uses locations, it purchases what it  
            needs from a diverse array of local businesses as well as  
            paying for permits, police help, fire safety, and more.   
            Spending takes place at hotels, gas stations, restaurants,  
            hardware stores, gyms, beauty salons, dry cleaners, department  
            stores, party rentals, and caterers.  And productions  
            frequently hire local residents as crew and background extras,  
            and pay film students to be production assistants.


                                                                  AB 1839
                                                                  Page  20

            "Before runaway production, Marin County had a fairly  
            consistent influx of major film making, whereas now, the  
            majority of filming is primarily auto commercial and fashion  
            catalogue still shoots.  AB 1839 would expand the current  
            production incentive program beginning in 2016 to include  
            one-hour dramas and large budget feature films.  There is an  
            added incentive for filming outside the Los Angeles area to  
            support increased production for the entire state.  It will  
            help make California - the state known across the globe as the  
            home of filmmaking - competitive once more." 
            San Francisco Travel writes to say tourism and filming are  
            interrelated, another popular issue highlighted by travel  
            businesses and tourism offices statewide, "The production of  
            films and television in the state also has a significant  
            impact on attracting tourist dollars to cities such as San  
            Francisco.  The production teams support hospitality industry  
            services including lodging, rental cars, catering and  
            restaurants, to name a few.  Secondly, the inclusions of  
            scenes of San Francisco, and other California cities, are  
            earned media that help create aspirations throughout the world  
            to come visit our beautiful state." 

           3)Argument in opposition  :  The California Teachers Association  
            (CTA) opposes AB 1839, stating, "CTA opposes any reduction in  
            revenue to the State's General Fund which would reduce  
            Proposition 98 funding.  In the last several years, K-12  
            education alone has taken over $20 billion in cuts.  This does  
            not include cuts that have hit the California Community  
            Colleges, CSU and the UC systems.  Likewise, we must not  
            forget the cuts that have also hit our social and health  
            services, safety programs, and many other essential services.

            "CTA has been on record opposing tax credits for its own  
            members (Teacher Tax Credits).  Tax credits for special  
            interest groups, corporations, and others have, over the last  
            decade, depleted our General Fund of billions of dollars.   
            California cannot afford to continue giving away tax credits  
            that deplete the General Fund, because this hurts funding for  
            our schools"

           4)Prior and Related Legislation  :  
             a)   AB 286 (Nazarian), of the 2013-14 Legislative Session,  
               would have expanded the definition of qualified motion  


                                                                  AB 1839
                                                                  Page  21

               pictures under the film tax program by removing the cap on  
               the production budget for feature films and would limit the  
               amount of qualified expenditures to $75 million.  This bill  
               additionally would have revised the amount of credits  
               allocated by the CFC per fiscal year for a qualifying  
               television series, as specified, to provide that the  
               minimum production budget threshold is met by allowing  
               aggregation of two fiscal years expenditures.  AB 286 was  
               returned to the Chief Clerk pursuant to Joint Rule 56.

             b)   AB 1189 (Nazarian), of the 2013-14 Legislative Session,  
               would have extended for five years the requirement that the  
               CFC annually allocate tax credits to qualifying motion  
               pictures, as specified, through the 2021-22 fiscal year and  
               would also extend and increase the limit on the aggregate  
               amount of credits that may be allocated through the 2021-22  
               fiscal year.  AB 1189 was returned to the Chief Clerk  
               pursuant to Joint Rule 56.

             c)   AB 1435 (Gatto), of the 2013-14 Legislative Session,  
               would have removed the sunset provisions, thus extending  
               the credit indefinitely, revise the limit on the aggregate  
               amount of credits that may be allocated in a fiscal year,  
               revise how the credit amount is determined for specified  
               qualified motion pictures, provide that credit amount for  
               television series shall be 20% of qualified expenditures,  
               provide that the credit amounts may be increased based on  
               specified criteria, for a television series and for  
               specified productions that perform postproduction in the  
               state.  AB 1435 is currently in the possession of this  

             d)   This bill would also, under both laws for taxable years  
               beginning on or after January 1, 2014, allow a credit  
               against tax in an amount as provided in a written agreement  
               between the California Film Commission and the taxpayer,  
               not to exceed 5% of an investment made by the taxpayer in a  
               qualified film and digital media infrastructure project, as  
               defined, located in this state.

             e)   AB 2026 (Fuentes), Chapter 841, Statutes of 2012,  
               extended the film production tax credit program for two  
               years, until 2017, under terms which are substantially  
               similar to the measure under current consideration.


                                                                  AB 1839
                                                                  Page  22

             f)   SB 1197 (Ron Calderon), Chapter 840, Statutes of 2012,  
               extended the film production tax credit program for one  
               year, until 2015, under terms which are substantially  
               similar to the measure under current consideration.  
               Chaptered out by AB 2026 (above).

             g)   AB 1069 (Fuentes), Chapter 731, Statutes of 2011,  
               extended the film production tax credit program for one  
               year, until 2015, under terms which are substantially  
               similar to the measure under current consideration.

             h)   SB 1197 (Calderon), of the 2009-10 Legislative Session,  
               deleted the fiscal year limitation on the existing film  
               production tax credit.  SB 1197 was held in Senate Revenue  
               & Taxation Committee without a hearing.

             i)   SBX8 55 (Calderon), of the 2009-10 Legislative Session,  
               deleted the fiscal year limitation in the existing  
               production tax credit.  SB X8 55 was held in Senate Rules  
               Committee without a hearing.

             j)   ABX3 15 (Krekorian), Chapter 10, Statutes of the 2009-10  
               Third Extraordinary Session,  established a five year $500M  
               tax credit for qualified expenditures on qualified  
               productions.  Limited allocations to $100M/year.  

             aa)  AB 855 (Krekorian), of the 2009-10 Legislative Session,  
               established a film production tax credit.  AB 855 was held  
               at the Assembly Desk.

             bb)  AB 1696 (Bass), of the 2007-08 Legislative Session,  
               established a financial assistance program within the CFC  
               to encourage filming motion pictures and commercials in  
               California and requires the Business, Transportation &  
               Housing Agency to report the economic impact of this  
               program by December, 2011.  AB 1696 failed passage on the  
               Senate Floor.

             cc)  SB 359 (Runner), of the 2007-08 Legislative Session,  
               mega tax credit bill which included motion picture  
               production credit.  Part of State Budget negotiations.   
               Created a credit for a percentage of the wages paid of  
               amounts paid to purchase or lease tangible personal  
               property in conjunction with the production of a qualified  
               motion picture.  The credit is certified and allocated by  


                                                                  AB 1839
                                                                  Page  23

               the CFC.  The bill also allows the credit to be claimed  
               against the sales and use tax liability of the company in  
               lieu of the franchise or income tax liability.  Finally,  
               the bill allows the credit to be carried over until  
               exhausted.  SB 359 was held in the Senate Revenue and  
               Taxation Committee.

             dd)  AB 832 (Bass), of the 2007-08 Legislative Session,  
               created unfunded grant program administered by the CFC to  
               encourage filming motion pictures and commercials in  
               California.  AB 832 was held on the Assembly Appropriations  
               Committee Suspense File.

             ee)  SB 740 (Calderon), of the 2007-08 Legislative Session,  
               created a film production credit equal to 100% of the  
               direct revenues attributable to the production or 125% of  
               the revenues of the productions in a TV series that  
               relocated to California or an independent film as defined.   
               SB 740 was held in Senate Revenue & Taxation Committee  
               without a hearing.

             ff)  AB 777 (Nunez), of the 2005-06 Legislative Session,  
               authorized qualified motion picture tax credit in an amount  
               equal to 12% of the qualified production for qualified  
               wages paid with an additional 3% for qualified motion  
               pictures.  Created refundable credit.  AB 777 was held in  
               Senate Revenue & Taxation Committee without a hearing.

             gg)  SB 58 (Murray), of the 2005-06 Legislative Session,  
               granted a refundable income or corporation tax credit equal  
               to 15% of the amount of qualified wages paid and qualified  
               property purchased in the production of a qualified motion  
               picture.  SB 58 was held in Senate Revenue & Taxation  

             hh)  AB 261 (Koretz), of the 2005-06 Legislative Session,  
               re-established funding for the Film California First  
               Program.  AB 261 was a gut and amend out in the Assembly  
               Rules Committee and became a transportation bill.

             ii)  AB 1830 (Cohn), of the 2003-04 Legislative Session,  
               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.  AB 1830 was held in this  


                                                                  AB 1839
                                                                  Page  24

               Committee without a hearing.

             jj)  AB 1277 (Cohn), Chapter 662, Statutes of 2003,  
               transferred administrative authority over the CFC to the  
               Business, Transportation & Housing Agency.  This bill also  
               created the Film California First Fund, administered by the  
               CFC, which provided for reimbursements to local governments  
               for their costs in issuing permits for local filming of  
               motion pictures. In the last two state budget cycles, no  
               General Fund monies have been appropriated to operate this  

             aaa) AB 2410 (Frommer), Chapter 1042, Statutes of 2002,  
               required the CFC to report annually the number of motion  
               picture starts that occurred within the State of  
               California.  The bill also required EDD to research and  
               maintain data on film industry employment, to determine the  
               economic impact of the film industry, to monitor film  
               industry employment and activity and competing states and  
               countries, to examine the ethnic diversity and  
               representation of minorities in the entertainment industry,  
               to review the effect of federal, state and local laws on  
               the filmed entertainment industry and to report that  
               information to the legislature biannually, provided that  
               funds are appropriated by the legislature in the annual  
               Budget Act for these purposes.  

             bbb) AB 2747 (Wesson), of the 2001-02 Legislative Session,  
               provided a tax incentive to produce motion pictures within  
               California.  Would offer tax credits to productions with a  
               total cost of qualified wages between $200,000 and $10  
               million for 15-25% of wages paid to qualified individuals  
               during the taxable year with respect to qualified motion  
               picture production depending on the area.  For each motion  
               picture, the maximum amount of wages per qualified  
               individual that could be taken into account when computing  
               the credit was $25,000.  AB 2747 failed passage in the  
               Senate Appropriations Committee.

             ccc) SB 2061 (Schiff), Chapter 700, Statutes of 2000, created  
               the State Theatrical Arts Resources (STAR) partnership  
               which offers surplus State property to filmmakers, where  
               unused State properties, such as health facilities and  
               vacant office structures, are available at no charge or  
               "almost free" to filmmakers.  


                                                                  AB 1839
                                                                  Page  25

             ddd) AB 358 (Wildman & Kuehl), of the 1999-2000 Legislative  
               Session, provided a refundable income and corporation tax  
               credit for 10% of eligible wages paid for motion pictures  
               and TV programs produced in California.  AB 358 was held on  
               the Senate Appropriations Committee Suspense File.

             eee) AB 484 (Kuehl), Chapter 699, Statutes of 1999, created  
               the Film California First program, housed at the California  
               Film Commission to reimburse certain film costs incurred by  
               a qualified production company when filming on public  
               property, but which is currently unfunded.  
             1) Double referral  :  Should this bill pass out of this  
             committee, it will be re-referred to the Assembly Committee  
             on Revenue and Taxation.


          American Federation of Musicians, Local 47
          Association of Talent Agents
          California Chamber of Commerce
          California Labor Federation
          California Teamsters
          CBS Television Studios
          Chef Robért Catering, Inc.
          City of Culver City
          City of Hemet
          City of Long Beach
          City and County of San Francisco
          County of Riverside
          County of San Bernardino
          Directors Guild of America
          Entertainment Union Coalition
          Fox Entertainment
          Inland Empire Film Commission
          International Alliance of Theatrical Stage Employees, Local 729,  
          Motion Picture Set Painters & 
            Sign Writers
          International Alliance of Theatrical Stage Employees, Local 892,  
          Costume Designers Guild
          Marin County Film Resource Office


                                                                  AB 1839
                                                                  Page  26

          Motion Picture & Television Mobile Catering Association
          Motion Picture Association of America
          Movie Movers, Inc.
          NBC Universal
          Nest Studio Rentals
          Northern California Production Council
          Paramount Pictures
          Placer Lake Tahoe Film Office
          Producers Guild of America
          Sacramento Film Commission
          San Francisco Film Commission
          San Mateo County/Silicon Valley Film Commission
          Santa Barbara County Film Commission
          Screen Actors Guild-American Federation of Television and Radio  
          State Building and Construction Trades Council of California
          The Walt Disney Company
          Valley Industry and Commerce Association
          Warner Brothers Entertainment, Inc.
          1075 private citizens

          California School Employees Association
          California Teachers Association 

           Analysis Prepared by  :    Dana Mitchell / A.,E.,S.,T. & I.M. /  
          (916) 319-3450