California’s Film Industry Faces Challenges: A New Tax Credit Proposal from Governor Newsom
California has long been the epicenter of the film and television industry, with iconic productions like MasterChef, Supergirl, and The Kelly Clarkson Show calling it home. However, in recent years, many of these productions have relocated to other states and countries, lured away by more generous tax credits and incentives. As runaway production and cost-cutting measures threaten California’s dominance in the entertainment sector, Governor Gavin Newsom is stepping in with a bold proposal aimed at revitalizing the industry.
The Proposal: A Significant Increase in Tax Credits
In an early budget proposal, Governor Newsom is set to unveil plans to increase California’s current cap on film and television tax credits from $330 million to $750 million annually. This expansion could result in a staggering $3.75 billion in tax credits over five years, starting in 2025. If passed, this would make California’s subsidy the most generous in the nation, second only to Georgia, which has no ceiling on its annual production incentives.
Los Angeles Mayor Karen Bass emphasized the importance of this proposal, stating, “This means that film production can stay. It means that all of the jobs that would be lost, because they would go to another state or overseas, would stay here.” This sentiment reflects the urgency felt by many in the industry as they grapple with the potential loss of jobs and economic stability.
Addressing Industry Concerns
The proposed changes to the tax incentive program are still in the works, with potential amendments that could affect the maximum amount a single production can receive and the types of expenditures that qualify for incentives. Colleen Bell, director of the California Film Commission, highlighted the need for these adjustments, stating, “Everyone is in the business of luring production away from California. We have to invest in our lead and preserve jobs for Californians.”
The urgency for these changes has been amplified by the recent struggles faced by entertainment industry workers in Los Angeles. Following the 2023 writers’ and actors’ strikes, many local crew members and creatives reported a significant decline in employment opportunities. The pandemic, combined with industry contraction, has led to a stark decrease in production levels, with many workers facing financial hardships.
The Impact of Production Declines
The decline in production has had severe consequences for many in the industry. Reports indicate that some workers have sold their homes, lived out of cars and RVs, and relied on food banks to make ends meet. The financial strain has prompted some to leave the industry altogether, seeking more stable employment in other fields. In response to these challenges, increasing tax incentives emerged as a proposed remedy during labor negotiations for crew members associated with the Hollywood Basic Crafts union coalition.
In light of these challenges, Mayor Bass formed a task force to promote the recovery of the industry in Los Angeles, with expanding the state’s film and TV tax credit program as a top priority. “This was the number one item on their agenda,” Bass noted.
A Competitive Landscape
Despite the proposed tax credit increase, California will continue to face stiff competition from other states and countries. The 20 percent base credit offered by California is lower than many competing film hubs, including New York, New Mexico, and the U.K. Additionally, California is unique in that it bars any portion of above-the-line costs—such as salaries for actors, directors, and producers—from qualifying for incentives. This limitation has allowed other regions, including Canada and Australia, to attract productions with more favorable tax relief options.
Moreover, California does not offer a standalone tax credit for visual effects (VFX), leading many productions to outsource post-production work to countries with generous subsidies. In contrast, Canada and Australia provide at least 30 percent back on VFX spending, while the U.K. recently increased its incentives to remain competitive.
The Need for Change
The California Film Commission has recognized the need for reform in the state’s tax incentive program. Bell stated, “We’re in it to win it,” emphasizing the importance of adapting to the competitive landscape. The commission has also highlighted the oversubscription of the current program, which has resulted in many qualified productions being turned away, leading to a loss of jobs and revenue for the state.
Since 2020, California has lost an estimated $1.6 billion in spending from productions that applied for but did not receive tax credits. This loss underscores the critical need for an expanded and more accessible tax incentive program to keep productions in the state.
Conclusion: A Path Forward for California’s Film Industry
As California’s film and television industry faces unprecedented challenges, Governor Newsom’s proposed tax credit increase represents a crucial step toward revitalizing the sector. By addressing the financial concerns of industry workers and making the state more competitive in the incentives race, California can work to reclaim its status as the premier destination for film and television production.
The stakes are high, not just for the industry but for the countless individuals and families who depend on it for their livelihoods. With the right support and investment, California can continue to be a beacon of creativity and opportunity in the entertainment world.