Newsom’s Plan to Double California Production Incentives Faces Sacramento Skeptics and Ticking Clock for Hollywood

Gov. Gavin Newsom told Hollywood entertainment workers on Sunday that help is on the way, as he threw his support behind a more than doubling of California’s production tax incentive cap to $750 million in next year’s budget.

But a long road lies ahead for that boost to become reality, and the earliest that film and TV productions will know if they can receive additional funding will be eight months from now, when the state budget is finalized and approved by Newsom and the legislature in June.

Between now and then, the hard talks about what the expanded incentive program entails will take place in Sacramento, where not everyone sees the entertainment industry as such a priority for California. Moreover, lawmakers will have to consider what specifically is eligible for the tax credits, all while other locations continue to siphon production away from Los Angeles.

Union and studio insiders told TheWrap it is highly likely that certain types of productions that are not currently eligible for tax incentives but have seen significant drops in in-state shooting — such as reality TV shows — will be included. But nothing is guaranteed until all stakeholders have had their say. 

“What’s so important about Newsom’s announcement is that it sends a message that protecting this industry that is rooted in California is going to be a top priority for him next year,” State Sen. Anthony Portatino told TheWrap. ”The last time we discussed the tax credit program in the budget there were a lot of ups and downs because not everybody in Sacramento sees the entertainment industry as this historic, important jobs creator and part of the folklore of California.”

State lawmakers will also wrestle with whether to make above-the-line spending — the salaries of filmmakers, actors and other top talent — eligible towards the tax credit. Other major production hubs like Georgia and the U.K. have made such payments eligible and have offered further credits if visual effects and other post-production work is done in their state or country — and that’s one reason studios have flocked there to film their most expensive tentpole movies such as the “Star Wars” and Marvel franchises. 

It will be up to Sacramento to decide whether to follow suit, and whether productions will need to meet certain diversity requirements in the casting and hiring of above-the-line talent to take advantage of that program.

What is clear is that Newsom has heard the cry from Hollywood. The governor was moved to take action ahead of the usual January release of his proposed budget after recent reports outlined the slow return of productions to California since last year’s double strike ended, three insiders with knowledge of the discussions told TheWrap. FilmLA’s most recent report showed that the number of shoot days recorded in LA County in Q3 2024 had fallen 5% below last year’s strike-saddled production levels and 36% below the five-year average. 

“We need to be big and bold,” Newsom said on Sunday when he announced the proposal and expressed confidence that it’ll pass. “We’re in a position where we can afford this, and we need to do this.”

While Newsom’s support will be an advantage during the budgetary process that lasts through the first half of 2025, numerous discussions will need to take place even before legislators return to Sacramento in January.

“Even before Sunday’s announcement, I have been arranging meetings with the unions and the studios in my district as well as other stakeholders,” said Assemblymember Rick Chavez Zbur.

Fighting tax credit skepticism

The task of navigating the road to passing the expanded production incentives will fall in large part to Portatino and Zbur, both Los Angeles-based lawmakers and budget committee members.

Newsom’s proposal is expected to receive pushback from California lawmakers on both sides of the aisle who don’t see an expanded Hollywood tax credit as beneficial to the state. 

“There’s two ways to look at any tax credit. You can either look at it as an expenditure, which means it takes money away from something else, or you look at it as an investment and it grows the pie,” said Portatino. “And there are some folks in Sacramento who look at a tax credit as an expenditure at the expense of something else, versus the investment to create more revenue.” 

That is the debate that has not only gripped California lawmakers, but their counterparts in dozens of other states that have built up tax incentive programs to develop their own local film industry. The argument made by those in favor of tax credit programs is that their economic benefit is not easily quantifiable — the business that they yield does not go directly to state revenue. 

“We have heard from so many stakeholders that there are productions that they wanted to shoot in California but could not because of how expensive it is to shoot here compared to Georgia or elsewhere,” said Zbur. “That is real in-state spending that is being lost for many businesses that operate directly and indirectly around these productions.”

Over the following five months, the governor’s office will work with legislators and the Department of Finance to adjust the proposal as more information about state revenue and economic progress comes in. Newsom will then issue a revised proposal in May.

After that revision, the Assembly and State Senate budget committees — which Zbur and Portatino are respectively members of — will hold hearings and debates ahead of a mid-June deadline for both houses of the state legislature to approve a final balanced budget for Newsom to sign. 

There have been conflicting studies about the impact of production-incentive programs, particularly when it comes to state revenue. 

The Los Angeles County Economic Development Corporation released a report that found that every dollar spent on the current film tax incentive program resulted in $1.07 in new government revenue. 

This was disputed by the California Legislative Analyst’s Office, which claimed that the net gain projected by the LAEDC was based on “implausible assumptions.” 

“Most importantly, the study assumes that no productions receiving tax credits would have filmed here in the absence of the credit,” the LAO’s report read. “This is out of line with economic research discussed…which suggests tax credits influence location decisions of only a portion of recipients.” The report cited other studies that found that film tax credits “probably influence the location decisions” of 25% to 75% of credit recipients, while other factors, such as finding settings that fit the story being told by a certain production, are at play. 

Because of that, the LAO believes the film and TV tax credit program as it currently stands — with its $330 million cap — likely generates a net loss for state revenue, returning 20-50 cents for every dollar spent. 

Even if supporters of a tax credit boost were to concede that argument, there is still a sense of urgency to support the livelihoods of the hundreds of thousands of people who work in entertainment and whose finances have been strained by the COVID-19 pandemic and last year’s strikes. 

As TheWrap noted in its Holding On in Hollywood series, many entertainment workers, including experienced veterans, have found it harder than ever this year to find work, with many having to choose between moving to other states that have recovered more quickly on the production front or seeking alternative career paths. One gaffer who spoke to TheWrap in September said he has found consistent employment in New Mexico but now spends months at a time away from his family.

The unscripted TV sector has been hit especially hard. The first half of 2024 saw the lowest series orders for unscripted programming since 2019, down 22% from 637 in the second quarter of 2022, according to research from Ampere Analysis.

Coming to the aid of those workers will be the core argument made by Portatino and Zbur next year, along with continuing to keep California globally competitive in an industry that it birthed. 

Zbur, who was elected to represent an assembly district that includes Hollywood and Beverly Hills in 2022, was involved in the successful push last year to extend funding of the tax incentive program through 2030.

Portatino, who has been in the state Senate since 2016, was in the State Assembly alongside current Los Angeles Mayor Karen Bass when California first established the tax credit program in 2009. His work on the entertainment front also includes authoring a one-time $150 million tax credit program to build soundstages in the state. 

Zbur and Portatino look to hit the ground running in January when Newsom releases his full proposed budget for the state. 

Even before the recent downturn, the LAO noted that the state’s unique place in filmmaking would play a bigger role in debates over the tax credit than any fiscal considerations. 

“We do not recommend considering the film tax credit as a reliable mechanism to grow the state’s overall economy,” the LAO advised last year. “Instead, how the Legislature assesses a potential extension should depend on how much it prioritizes the importance of maintaining Hollywood’s centrality in the motion picture industry.”

It will also take time, between approval of any incentive program extension and for the approval process to take place, for any increase in shoot days and employment opportunities to be seen in California. 

In the meantime, Hollywood workers say they hope that local governments and film commissions can find other methods to make it easier and more affordable to film in California, including streamlining the permit process. There are also calls to address the spiraling cost of living that has made middle class life for many entertainment workers less viable than ever. 

“Near term, permitting for Los Angeles shooting needs to be less expensive and complicated, as successive local governments have the entertainment industry like a cash cow to be milked and a nuisance to be managed instead of a vital local industry,” said film and TV writer Zack Stentz, whose Netflix movie “Rim at the End of the World” was shot in Los Angeles. “Beyond that, the region needs to address the spiraling housing costs that make the area unaffordable for below the line crew to live.”

Newsom underscored the urgency to find a solution. “One thing is obvious to anyone — the industry here is increasingly on life support,” the governor said on Sunday. “There was an expectation that things were going to turn around after some of the labor unrest, and it didn’t materialize. And now people are getting in despair — a little panic.”

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