Amid the swirl of the Trump administration’s nascent plans to “Make Hollywood Great Again,” California is on the verge of revamping its Film & TV Tax Credit Program in the hopes of reinvigorating the state’s production pipeline. But, it could be more than a year before production workers begin to feel the affects of the proposed changes, if they are approved by the Legislature.
After years of strife for the California film and television industry, Gov. Gavin Newsom in October proposed a significant increase to the overall cap on incentives, more than doubling it from $330 million to $750M annually. The sister bills currently making their way through the state Senate and Assembly, SB630 and AB1138 — a hot topic of conversation at this past week’s Deadline-hosted SAG-AFTRA event gathering politicians and industry labor leaders — seek to do more than just provide additional finance incentives to studios who bring physical production back to California.
The bills, sponsored by state Sen. Ben Allen and Assembly members Rick Chavez Zbur and Isaac Bryan, respectively, are also meant to “amend, update, and modernize” the program. In other words, lawmakers are trying to remove some of the red tape that makes California less accommodating to production than it once was.
Deadline understands that the refresh is high on Newsom’s priority list, and the prospects for the eventual passage of these bills are positive.
So, when can Californians expect to reap the benefits?
Where Does Each Bill Currently Stand?
Since their introductions to both chambers February 20, both bills have successfully made it to the Appropriations committees, where they currently remain.
While lawmakers expressed some skepticism early on about the proposed amendments to the program, and whether more than doubling the current incentive cap is the best use of those funds in the state budget, they have passed fairly easily through committee votes thus far.
Next up is Newsom’s “May Revision,” when he will release an updated budget proposal that reflects the latest economic forecasts and revenue projections for the year. Sources tell Deadline that the tax-credit funding is expected to survive that revision process, given how much the governor is prioritizing this issue.
After the May Revision comes a period of intense negotiations that are likely to result in some changes to the bills as they are currently written as lawmakers work toward agreeing upon a unified budget.
What’s the Approval Timeline?
If all goes well, additional funding could be available to productions as soon as July 1. There’s also a scenario where funds don’t come available until January 1. Then, there’s a middle option.
Option 1: In the best-case scenario, the proposed changes to the program will be signed into law in June along with the new budget. Sources tell us this is the most ideal outcome, since it would mean the rejuvenation of the state’s film and television industry can begin sooner rather than later. It’s also the most politically and structurally complicated, because it would likely mean attaching the proposed changes to the program in the actual budget bill, which can often cause hiccups with the Legislature.
Option 2: It’s more likely the funding will remain separate from the proposed amendments to the program, which could lead to two outcomes. First, the budget passes in June and the other structural changes come at a later date. As one source notes that “everybody feels a sense of urgency” to solve this issue within the state, the goal would be to inject at least some energy into the production pipeline as quickly as possible.
Option 3: Newsom waits to sign the funding into effect until the bills get approval from both chambers. Sources predict the bills will be approved sometime between September and January. This is both the least likely and the least desirable outcome.
But Wait, There’s More
If the bills are signed into law, the California Film Commission will need to go through a regulatory process to develop guidelines for implementation. This process can take between six months to a year. This means that, while the $750M in funding could be earmarked for the Film & TV Tax Credit Program by July 1, it would likely be several more months before that money is distributed.
The application window for Program 4.0, which does not include the additional funding or updated provisions, begins in mid-June. For that cohort, the funding cap will remain at $330M, with a 20% base credit for individual productions.
Sources don’t seem to know what to expect with this version of the program. On one hand, it could entice some of the major studios now that they have the option of up to 90% refundability, meaning they can get cash back if they don’t have sufficient state tax liability (which many of the major studios do not).
However, with much of Hollywood waiting with bated breath for the new program updates, some sources wonder whether there will be an underwhelming response to the upcoming application process. “Is anyone going to apply if they wait three months longer and get 35% [credit]?” one source asked.
One potential solution is to offer productions the ability to retroactively receive a 35% credit on qualified expenditures, pending approval from the state. However, this comes with obvious risks considering that, as one source familiar with the process notes, “nothing is guaranteed.”
In any case, the application review process can take between 4-5 weeks, putting at least another month on the clock.
What’s The Holdup?
AB1138 and SB630 would expand the definition of a qualified motion picture, allowing additional projects to apply for the program including series with episodes averaging 20 minutes or more; animated films, series, and shorts; and large-scale competition shows.
Additionally, the bills propose increasing the available credit amount for an individual project from 20% to 35% for amounts paid or incurred in Los Angeles, also giving the California Film Commission leeway to allow for additional credit percentages of 5% in other areas of economic opportunity.
While there haven’t been many objections to the bills’ current contents, there has been discussion about what is missing from them. The two glaring omissions are post-production and commercials.
Even in the newly proposed bills, California Film & TV Tax Credit Program does not currently allocate specific funds to post-production, a lucrative part of the production pipeline that has been drawn away from the state due to program provisions elsewhere. New York, for example, offers $45M annually specifically to fund post-production.
Some parties are also pushing for commercials to be considered eligible projects, as they are in many other territories, for similar reasons. Both are expected to become topics of discussion as the bills make their way to the Senate and Assembly floors, which could potentially slow the approval process.
The Bottom Line
When can California production workers expect any sort of reprieve? The short answer is it depends.
The longer answer is that, pending a host of regulatory processes, it could take anywhere from about nine months to more than a year for the proposed changes and expanded funding to take effect — and even longer for projects to actually be accepted into the program.
So, while help is certainly on the way, just about the only thing that is absolutely clear is that it won’t come overnight.
The post Show Us The Money: When Can Productions Expect To Reap Benefits Of California’s Proposed $750M Film & TV Tax Credit Expansion? appeared first on Deadline.
