California moves to hold onto Hollywood

Gov. Arnold Schwarzenegger made his name in Hollywood as "The Terminator." Now, California's governor is playing another kind of terminator: one trying to stop film and television production from leaving the state.

Billions are at stake, and not just for the upper echelons of the film industry – the actors, directors, producers.

In the past few years, as the US has seen millions of jobs move offshore to other countries, California's multi-billion dollar film industry has been socked by major film production moving to states such as New Mexico, Louisiana, and Michigan as well as to Canada and Australia, all of which have offered tax incentives to lure film production. Losses from these moves have been estimated to reach about $10 billion per year.

The state's refusal to play the subsidy game changed last week when Mr. Schwarzenegger signed a budget bill that included $100 million a year in tax credits for the industry for so-called below-the-line spending, which are payments to crew members other than the main stars and filmmakers.

"I can't breathe from the number of producers, executives, directors, studios calling to say, 'I was planning a production in New York, Florida – wherever – and I want to keep the production here in California, how can I apply?'" says Amy Lemisch, executive director of the California Film Commission. "This is having a gigantic effect."

Film and TV production has been moving out of California for years, Ms. Lemisch says, because of targeted campaigns by other states and countries. The fourth quarter of 2008 saw the number of location shoots in Los Angeles drop to 1,051 days, the lowest since 1994 when monitoring agencies first started keeping count. By contrast, the highest number of location shoots in the city was in 1996 with 4,059 days in a single quarter.

There has been a 50 percent decline in in-state film production from 2003 to 2008, that can be tracked to a time when other states began their campaigns to attract film and TV production, says Lemisch.

Schwarzenegger began trying to boost the film industry in 2004, about a year after he took over as governor. He signed laws to ease red tape in filming, fought Internet video piracy, and appointed Hollywood veterans such as Danny DeVito, Clint Eastwood, and producer Lily Zanuck to the California Film Commission. He signed an executive order requesting all state commissions, agencies, and boards to create 24-hour liaisons accessible to filmmakers to help clear the way for films to be shot in the state.

He also backed federal legislation to allow tax deductions up to $15 million for producers who keep their productions in the US. And he signed several bills reducing the number of permits required for the use of special effects and explosive pyrotechnics as well as easing background checks for the use of dummy guns in production.

None of those actions have had the impact that this latest move could have.

"All those things were very important, but in the end, the question for producers is, 'What does our bottom line look like?' So that trumps everything else," says Kathy Garmezy, assistant executive director of government and international affairs for the Directors Guild of America.

The guild has been working for just such an incentive for 10 years, she says, adding that the tide only began to turn with the recognition that other states and countries were attracting a lot of production out of California.

"This will have a psychological effect as well as a real one," she says. "We are extremely happy that this has passed."

The new law could have significant effects on the state treasury, a study by the California Film Commission has found.

A feature film with a $70 million budget and 75-day shooting schedule in California creates temporary jobs for 588 cast and crew members in addition to 1,182 extras. Those numbers are equivalent to 141 full-time, one-year jobs.

The film's overall economic output – resulting from "economic activity associated with production spending" – was $199 million, resulting in at least $10.6 million in state tax revenues (approximately $2.8 million in sales tax and $7.8 million in income tax), the study found.

"The most important thing to remember about this program is that it is not about aiding people who ride in limos, but those who drive in pickups," says Assemblyman Paul Krekorian who sponsored the legislation.

The impact will be huge on so-called "below-the-line" employees including caterers, drivers, costumers, suppliers of props, grips, art directors, he says.

The idea also sends a message that the state is out to hold onto businesses of all kinds.

"There was a day when I was a kid that we all assumed that aviation and aeronautics would always be in California," says Mr. Krekorian. "But they left … and the same could happen with Hollywood if we're not careful. This is a strong signal that the state would see that as a great tragedy and is trying to prevent it."