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San Jose Mercury News (California)
Feb 17, 2005

by Kate Folmar; Mercury News Sacramento Bureau

Film-industry tax break backed;

SCHWARZENEGGER WANTS MOVIE-PRODUCTION WORK TO STAY IN CALIFORNIA
SACRAMENTO -- Gov. Arnold Schwarzenegger is poised to throw his star power, and political clout, behind tax breaks for the entertainment industry aimed at keeping film productions in the state.

''It is extremely important that we continue supporting our motion picture industry and that we, as a state, do everything that we can,'' he told a mostly entertainment-industry crowd at a glittery, Hollywood-style premiere Tuesday night.

To help the state create jobs for everyone from caterers and janitors to make-up artists and gaffers, Schwarzenegger said, ''we are working right now through the legislators on a bill to give tax credits, to give tax relief, to the productions here in California.''

The occasion was the Sacramento premiere of ''Be Cool,'' which was made entirely in the state.

But the idea of a former movie star offering tax breaks to Hollywood may not have a happy ending. Despite a crowd-pleasing, job-creation script, the production will likely be panned by advocates for the poor -- who fear welfare checks will be cut as the state tries to close an $8.6 billion deficit.

Certainly, ''runaway production'' is a real concern for the entertainment industry, which employs about 500,000 Californians. Lawmakers regularly consider ways to keep California competitive with Canada and other locales, where wages, production costs and taxes are lower. By one federal estimate, runaway productions cost the nation up to $10 billion a year.

But the situation has improved, noted Jean Ross of the California Budget Project, which analyzes how state policies affect the poor and middle class. She cited figures from the industry-backed Entertainment Industry Development Corp. that showed Los Angeles production days increased by nearly 20 percent last year.

''At a time when we're cutting spending for education and seniors, why are we looking to provide tax subsidies for an industry that is doing quite well?'' Ross asked.

Many details are still in development. But a lawmaker familiar with the administration's thinking said Schwarzenegger wants to offer targeted tax credits, perhaps to production companies on specific purchases, after new movies and television shows are wrapped in the Golden State.

Sen. Kevin Murray, D-Culver City, a former entertainment lawyer who represents Hollywood, has submitted a place-holder bill (SB 58). ''The hope is that this is a revenue generator,'' said Murray, who has chaired the Senate's committee on the entertainment industry.

Los Angeles-area Sen. Sheila Kuehl, a former actor, said she's not familiar with the administration's proposal. But she hopes the governor presses forward with this ''very important'' idea because the working class stands to gain.

"Tax credits don't help out his buddies in the industry,'' who are wealthy already, said Kuehl, a Democrat. ''They do help out the line workers and their families'' who get jobs when production stays local.

Jerry Flanagan was more skeptical. He's with the liberal Foundation for Taxpayer and Consumer Rights, which has helped organize protests of teachers and nurses at many of Schwarzenegger's recent events, including the premiere.

''Given the crises facing the state, from health care to environmental pollution, helping out his pals in the movie industry is not what California really needs,'' Flanagan said.

Some tax experts say there is no solid academic research that such credits make the state money. Instead, they usually cost the state cash, said Mark Ibele, a tax expert with the non-partisan Legislative Analyst's Office.

A few years ago, a legislative effort to give a 15 percent tax credit on a portion of entertainment employees' wages died. It would have cost the state about $650 million over five years, according to a legislative analysis, but other economic benefits would have offset costs by 20 percent.
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Mercury News Staff Writers Ann E. Marimow and Dion Nissenbaum contributed to this report. Contact Kate Folmar at kfolmar@mercurynews.com


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