(UPDATE: Hiltzik Responds) California Film Workers Irked at Recent LA Times Column…And For Good Reason
UPDATE: Micheal Hiltzik sent me an email this morning in response to my post below. His email and my response are at the end of this post.
Ed Gutentag’s “Shoot Movies in California Blog” had an interesting post about a recent column in the June 16th edition of the Los Angeles Times by Michael Hiltzik that was critical of California’s film incentive. The column has rankled many in the California film industry; Gutentag’s blog sums it up by stating Hiltzik’s piece “quite frankly; pissed many of us filmmakers off.” Specifically, Gutentag and others took issue with the following statement in the column:
I believe we can all agree on the root cause of the state’s $20-billion budget gap.
It’s welfare: all those millions of taxpayer dollars going to recipients who line up for their government handouts instead of competing in the marketplace on a level playing field like the rest of us, who don’t pay their fair share of taxes and who get protected by a politically powerful lobby.
Gutentag encouraged readers to politely “email Mr. Hiltzik and inform him about how out of whack the playing field actually is.” I decided to read Hiltzik’s entire column and offer my own insight. First of all, while “welfare” (however nebulously defined) may be partially to blame for California’s massive budget gap, I can’t say if it’s the “root cause” of the shortfall or not (Prop. 13 seems like it contributed, but what do I know?). Moreover, even if such welfare (and is it all welfare, public and corporate?) contributes to the budget shortfall, targeting the film incentive as the poster child to rail against such welfare is unfair and unwarranted. California’s budget crisis has roots that pre-date the current film incentive by decades. The current crisis existed long before the film incentive, and will persist long after it is set to expire in several years.
The cost of California’s modest film incentive is $1oo million per year, which is minuscule relative to the $20 billion budget shortfall. Granted, cuts have to be made across the board for California to ever have a prayer in balancing its budget, but the case Hiltzik makes is undermined, almost out of the gate, when he suggests the film industry’s “powerful lobby” does not want to compete on a “level playing field.” I understood immediately why Gutentag and film workers were so upset. The film incentive in California does not distort the playing field in favor of the industry, it actually attempts to help level it. Frankly, it doesn’t even do a very good job at leveling it, but its a start.
Indeed the playing field is grossly out of whack in terms of state support for “local” film industries, and has been so for some time. Even before the competition from the 44 US states with film incentives, Canada was distorting the market for years with generous local and federal incentives in places like Vancouver and Toronto. And for years, California competed at a disadvantage as the playing field was not level at all since the state did not offer anything remotely comparable to what was available in Canada. And I think it did a pretty remarkable job at competing against Canada. But with the 44 states that enacted large Canadian-style tax incentives since 2002 and the competition between them to outmatch one another, California could no longer rely on the strength of its native industry to compete. For way too many producers faced with a plethora of massive incentives across the nation, it was inevitable that the runaway production drain would go from bad to worse for California. With incentives like Michigan’s 42% rebate, how could cost-conscious producers not take advantage? Arguably, it would be fiscally irresponsible for a producer not to head to an incentive rich state.
So let’s be clear, even with its current incentive, California is not competing on a level playing field–it’s still at a tremendous disadvantage. In fairness to Hiltzik, he does make some valid points. For example, he complains about the cost and efficacy of incentives (which he calls “handouts”) despite:
lack of evidence that some of these programs keep employers in the state, lure employers from out of state or are cost-effective in any general way…
The rationale for this welfare program is to keep productions from fleeing to other states, taking California jobs with them. But you could go blind looking for an independent study, as opposed to studies funded by the state film commissions handing out the dough, showing that such programs produce more in overall benefits than they cost.
Quite the contrary — according to Governing magazine, New Mexico, which had aggressively courted producers with $40 million in tax rebates, concluded in 2008 that for every dollar it spent, it received 14.4 cents in return.
No one knows to what extent the production companies pocketing California’s cash would have filmed here anyway. And the program is hardly aimed at companies on the financial edge — as my colleague Richard Verrier reported recently, $20 million is going to pictures being shot here this year by Warner Bros. The money isn’t allocated according to need but on a first-come, first-served basis among qualified productions, the California Film Commission says. In other words, it’s more a windfall for the nimblest applicants than a program targeted at productions most likely to leave without it.
It’s hard to say if any given production would have elected to leave California but for it’s incentive, but I think common sense dictates that the chances of productions leaving are much higher when they do not qualify. For example, had the TV show “Deal or No Deal” been eligible for California’s incentive, it might have stayed in the state rather than moving to incentive heavy Connecticut. And that is one of the problems with California’s incentive, it seems to assume that productions already in the state will stay regardless and, therefore, should not qualify. This makes sense for an industry that cannot easily relocate, like agriculture, but not for an industry that is very mobile. Since the California incentive is available for new productions not already in the state, it is designed, contrary to Hiltzik’s claim, to lure employers to the state. Now, are film incentives cost effective “in any general way”? As they exist across the nation in their current form, the overwhelming consensus among economists is: No, probably not. But however poor a public policy option they may be in terms of cost effectiveness, the reality is that they exist and their use is widespread. It may be expensive for California to compete, but how high might the cost be if it does not even try?
While I have come across as being opposed to film incentives as they exist now for cost concerns, it’s easier to justify these costs for California. The problem with film incentives as a weapon to fight runaway production is that rather than stemming it, film incentives have been used to cause it. Canada did not enact incentives to protect a domestic industry, they sought to create one by luring it from elsewhere. The same can be said for virtually every single state incentive. When I hear film workers in places like Michigan ferociously defend their respective state incentives as necessary for protecting their livelihoods, it makes me cringe. I have nothing but sympathy for such workers, but the fact of the matter is that there is no established film industry in need of massive incentives for its ongoing preservation. This is because whatever significant production now taking place in such places did not exist, at any significant level whatsoever, before the incentives were enacted. Whatever film industry that existed in places like Michigan before the current incentive were able to operate before the current boom and I have faith that they will be able to survive without it. In short, the argument that film incentives are needed to protect the industry is only credible for one or two places in the US: California and New York.
In almost every place they are enacted, film incentives have not been used as a tool to halt runaway production, they have been used as a means to cause it. This is one of the major reasons I have been critical of film incentives. In California’s case, however, I am much less inclined to oppose film incentives because, truly, they are finally being used as a means to combat runaway production. California is trying to preserve an industry paramount to the state’s economy, culture and identity. And that industry was in place long before the film incentives–it does not exist because of them. To compete on the level playing field Hiltzik seems to favor, California should increase its film incentive, not scale it back.
UPDATE: Hiltzik’s response–
So let me get this straight…”It’s hard to say” that the California incentive keeps productions in the state…
Are incentives cost-effective? Economists by an “overwhelming consensus” say no….
They’re a “poor…policy option”…
How high is the cost of doing away with them? You don’t know….
Yet in California they’re a “means to combat” runaway production. (What’s your evidence?)
And given all the above, California should INCREASE them!
A few points I made that you glided over: I didn’t “target” the incentive as a “the poster child”; I used it as one example of billions of dollars in business giveaways that continue to be made without any evidence that they’re cost=effective or even minimally effective…and you don’t produce evidence to contradict that. I juxtaposed this handout and the others against the budget cuts that have been proposed, which will disproportionately hurt the old, the poor, and the young. I pointed out that none of these programs is trivial: The film incentive alone is the equivalent of one-tenth of the entire family welfare program the governor is proposing to eliminate.
Finally, I acknowledged that these programs might or might not work–but we haven’t done a thing to determine whether they do. That applies to the film incentive, and not only does you item fail to produce a scintilla of evidence that it works, you agree that there is no evidence.Thanks for making my point for me.
And, finally, the email I sent in response:
Does the economic impact from increased production offset the cost of many film incentives? Often, it seems it does not (but it is still hotly debated). We agree on that point. However, do film incentives spur production that otherwise would not be there? Yes, they do. Look at any of the states with new incentives and there is a direct correlation to massive increases in film and tv production. On this, the efficacy of film incentives very high. Thus, while the cost is high, the incentives do get results in terms of new activity and job creation. I would respect a lawmaker who acknowledged the cost but was still okay with the incentive because of job creation from new production. California can either try and compete with an incentive of it’s own (and therefore on a level playing field), or it can decry incentives as handouts and watch it’s crumbling film inustry slip away even more.
I don’t dare argue California is left with an ideal option with film incentives, but they are, in fact, the only option–if the state wants to preserve it’s industy. Now maybe you feel like California should NOT be taking steps to combat runaway production, which is fine. I feel it should try and prevent runaways and the incentives are the only means to do so. If California can maintain it’s current incentive or increase it, it will need to wait out the 44 other states who many beleive will start scaling back or eliminating their costly incenives in the next 12 to 18 months. Until that happens, however, if you want California’s film industy to compete on a level playing field, then it’s the presence of incentives, not the lack thereof, that will enable this.
Do you really think the 40+ productions that shot in Michigan went there for artistic reasons? Of course not, they went for the incentive. Had California been on a level playing field with Michigan, then virtually all of those productions would never have left the state.
I am sorry you reacted so strongly to my peice. I did say you make many valid points and raise concerns I share. But, as I said, it’s a choice between imperfect policy or nothing.
The risk of doing nothing while a leading industry is dismantled is much greater than the modest cost of the incentive (and it is very, very modest relative to other states) which can slow the bleeding until the madness of film incentives ends in the states. If you have a better policy option to protect the industry that can compete with massive incentives, I’d love to hear it. I, for one, have called for a single federal tax incentive that would usurp the competing state incentives. One nation, one incentive…because at the end of the day, we need to compete in a global economy, where the playing field is also not level.
I tried to be balanced, and I apologize if you feel I failed in that attempt. Hopefully this email clarified my position a little more and you can see the logic of what I am saying, even if you disagree with it.
