California Gov. Gavin Newsom pushed in his final state budget a cap on business tax breaks in an effort to save money — but the film industry and some lawmakers are calling it a colossal screwup that would inadvertently kill jobs in the state’s struggling film industry.
Around three dozen California lawmakers sent a letter last Friday to the governor asking him to fix the mistake. They asked for an exemption for the state’s film and television tax credit program that Newsom has touted many times as helping to boost Hollywood.
California “will be significantly kneecapped,” according to the letter.
“It creates significant uncertainty for production companies, in terms of when, how and even, if, they will be able to monetize earned tax credits.”
In the state budget process this year, Newsom had proposed — alongside a controversial software tax — a permanent cap on business tax breaks at $5 million or 50% of total tax liability, whichever is higher. The final version extends the existing cap for three more years and beginning in 2030, the cap would be at $5 million or 70% of tax liability.
Lawmakers had mistakenly thought the cap would not apply to the film and TV tax credit program.
“We need to have people understand that these changes, which I think people believed were minor, are really significant and will result in significant job loss if we don’t fix them,” Assemblymember Rick Zbur of Los Angeles told the Los Angeles Times.
Film industry groups have been warning that the cap would violate California lawmakers’ promise to help the business through the film and TV tax credit program, which Newsom announced just this week will deliver a record $6.6 billion in economic impact.
“The uncertainty created by this turn-around will, in effect, say to production companies that credits earned under the programme may not be honoured as originally promised,” the Motion Picture Association and the Entertainment Union Coalition wrote in a separate letter to lawmakers.
The governor’s office defended the tax credit cap in a statement to the Times as an important fiscal tool for the state to ensure stability.
“We remain confident in the strength of the recently expanded Film and Television Tax Credit Program and will continue to work with industry and legislative partners to ensure the program is competitive,” the office said.
The setback from the tax credit cap is the latest in a long line of blows for the state’s iconic filming industry.
Some studios have shifted filming and other production to other states. The COVID-19 pandemic, strikes by writers and directors in 2023, and financial cutbacks also have dealt a lasting blow.