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September 27, 2017

Challenging the accepted wisdom: Are CA film tax credits a good use of public funds?

Jobs are good. Ask any politician. Who could be against jobs? You might as well be against apple pie.

More than likely, that is what Governor Jerry Brown was thinking when he signed the Film & Television Tax Credit Program 2.0 into law. As he said at the time, “This bill helps thousands of Californians, from stage hands and set designers to electricians and delivery drivers.” (excerpted from the Washington Post)

Embed from Getty Images
Gov. Brown signs AB 1839
granting tax credits to Film and Television Producers (9/18/14)
(Note: Getty images requires an ad be displayed in order to use the image. This is an exception to our non-commercial policy.)

The California the Film & Television Tax Credit Program was started back 2009 to stem the tide of runaway production. Places like Georgia, Louisiana, Canada and the UK were luring away productions with generous tax credits and other incentives. (see Jobs and Georgia on my mind). The California Tax Credit Program provided competitive incentives to companies that produced in California.

It appears the program was effective. FilmLA reports that the number of shoot days has increased 50% since 2010, and California Film Commission reports that every for $1M in tax credits there was $8M in direct spending.

Could there be a better use of our tax dollars? Possibly.

This past summer the LA Times published an op-ed piece by Steve Malanga called "When will states get smart and stop subsidizing movies?" (The op-ed was excerpted version of a longer piece published in City Magazine.) Malanga is the managing editor for City Journal*, In case it isn't obvious from the title, Malanga has a conservative, free-market bent. He's also no fan of Hollywood's political activism.

Putting aside his biases, Malanga makes several compelling claims that challenge the accepted wisdom that subsiding films is good for jobs. Here's a recounting of several of the points he makes in the City Magazine article:
  • Film jobs are temporary.
    Historically tax incentives are intended to boost development of businesses that produced permanent jobs. By contrast, film productions tend to produce temporary employment and rarely produce enduring assets to the economic infrastructure.
  • Film companies are mobile.
    A Film production can go to were the incentives are most generous. The mobility encourages bidding wars between states causing tax credit inflation. NFL owners have practiced a similar strategy to obtain public funding for new stadiums (ask San Diego).
  • The number of states offering incentives has grown. The benefits are short-lived.
    The cost of incentive-based competition has gone up. In 2002, 6 states offered incentives. In 2010, 44 states offered incentives. During that period total incentives increased an order of magnitude from $100M to $1.5B

    Malanga cited a recent example from Maryland. The producers of House of Cards threatened to move their production to another state if Maryland refused to provide more incentives. The Maryland legislature increased the incentives by $10M. The result: according to a Maryland legislative report, House of Cards and Veep have received $60.3 million of the $62.5 million credits.

    Similar cases were reported in Louisiana and Florida . Louisiana distributed $1.4B in filming incentives between 2008 and 2105. The Lousiana legislature the capped the program and, despite the prior investments, production dropped 90%. In Florida, an HBO series left when the tax credit program ended.
  • Most jobs go to out-of-state residents. Buying film jobs for residents is expensive.
    A Massachusetts report estimated the state spend over $125K in incentives for every film job that went to a Massachusetts resident. Michigan spend $37.5M in credits for 973 in-state jobs of which 216 were full-time film jobs. New Mexico reported that only 35% of key jobs went to residents.
We should point out the article does not reference source materials, so the reliability of the numbers could not be confirmed. However, if we take Malanga's claims at face value, they raise a challenging question: If most of the jobs are not going to residents of the states that offer the credits, where are those jobs going? California?

Consider this...
If tax credit in places like Louisana and Georgia are used to hire California residents, then, in effect, those tax are providing jobs for Californians. And, according to TurboTax, residents of California must pay tax on out-of-state earnings.**

If we take this reasoning a dubious step further, we can ironically claim that tax credits from places Like Louisiana, Michigan, or Georgia actually produce jobs for Californians. Of course those jobs require travel. However, if Malanga is correct that film jobs are inherently mobile, then the investment to keep California film jobs in California is fundamentally at odds with the nature of the business.

Perhaps we should give other states more credit for doing a lot to keep the California film industry vital and let them make the heavy investments.

* City Journal is a publication of the Manhattan Institute.
** Apparently, out-state-taxes paid on out-state-earnings are deductible. Don't take our word for it.

September 7, 2017

First look: permit data for unincorporated communities in LA County

LA County Districts
(click to see larger map)
If you should happen to be a regular reader here, you may recall that the County Supervisors asked the County's Film Liaison to make some recommendations.

That was a bit of a puzzle. Who knew the County had a Film Liaison? What did this Film Liaison do? The office wasn't listed. Googling was useless. But, with help from our local County Field Deputy, the Supervisor Barger's Planning and Public Works Deputy, and a few other hard working County officials, we were able to reach Gary Smith, LA County's newly appointed1 Film Liaison.

Among other things2, Mr. Smith manages FilmLA's contract and receives quarterly reports on filming for the unincorporated communities of LA County. We asked Mr. Smith if the quarterly reports for the past 3 years were publicly available. Mr. Smith, like his County colleagues, has been extremely helpful. He sent along a composite report with frequency and complaint data for each Supervisor's District. The report includes data for each quarter from January 2014 through January 2017. (a link to the report appears below)

We used this quarterly-report data to put together a few charts that show filming activity for the unincorporated areas of the County. If you should happen to be a person who prefers data as a basis for fact, perhaps the following will be of interest.

Q: How much filming occurs in the unincorporated communities compared to other areas of LA County?
On average 12% of the filming permitted by Film LA occurs in the unincorporated areas of the County. The estimate does not include filming in places like Burbank, Glendale and Pasadena which do not use the FilmLA permitting service.

Q: How much filming occurs in LA County District 5 (Altadena's District)?
On average, 60% of all shoot days in the unincorporated areas occurs in District 5.

Approximately 2 million people live in the unincorporated communities in LA County. Approximately 400,000 people live in the 70 or so unincorporated communities of District 5. Altadena is the largest unincorporated community in the District with approximately 44,000 residents.

The Film Liaison's report does not include enough information to determine what percentage of the District's filming occurs in Altadena zip codes. However, using AltadenaFilming's film permit map data, we can estimate that 29% of District 5 filming occurs in Altadena.

Q: How many filming complaints were recorded from each of the unincorporated communities.
Between 2014 and 2107, FilmLA recorded 293 complaints from the unincorporated areas of LA County. Nearly 71% of the complaints concerned filming activities in District 5.

Note: Last year NBC4 reported that, in 2015, there were over 2,900 filming complaints just in the City of Los Angeles — a rate much high than that reported in the unincorporated areas. The disparity suggests that either complaints are under reported in the unincoporated areas or that film companies are, in general, better behaved when they leave the city limits.

Q: What is the most frequent complaint about filming?
Problematic film-company parking was the most frequent complaint in all unincorporated areas. 38% of District 5 complaints were classified as 'parking.'

Q: What about the rate of complaints? Are they higher in District 5?
With the exception of 2016, the rate, as complaints per 100 shoot days, for District 5 is in line with other districts. However, it appears the complaint rates for District 1 and 2 shot up in 2016.
The big picture
Overall, filming in the unincorporated areas plays only a minor part in LA County's overall film-production picture. However, a large majority of the filming in the unincorporated communities takes place in District 5.

Since the Film Liaison only provided data for the unincorporated communities, we'll conjecture that LA County's jurisdiction for film permitting approval and enforcement is limited to just these unincorporated areas. If true, District 5 is the District most affected by the County's filming permit approval and enforcement policies. In that case, Supervisor Barger should rightly have considerable sway in any Board decisions concerning film permitting and permit enforcement.

Data notes
  • The report only includes data for the unincorporated communities of LA County. The data does not include results from incorporated communities like Monrovia, Pasadena, Burbank, etc.

  • The Film Liaison's report included a summary of frequency and complaint data for each quarter in each district from Q1 2014 through Q1 2017. The report also includes a County-wide summary of frequency and complaint data.

  • The contents of the report were extracted to text and modified for export to excel.

  • Starting in 2015, FilmLA began reporting frequency as Shoot Days. Prior to 2015, FilmLA reported frequency as as both Permitted Production Days and Shoot Days. Here's FilmLA's definition of the difference.
    A Permitted Production Day (PPD) is defined as one crew’s permission to film at a single defined location during all or part of any given 24‐hour period. This measure is best used to quantify days of impact from filming on area communities. Determining PPD involves looking at all calendar days in which filming occurs, and summing the number of unique locations filmmakers were permitted to use on each day.

    Shoot Day (SD) is defined as one crew’s permission to film at one or more defined locations during all or part of any given 24‐hour period. This measure is used to quantify how many days of work film crews perform during a given time period. Determining SD involves looking at all calendar days during which filming occurs, and summing the number of unique permits simultaneously active for filming on each day.

    In order to normalize 2014 frequency data with the 2015 and 2106 data, we used FilmLA's 2010-2014 data to calculate a Production Day to Shoot Day ratio. The ratio is roughly two-thirds. We used that ratio to estimate 2014 Shoot Days. It appears that this techniques underestimates the actual values.

  • The quarterly report data has errors. The County-wide summary is inconsistent with the data from the individual districts. In our reports we used the data for individual districts and ignored the County-wide data since it is likely that the inconsistency is the result of arithmetic errors.

  • FilmLA issues quarterly press releases on shoot-day data for all the incorporated and unincorporated areas they serve. These FilmLA press releases were used as a source of data for the county-wide comparisons.

  • An estimate of annual shoot days in Altadena was based on data that was accidentally released by FilmLA — the same data is used to generate the Altadena permit map that appears on this site.

    The Altadena estimate is based on the following: between 2012 and 2015, there was a yearly average of 478 filming permits issued in Altadena. If we assume a day-and-a half of shooting for each permit, that's an average of about 717 shoot days per year. Based on the Film Liaison's report, there are roughly 2,500 shoot days each year in District 5. If these estimates are accurate, then roughly 29% of District 5 filming occurs in Altadena.
Links to source material
Here are links to the data provided by the County's Film Liaison:

1 : The County's Film Liaison was recently moved to a new organizational home. Previously, the office was located in the CEO's Office of Unincorporated Area Services. It is now located in the CEO's Economic Development Affordable Housing Division.

2 : The LA County CEO recently publish a memo describing the Film Liaison's responsibilites.