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December 2, 2017

Down in the weeds looking at permit fees

Keeping film jobs in LA is a source of recurring concern for our local officials. Filming advocates are often quick to point out the importance of incentives — otherwise film producers might just pick up their jobs and run off to Georgia, New York or or, goodness gracious, the other LA! (i.e. Louisiana)

It wasn't so long ago, we heard a LA County official assert that Altadena was an attractive filming location because of the permits fees were the lowest in the region. While this might not represent a majority view among our officials, it seemed a topic worth a bit of noodling.

In a previous posting, we had surveyed the cost of filming permits and related fees for Altadena and a few other communities in LA County. We discovered that fees for filming in Altadena1 were actually among the most expensive in the region. We recently updated our fee survey with data for Altadena, Pasadena, La Canada, Burbank and Santa Clarita. (Click here to see that data.) Here's what we found:
  • Highest permit fee: Pasadena has the most expensive filming permits. Altadena is a close second. Permit fees for either Pasadena and Altadena are more than twice as much as any of the other communities surveyed.
  • Highest notification fees (door hangers): Altadena
  • Highest monitoring fees: Altadena
  • Most expensive law officer: Arcadia
  • Most expensive fire review: Altadena and Santa Clarita
  • Most expensive fire safety officer: Arcadia
  • Most expensive use of public right of way: La Canada
  • Most expensive permit violation fees: Pasadena (only Pasadena lists fees for permit violation)
Surprisingly, the cost of a filming permit in Altadena may not only among the most expensive in the region, it may be among the most expensive in the nation.

Last March the LA County CEO submitted a report to the County Supervisors that compared the cost of filming permits in LA to the permit costs in 10 other cities. The result: filming permits in LA were far and away the most expensive. (The data from the CEO's report is summarized in a table at the end of this posting.)

It's safe to say permits in Altadena are no bargain. Is this a problem? Do high permit fees hinder job growth? Is there any relation between filming permit cost and filming activity?

To test these questions we used an unscientific sampling method (close eyes, move-mouse, click) to pick five filming permits from November 2010 and another five filming permits from November 2017.2 We then compared the selected samples for cost differences by squinting sideways with one eye to determine if there was a huge difference. While this approach may not be statistically representative, it is surely illustrative. There is no apparent difference — the cost of a filming permits has remained quite steady in the $2K to $10K range. (The tables for the 2010 and 2017 permit costs appear at the bottom of this posting.)

30% growth in Shoot days 2010-2016
We then compared filming activity in 2010 to filming activity in 2016 using 'shoot day' data from FilmLA's quarterly reports. It appears that filming activity increased 30%; during those 7 years.

In other words, filming jobs seem to be growing apace in the LA despite the high permit fees. 

No surprise. The cost crew travel fees would quickly offset any savings that might be earned by traveling out of the area to get a cheaper filming permit. In other words, the high cost of a filming permit in LA does not seem any more impact on jobs in the film business than than the growing pile of junk in our garage has on the rotation of the earth.  We can rest easy on both scores.

Supporting Data

Comparisons of filming permit cost in LA to other cities

LANYAtlantaChicagoNew Orleans
Application fee$660$300$100$25/location$0
Fire safety officer$163/hr$210/hr$280 (8h)$5/hr
Law Officer$134-84/hrtraffic control $0$40/hr
Comparison of costs between CitiesSource: Memo to LA County supervisors from LA County CEO

Comparison of 2010 filming permit costs to 2017 filming permit costs
Arbitrarily selected examples of filming permit fees in November 2017
Permit #1Permit #2Permit #3Permit #4Permit #5
Application fee660660660660660
Notification charge42492656656164
Fire review282282282
Fire safety officer3,570
Road inspection346346
Road application157157
Fire Dept. spot check858585
Special effects permit288
Road encroachment permit286312286
Total permit cost1,2722,5182,26811,8641,895
2017 example permit fees
Arbitrarily selected examples of filming permit fees in November 2010
Permit #1Permit #2Permit #3Permit #4Permit #5
Application fee525625625625625
Notification charge1,180540465955
Fire review10410410485
Fire safety officer1,792
Law officer4001,669
Road inspection
Road application5252
Fire Dept. spot check8585
Special effects permit
Road encroachment permit624305610312
Total permit cost9,5821,0861,9313,1956,072
2010 example permit fees

Note: According to the County CEO, 'review fees' pay for the staff time need to review a filming permit application and 'service fees' recover the personnel cost need to support filming.

1 The filming permit fees are the same for all unincorporated communities in LA County. Fees are determined by the LA County Supervisors
2 Student filming permits were excluded. While student filming may be key to developing a work force for the film industry, it does not figure to be a significant source of those well-paid film industry jobs.

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.