Los Angeles Mayor Eric Garcetti has a number of difficult issues to tackle, so it should come as no surprise that he recently declared the city to be in a state of emergency. But Los Angeles is so politically and financially dysfunctional that there could be any of a number of culprits for this crisis.
Was the mayor referring to the roughly $1 billion in budget deficits expected over the next four years? Or the $160 million in waste, fraud and abuse identified by former mayoral race opponent and City Controller Wendy Greuel? Or the need for further reforms of city workers’ pension and health care benefits?
No, the calamity Garcetti illuminated is “runaway production,” the phenomenon of more and more film and television productions leaving Los Angeles in favor of greater tax credits in other states and Canada.
There has been an “arms race” by states in recent years to offer ever more generous tax credits to entice production companies to film in their states. Louisiana offered $180 million in film credits during fiscal year 2010-11; New York has a $420 million incentive program.
California is one of 44 states to offer tax credits for film and television productions. The state’s film credit, which has been around since 2009, is capped at $100 million a year and offers a credit equal to 20 percent to 25 percent of qualified production expenses. Not surprisingly, competition for the tax credits is steep; so steep, in fact, that the state must hold a lottery each year to determine who will receive the credits.
It certainly is true that film and TV productions are increasingly moving out of state. According to payroll service Entertainment Partners, California’s share of the nation’s total production wages dropped from 68 percent in 2004 to 59 percent in 2011. While 89 percent of network hourlong dramas were filmed in California in 2005, that figure had fallen to 37 percent in 2012. But is this cause for government action?
Garcetti wants politicians in Sacramento to increase the state’s film credit. He just appointed Tom Sherak, former president of the Academy of Motion Picture Arts and Sciences, as film czar to lobby Sacramento, help productions take advantage of various government financial incentives and navigate the city’s red tape. But why not just get rid of that red tape and reduce taxes and regulations broadly to improve the business climate?
To his credit, when Garcetti was a city councilman representing the Hollywood area, he sponsored an initiative passed by the City Council that eliminated permit fees for television pilots shooting on location within the city. If only he would give as much thought to everyone else leaving Los Angeles to seek better economic opportunities by expanding this tax- and fee-cutting idea to other industries and everyday citizens. If lowering the tax burden for the film industry is a good thing, then why isn’t lowering the tax burden for everyone else good policy as well?
Lawmakers must be aware that when they implement policies that favor certain businesses or industries – through the tax code, government spending programs or regulations – they are necessarily harming other industries. Moreover, in doing so, they diminish economic activity by redirecting capital away from the purposes taxpayers and investors prefer toward less efficient ends based on the preferences of politicians and politically connected special interests.
Rather than trying to keep up with New York or Louisiana, California and Los Angeles should focus on getting their own fiscal and business houses in order. To be clear: Tax cuts are much needed in this high-tax, high-regulatory business climate and tax rates should be lowered as much as possible, but the rules should be applied evenly, rather than carving out special benefits for movies and TV shows.
Adam B. Summers is a senior policy analyst at the Reason Foundation. This column originally ran in the Los Angeles Business Journal.