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November 16, 2013
Editorial: No more Tinseltown tax breaks until value is shown

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(Nov. 16 -- By the Editorial Board)

Newly elected Los Angeles Mayor Eric Garcetti is wasting no time making clear that he is intent on expanding the tax break designed to help his hometown industry, the movie business.

"We're going to go up to Sacramento and storm that place like we never have before," Garcetti told a Hollywood Chamber of Commerce gathering last week, as reported by the trade publication, Variety.

The effort might seem ill-timed, given that the FBI investigation into Sen. Ron Calderon apparently involves the Montebello Democrat's effort to shape the 2012 film tax-credit legislation to aid an undercover FBI agent who posed as a Los Angeles studio executive.

Investigation or not, Garcetti probably will succeed if history is any guide. Whether the rest of the state realizes much benefit from an expanded Hollywood tax break will depend on the resolve of legislators not directly under the industry's thrall.

Garcetti's allies include key Los Angeles-area lawmakers, Assemblyman Mike Gatto and Sen. Kevin de Léon, who chair appropriations committees in their houses. He also will be able to count on a team of top lobbyists who represent a powerful coalition of studios and organized labor.

The goal will be to extend the credit due to expire in two years beyond 2016, and raise the annual allocation, which is set at $100 million. Garcetti also likely will seek to raise the maximum size of the budgets of the productions that qualify from the current maximum of $75 million, in the hope of having more blockbusters filmed in California.

Perhaps the film tax credit is vital to keeping the film industry in California, as Hollywood says. There is anecdotal evidence that productions have left California for states that offer lucrative incentives.

New York offers $420 million a year in tax breaks to encourage production, more than four times California's allotment. The "Tonight Show" is planning to return to New York, after 40 years in Burbank, thanks to $20 million in tax benefits from New York.

Earlier this year, the British film company Pinewood announced development of a 288-acre studio in suburban Atlanta, citing Georgia's rich tax breaks.

The question remains, however, whether the money spent pays off. Connecticut recently imposed a moratorium on its film tax break. In Louisiana, which offers rich tax breaks, experts say the cost of the credits far exceeds the revenue from jobs created.

Before the Legislature extends or expands the film tax credit, there needs to be an independent study documenting it pays off. The legislative analyst is supposed to undertake such a study in 2016.

Los Angeles helps its argument by providing inducements to keep productions from leaving Hollywood. Perhaps the state should study providing grants that would match what is spent by cities, counties or regions on industries they deem vital.

California's tax structure is in need of review. The state has among the nation's highest tax rates. As we noted earlier this year, the Howard Jarvis Taxpayers Association and the libertarian Reason Foundation issued a report saying that if all corporate tax rates were abolished, the overall tax on business profits could fall by more than 20 percent. That would benefit all industry.

Political realities being what they are, California won't repeal tax breaks. The beneficiaries have powerful lobbies. Hollywood in particular has great clout in Sacramento. Legislators have been known to melt in the presence of glitterati. But before they go into a swoon, lawmakers need to make sure money in the form of tax breaks is wisely spent.

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