As California lawmakers consider extending a $100 million annual film tax credit for five more years to help a signature industry, the state's top fiscal analyst said in a new review that the credit results in an overall loss of tax dollars.
The finding by the nonpartisan Legislative Analyst's Office runs counter to two recent studies by the Los Angeles County Economic Development Corporation (LAEDC) and the UCLA Institute for Research on Labor and Employment (UCLA-IRLE).
In a letter publicly released Thursday, the LAO said that each dollar of tax credit results in less than a dollar in tax revenues returned to state and local governments through taxation on increased economic activity. The LAEDC study said that each tax credit dollar returns at least $1.13, while the UCLA-IRLE study said it was $1.04.
The Analyst's Office stated that "we believe it is likely that the state local tax revenue return would be under $1.00 for every tax credit dollar -- perhaps well under $1.00 for every tax credit dollar in many years. In any event, even if the combined state and local tax revenue return is right around $1.00 for every tax credit dollar, the state government's tax revenue return would by definition be less than $1.00 for every tax credit dollar. The credit program, therefore, appears to result in a net decline in state revenues."
The LAO did not dispute that the tax credit generates additional economic activity in California, but it believes the LAEDC estimate of economic output is "likely overstated, as is its estimate of job gains resulting from the credit program." It cited other factors that played into its determination, such as benefits from other governmental uses of the tax credit dollars and underestimating how much film production would occur in California without such incentives.
The Analyst's Office weighed in at the request of the Senate Governance and Finance Committee, which is considering Senate Bill 1167 by Sen. Ron Calderon, D-Montebello, to continue the program that former Gov. Arnold Schwarzenegger helped initiate in 2009. At the time, Los Angeles-area lawmakers and the movie-star governor expressed concerns about the aggressive tax credit offerings by other states to lure film production away from California.