Hollywood Freaks Out Over Threat to Tax Subsidy

Gotta love the cool heads who run the entertainment industry. Studio insiders are freaking out today over an email from State Sen. Kevin De Leon's office indicating that the senator opposes the current lottery system for allocating state tax credits. According to Deadline Hollywood, some in the industry see that as a threat to efforts to dramatically expand their California subsidy during this legislative session.

“This is pure political brinksmanship and extremely irresponsible,” an excitable studio insider told Deadline. “We were blindsided by this,” complained another. “This is either a cheap ploy to make a deal on another issue or they really are trying to kill the bill.”

These guys have nerves of steel. There's three weeks left in the session. Are they going to make it?

So, here's what's going on. De Leon chairs the Senate Appropriations Committee, which is scheduled to take up the tax credit expansion bill — AB 1839 — next week. He will take over as Senate President Pro Tem in October, so his views are worth paying attention to.

Fortunately for the entertainment industry, De Leon (D-Los Angeles) is a supporter of expanding the tax credits. However, he does not like the lottery system for handing them out.

"The Senator strongly supports expanding the film tax credit, but wants a better allocation system to maximize job creation and ensure the taxpayers are getting the biggest bang for the buck," De Leon spokeswoman Claire Conlon said in a statement.

In the email leaked to Deadline, De Leon's chief of staff, Dan Reeves, called the lottery a "crapshoot for the taxpayers." In essence, De Leon  wants to make sure the state isn't subsidizing projects that would have filmed in California regardless of the subsidy. That's why De Leon is indicating he will not support a dramatic expansion of the lottery in its current form.

Cue industry-wide freakout.

But wait. This is hardly a new position for De Leon, and it's not unique to him. Studio executives also dislike the lottery system. Still, this close to the end of the session, the concern is that big structural changes may scuttle the whole bill. So, naturally, studio insiders are trashing an important ally by venting anonymously to Deadline. Great strategy.

Time to take a breath. The smart money is still on some significant expansion of the tax credit in California. So, if you're a studio executive, chew an antacid or whatever you need to do, because this is just how the legislative process works.

Update, 12:21 p.m. Here's a new statement from De Leon, in which he says the same thing as quoted above, but at greater length:

“In the interest of protecting good jobs and safeguarding one of our signature industries, I’ve long been an outspoken champion for California’s Film and Television Tax Credit and I’m 100-percent committed to passing an extension and expansion of that credit this year.

At the same time, having had exhaustive conversations with industry leaders and workers about the effectiveness of the current program, there seems to be growing consensus that the program can and should be strengthened to better ensure its primary objective of job creation and retention.

When it comes to fueling an engine of job creation with taxpayer dollars, ‘good enough’ simply isn’t good enough anymore. We have an obligation to taxpayers in every region of this state to ensure we are doing everything in our power to maximize their return on investment.

In the remaining month of this Legislative Session, I will work with my colleagues and stakeholders across the spectrum to make a good program even better – and I have every hope and confidence that we will deliver a smarter, stronger program that will keep the cameras rolling in our State for years to come.”

Update 2, 1:05 p.m.: Assemblyman Mike Gatto, the author of AB 1839, says he does not think shifting away from the lottery system is a viable option.

"I feel confident the senator was not proposing a subjective system where some state board doles out money and could be accused of cronyism," Gatto says.

As to De Leon's concerns about the lottery's effectiveness, Gatto says, "We have built-in safeguards in the legislation now."

Gatto noted that he's been working on this issue for two years, and it's getting late in the game for big changes. Even so, he says he's committed to working with De Leon.

"Our offices have been in constant communication," Gatto says. "We are working together to make sure this is a product everybody can feel comfortable with."


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