Movie studios would qualify for a long-sought benefit under Gov. Gavin Newsom’s proposal to let them convert a portion of their state tax credits into cash payments, essentially creating a government grant for Hollywood that California offers to no other industry.

If Newsom’s plan passes the legislature and is signed into law, California’s movie tax credit program would be reimbursed in 2025. totaling tens of millions of dollars annually.

The boost would help bring more movie production to California amid competition from other states, the Newsom administration says. And it’s structured to incentivize Hollywood to increase the diversity of its workforce, a goal of the Democratic-dominated legislature, itself more diverse than ever before.

But the proposal has drawn opposition from lawmakers frustrated by what they see as Hollywood’s insufficient progress in hiring women and people of color since the state increased the movie tax credit for building new soundstages two years ago. Those incentives were designed to encourage the hiring of employees that reflect the state’s race and gender makeup.

tension

So

is mounting as lawmakers work to close a $22.5 billion budget deficit that could lead to cuts in public transportation and clean energy spending, as well as delays in childcare funding for 20,000 children.

We can’t go back to our constituents and tell them why we’re putting money in your pockets, San Francisco City Councilman Phil Ting, a Democrat who chairs the budget committee, told film

commission industry

representatives at a hearing this week at the Capitol in which he reprimanded them for not being willing to present diversity data.

We have to say to the daycare people, Hey, sorry, we couldn’t give you money for daycare because we gave money to movie studios.

Newsom’s plan, outlined in his January budget proposal, would extend California’s movie tax credit for another five years, through 2030, and allocate $330 million a year for the credits and refunds. If productions qualify for a tax credit in excess of their tax liability, they can get a portion of the credit back, which is essentially a cash payment. The governor’s plan would also dock

taxes

Credits from productions that fail to meet diversity goals.

His approach combines the Legislative Democrats’ interest in pushing for more diversity in show business with a perk the industry has been seeking for years—a refund that allows productions to be paid for by the state in amounts that exceed the taxes they pay. to owe. Several states offer a refundable movie tax credit, and some major studios in California have such small tax bills that they can’t use all the credits they’ve been given by the state.

Access to tax credits to offset production costs is a primary consideration for where projects will shoot. And they are leaving, taking California jobs and economic opportunities away from California where they belong, said Colleen Bell, executive director of the California Film Commission, who is part of the Newsom administration.

Movie studios and their unions both agreed to Newsom’s plan. Their support should give it considerable political clout in a legislature where most legislators are aligned with organized workers and many enjoy the glamor of association with California’s marquee industry. Hollywood studios, executives and unions are trusted campaign donors to many state legislators and the California Democratic Party, spending millions to help Newsom defeat a 2021 recall attempt.

But the politics in this debate may be more complicated than they seem.

A deadlock still hangs over the legislature over how to ensure greater safety on movie sets, which began after actor Alec Baldwin shot cameraman Halyna Hutchins while filming Rust in New Mexico. Last year, studios and unions supported several bills to improve safety, but they both stalled. It’s not clear whether the two sides will reach an agreement this year that can be made into law, but the move to extend a tax break could be a lever in negotiations.

Lawmakers already grappling with budget constraints and pressure to cut programs also face the possibility that handing a lucrative advantage to Hollywood will lead other industries to demand similar treatment from the state.

We don’t fund the technology industry in the same way, while also asking for socially desirable outcomes

like it

with a more diverse workforce, said Councilman Alex Lee, a Democrat from San Jose.

Los Angeles City Councilwoman Wendy Carrillo, a Democrat, said her drive to increase diversity in the entertainment industry has been complicated by California’s ban on affirmative action. But finding lawful ways to encourage a more inclusive workforce is a top priority when negotiating any movie tax credit extensions.

If the goal is to make sure that we bring production back to California, and we create new productions in California, and that more studios can apply for and receive the movie tax credit, then my goal is also to make sure that the workforce behind this incredible jobs, good union jobs with great benefits, are also reflective of the people of the state, she said.

While proponents of the movie tax credit say it would create more jobs for California’s working class and boost related economic activity, low-income advocates fear that making the Hollywood tax credit refundable

will would

leave less money available for services for the needy.

There are many unmet needs in the state that are not being addressed, says Kayla Kitson, policy analyst

at the

California Budget and Policy Center, which advocates for low-income Californians.

Opening this door to make business loans repayable could set a precedent that other business loans could then be made repayable, which could end up costing the state much more money.

California’s impartial legislative analyst says making the movie tax credit refundable would have both advantages and disadvantages. While the program would appeal to more manufacturing companies, it could also cost the state more money. The analyst recommended several changes to control costs and simplify Newsom’s plan, saying the rules he proposed are unnecessarily complicated.

Ultimately, the analyst wrote in a report last month, the movie tax credit should not be viewed as a reliable tool for growing the state’s overall economy, but rather as a way to give the entertainment industry a slightly larger share of it. make up:

How the legislature assesses the governor’s proposal should depend primarily on how much it prioritizes the importance of maintaining Hollywood’s central position in the motion picture industry.