Hollywood Legislators Still Confident in Tax Credit Expansion Despite Caution Over California Budget

California’s relative budget stability was a major reason why Gov. Gavin Newsom announced last month he could support a more than doubling of the state film and TV tax credit program to $750 million.

And despite warnings from the state’s legislative analyst that deficits could soon return, legislators and Hollywood stakeholders told TheWrap they’re still confident they can usher the proposed expansion through the five-month budgetary process in 2025.

Last week, the California Legislative Analyst’s Office (LAO) released its annual fiscal outlook, projecting a deficit of $2 billion for the 2025-26 fiscal year. That’s a massive improvement from the $68 billion deficit the Golden State faced this past year, and it’s expected to be balanced with minor changes to the state’s budget.

But legislative analyst Gabriel Patek told reporters that the outlook beyond next year is a “little more precarious.”

“There’s really no capacity for new commitments, because we do estimate there to be these pretty significant operating deficits in the subsequent years,” he said.

A big part of this uncertainty is the return of Donald Trump to the White House. Trump is pushing forward on his campaign promise to enact tariffs, including 25% added to all goods from Canada and Mexico and an additional 10% on goods from China. According to the LA Times, China and Mexico accounted for 40% of all of California’s imported goods last year.

The LAO’s report, which was released before Trump announced details on tariffs, projected the state’s annual deficit to grow to as much as $30 billion by 2028-29. Robert Rivas, speaker of the California Assembly, joined Patek in calling for fiscal caution.

“We need to show restraint with this year’s budget, because California must be prepared for any challenges, including ones from Washington,” Rivas said in a statement. “It’s not a moment for expanding programs, but for protecting and preserving services that truly benefit all Californians.”

Where does this leave the film/TV tax program? Hollywood Asm. Rick Zbur tells TheWrap that while there will be plenty of negotiating and persuading necessary to expand the tax incentives, he does not feel it will clash with the call for frugal choices in Assembly budget talks.

“We will need to convince our colleagues in the legislature that an increase in the tax program will not be a net negative on the budget,” he said. “Every dollar we spend as part of a tax credit brings back tax revenues because we are keeping job activity in California. Losing those jobs will have a net negative on the budget.”

California isn’t the only state debating film and TV tax credit programs. Earlier this month, the Louisiana House of Representatives voted to eliminate its production incentives entirely as part of a larger package proposed by Louisiana Gov. Jeff Landry that would eliminate all of the state’s tax programs and replace them with lower corporate tax rates.

But following the House’s approval, hundreds of film workers showed up at the state capitol in Baton Rouge to urge the Louisiana Senate to restore the incentive program. The Senate did so, though they lowered the program’s cap from $150 million to $125 million in the final package approved by the legislature.

Newsom’s proposal would expand the state’s film and TV tax credit program from its current cap of $330 million to $750 million. That would top the $700 million program offered in New York and make California’s the second largest incentive program in the country behind Georgia, which has no cap.

Dozens of states have introduced tax incentives to develop their own film industries, though the actual economic benefit of those programs has been brought into question. In its most recent annual report, the New York Department of Taxation and Finance found that expanding its film incentive program from its previous cap of $420 million created a net loss for the state, generating just 31 cents in revenue for each dollar spent.

Newsom, Zbur, and other proponents of the California expansion, which include Hollywood unions like Teamsters 399, argue the expansion is necessary to keep California as the country’s top state for production — and to remain competitive not just nationally but internationally.

Major blockbusters like the current box office hit “Wicked” are being shot in London. And productions that aren’t currently eligible for California incentives, like reality TV and game shows, have fled the state for more favorable tax credits elsewhere.

This has exacerbated the financial strain on California entertainment production workers who have seen their savings depleted by last year’s 191-day double strike, with many of them struggling to find employment over the past year. The most recent quarterly report from FilmLA found that the number of on-location shoot days in Los Angeles County in Q3 2024 sank 36% below the five-year average, driven primarily by a steep decline in reality TV shoots.

“An expanded film and television incentive program has implications in the budget, but it works both ways because it is not a set of expenditures,” Zbur said. “The film tax credit will result in fewer tax revenues coming in from the entities receiving them, but it will result in more tax revenues coming from the increased jobs and economic activity that will be retained.”

The post Hollywood Legislators Still Confident in Tax Credit Expansion Despite Caution Over California Budget appeared first on TheWrap.