California should ax its film tax credits

Gov. Gavin Newsom has proposed a five-year extension of the state's film tax credit program for motion picture productions that do their work here in the Golden State.

First created back in 2009, the program is predicated on the idea that tax breaks will make California more competitive against other states and help retain and spur economic activity.

But now the state's nonpartisan Legislative Analyst's Office has thrown cold water on the idea that the film tax credit program is particularly effective.

In an overview of the program last month, the LAO noted, “the best available evidence suggests that we cannot be confident that the economic benefit of film tax credits exceeds alternative uses of state funds.”

Bluntly, the LAO notes the program “does not pay for itself,” discrediting a favorable study by the Los Angeles County Economic Development Corporation, which claimed that each $1 of film tax credit spending yielded $1.07 in state and local government revenue.

That finding, the LAO points out, “is significantly overstated due to the study's use of implausible assumptions.” More likely, based on other studies of film tax credit programs, the LAO notes, “each $1 of film credit results in $0.20 to $0.50 of state revenues.”

While the LAO notes the film tax credit likely does increase film production activity by a few percentage points, “Based on our research review discussed above, we do not recommend considering the film tax credit as a reliable tool to grow the state's overall economy.”

This editorial board has long made the argument that, rather than doling out selective tax credits, state government should cut taxes on businesses across the board.

Rather than attempting to pick winners and losers, state government should make it easier, not harder, for businesses of all kinds to operate, invest, hire and expand in California.

When it comes to the film tax credit, specifically, it's clear the program isn't doing what lawmakers intended. In these uncertain economic times, with likely massive budget cuts ahead, lawmakers should deny Newsom's proposal to extend the film tax credit.