Senate Standing Committee on Revenue and Taxation

Good morning. The joint oversight hearing will come to order. California's economy is the most dynamic and productive in the entire world. We are very fortunate here in California to be home at least four signature industries. One is agriculture. My district is big in ag, aerospace, technology. And one that really is the most popular is entertainment.

California has been the global home of the entertainment industry for more than 100 years. But other countries and other states envy the Golden State status here and have succeeded in luring the entertainment business away to a certain degree. Since 2009, to keep up with other states, California has offered tax credit for motion picture and television production.

The Legislature has extended and expanded the credit several times. Less than two years ago, the Legislature made this credit the first refundable one in the state's history. The Governor now has proposed the most significant expansion of the credit in its history, more than doubling the annual amount.

This proposal comes at a precarious time both for the industry and for the State of California. In recent years the industry has suffered two strikes and a pandemic. Production is down. Hollywood production are the most recognizable export California offers the world. But given our worsening fiscal situation and active threats from Washington D.C. choke. Choke.

The Legislature will have a hard decision to face and trade offs to make. And many of those decisions and trade offs will be made after our current Governor has left office. That's why we have called this joint oversight hearing today to assess the government's the governor's proposal effect on the industries important on California's fiscal health.

While the Revenue and Taxation Committee has jurisdiction over tax credits like this one, I am fortunate to be joined by my colleague Senator Gabaldin, Christopher Gabaldin, who chairs the Subcommitee number four where the governor's proposal will be considered later this spring.

I would now like to turn it over to Chair Gabaldin for any opening comments he may have.

Thank you so much, Senator McNerney, and thanks for your leadership as chair of the Revenue and Taxation Committee. We're very pleased to participate in the Joint Hearing with your Committee.

And while action on the budget proposal for the tax credit will will be taken up by our Budget Subcommitee number four through the regular budget process in the weeks to come.

This hearing provides an opportunity to take a deeper look at the economics of the proposal, the return on investment for taxpayers and at some of the programmatic elements with the expertise of the Policy Committee as well.

I'm also pleased that we've been joined by Senator Menjivar who's not a Member of either of our Committee, but I know she cares deeply about this issue. So, and we may be joined by other Members as well.

As Chairman McNerney has said, tax credits like this are, are paid with California taxpayer funds and tax revenues from California Californians who are also looking for jobs, trying to grow their own small businesses and who are the economic underpinning of their communities.

And so we, we owe it to our colleagues in the Legislature and to the people of California to assure that we're taking a look at all the evidence and making an informed decision about investments in the program. The Governor also has proposed lots of other budget issues that we'll be grappling with.

The amount of the tax credit is basically exactly the same amount as the amount the Governor is proposing to cut the University of California and the California State University. It is the amount of the reductions that the both universities are facing from the National Institutes of Health, reductions from the Federal Government.

It is almost the amount that the City of Los Angeles has requested of us this week to respond to the fires. And it is more than the amount that we've been asked for, Proposition 36. And it's, and it's a significant component of the amount that the Governor is proposing to draw the state's rainy day Fund reserves from.

So this, this is a, it's a serious fiscal matter for us to be taking a look at. I just want to let folks know this is not a, this is not a rally for the tax credit.

It is a chance for us to really explore and, and understand the fiscal consequences, the benefits and the costs and the trade offs that are involved and to hear from folks in the field on the ground for whose decisions about where to film, where to work, how, what careers to pursue, all of that are influenced by the tax credit.

And so I want to thank in advance everybody that's come to join us and looking forward to the discussion. And I know we also have our Vice Chair has not yet arrived, Senator Danilo, but I know Senator Valladares also had some comments to make as well. Before we move to our first panel, thank you.

And I do want to thank both Senator Cabaldon and Senator McNerney for entertaining my request to have this hearing today. It is a very important topic that we need to dig into for the future of California. And it's not just about industry. It's about people. It's about families. It's about the communities that we represent.

In my district, film and television aren't just about Hollywood red carpets. They're about electricians, they're about set builders. It's about makeup artists and the vendors who keep this industry running. And these are hardworking people who rely on steady jobs to support their families. The film and TV tax credit was created because other states were luring production away.

Even with the tax credit rising, costs continue to push jobs out of California. And when productions leave, it's not just studios that suffer. It's local businesses, it's restaurants, it's housing markets and entire communities. And keeping California as the entertainment capital of the world requires strategic investments.

And expanding this tax credit, in my opinion, is exactly what we need to do to keep jobs here. I was recently able to visit with Senator Menjewar actually Fallout, the set of Fallout Season two. And it was. It's being filmed in my district and my husband and I loved watching season one.

But seeing the actual work happening at the Disney Ranch, at Melody Ranch and LA North Studios was even more exciting for me. At LA north, they built a full scale Fallout vault. It was absolutely astonishing. And here's the kicker though. They moved that set from New York to California. Why? Because they finally had reason to.

Fallout, originally filmed in New York, but even for scenes in La. But because it was too expensive to film here. And a $25 million film tax credit changed that. And now my community, LA and all of California are seeing the benefits of that coming back to LA where it belongs.

I'm looking forward to hearing the panels today and our testimony and excited about what we're going to find in some supporting this industry in California. Thank you.

Would any other Members like to be recognized as opening statements? I'd like to call on our first panel.

Colleen Bell, Executive Director of the California Film Commission. Lauren Greenwood, Deputy Director of the Legislative and External Affairs, Governor's Office of Business and Economic Development. TJ Creeden, Finance Budget Analysis for California Department of Finance. And last but not least, we welcome you for your hearing today. Please proceed with your presentations when you are ready.

The other witnesses should approach the table, if they're here.

Good afternoon, chairs Cabaldon and McNerney and Members. My name is Lauren Greenwood and I'm the Deputy Director of Legislative and External affairs at the Governor's Office of Business and Economic Development Go Biz. As many of you know, Go Biz serves as the state's leader for job growth, economic development and business assistance efforts.

We also have the California Film Commission in our portfolio. We are proud to bring forward this proposal to increase the film and television tax credit program to 750 million to ensure that we continue to get our share of the 600 million doll billion in the media and entertainment industry.

Since 2004, we have seen California's share of national film and television production jobs decline with significant disruptions these last few years. With COVID 19 and the dual strikes, our program was more than doubled in 2014 and the Legislature's decision to increase the tax credit to 330 million was important in mitigating the industry's contraction here.

We also changed the structure of the program from a lottery system to a jobs based competitive application process. The original objective of this program was to one Stop the bleed of California middle class union jobs in an industry that has called California home for over 100 years and two stop production leaving the state.

Our program has historically been oversubscribed, unable to meet the demand from productions otherwise eager to film here. Since 2015, California has lost 5.4 billion 62,000 jobs to Georgia, New York, Canada and elsewhere.

Unfortunately, our total runaway production losses are presumed to be much higher because we are unable to travel projects that decide against applying for California's tax credits.

The reasons they may not apply include our program's limited funding, the absence of a standalone program for post production or visual effects, and project ineligibility such as being a 30 minute show, unscripted reboots, etc. Your question in the background paper Is expanding the credit authorization amount the best way to increase production is complex.

We adamantly think it is, but want to acknowledge that the administration's proposal is coming at yet another critical inflection point in this industry. I'll take a minute to share why when we started this program in 2009, no one predicted how much technology and innovation would turn the industry on its head.

We saw the introduction of streaming services which dramatically changed content delivery and consumer viewing habits and caused traditional industry business models to shift. We also saw an influx of unprecedented investment in content development over saturating the market.

CVL Economics spoke at our June Commission Board meeting and provided a thorough overview of the past, present and anticipated future State of this industry as well as supporting industries such as visual effects, post production and video gaming. Data shows tax incentives play a significant role in influencing which jurisdictions secure investments and jobs.

Some of California's competitive advantages, including union built infrastructure in our highly trained and skilled workforce have been adapted and exported outside of the US 100 plus state and increasingly global jurisdictions are becoming more aggressive. There's a number of slides in your packet that outline this with recruiting the film and television industry.

As you can see, the UK offered almost 1.5 billion in tax credits in 2020 with Canada reaching nearly 800 million.

Highlighting a few well known recent results from these efforts, Wicked, Barbie and Oppenheimer and technology disruptors such as AI and advancements in visual effects, virtual production and cloud based platforms still have the potential to change the way we do business. Lastly, we're seeing increased competition for consumer attention from non traditional content providers.

For example, for the month of January, YouTube, which the vast majority of people watch for free, accounted for nearly 11% of television viewing, beating Netflix, Disney Streaming Suite and Amazon's Prime Video in terms of engagement.

Last year a famous YouTuber signed a deal for an unscripted 10 episode $100 million TV show which is not eligible for a program but there is good news. While a recent survey of leading production decision makers noted that top filming locations were outside the U.S. California is number six, making it the top preferred location in the U.S.

people want to stay here, work here and live here. The goal of this increased funding is to make this possible.

We worked carefully with the Legislature in 2023 to add refundability to our next iteration of our film tax and television programs starting in July 2025 and we know this will improve California's competitiveness as we were previously the only major jurisdiction that did not allow refundability or transferability of tax credits.

Additionally, since 2023 we have also published the California Jobs First Economic Blueprint which is our first statewide built plan. Built with built with over input from over 10,000 local residents and 13 regional plans to drive sustainable economic growth, innovation and access to good paying jobs over the next decade.

This bottom up regional approach told us that the creative economy in the film and television and the arts as well as its companion tourism are sectors Californians want to keep fighting for.

Collectively, we have crafted our Film and Television Tax credit program to not only ensure accountability and returns to California taxpayers, but also updated the program to reflect our California values. Finally, it isn't an accident that California is the birthplace for this creative industry. Our culture of acceptance and openness has long fostered innovation and the freedom of expression.

In fact, our early creators came to California and made films speaking out against oppression and authoritarianism. We have a rich history with this industry and we look forward to having continued discussions about securing the industry's future in California. Thank you.

Hi everybody, J.T. Creedon, the Department of Finance the Administration supports the Governor's Budget proposal to increase the allocation cap of the film tax credit to $750 million. This is a vital industry to the state that we need to help preserve and grow and to preserve middle class union jobs that come with it.

This proposal is a meaningful and necessary increase to the allocation level set a decade ago given the mobile nature of the industry and the evolution of the competitive landscape since.

Unlike other jurisdictions which are generally first come first serve, California's Film Tax Credit is a competitive jobs based application process which will leverage the proposed increase to increase the pool of qualified applicants and maximize economic benefits to the state. Thank you and we're happy to answer any questions.

Thank you very much. I'm so happy to be here with you this afternoon. Good afternoon. Thank you Chairs. Thank you Members, I'm Colleen Bell. I'm the Director of the California Film Commission. California has long been the heart of the global entertainment industry.

From the golden age of Hollywood to today's streaming revolution, our state has been this home of storytellers, creators and dreamers. But what happens when these stories, those jobs, those opportunities leave California? Over the last two decades, we've watched other states and countries aggressively lure film and TV productions away with competitive tax incentives.

These other jurisdictions have recognized the immense economic benefits of a thriving entertainment industry, and they've acted decisively to attract productions. The result has been thousands of jobs and billions of dollars in production spending have left our state. The harsh reality is that the global production landscape has never been more competitive.

States like Georgia and New York, the Uk, Canada, and countries across Europe, Asia and Latin America are offering aggressive incentives to attract film and TV projects. And the infrastructure in these regions has grown significant. Significantly. California is no longer the automatic choice for production. Studios and streaming platforms now have options around the world.

And far too often, they choose to shoot their projects elsewhere. As they make those decisions, one of the primary considerations is whether they can access tax credits to offset their costs. Our relatively limited funding and historically oversubscribed program has meant that to too often, they go somewhere else.

Of the productions that applied to but did not receive a tax credit, the state lost 69% of this production spending, and the productions took 5.4 billion. Outside of California, if we don't compete, we will continue to lose our market share. And this important industry that has helped define our state, it's already happening.

Since 2004, California's share of national film and television production jobs fell from 65% to 46%. And it's continuing to decline. That's why our film and TV tax credit program isn't just a benefit, it's not a handout. It is a necessity. And the return on investment delivers for California.

This program keeps productions here, ensuring that the tens of thousands of jobs created by this industry, crew Members, actors, set designers, caterers, drivers, local businesses stay here in California. Every major film or television show that shoots in California fuels a vast network of workers and small businesses. It's not just about Hollywood.

It's about electricians in Burbank, costume designers in Long Beach, Prop makers in the Bay Area, and the restaurants in Los Angeles serving cast and crew. Every dollar invested in this program generates multiple times that amount in economic activity benefiting the entire state.

Since its inception, our film and television tax credit program has generated over 26 billion in economic activity and more than 197,000 jobs with health and pension benefits. And this is more than just economics. It's about California's global identity. For over a century, the name Hollywood has been synonymous with entertainment. Our state's brand.

California as the creative capital of the world is invaluable. It attracts talent, tourism and investment. People come here because this is where dreams are made and manufactured through content creation. The red carpets, the studios, the landmarks, they are more than just symbols. They are powerful economic drivers.

Based on research commissioned for Visit California, it's estimated that over the past 10 years, the California film and TV industry has influenced nearly 18 million trips, 51 billion in visitor spending, and 3.4 billion in tax revenue from US and international travelers. Losing productions to other states and countries doesn't just mean losing jobs.

It means eroding the very identity that makes California unique. And we're not just competing for the jobs of today. We're building jobs for the future. The entertainment industry is evolving rapidly, incorporating cutting edge technology. These advancements are not just reshaping the way stories are told. They are creating new career paths.

California is home to the world's leading entertainment innovators. And keeping production here means keeping our state at the forefront of creative innovation. If we don't compete, we lose. We lose the productions that should be filming here, the jobs that should belong to our workers, and the dollars spent and the dollars invested that strengthen our economy.

Other states and countries are not slowing down. If we want California to compete and win, we need action, bold action, and we need it now. Additionally, California is committed to making the industry more inclusive.

When we launch Film and TV Tax Credit Program 4.0 this July, it will include a new diversity provision, further strengthening the work we are doing to promote diverse hiring practices.

This ensures that the opportunities created by our entertainment industry reflect the richness and diversity of our communities, helping to build a workforce that is stronger and more representative for generations to come. What we are here to discuss today is protecting our legacy and securing our future. California has the talent, the infrastructure and the history.

Now we need the commitment. Let's keep the cameras rolling where they belong, here in California.

I think the witnesses. Actually, you guys are on time. The hearing started early, so I appreciate you showing up on time. This now open up to questions and comments from the panel. From the center panel.

Thank you. I'm looking at this wonderful chart here. Tax incentive landscape and global competition that was sourced by the Hollywood Reporter. And I guess my question is for Go Biz is I'm looking at really our international competition here and the credits and incentives that exist, like California is behind everyone is there to go biz.

How did we come to that $750 million proposal when you have, you know, Georgia has no annual has a 20 to 30% incentive, no annual cap UK, no annual cap Canada, why 750? Why how did we come to this number?

Thank you for the question, Senator. Lauren Greenwood with GoBiz. So I think we know that currently the $330 million is not competitive in this global landscape. And as the Department of Finance mentioned, this industry is highly mobile.

So in considering the global landscape and then also when the Legislature increased the program back in 2014, we nearly doubled it and we saw significant returns in return to productions, jobs, investment to California.

And given that we are now seeing like a 20, almost a 20% decrease in national employment in this industry for California, we felt that a similar sort of right sizing approach would be appropriate. So if we took that into consideration, I mean technically it would be more than $750 million.

But in considering the global landscape for competitive programs for states that have capped programs, we wanted to try and, you know, be the best one. And so that's where the 750 million came from.

And in terms of the return on investment, I don't know who can speak. I've heard numbers like for every dollar that of the of the tax credit, we get an investment of like $24. Can anyone speak to the return on investment?

Yes, thank you for that question. The LADC did a very, very comprehensive report on our film and TV tax credit program. And the key finding of that report was that for every tax credit dollar that we allocate, it generates $24.40 in economic activity. Our program is uniquely targeted and focused.

It's based on a jobs ratio and qualified spend. So we put together as projects apply to our program. We put together a ranking program. So it's to bring in projects that are going to have the highest qualified spend. But really it's about jobs, jobs, jobs creating jobs here for Californians.

Very different than a program, for instance, like Georgia, Georgia, Georgia's program is is uncapped. The their projects apply and they get into the program. Ours is ours is unique in that way. And that's why the return on investment for Californians is such a positive one in which was found in this report.

Mr. Allen.

I'll just point out the other, the other thing that differentiates this with with other credits is that all of the credits, all the money only goes out once the once the requirements for the deliverables and the expectations and the guidelines have already been met, which is unlike the R and D tax credit.

But you know, do you want to maybe speak to. Well, yeah, I think you've all you've answered what I was going to ask about. So I appreciate it.

A couple myself here. Thank you. Thank the witnesses. This is a high profile hearing and I appreciate the next panel is going to look at some of the fiscal experts and admittedly the film Commission is going to be a little biased. And so I think that 1 to 24 is optimistic.

I'm glad to hear that and we'll see what the other side says about that a little bit later. What about the ratio of tax credits to wages and other production spending? Could you address that?

Excuse us one second.

A lot of papers.

Yeah, there's a lot of content here. Lauren Greenwood with Goviz. So happy to share. So in comparing program and summarizing program 2.0 and 3.0, we have our qualified wages that we've assessed. It's about $7 billion from 2015 to 2024. And then. But the total California expenditures, which includes those qualified wages from 2015 to 2024 is 19.1 billion.

Okay. Well, I mean, everybody in this room wants to see California retain its leadership. I don't think there's anyone. Anyone wants to oppose that, raise your hand. You'll be unpopular. But what I want to know is, is this proposal going to be significant?

I mean, is it going to really make a difference and turn the corner, or are there other measures that need to be done? I mean, how are we going to really get our hands around this and make sure that we're doing what we want to accomplish.

This? It's very important. Our program has been historically oversubscribed. We have projects that apply to our program that meet our qualified spend and jobs ratio. They've met all of our criteria to shoot here, shoot their production here in California, but we have had limited tax credits available to allocate. So we've lost those. Lost those productions here.

So increasing the amount of the annual funding is extremely important. And we've done some research and we think that we will be able to bring in roughly 300 more projects. Projects with this increase over the five years to 750. And obviously that means more jobs, more opportunities here, and more economic activity generated here in California.

Okay. I mean, one of the things that concerns me is the race to the bottom issue. I mean, you have states saying we're going to give you more and then another state saying, we're going to give you more. I mean, you end up giving away way too much. In that case.

Could you speak to that or argue against that?

Yeah, absolutely. I welcome the opportunity to do so. From where I sit as a Director, I can tell you that one of the primary considerations of where a project is going to film is whether or not they receive a tax credit to offset their costs. They. This is just the reality.

These are the conditions that exist that projects are taking into consideration. And so that is a major contributor of why we lose production here. So we've got other jurisdictions in the United States, other countries around the globe, everyone wanting to get into the business of film production and continuing as they do to build out their infrastructures. So.

So those are the conditions. And so I don't at all believe it's a race to the bottom. I mean, I believe that this is an investment in our lead. This is a necessary investment in our lead. If we don't increase the tax credit program, we will continue slowly, slowly, slowly continue to lose productions here.

We've seen it happen. We witness it every day. And the entertainment production community here in California is struggling as a result.

Thank you. Any other comments? Yeah, I have quite a few. Thanks. Thanks, Mr. Chairman. And I want to focus with both Go Biz and DOF. I'm here for the budget Subcommitee. So the advocacy frame is not for me on this one.

I really want to understand the logistics and the trade offs that we're dealing with here because as I indicated, I know our colleagues on one of the other Budget Subcommittees are dealing with this exact dollar amount as cuts to UC and CSU. So real opportunities that are being proposed to be taken away.

So this is, it's not just about is this a good idea? But what are the mechanics and what are, what are we not doing?

So I want to return for DOF or for Go Biz to this question of what the number is and maybe without using right sizing or focus or like adjectives, but is this based on the did one of the agencies, did you conduct a review of the applications that were just over the line and we've determined this number.

What is the analytical basis in the internal BCP process that is the basis for this number?

JT Creedon for Department of Finance so one thing I'll point to in terms of other states is looking at our biggest competitors. First of all is Georgia, which has no cap. But the next is New York.

We recently passed in 2023 significant reforms to the film tax credit in Program 4.0, which, which offers more robust things like refundability and diversity provisions that we think will help make us more competitive. However, just in that period of time during last year, New York increased their total cap amount from 420 million to 700 million.

And right now as we speak, they're considering another 100 million just for independent films alone. So we're looking particularly at that benchmark. And then looking internally, you can see in the numbers that 2/3 of people who have been, who have their application has been rejected for film tax credit in California have gone to other states.

So we know that there is actual numbers out there. People, if we can just increase the pie to something equivalent with our most competitive states like New York, we will be able to include More people and get more people to stay here and continue doing business in California.

So why not 800 million or 1.2 billion or because that metric is sort of, we want to capture every possible production in the world. Like what, how did you. I'm trying to understand why this specific number, we're not competing dollar for dollar. Other programs are designed differently as well. And so maybe you can enlighten as to why, why this is the amount.

Sure, that's a very fair question. I mean, we could go with any sort of numbers. We could go without any capital like Georgia did in some of the other countries. But we do, we do think that there needs to be some sort of guardrails and fiscal limitations.

One of the things that makes the program so strong is the fact that it's a competitive program. It's a competitive jobs based program. We don't just hand out allocations to anybody that applies. They have to demonstrate an economic benefit to the state.

So we want to have some sort of limitation on who we approve and how many we approve so that we're getting the best bang for our buck. So we do need some sort of cap for the fiscal interest of the state and also making sure that we get the biggest, biggest economic impact.

Okay, I appreciate that. Maybe when, when, when this returns in the, in the Subcommitee for, for, for, for action later in the budget cycle, it would be helpful to, to have some insight about what is, what is on the other side of that line.

And if the current funding we were, there were a set of applications that we couldn't have funded, but they were the one, the next ones, the next 100 million or the next 200 million of funding. What did those look like? We don't, I don't need to see them.

But what did they look like in terms of their projected impact on state revenues and on the workforce? You know, the benefits that we were looking at in that piece to understand where we are in this curve of, of, you know, increasing versus diminishing marginal returns over time to understand that piece.

But the other piece I wanted to ask you about, and just to follow up On Chairman McNerney's question as well, which is the panel sort of framed this up as well.

You know, what can you do like out there in the world, like Georgia, New York or they're just doing their thing and we just have to like, that's just like there's some sort of exogenous variable that just happens to us and you know, poor us. These, the other states are doing it.

But you know, I read over the, you know, the chain of policy changes in Georgia and in New York as two examples. And lo and behold, who is the leading advocate of those changes? Well, it is that. It's the Motion Picture Association of America. The same one that comes here then and says, zero my God, who.

New York and Georgia, they're just increasing their thing. What just happened now, now we have to match it. While they are saying exactly the same, that organization saying exactly the same thing in those other states. That's not, there's no crime there, there's no shade. I would do the same thing.

But how do, how, how is the Administration assuring that we're not, we're just not getting played?

You know, we, when, you know, like how do we, how do we know that we are in control of this and we're not just an industry that is, that is basically going around and telling everybody the same thing, but the same thing.

The facts on the ground are happening because of their advocacy as much as they are, you know, just an exogenous area in the world that we have to respond to.

I'll just say first and foremost to that the, again, the strengths of the program itself. This is the way that it's structured. There's a number of guardrails that makes the film tax credit program in the State of California unique. And first of all, it's the competitive jobs based process.

There's others that are first come, first serve, others do a lottery system. And we also only do below the line expenses. We don't subsidize any above the line work. Anybody that has multimillion dollar actors salaries, we're not subsidizing that, whereas some of the others are. So ours are very defined terms.

We're very specific, we are very specific about, you know, return on investment, return on jobs. So the limitations I think are the strength there.

I would encourage that we continue to have those limitations not only for the fiscal interest in the state, but also to make sure that the program continues doing what we want it to do, which is to preserve the industry and to create jobs. And I think.

And we also require a minimum of production spent. 75% of production spend has to be in California or 75 of principal photography has to be in California. So we want to ensure this, this investment stays in California.

Sure, I appreciate that. And also all the work that's been done both by your agencies and by my colleagues who've been here for more than 100 days like me to make our program, I mean, I'm Confident our program is the best designed one in the country.

But if we do this, then MPAA and others will be at the New York Legislature on January 1st saying, Hip, California just went to 750. We're only 700. We've got to go now. We have to go to 850.

So it seems, it seems eminently predictable that, that we will be back next year with a proposal that says we've fallen behind again. I don't, I don't know what happened. And now we need to, we need to do more.

And so I'm, I'm just trying to understand how, you know, as a negotiating strategy, like how the Administration is thinking about or how we should think about it, where we are doing the best that we can to support a critical headline industry for the state.

I'm from, I grew up right on the board of Hollywood in Studio City. I grew up at Paramount Studios. My grandma's a switchboard operator. I get it. But how do we, how can we do that without, without getting played essentially in that space?

And so any, as we continue the conversation to understand both your thinking and how you think we should think about that problem, because I'll be here for at least three more years and I don't want to be, I don't, I don't want to look like an idiot in a year when we are asked to approve more money because another state responded to us, responding to them, responding to us.

So. All right, thank, thank you, Senator McNerney.

The chair now recognizes Vice Chair Niello for his questions.

Thank you, Mr. Chair. I also am here from the budget Subcommitee, as is our chair, Senator Cabaldon. And I'm not opposed to this, but I have similar questions. They've already been posed, but I'm not enthused about it. What I am enthused about is economic development generally. And this is a micro issue.

I'm much more concerned about the macro issues. CNBC just published a poll, in fact, I got this in my, it was very timely. I got this in my inbox this morning. And they have surveyed 50 states on many different metrics and 10 broad categories of competitiveness.

And it won't come as any surprise to anybody here that California is generally not rated to be the most business friendly state in the union. Now the good news is for access to capital, we're number one. That's great. For technology and innovation, we are number five. Not a terrible surprise. And for quality of life, we're eighth.

Frankly, I think we should be first on that. That's my own personal opinion, but for the shape of the economy, we're 32nd for cost of doing business. And I'd say this has a lot to do with this micro issue, but also the macro issues were 45th, cost of doing business. We're 45th out of 50 states.

And for cost of living generally, which takes in the broader consumers, we're 50th dead last. We do not in California have what I call an economic development ethic. An economic development ethic means that I'm not opposed to regulation.

I grant that it's needed in certain areas, but regulation is going to always, almost always going to benefit one of three categories, consumers, workers or the environment. And the burden of regulations almost always falls on the broader community, businesses specifically, sometimes other governmental entities, but primarily businesses.

And when we legislate regulations and promulgate regulations, if we have an economic development ethic, a true economic development ethic, we would compare the cost of complying with the regulations to the benefit that's provided to one of those three protected classes. We don't do that. We absolutely don't do that. We do not have an economic development ethic.

If we did, and if the cost of doing business here was more like 20th or 10th rather than 45th, and if our cost of living also was more like that than 50th, we probably wouldn't be entertaining this particular proposal.

We would be much more competitive to begin with, in my opinion, from a policy perspective, public policy perspective, as is passed by this Legislature and executed by the state's bureaucracy and the Executive branch.

We're creating our own problems and having to invest budget dollars in order to overcome artificially those things that are creating part of the competitive issues with this industry and with a lot of other industries that quite frankly, we have lost because of this. So I'm much more interested in the broader perspective of what our challenges are here.

As I said, I'm not necessarily opposed to this. I have similar questions, but I'm not enthused about this. I'm enthused about economic development. We got a lot of work to do there if we're going to.

I thank the Vice Chair for his perspective. And I now recognize the Senator from Sacramento.

The other Senator from Sacramento. Yes, we have joint custody, joint custody of Sacramento visitation.

We have 3 way custody of Sacramento.

And we let Christopher come over.

You can have it too.

We let Christopher visit if we can go to the ball games.

That's right. Okay. So first of all, I just really appreciate the hearing. Thank you to everyone, it's great to see this room packed. I'm so glad to see that necessary and really important because all the things that you've heard from the two chairmen who were running this hearing, they're true. We're sort. We're sorting through.

We have to sort through lots of priorities. And is the. Is this a priority? Absolutely, for me. Let me just throw this out there. I'm all in on this one. I think this is critically important. I think we must do it. I think California is the land of dreamers and innovators and that if we. We should.

We should cling to that with every fiber of strength that we have. I am not the chair of either of these two committees, but I am the chair of the Business, Professions and Economic Development Committee. And I agree we have lots of work to do in the economic development space.

I, for one, call the Committee bped, which you'll hear other people call it bmp. I call it BPED because I never want to leave out the economic development component.

I think California, which is known for our incredibly strong economy, no offense to NBC, but if you rated us globally, we're the only state in the United States of America that even competes, much less lands in the top five. So how do we hold onto that, though?

And also, no offense to New York and Kentucky and whoever else is trying to compete with us, but they're never going to be California. Never. We need to keep up with them on tax incentives. But everything else we have, we have the climate, we have the outdoor capacity. We have you.

We have the people who know how to do the work. Yeah, they have to pay you more. But the picture's going to be better, too. Sound quality is going to be better. Images are going to be better. Editing is going to be better.

Everything's going to be better because the people who know how to do this work are here in California. And if you want them to come to Louisiana, you're going to have to pay for them to travel and put them in hotels. And we don't have to do that because we're here, and that's what our state is about.

I think this is a very worthy and worthwhile cause.

I do think that Senator Cabaldon and Senator McNerney make good points that you all need to stay on top of, which is, how do we hold that position without constantly being in some type of, you know, Jenga race where people are just pushing holes and we're stacking the same bricks on top of each other?

It that does not equal More bricks. Right. It's just. They're just misplaced. So we want to be careful about that. That's important. And they're doing their jobs as budget chair and rev and tax chair to focus on that component.

But from a broader economic development standpoint for the State of California, should we do everything we can to keep this industry gainfully employed and rightfully sitting at the top of California's economic development strategy? Yes, absolutely. And that's what I think this is about today. You have my full support moving forward on how we make this work.

But it is important that we don't pitch you against the UC system, which is facing extraordinary cuts, or the CSU system, of which you'll see some of our schools completely dismantled over the next year. We have challenges. We have federal challenges that impact us locally. That's what happens when you're the largest economy in the country.

You get impacted when people try to make cuts at the federal level. But you know what else? We have that indomitable spirit of California that no one else can even get close to. And I think it is best displayed in this industry and in our creative economy, across many other facets of our creative economy.

So I'm all in for supporting them. I think it's critically important and to the extent that I have a voice in this through my Committee or through economic development efforts, you can count on me to be supportive of the film and tax credit.

The chair. Thanks to two Members, Senators from Sacramento, for their perspectives. Without objection, the chair will now recognize Senators that are not on the Committee or committees, starting with Senator Mengibar.

Thank you, Mr. Chair, and thank you so much for allowing some of us to come join you in this conversation, allowing our voice to be heard. I'm really appreciative of both the co chairs here. I represent San Fernando Valley and Burbank. I have studios in my district, but not just that. I have the workers in my district.

And the San Fernando Valley is no stranger to the immense amount of work. I mean, from ET To Casablanca, these were historic movies that were filmed fast times at Richmond High. 13 Candles that you know, the phrase valley girl comes from my district. But we don't see those films often anymore in my area.

And I'm worried about what I've seen from the pandemic, from the strikes that are very important, what it's doing, not just to the industry and the workers, but the domino effect that comes after that.

What I saw is that the small businesses who were dependent on feeding the crew Members for their lunches and so forth were also closing down the dry cleaners, the individuals who not just created the props, but sold or resold kind of these things.

The extended impact that we're seeing is going to be even worse if we don't double down. And I wanted to address one of the co chairs concerns about what if, you know, are we going to come back to the table next year, two years? Obviously we have no idea about that.

But I will say in conversations during this time, we have the directors, the writers in La. People want to film in here because they want to stay with their families. So you heard my colleague and my colleague shared that we spent some time with Jonathan NoLan just Last weekend, who is the Director of Fallout.

And he said he was able to keep it here because his writer also wanted to stay here because she has a family here. And they were so excited to be able to film and be able to see their kids. But they're worried now that the third season has to go somewhere else.

They're able to keep in LA because of the reputation these directors and writers have. But not everyone has the opportunity I think about also I'm going to butcher his last name. But the directors of Marvel, John Fav Favro, he was able to keep it here because of his reputation. But not everyone has that kind of level.

So it, it, you can have New York and Georgia have no cab. But people are going to want to film here because the industry is here, because the people with experience are here and they want to stay with their families. So this is of course not going to be the best one, UK against Uk, New Zealand.

But by just increasing it or doubling it, we're going to be able to just be competitive. Because what I'm being told right now is that when a new film or new TV series, they don't even write in or put on the. On the sheet California, they don't even consider us anymore.

Even if it's filmed in LA or the movie is showcasing la, we're not even being considered. So I'm here thinking about the workers.

I'm thinking about the individuals, the youth that get a second chance who are coming out of incarceration and they go through Hollywood CPR and are able to get a second chance or one of the hardest working individuals in the studio. So I think this is necessary. And you already heard the investment in return, right? Addition.

One last thing. I saw a clip in my algorithm. Obviously my FBI agent wants to show me other things that I've been talking about. A clip of Rob Lowe and how he had a show he wanted to bring here to LA and no studio will let him because it was too expensive and he didn't go anywhere else.

He's like, I need to do it in LA, I live in LA. So he's not doing it. And it's another example of if we help LA, they're going to come and stay in LA.

And I'm glad that in Conversations we're adding some kind of incentive that it's not only going to impact Southern California, it's incentives if you're going to film in norcal, Central Coast and so forth.

So I'm excited to hear how Conversations are going and I'm also optimistic of the willingness and openness of some Members who aren't directly going to be impacted by this. And I appreciate your interest in this and I hope that we do send a message that we want to keep Hollywood. Hollywood.

That in five years, when you say Hollywood, people are like, what is that? Just a city. Then when you say Hollywood, you mean the production, the experience and the talent that comes with what Hollywood is.

I thank the Member for her comments and I'm going to have to watch the Fallout series now. And I just want to point out we certainly want to keep this innovative industry in California.

There's although other innovative industries we wish to keep in California as such, renewable energies and so on, that we're going to be fighting for as well. So with that, I will turn over to Chairman Cabaldin to introduce the second panel.

Great. Let's not forget wine. The wine industry. All right, so welcome to our second panel which is on the economic and budget assessment. And thank you to the first panel. Appreciate the administration's dive with us.

And let me just, let me, I, I see we're getting a little, we're getting a culture going here which we need to put an end to so that we're, this is, we're not, we're not doing call and response applause and boos or other stuff. So appreciate it. This is not a live performance.

We have, we have, we will superimpose a laugh track on the hearing after it's over. But, but thanks, thanks for your, your enthusiasm, your excitement. But, but we want to make sure we get, we get a chance for everybody to be heard.

So our second panel, we're joined by Rowan Isaacs and Brian Euler from the Legislative Analyst Office from. By Kayla Kitson from the California Budget and Policy Center and Shannon Sedgwick from the LA County Economic Development Commission. Welcome.

Thank you. Chairs, vice chairs and Members Rowan Isaacs, Economist at the LAO so I'm going to start with some brief context on the economics of the film industry before giving a summary of our analysis on the governor's proposal. And then finally, just some things that we think the Legislature should consider when evaluating the proposal.

So this proposal would make California's credit the most generous among programs that have a cap. We've heard about the New York $700.0 million credit, although there are now increasingly many, especially other countries, that have uncapped tax credits. California's program has been oversubscribed consistently year after year.

And we think that even with the more than doubling of the credit as is proposed, the full amount would still be utilized. This proposal comes in the wake of a very gradual decline in California's dominance in the film industry. In 2009, we had 54% of nationwide employment. As of 2023, that's gone down to 46%.

As we've heard in the first panel, there is increased competition from other states and countries giving generation incentives. But also fundamentally, a lot of these places just have lower labor costs than California does, and that's also a big cost factor.

Additionally, the 2023 strikes, although they affected the US and the world more broadly, they disproportionately affected California, and we still haven't really seen a significant recovery from that event. And all of this does raise concerns about the long term position of Hollywood.

California does have a lot of long standing competitive advantages, like existing infrastructure, lots of skilled workers with experience, but other jurisdictions are catching up. And so further deterioration of this market share from 46 going lower, that could eventually pose a risk to California's competitive advantage. The economic evidence, what does it say about tax credits?

So first of all, film tax credits do work reasonably well to increase production activity. And you know, as was sort of alluded to in the prior panel, one of the reasons for that is that today productions are quite mobile. They can move workers and actors and equipment across to other states and countries fairly easily.

So that is the main reason that tax credits are generally effective at influencing location decisions. How much, exactly what is the magnitude of this effect is kind of a debate in the research and the academic sphere.

This is primarily because of what's known as a windfall effect, where, for example, we might give tax credits to a production, but that production might have filmed in California anyway. And so we're giving them a tax credit but not seeing a commensurate increase in production activity.

So when we looked at it, the average annual spending associated with productions that receive a tax credit over the last few years has been about two and a half $1.0 billion per year.

Adjusting for what is a reasonable estimate of this windfall effect, we estimate that the current tax credit increases spending by about one and a half $1.0 billion per year in California, or maybe 3% of the total motion picture and sound recording industry.

The second point is that there's weak or very little evidence to suggest that the film tax credit or film tax credits in General benefit the overall economy. And, you know, this is a complicated topic, but there are sort of two main reasons.

So first of all, you know, California is a balanced budget state, and the revenues that are allocated to the credit could have been used for something else.

And so, you know, there's no particular evidence out there that suggests that allocating this money to the film tax credit provides, you know, a higher use or a higher economic benefit than other potential uses of that money. The second is that spending on film production activity might partially replace other economic activity.

So, for example, the labor and resources that end up going to productions that receive a film tax credit might have instead have been used in other productions that didn't receive a credit or in other industries in California. So some of this increase in production spending is new, but some of it is just reallocation of existing economic activity.

Finally, you know, state incentives, and these incentives in General have generally been found not to provide good returns to the states that have them. You know, our two largest domestic competitors, New York and Georgia, have released reports in the last couple of years assessing their tax credits.

In terms of the fiscal return, it's about 20 to 30 cents for every dollar of tax credit allocated for those two states. New York's evaluation was that their credit is at best to break even and likely a net cost to the state economically.

Georgia has been an example of a program of a state that has increased employment in the film industry and generated an increase in their industry. But the average cost of producing and keeping a job in Georgia is extremely high because the attacks credit union cut is uncapped.

And I want to point out at this juncture that California is not the same as other states. We actually have a very unique film industry. And there are elements like the jobs ratio and other aspects of the program that are different.

But in General, the existing literature and the existing research does not support the idea that the tax credit provides a net economic benefit. And in General, tax credits tend to not perform so well when they're evaluated in terms of providing economic return.

So in General, we are skeptical of any claims of an economic benefit to the state overall without any concrete evidence. So, finally, just to sort of summarize our assessment and to sort of give some considerations for the Legislature, we view the film tax credit and the governor's proposal as being reasonably effective at increasing production activity in California.

But we don't think the Legislature should consider the credit as a vehicle for economic development necessarily. In terms of the pie of California's economy, Given current evidence, it should be viewed more as reallocating a slice of that pie to an industry rather than increasing the size of the pie overall.

Additionally, the revenue losses that are estimated to be associated with this proposed expansion coincide with the state's ongoing expected operating deficit. And given this, we think the Legislature should be cautious about adding new ongoing obligations at a time when revenues and expenditures are moving further apart.

So if protecting California's film industry from external competition is a high priority for the Legislature and is an end in of itself, then we think that the governor's proposal is a reasonably effective way of doing that and is a valid option to consider.

If the Legislature wants to use these sorts of tax credits and expansions to protect the film industry from competition, then we do think that maybe some more explicit benchmarks for the program would be helpful to better enable sort of the calibration of the size of the program, as has come up already, and also just help with fiscal oversight of the program.

Thank you. Happy to take any questions.

Thank you. Do you have additional comments?

No.

All right.

Good morning Chairs Cabaldon and McNerney and Members. My name is Kayla Kitson and I'm a Senior Policy Fellow at the California Budget and Policy Center. We're a nonpartisan research and analysis organization committed to advancing policies that improve the lives of Californians who have been denied opportunities to share in the state's wealth.

I will focus my remarks on the trade offs that state leaders will be making if they prioritize increasing the film credit allocation at a time when California is facing both expected budget deficits in future years and the threat of deep cuts in federal funding that could destabilize the budget and cause widespread harm to the health and well being of so many Californians.

And I appreciate the tradeoffs that were already mentioned by Chair Cabaldon. Given the current budget situation and the threats of drastic federal cuts to Medi-Cal, CalFresh, schools and other vital public supports, it's imperative that policymakers do consider alternative uses of the funds that are proposed to be added to the Film Credit Program.

The policies that have been proposed at the federal level could shift significant costs to the state while harming Californians who lose access to health care, food assistance and other types of aid. It's possible that such actions could cause a hit to California's budget of potentially 10 to 20 billion dollars or more.

And if millions of Californians have their health coverage taken away or can no longer afford to buy groceries, then California leaders should make it their top priority to mitigate this harm rather than to expand tax breaks for the film industry that would take dollars off the table from addressing this crisis.

And even if the state is spared from deep federal cuts, we can hope, there are many existing unmet needs in the state, such as our critical shortfall of affordable housing, the lack of enough affordable child care options, and the 7.3 million Californians experiencing poverty, which is about 1 in 5 state residents.

In light of these vast needs, and given the cuts and delays that were made in the last two years to address budget deficits, there are more urgent uses of funds, of the additional $420 million that is proposed to be added to the film credit.

And while I understand that the immediate cost of increasing the credit wouldn't be the full $420 million due to the difference in timing between credit allocation and claiming, I think it's helpful to consider some examples on top of the ones that Chair Cabaldon mentioned that would cost around the same as the increased the proposed increase. So that amount could fund the entire Multifamily Housing Program or a portion of additional investments in the Homeless Housing Assistance and Prevention Program.

These are critical investments in addressing the affordable housing and homelessness crises in the state, yet there are no proposals to continue to fund those.

That amount could also restore funds that were cut last year to the health care workforce and initiatives that would help ensure that more Californians have access to timely and culturally competent health care.

And then another final example is that it could be used to provide tax credits directly to workers and individuals with lower moderate incomes, helping them to better afford California's high living costs, such as through the state's Young Child Tax Credit or the New Workers Tax Fairness Credit that the state created a few years ago to offset union dues, which the state has yet to fund.

So these are just a few of many examples of alternative use of funds that would directly improve the lives of Californians with low incomes, who are also most at risk of harms by federal cuts.

And even in better budget times, our organization would still recommend that policymakers carefully scrutinize tax incentives for businesses in general and for specific industries, given that they do take dollars off the table that could be used to invest in other programs to improve the well being of Californians and considering the weak evidence on the cost effectiveness of such incentives, as the LAO has discussed.

Additionally, we are also concerned about the race to the bottom effects with which both chairs have mentioned where other jurisdictions increase their own credits.

This competition pits California against other states and nations in a bidding war that's costly for both the state budget and for Californians that could have benefited from services that could have otherwise been funded with these resources.

So to wrap up, I just want to reiterate that given the confluence of the significant existing unmet needs in the state, the projected budget shortfalls and the serious federal funding threats, along with the unclear evidence of the economic impacts of film credits, we encourage policymakers to very carefully consider the wisdom of committing additional ongoing state dollars to the film credit at this time.

Thank you very much for the opportunity to speak today.

Thank you. And Shannon Sedgwick.

Chair, Vice Chair, can you hear me? Members of the Committee, thank you for the opportunity to testify today. My name is Shannon Sedgwick. I'm the Senior Director of the LAEDC Institute for Applied Economics. We're a 501(c)(3) nonprofit organization that's focused on equitable economic development in the Los Angeles region.

For over a century, California really has been the heart of global entertainment. However, in the face of aggressive tax incentive programs from other states and other countries, we've had to take strategic action to retain and attract our film and television productions.

The tax credit program has played a real critical role in sustaining our competitive edge, generating economic activity and supporting thousands of jobs. And so unlike other policies, you know, the film and television production, it doesn't require a subsidy to support it.

The industry is so mobile, so lucrative, other jurisdictions around the globe have been aggressively luring it away from our state. The program was not intended to increase the size of the economy overall. The tax credits were intended to stem the shrinking of the economy that would take place without it in an environment where cost is now their primary consideration in location decisions.

Economic activity and fiscal revenue related to the industry, it's realized across the state. So regardless of where this industry may be concentrated.

Of the 169 projects that receive credits in program 2.0, we saw that 79 engaged in out of zone production and that's across 24 counties in the state. So tax revenue associated with all of these productions and their spending is deposited into our state coffers and used to fund programs and services statewide.

We have been involved in conducting economic impact analyses of the program since its inception in 2009. So our most recent one was of the 2.0 program. And based on data provided by the CFC, we found that the estimated total economic impact from productions allocated credits generated a total of 7.4 billion in direct production spending.

That's including 4.8 billion in qualifying expenditures and received a total of 915 million in tax credits. So we did analyze this direct spending found that with the 2.0 program, California has seen approximately 21.9 billion in economic output and the creation of over 110,000 jobs. And that's labor income exceeding 7.7 billion.

So based on this impact analysis, we were allowed to conclude that for each tax credit dollar allocated, economic activity, so total value of the industry in the state increased by $24.40. Labor income, and this includes to self employed, increased by $8.60.

Total GDP, how we measure economic growth in the state, increased by $16.14 and state and local governments received initial tax revenue of $1.07. So LAEDC and other independent research demonstrates the necessity of these credits here in California to retain the industry.

Alec Workman's research found films that received film tax credits increased their spending in California by an average of 966%. The number of cast and filmmakers in the state by an average of 388% and the percentage of filming locations in California by 54 percentage points.

However, other researchers question the credits role, and close attention should be paid as some of these more critical conclusions aren't really warranted, particularly for California. So some of the generalizations you made with looking at other states don't fit here because of the uniqueness of our industry.

And the approach may be misguided when you're focusing on the expansion, when really we're talking about stemming the losses. With the proposed expansion of the credit, the number of projects could more than double. However, opportunities do exist to explore changes in the structure which could ensure full program utilization and lead to higher fiscal return.

So the risk of runaway production remains a serious economic threat. At least 157 out of the 312 projects that applied for but did not receive credits left for California to film elsewhere. So we conducted an economic impact analysis on what that spending would look like if actually took place in our state.

And so we lost 7.7 billion in economic activity, 28,000 total jobs, and $2.6 billion in labor income. And an additional 4.8 billion would have been added to our California gross state product. An additional 354 million in state and local tax revenue would have contributed to the program's overall ROI.

The existence and the proposed expansion of California's tax credit program is really key to insulating against this trend of runaway production which we've been experiencing since the early 2000s. California's entertainment sector, you know, employs thousands of people across the skill spectrum, from set builders to visual effects artists.

Beyond the studio lots, the industry's vast supply chain really helps to support businesses of all sizes across a diverse range of industries. And finally, the economic benefits extend beyond the direct production spending examined in our impact analysis.

So film-induced tourism, workforce training programs and support for small businesses all contribute to the broader economic value related to the industry. So in conclusion, the California Film and Television Tax Credit Program, it delivers substantial economic and fiscal benefits.

And expanding the program, we believe, will help safeguard tens of thousands of jobs, generate billions in economic activity, and keep California at the forefront of our global entertainment industry. Thank you for your time and consideration. Happy to answer any questions.

All right, thank you. Can we start-- So, LAO, Mr. Isaaks, you and you both presented economic analyses with different conclusions. And you previewed that that was going to be happening as well. And I used to teach the same process.

So if you took, I think the estimate we did, if you took all the public agency produced and economic development produced multiplier studies and put them together, we would be the first largest economy in the world, analytically, which we are not in reality.

And so can you help us tease out just a little bit without getting crazy, tease out the differences in the way that you've approached the impacts of the credit?

Thanks for the question. So, yeah, we have analyzed academic research, industry research, all the available research that's available. I think you have probably all heard many economic impact analyses in various proposals that get put to you. And I think the important thing to note about economic impact analysis is generally what it is.

It's an estimate of the total amount of economic activity associated with a certain amount of spending. So in this case it would be the total amount of economic activity associated with productions that receive a tax credit.

And this is where we get the 24 to 1 number, which as you mentioned, if that was the case, then great, what are we doing here. But what it is not is a cost benefit analysis from the state's perspective, incorporating the explicit and implicit benefits and costs of this program.

So there are, you know, in the case of economic impact analyses, they don't take into account some of the costs associated with this program. Like, you know, what would this money have gone to if we had funded something else, for example.

It also doesn't really take into account what we consider to be the true windfall effect. So, you know, giving money to productions that would have filmed in California anyway and, you know, new versus reallocated spending. So I think there are just a number of methodological differences in how we think this question should be approached.

And so just our assessment of the available research is either that they don't account for all the costs and they are optimistic about the total benefits, or some of the academic literature that's out there, they're just not able to, you know, show the true economic benefit of the credit or cost because of just data limitations and things like that.

So when we're conducting our analysis, we are doing an economic impact analysis and it's using a model that's based on data from industry accounts from the Bureau of Economic Analysis. It tracks the spending, the inter-industry spending, related to a change in demand in an industry. So this is a federally accepted model that's used pretty widely.

It does capture the ripple effect. It is an extension beyond direct spending because if we didn't look at that, we wouldn't include that extra band of supply chain activity. So all of your small businesses that are servicing these larger production companies wouldn't be captured in that.

With the spending that's made possible by the workers who are employed by direct activity, by the supply chain companies that wouldn't be captured. And we know that that has an impact. So it is an estimation, it's looking at what's supported. So there's direct, which you can point and say this is definitely what's happening.

And then there's the estimation of your supply chain activity and your spending that's happening that's supported by. A lot of the research in general is pretty conflicting. And I think we focus on what we can measure. It's hard to measure what else could happen if we spent it somewhere else. There's too many factors at play.

So other programs have their own barriers as well, right. So there's CEQA problems with putting affordable housing up, that gets stuck in CEQA for years. There's complexities about measuring the impact of other credit programs because you don't know the industry mix of what's going to happen. You have differing multipliers. So it's really hard to speculate.

And even in the sense of workforce development programs, you know, we are a champion of workforce development programs, it's a big part of what we do as an organization.

But we also understand that if you are not supporting an industry and you lose an industry that has high paying jobs across all levels of educational attainment, where are these trained workers going to be employed?

So it's a balancing act there, you know, some of the assumptions that are being made across I mentioned that, you know, we aren't the only players in the game when it comes to looking at tax credits. And so if you're looking at some of the other research that's out there, it's really mixed.

You do have to be careful about the assumptions. Not all assumptions are created equal. And I can mention one off the bat that I think is quoted in LAO's study of Owens and Rennhoff. And they're basically, because of the issue of not having the data that they need, they're using back of the envelope calculations.

And so, you know, implausibly, the calculation they're using assumes for every state, including California, that every dollar of labor earnings generated from film production results in $0.07 of state tax revenue. So that's a statistic borrowed from Louisiana's legislative fiscal office.

And this calculation then omits sales taxes and corporation taxes and likely undercounts personal income taxes of California's high income earners that are involved in this industry. So not all studies apply to California because of our unique characteristics in this industry.

Okay, I appreciate it. I'm not trying to create a cat fight here on the analytics. I know, you know, there are a lot of these assumptions that have to be accounted for.

I'm just-- My local campus here, Sac State, that, you know, I think they estimate their ripple effect multiplier impact is like $100 billion. Like I've never seen an economic impact study that included a multiplier effect of any kind that didn't come back positive. And so that's just the challenge.

Because if we spend a dollar on one more student at UCLA or we spend a dollar on the multifamily housing program to build shelter for someone, the economic impacts there are enormous. $2 million of lifetime earnings for the first one, massive savings in terms of homelessness costs and whatever in the second.

And so this is, that's fundamentally the challenge that we're trying to grapple with. So I think it doesn't diminish the value of the research in either case. But I do think ultimately we have to assess that research in the context of the choices, as you both acknowledge, that we've got to make. Mr. Chairman, do you have a question?

I just have one question. You know, and this is a follow up on what Chairman Cabaldon asked, I mean claim is out there that it pays for itself in the sense that the tax revenue generated from activity as a result of the credit is greater than the loss of revenue.

So not just economic activity, but actual money coming back into the state treasury. What are the assumptions that go into the claim that that's a positive number?

So the one assumption that we make is that when we're looking at other economic impact studies that are looking at California's film and television tax credit, we know that they tend to have a location. There's assumption that location decisions are going to highly depend upon the tax credit.

So that ranges anywhere from 67% to 92% from a study from UCLA and we do 100%. So what we're doing is we're looking at, we know that production is highly sensitive to the cost. And so, and we've seen the other studies and the high amount of percentage attributed to being sensitive to these location decisions.

And we know from our engagement with our stakeholders in this industry that California, where it once was viewed as the top place to film, has slipped to sixth in a recent poll that was done. So we're not number one anymore. When people are thinking about where they want to produce, we're not number one.

That's too competitive out there. And so we know that there are productions that would take place here if the credit was more competitive, but they're not even applying.

So considering we've got 92% from UCLA and we've got this percentage of activity that we know is taking place where productions aren't even applying because we're just not competitive for them, then that's where we came to our assumption that really the whole thing is at risk.

First open it up for members of the Committee or the Subcommitee. And welcome to my colleague from Sub 4, and I know you've been chairing the Labor Committee. So as soon as I was appointed Chair of the Subcommitee, Senator Smallwood-Cuevas said, I want to talk to you about the film tax credit, the importance of the industry.

I know this has been a very high priority for you and also getting it right. And so welcome and please ask questions.

Thank you. Thank you so much. Mr. Chairs, co-chairs, it's great to be here. And yes, I apologies for missing the first panel, but appreciate the conversation so far.

So, you know, I represent South LA and Culver City and downtown LA, so I'm blessed to have some of the studios in my district and also some of the poorest census tracts in the country in my district. And you know, California is the entertainment capital of the world and we want to make sure that it remains so.

And we know that that will require some public and private partnerships, generous public subsidies and glad to have been part of this legislature that ensured that we had a robust and expanded film tax credit program when I first arrived to the legislature, and I have to say it was a bumpy ride getting introduced to this issue.

It was during the time of great labor strife and there were some comments from industry leaders and management that gave me quite a bit of pause in terms of some of the ways in which workers were not being supported and comments made about workers even losing their homes as a reflection of their ability to exercise their rights to organize and to strike.

So it was a very interesting introduction to this. But I do understand as labor chair how important it is for us to protect workers and protect industries and to partner with industries that create good jobs for California. And that's one thing I have come to understand about this industry and appreciate about its union and management partnerships.

I also know that nationally and in the state, we do a lot to support industry.

I look at the auto and rail and construction industry and the deep, deep decades, in some cases centuries, of public and private partnership, from 80 billion for auto bailouts that saved about 1.5 million jobs to, you know, Amtrak and $2 billion in annual funding, all tied to transparency and accountability and ensuring a diverse and regulated workforce, which, you know, I know is critically important, particularly to communities like South Central where access to quality jobs, family-sustaining jobs is difficult.

And I have appreciated all of the conversations thus far with all of the stakeholders related to this bill and this expansion that the governor is putting forward.

But I do have, you know, a few questions for this panel and one has to do with, you know, as we ensure more resources, and I think we should be providing more resources to this industry, we also have more responsibility in terms of how we oversee these funds, in terms of how we ensure that we are keeping California workforce and workers in California and making sure all Californians have access to those jobs.

So I just had a question about and anyone in this panel, and maybe the panel before can respond to this. But I wanted to know, are there independent audits or third party verification?

And I'm particularly interested in the ways that we address the self-reporting parts of the film tax credit policies in terms of the diversity data. And if we don't have third party review, I'm wondering why or why not?

Brian Uhler with the Legislative Analyst Office. So there are, sort of as you alluded to, there are elements of the tax credit program that are more-- where there's more audits and oversight than other elements.

Many of the sort of base elements of the program, the promised production spending, the sort of completion of the production, et cetera, are all subject to a normal tax audit by the FTB.

And the productions, you know, are required to provide the proof that they have completed the productions that they received the credit award for.

There are some other elements, though, where, as you suggested, the Legislature has over time sort of added additional reporting elements to the program, especially around the area of sort of the diversity of the workforce involved in these productions.

And that has, you know, frankly, been a challenging aspect both between the discussion between the legislature and the administration on this issue and Legislature and the industry in terms of basically how far the legislature can go in requiring that kind of information to be provided.

There are issues around sort of labor law and issues around some folks would say Prop. 209 in terms of how far the Legislature can go in terms of setting diversity goals for this credit or in this industry.

And so those things have been sort of frictions in terms of getting that really good information on the workforce demographics in this industry. And so there has been some self-reporting, but as you're suggesting that data has been fairly sort of incomplete.

It provides not a very good picture of the demographics of the projects that are receiving these funds in large part because there's a lot of sort of non reporting or reporting in categories that doesn't sort of allow you to make clean distinctions.

So yeah, I think that is one place where potentially the Legislature in going through reviewing the governor's proposal here, can look to make additional expansions of some of those provisions or looking for ways to sort of tighten up some of those reporting requirements.

Would the Senator yield?

Yes.

Is there anyone from the first panel would like to take a crack at answering that question? Yeah.

Why don't we invite Deputy Director Greenwood back to the table.

Lauren Greenwood with GO-Biz, thank you for the opportunity to come back. Yes. So all of our productions work with a third party auditor to verify that they spent the money and invested in California that they said they would, they created the jobs that they said they would.

And then as you see, we provided handouts of our annual diversity data that's collected and I believe it's only about 7% that declined not to state their demographic data. So just responding to the LAO's comments. So we do have a number of demographic categories that we collect in its aggregate and per project data.

We also collect data on our career readiness and career pathways participants. And while not mandated in our program, our tourism partners track data related to the industry and tourism. So there's a number of data collection and auditing that does occur with this program.

And that is on the self-reported data or what part of the diversity data is that done on? I just want to make sure I'm understanding.

Yes, thank you for the question.

It's when our production partners, they do the hiring process, they work with their payroll providers who have these clients in California and globally and then upon employment they fill out the forms to do the self-reporting voluntary data and then that's what's collected and then submitted at the end of when they finish production and are ready to submit their final reports.

And I recognize that that's a practice that's being done and I did do see sort of the very high level data that's provided. I'm curious, how do we look at diversity in terms of geography? I'm curious, how do we look at diversity in terms of economic diversity of those entering into your workforce programs or into employment in one of these tax credit eligible productions? Can you say where that data is stored and where would we find that data?

Yeah, thank you for the question. So in terms of regional diversity, we do publish annual progress reports in understanding where out of zone spending occurs. So outside of the 30 miles of Los Angeles, and then every year, I believe ours are.

This year's progress report is a little bit delayed with all the wildfire activity, but you will be able to see the $220 million spent out of zone, how many local hires are out of zone.

And I believe we will be able to provide that report by county for how many local hires and jobs were created out of zone. So that data will be forthcoming. And then as far as our participant data, I believe we do post our career readiness and career pathways data online.

Generally a lot of those participants are from the LA area, but we'd be happy to provide further specifics on where our participants reside.

I appreciate that I did not, in looking through what was provided, I didn't see any data in terms of actual hours worked, wages paid and zip code. I understand the out of zone spending, but I don't see it broken down. And that's one of the questions I have.

There's a labor compliance program, it's called LCP Tracker and it's used by large scale public private partnership entities to monitor workforce data.

And I'm curious, could a similar system be adapted to track more concretely this broader definition of diversity in terms of obviously the very general high level data that you are providing, but also looking more concretely at the diversity of the economic diversity of folks coming into the workforce and the zip codes where they're coming from.

Is this something that we could adopt that could provide greater transparency and accountability for the legislature as we're looking at how we are expanding our film tax credit program, but are they reaching all of our communities? And are these workers staying in California? Could we look at a similar system to do that?

Thank you for the question. We'd be happy to further have a conversation about additional metrics that we can include in the data captured. I believe for our career pathways, we do capture age, education, gender and ethnicity and household income. So definitely there's some-- we're in the spirit, I think, of what you're asking for.

And so I think we'd be happy to look at it again.

Yeah, I appreciate that because I have seen different data sets that are in different formats that are measuring different elements of the sort of list of criteria or demographic criteria that you laid out.

And quite frankly, it's very difficult to kind of see in aggregate what the story is telling us in terms of how these dollars are spent. I do think we need a universal tracking framework that will allow us just to get some basic questions answered about who is being hired, you know, where do workers live in California?

And, you know, what are those genuine sort of apprenticeship legitimate programs and pathways that folks are using to come into the industry?

I, you know, I feel like we have done a few trees in just on these reports that have been put before us, but there isn't sort of a compilation of data that tells us that story.

And that is what gives me some concern about how we expand and make this investment, but ensure that we can for sure say that these jobs are going to be staying in California and who is actually responsible receiving those jobs. And I probably have a couple more questions, but I'll wait for the next panel.

All right. And Senator Allen.

Thank you and I appreciate you letting us come to be part of this important conversation. I guess I just wanted to ask, maybe our friend from the LAO could come back and there's plenty of seats, so maybe you can sit here.

But just I was going over the economic analysis and, and I guess one of my concerns with some of the things that are in there and some of the comments that have been made, the Georgia and New York programs are different, right, and also the California program is currently under some negotiation.

There's a real focus on jobs that's been a major focus from our labor partners and certainly major priority of the legislature. So, it's going to be crafted differently. And I guess I am concerned about an apples to oranges comparison here. When you're saying that when you're looking at the different revenue projections from those states versus California.

I'd love to hear about that. I'd love to get a sense of why you think it is that states like New York, if it's such a bad investment, why do they keep trying to double down on the model? Are they just, is it total delusion? Are they just under lots of pressure from the studios as has possibly been suggested, you know, what's going on?

And then also this comment about how, you know, 'oh, these projects would have just been filmed here anyway,' the data we have from the Film Commission shows that three quarters of those projects, they applied for the credit, so they wanted to do the work here and then they went and did the work somewhere else when they didn't get the credit.

So I just, I'm trying to square some of the basic data I'm getting from some of the comments that have been made here at the table and also in the report.

Thank you for the questions. So I'll try and address all three of those. So I think with the New York and Georgia reports, I think what we're not saying is that, you know, because the return on investment seems to be not that great for these other states, that therefore, you know, it's also the same for California.

I think we do acknowledge that there are substantial differences in the way California's program is structured and set up. We're just saying that, you know, there's weak evidence in general to support the, you know, the idea that California's program or other programs in general, you know, have a positive economic impact on the state.

That's not to say that there's strong evidence that there's a negative effect. We're just pointing out that in the absence of good evidence that, you know, it's not necessarily the case that this has a negative effect on California's economy or no effect at all.

But without any supporting evidence, and given the history of economic analysis of tax credits in general, we just don't think that economic development is a valid justification for this proposal. There are other justifications.

Like, you know, we said that the data does support the idea that the tax credit does increase production. So, you know, that is a potential reason for considering approving the credit.

And I would also just say,I know the-- getting a sense of the true net economic impact is a really big and difficult question. But I would point out that for a good example of a California tax credit that does have good evidence is the California Competes Credit.

Where there has been, you know, academic research showing that the credit provides good net economic effects to the state in terms of employment and overall activity. So I think it's not impossible--

So the research the LAEDC and others have done, you quibble with it?

Obviously, you know, there's going to be disagreement. We feel that the report shows the sort of total amount of economic activity associated with film tax credit spending.

But, obviously there's other things that we could have spent that money on would have had similar ripple effects like are being talked about.

In the film industry, obviously you employ people in the film industry and as a result of that, there are ripple effects where people spend money on catering and hotels and other services, and that ripples through the economy. But you could make a similar argument for giving tax credits to other industries or for spending on infrastructure like roads or education.

And there are similar ripple effects associated with that type of spending. So you would have to really show that the total economic effect is greater when giving money to the film industry compared to some alternative uses. And we just don't feel that any of those concerns are really addressed in the existing research that's out there.

And why do you think that New York, for example, is going so aggressive on this?

That's a very good question. I mean, you know, I don't think we can really comment on political motivations of other states.

And, to be honest, obviously they feel like they can maybe try and capture industry and in the sort of discussion about race to the bottom, I mean, what often happens is that different players will sort of increase their generosity and hope that other players drop out, essentially. Yeah, obviously.

But come on, there's so many jurisdictions that are in this business, from the UK to Canada. Do you really think that New York thinks that they're going to bottom out every industry jurisdiction and get it all themselves, really?

No, certainly not. I said I can't really speculate on the justification New York is using for expanding or maintaining their tax credit.

Yeah, I think, you know, part of what I'm struggling with here is that there's all these assertions made--

Well, I guess I think that they're looking very holistically at the benefits that it provides, not just the ones that we've discussed here today, but, you know, it ends up playing such an important role with tourism, you know, you think--

I mean, you know, this is a-- I take from your accent, you may have had some time in the UK. In the UK, there's a constant debate, as you know, about why they subsidize the royal family. You know all about this, I'm sure.

And the interesting thing is that, of course, produces far fewer chops than this industry. But there is all sorts of evidence that suggests that there's a massive tourism benefit associated with the pageantry of the royal family people.

Everyone wants to go to the UK to see it and be a part of it, and it actually has all these benefits that we've seen. It's obviously a totally different industry.

There's a lot less-- this is a far less elitist effort here, but there's a tremendous cultural and tourism benefit associated with this industry for California that I think gets totally underappreciated in some of the analyses that have been brought forward. And so I think New York's trying to capture some of that.

I think there's all sorts of cultural benefits associated with this. And I think they're looking much more broadly about all the benefits of a credit of this nature when they, when they continue to build upon it.

So I appreciate how hard it is for us to fully incorporate every possible benefit or lost opportunity associated with doing something like this. But I am concerned perhaps that the analysis the LAO has engaged in is just far too narrow in scope and purview when you're looking at the possible benefits associated.

But I respect your position a great deal and appreciate this robust discussion.

Senator Valladares.

Thank you. So I truly believe that the California dream is achieved through access to a quality education and a good job. And I see this film tax credit as a jobs bill. And we look at our budget as a whole, I think, was it $320 billion is the proposed budget right now?

Half of that budget goes to education in California, K-12, higher education. And that is a pipeline of our workforce. And we're seeing there are in Southern California, even here, I think Napa Valley College has a film curriculum.

We're training a workforce right now as early as 8th and 9th grade in CTE courses to go into this industry. I think that's the advantage that-- one of the advantages that California has when it comes to the production and film industry is that we have the workforce. We're developing that workforce and that pipeline early.

So as we look at this more holistically, what are the potential implications if we don't adopt this credit, if we don't become more competitive? What from the LAO's perspective, what's the implications on, one, the current workforce and two, the pipeline of our workforce.

Thank you for the question. Well, like you said, California has a lot of jobs programs and it has competitive advantages that keep jobs here in the film industry already.

In terms of the film tax credit, obviously, if we feel that California is slowly losing its share of the market to other states, then as we mentioned in our report, there is a concern that if that trend continues, eventually that some of that infrastructure or some of that competitive advantage the state has built up over time will go away.

And so that is a real concern associated with this recent trend that we've been seeing. And so obviously, we need to think about what is that how should we tailor the size of the film tax credit to sort of keep our market share above that threshold.

And so that's where this discussion about the increase in 750, I think, as I said in our report, we're not sort of making a recommendation for or against. We're just saying that expanding the credit will be effective in increasing the amount of production and keeping people employed in California here in the film industry.

And so if that's the main concern of the legislature or if that's an important priority of the legislature, then this expansion can be justified on those grounds. We just don't think that using economic development or increasing the size of the economy as a whole is a good justification.

But, like you mentioned, if we want to focus on just maintaining or stopping the decline of the workforce in California, in the film industry, then, like has been said by others on the panel, the film tax credit would be effective at that.

We just, if the legislature is going to approve this proposal, we think there are valid justifications and less valid justifications.

I just think my point is there are broader implications for not being competitive and not doing everything we can to be competitive here, even with a long term workforce development for the state of California.

I mean, why are we going to invest as much as we do in education to educate a workforce that's going to leave to Atlanta or to some other country?

So there are broader implications beyond just the tax credit in the economic value for film, it goes into our workforce, into education, into smaller businesses throughout my community and throughout California. Thank you so much.

All right. I want to say thank you to the panel. In our budget subcommitee, the governor has proposed zero money for homelessness, zero new money for affordable housing. And so these broader questions are really critical. They are very important. And so, you know, this is our job.

And no matter what the Administration proposes as a litmus test of whether we appreciate what is our equivalent of the royal family, which is the film industry, this isn't just a question of that love or that belief in the industry or its centrality for, at least for our budgets, for the legislature as a whole, everybody's got to consider their own the broader picture.

But we really-- we're grappling with a budget that invests zero in what are very obvious, clear priorities for the people of California. That's the priorities that the governor has given us, and we have to grapple with that.

So I very much appreciate the LAO, the depth and the sophistication of the LAO analysis here and your attempt to, you know, to grapple with the nuances.

Also, all the LAEDC and the Budget and Policy Center to help us tease through some of these questions so that we're able to make the best informed decisions that we can. They're all awful, frankly. I mean, this one could be good, but, I mean, all the trade-offs are a challenge.

But that's part of what our job is. So appreciate the analytics. We have an extensive panel next, so I want to say thank you to panel number two. We are-- and I'm sorry you're not getting applause. You would have gotten just as much applause as the first panel if we hadn't banned it.

We're going to take a very short recess for less than three minutes for the sole purpose-- Our next panel does include one remote participant, so we need to just do the sound check for that panel. So we'll take a roughly two minute break and then we will commence with panel three.

Administration. So I'm going to invite our panel to come up and ask folks that are having conversations to please take them outside of the hearing room. All right, if you have conversations to be had, please take them outside.

This is a longer panel and then we of course will be opening up the hearing for public comment as well. We want to make sure everybody has a chance to be heard. So welcome to our third panel.

We're joined now by Dr. Christina Ramón, the Director of Entertainment and Media Research Initiative at UCLA by Zoom John Prabhu, the co-owner of LA Studios North, Alex Aguilar, Business Manager and Secretary Treasurer of LiUNA Local 724 Heather Mclean, the location manager for Teacher Teamsters Local 2785 Alexander Peckman, co founder of Stay in LA and Scott Budnick, the founder of the Anti-Recidivism Coalition and CEO of One Community.

Thank you for joining us. And why don't we begin with Dr. Ramón who is with us by Zoom.

Thank you. The work I will be discussing is part of a major project on the entertainment industry conducted at UCLA with my co researchers Dr. Darnell Hun and Michael Tran. Art Research examines diverse representation in TV and film and its relationship to the bottom line. Why is this research important?

The images we see on screen permeate throughout our society. Films and TV are not just entertainment. Media acts as a dominant socialization agent. Visual media teaches us how the world works and our place in it. Representation in media influences people's perceptions of groups they may not have interact with on a daily basis and influences policies that affect those groups. So who was represented on the big screen last year?

Our UCLA Hollywood Diversity Report examines racial, ethnic, gender and disability representation in front of and behind the camera and how it relates to the box office and ratings. Our report covers trends from 2011 to the present. We recently released our report on the top films at the global box office in 2024.

We found that Hollywood began to backslide on diversity in terms of race and ethnicity in 2024. Among all metrics measuring racial ethnic diversity in front of and behind the camera, the BIPOC share of key positions in top theatrical films declined as compared to recent years. Among leads, only 25.2% of those key roles went to people of color.

Among total main cast roles, only 32.8% of those roles went to actors of color. Among all directors of the top films, only 20% were directors of color. Lastly, among all screenwriters of those top films, only 8.5% were writers of color. To underscore this rollback.

We found that after years of incremental increases in racial and ethnic diversity, there was a widespread reversal in 2024 where films with all white casts increased their share by more than double, while the films with majority BIPOC decreased their share by a little less than half as compared to 2023.

Among the top films, women in the industry posted minimal gains among directors but more significant gains among total actors and especially among leads where they reached near parity with their male counterparts.

However, given that much of this progress was fueled by low budget, limited release projects, time will tell whether this progress represents a lasting change for the industry or is just part of an atypical year. In terms of the bottom line, our research continues to show that audiences prefer diverse content.

Despite the shrinking selection of diverse casts in the top films last year, audiences flocked to theatrical films that best represented the nation's diversity.

Films with 41% to 50% BIPOC cast were far and away the most successful across virtually all the metrics that we examined, including global box office return on investment, domestic box office, and domestic opening weekend ranking. BIPOC moviegoers continued to be a driving force at the box office in 2024.

They bought the majority of opening weekend domestic tickets for seven of the top 10 films ranked at the global box office and 12 of the top 20 films released in theaters in 2024.

Furthermore, in a survey of audience demographics for those top films, we found that BIPOC moviegoers who are 18 to 34 years old demonstrate an outsized importance as pillars of the moviegoing market among young female moviegoers. Women of color, particularly Latinas, are key to driving ticket sales.

However, we did find an enthusiasm gap at the box office among these key demographic groups during the year due to the decreased diversity on screen. While films with diverse casts were still the most successful, last year's movie offerings in total left America's diverse audiences less engaged relative to 2023.

The top 20 films ranked by each of these demographic groups share of opening weekend domestic box office included fewer movies that were ranked number one during their opening weekend, and the groups that there was fewer of these movies were BIPOC groups, women and 1834 year olds in 2024 as compared to 2023.

This suggests that these audiences were not coming out in droves to see just any generic film. This reduced interest among these key demographic groups may have contributed to the reported 3.3% to 3.8% decline at the domestic box office in 2024.

Overall, the rollback in terms of racial ethnic diversity among the top films in 2024 is not acceptable in a state in a country that is increasingly diverse, Hollywood has to be held accountable and do better, particularly when we see that diversity is good for business. Thank you.

All right. Thank you very much. Appreciate that. And I know we have several folks that are here from Southern California with. With flights at some point. So I just want to. We began this panel with a broad overview of the research and the findings and the details.

I'm going to ask our subsequent panelists to try to keep your remarks to about four minutes or so because I also know we have a lot of public comment and some of you do also need to get on a plane, I think, at some point. So with that, let's proceed then with John Prabhu.

Thank you very much. I'm John Prabhu and I appreciate the Committee's time. Today I'm here as a small business owner and Member of the California Production Coalition, a new group of over 40 small businesses fighting to protect production in the Golden State.

In 2018, my partner and I founded LA North Studios with a mission to provide cost effective soundstage and production space to the entertainment industry. We achieve this by converting industrial properties into approved production facilities, certified sound stages that meet proper permitting and fire department requirements.

Filming in our certified sound stages is just like filming on a Warner Brothers stage. No additional film permits are required or fire safety officers. Today we have expanded to seven campuses, including five we own and two we manage totaling 26 sound stages. My partner, Anthony Syracuse, should be here today.

He's a prime example of how the California Film Incentive directly impacts industry professionals. As an IATSE Local 44 construction coordinator, he has worked in TV and film since 1996. Before the incentive, he spent six years working across six states and three different countries with tax incentives just to stay employed.

But when the California Film Incentive was increased in 2014, it brought him home and he hasn't left since. He has overseen construction for some of the biggest productions in California, including Bumblebee, Captain Marvel and Top Gun Maverick. Unfortunately, he has also witnessed firsthand the mass exodus of productions leaving the state.

Without your support, he and countless others know this industry may never recover. You have the opportunity to protect careers and livelihoods while ensuring this industry thrives for the next generation. LA North Studios is a small business that provides a cost effective solution for productions to remain in California.

We have historically served as a home base for numerous tech incentive productions employing thousands of workers across our campuses in Santa Clarita, Valencia and Chatsworth. Some of the largest productions in the world have film with us or currently filming with us, including King Richard. Don't worry darling.

Yes Day, the Little Things, Space Jam 2, Bubby, the Michael Jackson biopic, Euphoria Season 3 and Fallout Season 2. Without the rebate, we know from first hand experience that these productions would have gone elsewhere due to budget constraints over the past two years. The decline in production has devastated our community.

Restaurants that were once packed during lunchtime now struggle to fill a handful of tables. Friends and colleagues who have worked in this industry for decades are now considering leaving California just to find work. Not a day goes by without someone reaching out to us, looking for a job or simply asking if work is coming back.

Producers and studio executives have made it clear. While the proposed increase in funding from $330 million to $750 million is a great step forward, it's equally critical to implement additional measures to strengthen the program.

Enable full transferability of tax credits for all recipients, increase the percentage of eligible spend, expand the number of application windows, broaden eligibility criteria for tax credits and simplify the application process. Right now we are losing the battle to other markets.

This is our chance to strengthen California's film industry, protect jobs and secure the future of entertainment in our state. Thank you.

Thank you. Alex Aguilar.

Can you hear me? There we go. Good afternoon, chairs McNerney, Cabaldon and Committee. I am Alex Aguilar, a proud Member of LiUNA local 724 where I also serve as business manager and secretary treasurer.

I speak on behalf of the 165,000 Californians represented by the Entertainment Union Coalition which is made up of all the unions and guilds in the entertainment industry. Although our industry often appears to be glamorous, we are truly a community of middle class workers in one of the most heavily unionized industries in the country.

For over a century, California has been the motion picture capital of the world. But that era and our Members livelihoods are slowly slipping away. Productions leaving California, driven by expansion film incentives in other states and abroad has led to a major decline in jobs.

Between 2022 and 2024, the Motion Picture Pension and health plans reported a loss of 35 million hours. That's the equivalent of 17,000 jobs. Guilds have seen a 40% drop in production as well as the unions have seen a 40% rate of unemployment. The numbers only tell part of the story.

I wish I could fully convey to you the desperation in the voices on the calls we get from people with decades of experience who have always worked to young people who finally managed to break through but see no future in our industry anymore. Thousands of people herding is the real reality, apart from what any academic study says.

On top of that, thousands of EUC Members either lost their homes or currently live in areas which are uninhabitable because of the January wildfires. The production decline is even worse for our Members who work and live outside of the Los Angeles area.

That is why providing you with the facts on the California Film and Television Jobs program is so vital. The funding of this program has not changed since 2014. Meanwhile, states far smaller than California have outpaced us and globalization threatens to decimate us.

The funding increase Governor Newsom has proposed, when coupled with improvements in the program itself, will boost California's film production for everyone. The structure of the program has also not changed since 2014. But our industry has radically changed in every way imaginable. Other places have seen incentive. Other places have incentives that evolve with the times.

While California's program continues to try, but we fail to compete, we are leading efforts to modernize the program, ensuring it reflects the realities of productions today. These changes would apply throughout the state with additional uplifts for filming outside of Los Angeles area and hiring locally when that happens, we also strongly support the current program's core values.

Job creation, the transparent application process, career pathways and reporting structure, and the first in the nation safety on production pilot program. We respect and do not take lightly the difficult budget challenges and choices that you all have to make.

We think it is critical to strengthen our industry which has helped make California the fifth largest economy in the world. We want to be part of maintaining the California dream. But if our industry slips away like the aerospace and auto-manufacturing, then our financial and human contribution to California will also disappear. When our industry thrives, California thrives. Thank you for your time.

Thank you very much. Mr. Aguilar. Heather McLean.

Hi. Senators and Committee Chairs McNerney and Cavalon and all Committee Members for giving me an opportunity to share my story and the significant impact the film and television industry has had on so many Members of our communities throughout the State of California. My name is Heather Mclean. I've been a location manager in Northern California for 15 years.

I'm a teamster with local 2785 in the Bay Area. And I've seen firsthand how important the film incentive is to create jobs and support film workers livelihoods as well as to the communities that open their doors to filming.

Some of you may have heard of the job of location manager, but if you haven't I'll summarize it for you. Location managers are essentially a liaison between production permit offices, government agencies, and then the communities that we film in. And what everybody sees on screen are the homes, businesses, cities that we put in front of the camera.

But what you don't see are the behind the scenes small businesses, neighbors, schools, churches, police, firefighters, local vendors, restaurants, hotels, and a ton more that we make deals with basically to support our crew while we're filming. So think of it like this, like a local restaurant provides production office lunches.

A local trash hauler picks up on set debris. At the end of every day, a neighbor gets paid for their parking space or to have craft services in their driveway, stuff like that. That's what we do.

So filming in a city or neighborhood, because I'm meeting and making so many deals with people, I get to really have a chance to see what struggles they might have. And a lot of times filming can help. So I'll give a couple examples.

One movie that I worked on, Wine country, which is starring Amy Poehler and Maya Rudolph, had two days scheduled to film in downtown Calistoga. And it had a few weeks of prep and wrap in that area. And this was in 2018, not long after the devastating Tubbs fire.

And so small businesses and local farming had really taken massive financial hits. And. And anybody that knows Sonoma and Napa County, they're passion businesses. So the fires was really a gut punch, very similar to what LA is going through now. Our two days of filming in Calistoga meant we worked with about 76 local businesses and residents.

And we also worked with the local Chamber of Commerce and local press to not only spend our dollars richly and widely, but more importantly, to spread press that they were open for business, which was really huge at the time. And here's another example, another film. So two years ago, we filmed a movie, Freaky Tales.

It was a recipient of the film and television incentive program. We filmed in Oakland, California and other East Bay cities. And if you know Oakland, then you know it needs, you know, more love and financial help. I've lived there for 25 years, so it was nice to work at home.

So for this film, we contracted with hundreds of businesses, caters, artists, residents and vendors to make a hyper, stylized 1987 Oakland, spending upwards, from my perspective, of $3 million directly back into the community. We made donations to community groups. We paid Shumi for working on native land.

We cleaned up illegal dumping, abated abandoned cars, gave money to parks. But mostly we created a fun and safe space for residents to come watch Pedro Pascal do what he does and Yuck it up.

But we also created and sustained countless jobs and showed aspiring young filmmakers and writers a glimpse into an industry that can support a middle class lifestyle. So for many vendors, this film made their financial year, and for me and my fellow crew members, some of them are here today. It paid mortgages, sustained health coverage, contributed to retirements.

We had small businesses that could literally stay open longer because we were there to film. The effect of production has on community can't be understated, and neither can the scary and devastating state of our industry right now. So we're seeing these jobs disappear.

And if we lose this staple industry to other states and countries with richer incentive programs, the ripple effect in California would be catastrophic.

I'm here today as one of the many faces of workers that can tell you that this jobs program's had a positive financial impact on me, my family, my colleagues behind me, and in the hallway, countless businesses I've had the privilege of working with every day. We told ourselves to survive till 25, so we're here.

But we realize we have to fight for these jobs because they may not come back. So we just. We need your support.

Thank you for joining us today and for sharing the story. I represent wine country, so when the movie came out, I'll say I was dreading it, I thought oh my gosh, this is. And then I watched it and it was my district.

I represent Calistoga and Sonoma and Napa and it had all the effects that you said locally and it was beautifully done for everybody worked on it, but also had all the effects in the location and at a time when the, the moral tourism and financial boost was all very critical. So thanks for telling the story.

Okay, next up is Scott Budnik. Welcome Alexander.

Thank you for having me.

Here is this one.

We'll try this one.

Okay, thanks. Thank you for having me here today. In the wake of the devastating LA fires, a group of concerned filmmakers, screenwriters, producers began talking about what we could really do to help our city. After Covid, the strikes and then the fires.

I remember thinking as a WGA screenwriter, early career director who grew up in LA, we have to do something or everyone is going to leave. And so we Launched our Stay in LA campaign on January 23rd calling for emergency relief in the form of an uncapped tax incentive and a studio commitment to shooting in LA.

And we gathered over 20,000 signatures in less than a month because the people of our city and our state understand that you cannot stay or where there is no work. Runaway production has been draining our communities for a long time. We are simply not competitive.

And the Governor Newsom's increased cap in conjunction with Assemblymembers Burr and Senator Ben Allen's Modernization Bill are vital. We hear from Californians on a daily basis through our social media campaign and on the ground efforts from makeup artists moving to Atlanta because there's no work here anymore.

Young people who came to LA to work in film and TV but they find no opportunity for apprenticeship left from career cinematographers who used to have good jobs, worked for decades and now haven't shot in two years. I'm sure you read that Panavision, Hollywood and Technicolor have closed their doors just in the last few weeks.

Studio lots are very empty. How bad are we going to let this get before we take action? And this is not just affecting, as you've heard those who work in production.

We, we hear from people like the wife of a truck driver telling us we can't make ends meet because there are less production related deliveries across the state.

From an architect who used to rent his space to productions but now he has had to cut half of his staff because they can't subsidize or from a cafe owner considering closing her doors because the productions she catered to once are now gone.

We've been endorsed by the LA Mission, by dry cleaners, hotels, tech companies, countless small businesses. I heard recently a prop shop has a link to our petition in their window. We did not do that. Why? Because Californians understand when production leaves, money leaves and good jobs leave for all of us.

My co founder Sarah Adena Smith is not here today because she got a job to direct a pilot in Canada. And by the time her show wraps, she'll have been gone from her three year old for five months.

And a few years ago she even developed a show that should have shot in LA and was set in California and would have shot in other regions as well. But she was told to choose between shooting in South Africa or Australia. My husband is a showrunner. He created a show that took place in LA and Northern California.

He was told he had to shoot in Vancouver and we were separated for months. He is now shooting in Atlanta. I leave for New York this week to start work on an indie feature. Next year I will likely be in Malta where the tax credit is 40%.

So I'm here, but my work is in New York and Europe and my husband's in Atlanta and my co founder of Stay in LA is in Winnipeg. There's a very clear message here. Our industry is migrating elsewhere. It's happening now and this is an existential threat.

So I've seen firsthand how New York's program, while still not even the most competitive program in the country, attracts talent who want to stay with their families. And it spreads the opportunity statewide.

So with your help doubling this tax credit and modernizing our program, we too can be just competitive enough to make shooting in California an attractive and viable option. Because if we don't, we lose risking, we risk losing our state's most valuable resource. It's people. Thank you.

Thank you. And Scott Budnik.

Thank you all for your really thoughtful questions. I'm Scott Budnick. I'm a producer. No one knows what a producer is and it'll be too long to explain.

I think the one thing that's relevant for this committee is that we're the one that actually runs different budgets for California and then other locations and has to make a decision on where to shoot the film. At the beginning of my career, we shot a lot in Los Angeles.

I made multiple social impact films like the Hangover, Old School, Starsky and Hutch in LA and my last five films now that all these other jurisdictions have these enormous credits, unfortunately have been in Winnipeg, New Jersey. We did Just Mercy and Aretha Franklin movie Respect in Atlanta, London.

And we're about to embark on a boxing film that's supposed to take place in El Centro, California. And we're having to run California, Mexico and Columbia budgets for that one. And we're about to embark in a horror movie that takes place in the California Redwoods, one of the most beautiful places in the world.

And we're having to run California and Vancouver budgets. I pray that this is done so we can keep all of these productions in Los Angeles. No one wants to leave their families, their children to go shoot somewhere else. But for me, I have a much deeper reason why I'm passionate about this.

I've been coming up here to Sacramento for the last 15 years on juvenile justice and foster care issues. I start an organization called ARC that works with young people in the juvenile justice system to help them re enter society and get into schools, colleges, great jobs.

Early on in ARC, I found Hollywood CPR, which is one of the most unbelievable training programs for young people who have no access to our business to go through a year of school at a community college, get their 600 hours in apprenticeships, and then immediately go into a union job on our movie sets for the rest of their lives.

We've now placed over 100, if not hundreds of our ARC Members into the unions. Grips, electricians, camera, editing, etc. A few of them are right here, right now. Ryan, Marco, Jeremy, Enrique. Marco right here is a union grip. He went through the program. He worked on the Mandalorian and all the Star wars movies.

And then in December, he was told that Lucasfilms is taking all of their movies to London. And Marco and thousands of others are unemployed now because Lucasfilm to move everything to London and this is unacceptable. We must not let California become Detroit. We must create pathways for young people into this business.

They are the future of this business. I understand the very tough decisions that you've articulated. Senator Niello, your comments about economic development on the much grander scale. I love them. I understand this is tough, but this is so important. Thank you guys very much for your time.

Alright, folks, keep applauding. I'm going to bring back the economic, the economists and. Please don't. You don't want that. Alright, so thank you very much. The panel was incredibly compelling and thoughtful and, and, and, and, and so I very much appreciate them.

And so I, I know we'll, we have a set of questions for members of the committees, why don't we start with Senator Smallwood-Cuevas, who's also. I want to also acknowledge and thank you for helping us to assemble this. This panel as well.

Great. No, and I appreciate it. Thank you, Mr. Chair, and thank you to all of the presenters.

And I want to say I absolutely agree with so much, many of you I have worked with before getting to the state legislature and certainly since being here, and really appreciate your efforts in this space, but also in building our stronger communities. And I.

I want to ask you a question about the Hollywood CPR program and the participants that you, you mentioned. Can you talk a little bit more about the ways in which we, as we think about making this investment?

Because I want to say I absolutely support the expansion of the tax credits and as you know, the challenges that were raised in terms of the choices that we have to make in terms of, you know, what we're going to fund.

I do fundamentally believe that we have to have a really intentional, universal tool for tracking the success of who is getting access to these opportunities, where they're from, and that we are investing in multipliers. And clearly you've laid out the case for how these dollars are multiplying in our communities. I'm concerned also about very vulnerable communities.

Can you say a little bit about how participants get access to Hollywood CPR? And is there a process by which we track and monitor their placement in these positions? I come out of workforce development before getting here. I come from making sure our most underrepresented populations get career access.

Because at the end of the day, if we want to include more resources for tax credits, we gotta deal with the safety net. We've gotta figure out ways to get folks out of poverty and into these pathways.

So I'm curious about how you all are doing that, and you know are there opportunities for us to strengthen that process as we continue to engage in this public and private partnership?

Absolutely. So the program is based at a local community college. So anybody can enroll in the college, enroll in the six classes, and that takes about a year. After the third class, they pick their major, whether it's grip or electric or camera or whatever it is.

Their last two classes, about half a year, is all deep dive into that specific trade. And then once they get those six classes, they have to go out and work 600 hours on a movie set or a television set. Once they get those 600 hours, they are in the union 100, they walk them in.

And even some unions, I think, like Local 80, the Grip Union, pays their initiation fee. They're in incredible partnership with the IATSI since starting arc, I've never seen a better workforce training program. Like, think of something.

In a year and a half, if you put your head down, you have a union job at the end of it that's paying six figures for the rest of your life. But the problem right now is where are they going to find those 600 hours, right?

If nothing's shooting here, they can't go to Atlanta to find the 600 hours. So finding those 600 hours and those traineeships, those hands on work is very difficult. And then once they get into the union, then getting that job right with production so slow is tough right now.

I'll tell you this just in terms of the quality of the people this program puts out. Young man named David Campos went to work on Let's Make a Deal and the Price is Right. His Lead man, Local 44 set dresser, said, you're one of the best people I've ever hired. Bring me two more.

And then they were so good. They said, bring me two more. There's now like 15 people from Hollywood CPR working on the Price is Right and Let's Make a Deal.

When they finish their hours, their traineeship hours, they put them into the union and they work on a TV show that knock on wood, has been around forever and is not going to go anywhere. And two of our guys, Jeremy and Ryan behind me, work on the Price is Right

and Let's Make a Deal both getting their hours right now. But I have, I personally track Hollywood CPR tracks and I have so many young people that have 300-400 hours to get to get into the union and we can't get them work.

And, and I also know a lot of people that are in production on films at various studios that are not bringing trainees on it, that are getting the credit, getting money from the state and won't bring on trainees onto their productions.

So I feel strongly that if somebody is going to get a credit from our state, there should be some amount of trainees, union workers that have come out of training programs that they should be put. And it's not a huge number. Is it 4? Is it 6? Is it 8? I don't know what the number is.

Is it 1 per department? I don't know what that answer is. But if you're going to get a credit from the state, you should create a pathway to allow young people who would never be able to get into this business to get into this business and thrive like the rest of us.

And I appreciate that. And I, and I do agree that if we are making these credits accessible, we want to make sure that we are creating opportunities, particularly for our most vulnerable, formerly incarcerated, emancipated, foster youth, folks at risk of homelessness, to have a chance to benefit from, from our public investment.

I wanted to ask Alex if he could comment too, because I know you have a pathway for workers to come through your union and how is your process for ensuring and tracking one, the diversity, but also how long these workers are on the project.

So thank you for the question. We, we work, our union does a specific thing and what we do is we service the trades in the pre production process. That means painters, plasters, carpenters, welders, we work assisting those folks. So we do all this stuff that nobody wants to do. We're the real workers, let me tell you.

I'm just, I'm just saying that. But with that said, what we do, we don't have a program through Hollywood CPR. And so what I did is I partnered up with some of the nonprofit organizations within the community, communities in schools, Homeboy Industries, with Father Greg Boyle. There's other folks we go out and we talk to.

I've been to Van Nuys High School, I went to Culver City High School. We've been through several schools in the LA community, more, more precisely, more of the underrepresented communities. Right. The tougher neighborhoods. And so we go in there and then we talk about the programs that we offer.

There's a couple of companies that we work with, the studios that have programs that we've managed to partner up with, particularly in landscape gardening, some of those jobs, entry level positions that we recruit folks to come in through that.

Now as far as the tracking mechanism, we have a specific member tracking system that allows us to do some of that work. Now often we find times where some of the members don't want to self identify. So then that makes it a little trickier.

But for me it's a little easier because I've recruited a lot of these members and so I know exactly where they're coming from, where they live, their economic status. You know, we have, formally, we have a member who we brought in about 5-6 years ago and he did 22 years in prison.

We brought him in, he's now a foreman, he owns a home, he's putting his kids through college. Those are the type of stories that I could share about all day long. And so. But that's how we track them.

Senator, is that our own LIUNA has a very specific member tracking system that we use for organizing efforts and, and you know, voting efforts and things like that. And that enables us to use that system. And I can get some of that info if, if needed or requested.

No, I appreciate that. And I specifically asked both of you because I think you have these remarkable tools that are showing success in terms of ensuring that Californians get access to these jobs and all Californians, no matter their background and disadvantage experiences, get an opportunity to work.

But it also highlights the challenge that we have in terms of the universal way that folks get access to these jobs and the way for us to track and make sure that folks who are doing those hours get the training that. The hours that they need to complete their training.

And we hope that this investment in the tax credits will provide that. I think the receipt on that, what that looks like and how the Legislature can help to track and monitor that is where I'm trying to understand, you know, what is that compliance tool that helps us to get there.

And, and I wanted to maybe ask this panel, you know, how can the state enforce compliance and create, you know, an opportunity for productions to improve our diversity outcomes, but also centralize a pathway that ensures we can move people through it to get access to these opportunities, particularly our most disadvantaged community members.

Is there a way for us to create a universal process for that in the way we see it in like on the other side of your work, Alex, in the building and construction trades, where there is an actual process that is centralized, where the hiring hall is, where those workers come through, you track, you monitor, and it's one process for us to be able to see the outcomes.

And I'll open it to everyone on the panel who can respond.

So, you know, that's been a topic that's been highly discussed within the Entertainment Union Coalition. I know that you're very passionate about bringing folks in from all, all communities into our industry. And so right now, I mean, we've talked about how we can track it.