Senate Standing Committee on Revenue and Taxation

The Committee on Tax, Revenue and Taxation will come to order. Good morning and welcome to the Committee on Revenue and Taxation. We have one measure on today's agenda. It's an important one. We also have two substitutions on our membership. Today only Senator Ochoa Bogh will be substituting for Vice Chair Voladeras. Welcome.

Thank you.

And Senator Allen is substituting for Senator Unberg. Welcome Senator Allen. So I think we can establish a quorum. Secretary, please call a roll.

[Roll call]

Thank you. I like those arms reaching into the microphone. Thank you. We have a quorum this morning and we will now hear from Assemblymember Zbur on first item AB 1138. Please proceed when you're ready.

Thank you Mr. Chair. Members, thank you for allowing me to present alongside Senator Allen AB 1138. Senator Allen is the joint author of this measure. I'd also like to thank. Hold on a second. The people who are calling me. I'm sorry about that.

Also like to thank co author Assembly Members Brian Gipson, Quirk-Silva and Senators Menjivar, Perez and Stern for their hard work on this bill. And also to thank many other Senators.

Senators Valladered, Becker, Rubio, Assembly Members Ahrens, Alvalis, Ferris, Calozza, Elhawari, Fong, Mark Gonzalez, Herabedian, Lackey, McKinnor, Muratsuchi, Ortega, Celeste Rodriguez, Michelle Rodriguez, Gustavo, Schultz and Stefani for co-authoring this important measure. And also want to thank the Entertainment Union Coalition, the MPA and the many producers and other small businesses who have helped shape this proposal.

California's iconic film and television production industry is in crisis. AB 1138 is a jobs bill, pure and simple. The hard working men and women and the small businesses who have built an industry that is intrinsic to California's identity are experiencing depression era levels of unemployment and loss business.

Since 2009, the Filman tax credit program has been successful in creating over 197,000 jobs statewide and $26 billion in economic activity. But the program has been oversubscribed year after year and it does not apply to many projects that could benefit from the program.

Other states and countries are offering their own incentive programs that are much richer, drawing away production and making California's program less effective. There are 38 competing programs in the United States and 36 in Europe.

The goal of AB38 is to modernize the California Film and Tax Credit Program to ensure that California's program is competitive and helps retain and bring back high quality jobs to expand the program to more productions, create more jobs and strengthen the program's competitiveness. This bill makes the following changes.

First, it raises the base tax credit rate from 20 to 35%, from 35% and from 25 to 40% for productions for filming outside the Los Angeles zone. It maintains the uplift incentives in the current program, including the 5% uplift for filming outside the Los Angeles area.

That makes our credit program roughly equivalent to Georgia's inside the Los Angeles zone and more than competitive for filming outside of the Los Angeles zone. It increases the overall qualified expenditures for films, TV shows and miniseries applying to the program.

It expands qualified productions to include 20 minute TV shows, reboots of TV shows, animation and certain large scale competition shows which were previously excluded from the program and we were losing many of these to other states.

It allows more independent productions to qualify for the tax credit and increases the set aside for independent productions from 26 million to 75 million, which also helps significantly for productions outside the Los Angeles zone. It expands access to the soundstage tax credit program by eliminating the 50% ownership 10 year lease requirement for productions using certified sound stages.

Again, this is something that is a big benefit for out of zone sound stages which were really harmed by that. It strengthens the existing program's reporting requirements to ensure that employers voluntarily given veteran status and aggregated zip codes of employees on a production are reported to the Film Commission and to the Legislature.

It provides flexibility for the California Film Commission to move underutilized tax dollars across different categories to ensure all dollars are used.

Very importantly, the bill for the first time includes a career pathway program with new incentives to bring trainees from historically disadvantaged underrepresented communities onto productions as trainees with an uplift of up to 2% for folks who hire one to four trainees without displacing anticipated hiring of experienced workers.

AB 1138, combined with Governor Newsom's and the Legislator's proposed increase in funding to $750 million as reflected in ABSB 132 will bring California back from the brink and this program embodies the values of our state. I want to thank you and now turn the microphone over to Senator Allen.

Well, thank you Rick and thank you for all your incredibly hard work on this difficult but very meaningful negotiation that we've had over the past year. So I appreciate the opportunity to co present AB 1138. As you know, we had an SB that came through this very Committee. We've now merged the two bills into AB 1138.

So this has ultimately been all about trying to ensure that we stop the runaway production that has been really impacting the entire Southland and California economies as other jurisdictions have been just flooding incentives at production. It's been so disheartening to hear the many, many stories and they're represented by some of the many organizations that are represented here.

You know, folks who just been out of work.

You know, Rick and I talked, you know, our good friend Jessica Calozza, who was just elected to the State Assembly, talked about how when she was going door to door in her district running for office this fall, last fall, there were a lot of people coming to the door middle of the week, during the day.

And these are people who had great, well paying, hard working jobs just a couple of years ago. And they're out of work now and desperate and trying to figure out what to do and where they're going to go and seeing their life flash before their eyes because so many of these jobs have suddenly disappeared.

One of the many good things about our work right now is that we know that this program can work, it does work. And we've seen how it has worked with the state budget and also from an effectiveness perspective. So we know that the previous tax credit program that currently exists has been a revenue, a net revenue generator.

We also know that it hasn't been as workable as it needs to. And it's one of the reasons why we've worked to tweak the rules to make it more workable for the studios.

We also know that the program was totally oversubscribed, There wasn't enough funding there, and something like three quarters of the projects that were unable to get money through the existing program took off and went somewhere else to do the work.

These were people that wanted to do the productions here in California and they took their projects, they took the job creation and they went elsewhere. That migration alone cost us about $1.5 billion in production spending.

And if you think about all the concomitant impacts of that, it's not just the folks actually working on the productions themselves, but there's all the people who work around the productions, the caterers and the transportation folks and the florists.

And I mean, there's so many, so many different layers of impact that when a production is either made here in California or it's taken outside of the state.

So just to give you a sense of, to kind of underscore this, between 2015 and 2020, the LA Economic Development Corporation did a report that they found that out of 157 projects, 157 projects out of 312 applied for the program but did not leave the tax credit. They then left California to produce another state.

So they found that something like $8 billion in total economic lost activity, 28,000 jobs, wages of 2.6 billion. So this bill ultimately is all about trying to make sure that we've got good jobs standards in place. This is really going to be about good California jobs and about workability to stem this runaway production tide.

And so it's in that spirit that I want to just thank you all the folks that work so hard on various levels from the studio side, on the labor side, independent producers, folks working on diversity issues and making sure that we're tracking. There's been so many different voices at the table.

We've also worked really hard on out of zone production to make sure that there's extra benefits associated with producing outside of the LA area. It turns out, Mr. McNerney, that your, your University of Pacific has been the site of Indiana Jones University lectures. That's the University where he teaches. It's filmed in Stockton.

So there's so many wonderful opportunities to film all over the state and we recognize that and that's also built into the bill. So with that, I'd love to introduce Rebecca Ryan who's here on behalf of the Entertainment Union Coalition.

Thanks so much. Nice to see everyone this morning. I want to thank the Committee and the bill's authors in particular.

I know this is the third time we've appeared before this Committee and we appreciate your past support and the opportunity to once again give voice to the 165,000 Members represented by the EUC who live and work in California, throughout California.

I can tell you that everyone represented, including the 400 Members, vendors and allies who've come up to Sacramento during this discussion and the thousands who've sent more than 250,000 letters in support are holding their collective breath as this process moves forward towards the finish line.

The authors have covered both the substance and the urgency, so I'll just touch briefly on the process. For the last six months, we've talked to numerous stakeholders about our goal. A competitive program that retains and expands the middle class jobs and protects the related businesses that our industry provides.

Jobs have been and continue to be our North Star. That meant we needed to value every dollar and direct it towards changes that would increase our competitiveness enough to lure production back but not make so many changes that the end result was the same number or fewer jobs with all of the additional resources.

So finding that balance required hard conversations and harder choices. We disappointed those who had hoped the program could do everything they had ever dreamed of. And in an uncapped program, you could do something. You could agree to every proposal. But in this program, we made the hard choices necessary to prioritize workers with careers in this industry.

And we stand by that decision today. Everybody's voice was heard, but not every need could be met. I do want to note, however, that yesterday's announcement by the California Film Commission revealed that Almost half, over 45% of feature films participating in the program will be filming outside of Los Angeles.

And in the previous allocation, Contra Costa, Oakland, Ojai, Merced and San Diego were among the filming locations noted. So this is a program that serves all of California, just like the EUC represents workers throughout the state. Nobody got everything they wanted, including Members of our own coalition and elected leaders.

But everyone in our industry, throughout our state, will benefit from these improvements. That's just a fact. And I want to say we recognize how many challenges the state is facing and all of the difficult decisions you are making that are before you. We appreciate your support.

Because what this effort shows is that government can and does work for working people. And for that, we're grateful. So I'm going to ask all of the Members here representing the EUC, all of our leaders here today to support, stand up and thank you for your support.

Thank you. I thank the witness. Quite timely. And now, any other witnesses in the room for support, please come to the microphone and limit your testimony to name, organization and position on the bill.

Morning, Mr. Chair. Chris McKayley on behalf of my clients, the Hollywood Chamber of Commerce and the Los Angeles Area Chamber of Commerce in strong support. Thank you.

Melissa Petak with the Motion Picture Association in support and also on behalf of the California Production Coalition. Thank you.

Good morning. Molly Mallow with Edelstein, Gilbert, Robeson and Smith on behalf of the Walt Disney Company in support. Thank you.

Good morning. Pat Joyce on behalf of NBC Universal in support. Thank you. Good morning.

Jackie Onis on behalf of Netflix, in support.

Good morning. Kimberly Rosenberger on behalf of the State Superintendent of Public Instruction, Tony Thurmond and Project co-sponsor.

Good morning. Jared Moss on behalf of the San Diego Chamber of Commerce in support.

Chloe King with Political Solutions on behalf of the Association of Talent Agents in support. Thank you so much.

Lori Johnson on behalf of the Latino Film Institute in strong support.

Clifton Wilson on behalf of the City and County of San Francisco. Currently, the position is support if amended, but we appreciate everything on the bill. Love it. And the concept as a whole. And we are reviewing the last set of amendments so just want to put out. Thank you.

Good morning. Tiffany Fan, on behalf of Sony Pictures Entertainment in support, thank you.

Good morning. Adam Keiguen on behalf of the Association of Independent Commercial Producers in support.

Good morning. Espon Nunez on behalf of Annaparna Productions and Black Bear Productions in support. Thank you.

Mr. Chairman and Members, Scott Wech on behalf of Blumhouse Productions, the State Association of Electrical Workers, California State Pipe Trades Council and the Western States Council of Sheet Metal Workers in support, thank you.

Jennifer West, Sacramento Film Commissioner, on behalf of Film Liaisons in California State in support.

I think the witnesses are there any lead witness in opposition? Seeing none. Any other witnesses in the room? In opposition, please approach the microphone. State your position. Seeing none, we will move to questions and comments from the Committee Members. Senator Ashby.

Yeah, thank you. I mean, obviously there's so much lined up opposition. I'm not sure what to do with myself here, but I've been a big supporter of this from the get go, both of you. Senator Allen is to be commended because it wasn't as popular as it is right now when he first took the mantle.

And you know, in a year like this, there are far more things that get told no than get this far. And I think one statement of our values as a Legislature is that we then support the one that is going to succeed. And this is it. I love economic development.

It is my favorite thing to do and I think part of California's very existence has to do with this form of creative economy economic development. It is so worth protecting like many others. I wish we could do more. I wish we could include music festivals. I wish we could do a lot of other things.

But that wish list can exist separate from also robust support of what we can do right now. So I choose to focus on that. And I think we're taking a motion today, are we not Chairman on this? So I'm happy to move the item. Proud of both of you for pushing this through.

And note, I am not from la, I am not in the LA delegation and I'm from Sacramento where I'm sure some of these dollars will trickle too as well. And we have a wonderful film Commission crew here, including represented in the audience today.

And I know they'll work hard to make sure that people know about the incentive package and that these dollars are spent across the entire Golden State. So congratulations to everyone involved and happy to support.

Thank you. Moments.

I'll just have to say because I'm just visiting here for today. But I, I hope that we can do the same model in other industries throughout the state that would be incredibly helpful for California as a whole and improve the economy as a whole.

So maybe we need to explore other areas and now you're the experts in this field and it could be a collaborative, bipartisan effort to ensure that we have same models that's been obviously very, very well thought of and worked with and move that forward in other areas.

So thank you for moving, for bringing this forward and for the collaboration and here's a great film industry in California.

Any other Member comments? Seeing none my comments. The hard working and behind the camera professionals in this industry and you can name the writers, the grips, the set designers to name just a few, are the best in the world and they are the ones that make the movie movies in California. The best in the world.

Their testimony of their experiences and their love for their craft in these three hearings have been clear and have convinced me that this bill's price tag is more than worth the investment in it. And I hope the investment pays off in California. In my district I want to make a correction.

The University of the Pacific in my district is a wonderful place, but I'm not really a teacher there. That's your next career. That's your next career. So I will be supporting this bill. Assemblymember Zbur and Senator Allen, would you like to close?

So first of all, thank you all. Thank you for the comments. You know, one of the things I'll say is that this bill is the same bill because Senator Allen and I ran identical bills in both houses that received 73 votes in the Assembly and 34 votes in the Senate.

The only changes were made were to add urgency, make one change that the Governor's office asked us to do and make a couple technical changes.

I am very grateful to Senator Allen for being such an important and wise partner in this effort and also want to thank everyone who's been part of this effort and the Entertainment Union Coalition. Askin Ivan.

Thank you Members for the wonderful comments and respect for astronaut and thanks especially to my great partner in this effort.

Thank you. The bill has already been moved so in that case I will ask the secretary to call roll.

[Roll call]

The vote is five bill 50 and the bill is out. Congratulations. Thank you very much. Thank you. We have concluded today's agenda. Thank you, everyone. The Senate Committee for Revenue and Taxation is adjourned.