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L.A.’s mayor says states are luring Hollywood away from Hollywood

“R.I.P.D.,” which has grossed just $33 million, benefitted from almost $27 million in Massachusetts film tax credits last year. (Scott Garfield/Universal Pictures.)

There’s a state of “emergency” in Tinseltown. Or so says its mayor.

Los Angeles’ new mayor Eric Garcetti sounds the alarm in the cover story of this week’s issue of Variety, the entertainment news magazine. The city’s film industry, he says, is being lured away by lucrative tax breaks:

Garcetti, a series of location managers and other crew workers who spoke in late February tried to convey a message of urgency: Hollywood’s homegrown industry is being ceded to other states and countries whose favorable tax credits are increasingly luring away movie and television production at an alarming rate. As competition both in the U.S. and abroad continues to grow, the state’s market share and longtime stronghold on production jobs and spending are fast evaporating.

A California report in July confirmed that the state was losing spending and revenue  as film and TV productions move away, with the situation being “especially dire for TV series production.” And Garcetti acknowledges that trying to keep blockbluster production in the city may be a losing battle.

“We lost feature films,” he told Variety. “That’s sad. They may come back to some degree, but probably by and large they won’t.” Instead, he said, it may be best to focus on commercials, premium cable and videogames.

L.A.’s crisis is a reflection of a broad, nationwide trend: Over the past 20 years, there has been an explosion of state-level film tax incentives. In 1999, there were just four states offering film tax credits, according to the nonprofit Tax Foundation (which produced the awesome GIF below). Now, the majority do.

State adoption of film tax credits, 1992-2010. (Tax Foundation)

But Los Angeles’s problem could sort itself out. States and cities facing major budget crunches have slowly been ratcheting back or eliminating their tax incentives, concluding that the tax breaks didn’t bring in enough new revenue or actually cost the area money.

In D.C., for example, a commissioned study found that incentives from 2007 to 2009 actually lost the region money.

“[F]or every dollar D.C. spent on the incentive program, it lost 77 cents,” WAMU’s Patrick Madden, who obtained the study, reported today. “According to a city document, the analysis concludes the program is ‘costly and ineffective’ and ‘not a practical use of D.C. taxpayers money.’ “

An April Louisiana report found that in 2010, the state lost 85 cents on every dollar of film credits it offered. Connecticut put its film credit on a two-year hiatus after having doled out $137.4 million in tax credits over seven years, the Wall Street Journal reported in June. A Massachusetts report last year found that, on average, just one local job was created for every $128,575 in film credits. And experts at the state and federal level routinely criticize such breaks for costing states money and failing to create lasting work.

“They create temporary jobs associated with the filming of the production, but people don’t settle in some remote location just because they filmed a film there once,” says Scott Drenkard of the nonprofit Tax Foundation, which has tracked and criticized such incentives. “So that argument is not very good, and I think the main reason that politicians get behind these things is that they think that they’re sexy and they like seeing their state on camera. That’s a very, very expensive way to fund tourism promotions.”

While state film tax breaks have had mixed reviews, they may not be such a bad deal for L.A. A 2011 study by the Los Angeles County Economic Development Corp. found that every dollar in tax breaks yielded at least $1.13 in returned tax revenue to the region. And a follow-up involving the University of California, Los Angeles, found a reduced return on investment of $1.04, still better than the losses incurred by D.C. and Louisiana.

Niraj Chokshi is a general assignment reporter for The Washington Post.

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