Tax credit: Lights, camera, action

California’s TV and film tax incentive appears as popular as ever, despite a rash of negative news coverage of an FBI undercover sting of a state senator in which an industry tax break figured as a lure.

“The FBI could have picked any topic from any industry to mount a sting,” Assemblymember Raul Bocanegra, D-Los Angeles, said recently at the Hollywood Chamber of Commerce’s 2nd Annual State of the Industry Conference.

“I want to be clear, the integrity of the program itself was never questioned,” Bocanegra said, addressing the dark cloud looming over the incentive program. “This is the most transparent tax incentive program that California has and this will not in deter us in any way next year.”

The freshman lawmaker’s first bill, AB 3, is a tax credit extension for the state’s entertainment industry, building upon the credits that already exist.

Many in the industry see the tax incentives as an important means of keeping Hollywood jobs in Hollywood.

Bocanegra’s bill is sitting in the Committee on Arts, Entertainment, Sports, Tourism and Internet chaired by Assemblyman Ian Calderon, D-Whittier, whose staff said the committee will hear the bill in January.

There is irony here: Calderon is a member of a political family with deep ties to the Capitol. His uncle, state Sen. Ron Calderon, D-Montebello, is under a federal investigation for allegedly pushing a tax credit bill for the film industry in return for $88,000 in bribes, in addition to other activities. Calderon, who allegedly was bribed by a phony film producer look for tax breaks, has not been charged.

Bocanegra said the year was spent conducting meetings and outreach to improve his bill, and that the size of the tax break is likely to be significantly increased early next year.

“It will be longer and it will be larger. We cannot settle for one-year extensions at $100 million a year. We simply have to think bigger,“ Bocanegra told his Hollywood audience.

For the film industry’s workers, the tax credit is seen as vital and a crucial way of curbing an exodus of jobs.

“I think the toll on the individual as well as their families is pretty remarkable,” said Robert Lamkin, owner of Chef Robért Motion Picture & Television Catering and an advocate of the state’s incentive program. “I’ve seen a lot of friends move to Louisiana, Atlanta, Illinois, New York—because they can get more work there and continue to raise their families.”

 For every tax dollar invested into to the program, California sees anywhere from a $1.04 to $1.13 in return, according to a report by the non-partisan Legislative Analyst’s Office, which advises the Legislature on fiscal issues.

Lamkin’s company, which started off in 1999 with a single truck and homemade commercial barbecue, now has four crews working on various film and television projects at any one time. He argued incentive programs used to attract large productions to California have positive repercussions for crews like his working on sets.

“It strikes me that our rebate benefits people like us, people like the guys that work for us,” Lamkin said. “I understand there’s that sense this is corporate welfare… but really it goes directly to working class people. It benefits them greatly. “

The state’s investment into these incentives is fiscally wise. For every tax dollar invested into to the program, California sees anywhere from a $1.04 to $1.13 in return, according to a report by the non-partisan Legislative Analyst’s Office, which advises the Legislature on fiscal issues.

In the past, the film and TV incentive program has been sustained by incremental extensions of a year because longer period could not get through the Legislature. Former Assembly member Felipe Fuentes, D-Los Angeles, unsuccessfully sought a five-year increase back in 2011 and then again in 2012.

California’s Film Commission, using an annual lottery, randomly administers the tax credits for qualified feature films with budgets exceeding a million dollars but less than $75 million. When the state’s $100 million annual cap is depleted, remaining applicants are placed in queue order on a waiting list to receive any credits as they become available.

“[Producers] can’t plan for a lottery on one single day. We need to be able to look out a year in advance and say what is the cost structure for that film,” said Paramount Studio Group President Randy Baumberger, another panelist at the Chamber of Commerce event and a critic of the state’s incentive policies. “California is at a disadvantage by having all of the money gone in a few hours.”

The extensive investigation was disclosed after the cable television network Al Jazeera America reported the contents of a 124-page FBI affidavit that detailed the undercover investigation. Sen. Calderon’s Capitol offices were raided in June as part of the investigation.

“It’s hard in our tax incentive structure—the lottery process—it’s hard for [movie studios] to even make plans,” Lamkin said, noting that some companies head to other states for a better deal. “When they can make plans then they can quantify how much things are going to cost. As opposed to holding up operation in the hopes of getting a rebate with a lottery process, where all of the funds are taken within hours of when it opens.”

“Virtually no feature films are shot in L.A. anymore. What producers need are commitment and consistency,” Baumberger said. ”What producers are looking for is to be able to plan out 3 or 4 years.”

But the tax incentive program may be tainted by a recent FBI probe into the state Senate, in which undercover investigators posing as independent film industry executives used a film and TV tax credit bill to probe Ron Calderon. He has since filed a complaint with the federal court that the document was illegally leaked by a publicity-hungry prosecutor.

The extensive investigation was disclosed after the cable television network Al Jazeera America reported the contents of a 124-page FBI affidavit that detailed the undercover investigation. Sen. Calderon’s Capitol offices were raided in June as part of the investigation.

According to a sealed affidavit, Sen. Calderon received bribes in return for promising to push forward a bill to extend the incentive program. The lawmaker failed to deliver on his word, but the disclosures succeeded in raising questions about the validity of the program.

Addressing what he called the “elephant in the room,” Bocanegra said “[I]n the real world, this shouldn’t impact the effort to make the California film tax credit what it should be. But this is Hollywood. And you know better than anyone else how perception can trump reality.”

A public perception problem is that the tax breaks are seen by some as favorable treatment for billionaires

Bocanegra said because the investigation took place before more than half of the members of the Assembly were even elected, it shouldn’t affect the film tax credit effort.

But overcoming the stigma of being a “bailout for billionaires” is a big challenge for the program. The first-year legislator said it’s important to hear from those small businesses, middle class and working families like Chef Robért, who work for the industry and also benefit from the program.

In the LAO’s analysis of a report by the Los Angeles Economic Development Corporation, the motion picture and video industry translated into 159,000 jobs for California in 2009 and an estimated $48.5 billion in output.

Entrepreneurs like Robert Lamkin are concerned these dollars won’t remain in California because of incentive competition.

“Investors in these prospective states are just pouring money into the infrastructure, because they can attract projects with the incentives they offer,” Lamkin said. “Atlanta is busting at the seams… building two more state-of-the-art sound studios and stages. When I started seeing that, that’s when I got that much more concerned. All of those investment dollars could be concentrated more in California.”