As reported by Deadline, a decade has passed since California’s film and television tax credits program underwent its last significant reform, but now, Governor Gavin Newsom is poised to announce a substantial enhancement to these incentives aimed at rejuvenating the state’s pivotal entertainment industry.
During a recent press conference at Raleigh Studios, the Governor disclosed plans to elevate the state’s tax credits from the current $330 million annually to approximately $750 million each year, as reported by sources familiar with the situation.
However, this significant increase will not be implemented immediately; it must first secure approval from the Democratic majority in California's legislature as part of the budget for the 2025-2026 fiscal year. In this crucial election year featuring competitive races, the announcement intends to reinvigorate local confidence within an industry that has faced a sharp decline in production levels in Los Angeles and across the state over the past year.
At the press event, Gov. Newsom was accompanied by Los Angeles Mayor Karen Bass and a coalition of labor leaders, industry advisors, state officials, and below-the-line personnel. Mayor Bass has been an advocate for increasing state tax credits to counteract what she described to Deadline in August as the “slowing” of production within the city. With L.A.'s production down by double digits in 2023, she has even suggested the possibility of introducing a local tax credit.
Regardless of the potentiality of that local initiative, it has been evident, even prior to recent labor disputes, that California’s tax credit program necessitated reform. An industry insider remarked, “The program is oversubscribed and out of date,” commenting on the existing structure, which provides 20-25% tax credits for studio films, independent films, new television series, and relocating shows. “So many productions don’t even apply because there is such a slim chance they’ll be successful. And the industry, the crews, and content delivery methods have changed dramatically over the past 10 years, so what the state offers doesn’t meet basic needs, and barely competes with Atlanta or Canada.”
While the announcement will indeed boost the funding allocated to the program, other aspects of the California Film Commission-administered initiative will remain unchanged, according to insider reports. There will be no new categories or percentage changes—merely an increase in available funds. The expectation from Sacramento and its partners in the studio, streaming, guild, and civic spaces is that the augmented funding will make the program appear more accessible to prospective applicants eager for tax credits, thus enabling better project planning.
As a term-limited governor, Newsom is anticipated to face little resistance in securing this funding increase in next year’s budget negotiations. Despite the need to cut various financial allocations and progressive initiatives to address a projected $46.8 billion budget deficit, the film and television tax credits program has managed to avoid cuts, thanks in part to its demonstrated economic benefits.
Even amidst a slowdown in the media industry, a report released in 2022 by the Los Angeles Economic Development Corporation indicated that for every dollar allocated in tax credits, California sees a return of at least $24.40 in economic output, $16.14 in gross domestic product, $8.60 in wages, and $1.07 in state and local tax revenues. These figures are likely to be highlighted by Gov. Newsom during today’s announcement.
Furthermore, this proposed increase, which comes a decade after the current tax credit structure was established, will make California the leading source of capped production tax incentives in the nation—at least on paper. Currently, New York, which expanded its incentives by $280 million last year, offers about $700 million but combines that with various other local offsets and exemptions across its jurisdictions.
As states such as New Jersey, Nevada, and Utah ramp up their tax incentive offerings, Georgia and Louisiana remain significant contenders against California. The Peach State, though still recovering from the production halts associated with the recent WGA and SAG-AFTRA strikes, has consistently attracted more large-budget productions than any other state in the U.S., thanks in part to its uncapped incentive program, which ranges between $900 million and $1.2 billion annually. Productions filmed in Georgia benefit from a 20% base transferable tax credit, plus an additional 10% “uplift” for featuring the state’s logo in their credits for five seconds or for engaging in alternative marketing promotions, as detailed by the Georgia Department of Economic Development.
The proposed adjustment to California’s tax credit program is poised to disrupt the current incentive landscape. However, this could incite rival states, Canadian provinces, and even European nations to bolster their own offerings. Conversely, therein lies a possibility that certain states may opt to reduce their caps and incentives to manage budgetary constraints while remaining competitive. With recently increased credits, it seems unlikely that New York would raise its incentives again to outpace California.
Originally implemented as a modest $100 million lottery system, California’s tax credit program was significantly overhauled in 2014 under Gov. Jerry Brown, who sought reelection. This revamped initiative emphasized job creation and sought to entice television productions from locations like Vancouver, New York City, and Atlanta, while also allowing big-budget films eligibility for the incentives. Following the pandemic's impact on productions, the program was boosted to $420 million for a two-year period in 2021, which included increased credits for the creation of more soundstages.
With the backdrop of collapsing production and limited new content to utilize those soundstages, the most recent renewal of the state’s film and tax credit program, known as SB 132, received overwhelming legislative approval last year. This renewal extends the so-called 4.0 program for an additional five years starting in 2025, set with a $330 million annual allocation that can now be refundable against tax liabilities. Despite this extended duration of stability, Hollywood has continued to face challenges, with uncertainty looming over approximately 700,000 jobs tied to the industry.
One pressing concern raised by television productions is that a significant portion of funds available for smaller projects has been dominated by the same longstanding successful applicants. Consequently, these ongoing commitments limit the availability of credits for new entrants into the system, often resulting in a highly competitive and constrained application process.
Currently, $132 million is earmarked annually for new television series, miniseries, recurring shows, and pilots, alongside $56.1 million designated for relocating TV series. For films, the annual allocations average around $115.5 million for features, $10.56 million for independent films exceeding $10 million in budget, and $15.84 million for those with budgets below that threshold.
As the industry awaits the ramifications of this new proposal more than doubling California’s film and television tax credit program, it's worth noting that the last application period for television credits closed on October 23rd, with approvals set for November 25th. For the film sector, the subsequent application window will occur from January 25th-27th, 2025, with successful applicants expected to be notified by March 3, 2025.
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