The Real Reason Producers Are Fleeing California

Like a gunslinger firing his Colt in the air before leaving the saloon, Gov. Gavin Newsom had a parting shot for the entertainment business before he exits Dodge in January: Push the California film tax credit ceiling from $750 million up to $1 billion.

Having already stewarded a credit-ceiling increase from $330 million to the current $750 million just last year, the governor has the idea that saving Hollywood productions in California could happen with an upping of the ceiling by a major percentage again, along with some smaller related incentives. “California created the modern entertainment industry; we’re the capital of entertainment and we’re going to keep it here,” he said, sounding like a guy who’s forgotten he’s no longer campaigning.

Like that Western cinema hero’s gun, the move made a lot of noise. And like the Western cinema hero’s bullet, it will do little damage.

Even if the incoming legislature and governor can get the proposal through in a no-freebies-to-corporations climate (and tax credits do, advocacy insistence to the contrary, refund a corporation),, all the ceiling does is make it possible for producers to get more money; it doesn’t actually comprise the giveaway. The $750 million ceiling will likely be reached this year, but that’s no guarantee there will be enough qualified productions to fill the gap to a billion.

But even if all of that extra $250 million in allowances would be doled out, the idea that it would make productions stay is shaky and largely unproven. Financial incentives on their own are unlikely to induce many people to make a movie or change their mind about making it somewhere else. A substantial independent body of research now exists that shows a slightly cheaper production is actually only a small factor in where a film or TV show shoots, among many other often potent factors like actor schedules, locational necessities and producer preferences, on what is both a psychologically and logistically complex question with no single antecedent.

A landmark study by the Tulane economics researcher Patrick Button several years ago found that a tax-credit program was responsible for an average of 1 1/2 new TV series in a state — hardly evidence of a gamechange. “State film incentives had no meaningful effect on jobs in the film industry or related industries,” he concluded. All those giveaways don’t achieve their purpose; in fact for all those productions that would have shot in a state anyway, they just remove the tax revenue that would have gone to schools, roads and hospitals instead.

But the real reason expanding the California tax credit ceiling system is the wrong way to think about jumper-cabling the business is that it completely ignores the biggest disadvantage California has.

The state already boasts the most generous tax credit program in the country by many standards — as much as 45 percent for a large number of productions, compared with a cap of 30 percent in even a rebate-generous state like Georgia. What it lacks compared with Georgia is low prices. The cost of living in Georgia is a full 39 percent lower than California (the most expensive state in the Lower 48), which means housing, feeding and transiting a cast and crew is on a perennial near-half-off sale — the kind of thing some money in possible one-off incentives can’t come close to competing with. Of course, actually addressing affordability is a trickier task than issuing press releases.

The way you know that the real issue doesn’t lie with tax credit ceilings is that the already massive raise to those limits hasn’t seemed to help the problem at all: After the summer 2025 doubling of the ceiling caused a brief spike in production, Los Angeles shoot days are now actually down 23 percent since that time. Not exactly data that makes you say, “Let’s try raising it some more.”

Policymakers (with a boost from Hollywood lobbyists) tend to view the oversubscription to the California credit program as a sign that it’s working and that it is indeed stopping productions from leaving. But, of course, it doesn’t necessarily mean that at all. It just could mean that a lot of productions that would be in California anyway see an opportunity for more money.

Policymakers (with a boost from Hollywood lobbyists) tend to view the oversubscription to the California credit program as a sign that it’s working and that is indeed stopping productions from leaving. But of course it doesn’t necessarily mean that at all. It just means that a lot of productions that would be in California anyway see an opportunity for more money.

And while advocates will say, “hey, maybe it’s just the industry is shrinking overall and the credit expansion stems the tide,” well, it isn’t. New York has been growing fast, seeing more live-action features shoot last quarter than California, with an 87 percent increase in spending. This is about California losing ground, even with all the incentives.

California could stumble into luck if a state like Georgia drops its program entirely (less likely now with Tyler Perry advising Democratic Gov.-elect Keisha Lance Bottoms, though always possible) and it becomes a matter of 45 percent versus nothing. But short of such a turn — short of a bunch of other, cheaper states all but abandoning their programs — the legislature and the industry need to figure out more innovative solutions than just tinkering with credits around the margins.

Film and TV production has been one of the great historical stories of L.A., and its exit is one of the city’s most tragic sequels. But slathering on credits unthinkingly feels lazy and also something on which progressives might want to interrogate their own policy preferences. Supply-side economics (can you frame rebates as anything else?) has long been discredited as a labor stimulant, and it’s been a little amusing to see people who would oppose such giveaways in other aspects of corporate life embrace it as a great panacea in show business — especially when that giveaway can’t reasonably be claimed as a primary motivator of behavior.

No one here is being a hypocrite, not really; they’re just trying to solve a painful problem that resists easy solution. But they may want to saddle up their horses to run down California’s price problems first. It’s a lot more effective than firing blanks.

This story appeared in the Nov. 12 issue of The Hollywood Reporter magazine. Click here to subscribe.