Could a ballot measure gut California's film/TV tax credit?

A man wearing a jacket, face mask and a hat filming another man in a collared shirt holding a phone to his ear on a film set

June 11, 2024 2:09 PM PT

SACRAMENTO — Eager to negotiate off the 2024 ballot a measure that would make it harder to raise taxes, unions are alleging that the initiative would end a California program that awards hundreds of millions of dollars annually in tax credits to television and film studios.

The claims are part of an effort by unions to increase pressure on business interests backing the measure to strike a deal to remove it from the November ballot, which remains possible amid an intense negotiation period at the state Capitol. If the concerns about the tax credits catch on, movie studio executives could be a powerful addition to the opposition campaign.

Losing film and television tax credits would be particularly damaging as the motion picture industry struggles to recover from the COVID-19 pandemic, two major strikes and an ongoing industry contraction.

“This thing has the potential to devastate our industry and the jobs that support it, as well as those that are touched by this industry,” said Thom Davis, president of the California IATSE Council, part of the Hollywood crew members union International Alliance of Theatrical Stage Employees.

So far, no movie studios have joined the opposition campaign led by the Service Employees International Union California, California Teachers Assn., Northern California Regional Council of Carpenters and the State Building & Construction Trades Council of California.

Warner Bros. Discovery and a lobbyist for the Motion Picture Assn. declined to comment. The Times reached out Tuesday to several other major studios, including Disney, NBCUniversal, Sony, Paramount and Netflix, for comment.

The California Business Roundtable, a proponent of the measure, pushed back on the union claims. The film credits are a tax deduction, not an increase, and would not be affected by the ballot initiative, the business organization said.

“We’ve been waiting for these kinds of scare and intimidation tactics for weeks,” said Rob Lapsley, president of the California Business Roundtable.

Removing the Taxpayer Protection and Government Accountability Act from the November ballot is a top priority of labor unions and Democrats, who are afraid voters will support the proposal and tip the balance of power in Sacramento.

The proposal, pushed by Lapsley’s group and the Howard Jarvis Taxpayers Assn., strips the Legislature and the governor of the ability to increase taxes without statewide voter approval. The measure could limit state and local funding and make it more challenging for the governor and Legislature to generate funding for new programs or respond to an economic crisis without sacrificing their own policy agenda.

The measure would have a “chilling effect on government’s ability to invest in services and infrastructure that the state of California and Californians need in order to grapple with all of the challenges ahead,” such as climate change, an aging population and the rise of artificial intelligence, said Keely Bosler, a former director of the California Department of Finance who is working with the opposition campaign.

Gov. Gavin Newsom and Democratic state lawmakers petitioned the California Supreme Court in September to intervene, arguing that the change revises the California Constitution and should require a two-thirds vote in the Legislature to appear on the ballot. The high court heard oral arguments on the case in May and could offer a ruling to strike the measure from the November ballot.

Lawyers for the proponents and the opposition campaign disagree over whether the measure will have an impact on film and TV tax credits.

The measure asks voters to require local governments to vote on all fee increases, which can now be approved administratively. The threshold to increase local special taxes would increase from a majority to a two-thirds vote of the people.

Fee increases at the state level, which are often approved by state agencies and boards, would need support from a majority of the Legislature. The ballot measure also would expand the requirements necessary for a statewide tax increase, which currently can be done with a two-thirds vote of the Legislature. Under the measure, support from a majority of California voters also would be required.

The measure expands the definition of taxes and restricts the use of fees to cover only the cost of the service, potentially prohibiting government from redirecting revenue to other purposes.

Opponents say California’s film and TV tax credit program — which underwent a significant makeover in 2023 — could be in jeopardy due to a provision in the proposed ballot measure declaring that “any change in state law which results in a taxpayer paying a new or higher tax” must be passed by at least two-thirds of the Legislature and approved by a majority vote of the people.

A retroactive clause states that “any tax or exempt charge adopted after January 1, 2022, but prior to the effective date of this act” that was not implemented according to the above rules will be void one year after the measure is passed, “unless the tax or exempt charge is reenacted in compliance with the requirements.”

Detractors have interpreted those excerpts to mean that state Senate Bill 132 — a 2023 law extending California’s film and TV tax credit by five years and incorporating a new “refundable” feature permitting certain studios to qualify for direct payments from the state — would be overturned if the ballot measure passes in November. SB 132 isn’t scheduled to go into effect until 2025, so the opposition campaign is sounding the alarm about future funding to the tax credit program.

Unions began delivering the warnings in the final stretch of budget negotiations at the Capitol. Newsom and Democrats are negotiating among themselves and with unions and other interest groups about delaying an increase to the minimum wage for healthcare workers to $25 per hour and a pause on tax credits for businesses to close California’s $45-billion budget deficit.

Those talks are intertwined with conversations about the 2024 ballot measures. Under state law, proponents have the ability to withdraw their measures from the ballot before the June 27 qualifying deadline. Lapsley said he has been open to having talks about the provisions of his measure with opponents, but that hasn’t happened.

“We’ve been crystal clear that we would respect anyone who wants to sit down and have a discussion,” Lapsley said.

But Lapsley has also been adamant about the need for his proposal.

“The importance of [the Taxpayer Protection and Government Accountability Act] for the statewide business community as a long-term check and balance against a permanent two-thirds super majority progressive Legislature far outweighs any individual elements that they may be talking about at this point,” Lapsley said. “So that is our perspective on this, and that is why we continue to just move forward.”

The potential effects of the measure on the film tax credit could be a compelling argument for unions.

California awards about $330 million annually to dozens of entertainment companies that film in the state — a relatively low number compared with more attractive tax programs offered by production hubs in other states and countries that compete with Hollywood for business.

Industry insiders and experts have cited the weakness of California’s tax credit program as one of several reasons why film and TV production has been declining in the state. A recent report by the Otis College of Art and Design found that Los Angeles’ share of domestic film and TV employment dropped 8% last year, losing ground to rivals such as Atlanta and New York.

A complete reversal of SB 132 would spell “absolute devastation” for the local entertainment community, Davis said. The Hollywood crew members he represents are already hurting badly from last year’s work stoppages and the sluggish return to production.

“California would just not be able to compete anymore,” Davis said.

“The questions [entertainment workers] are asking is, ‘Why would they do this to us?’” he added. “It’s almost like a personal attack.”