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COVER STORY: Eric Garcetti needs to convince skeptical politicians to fight against rich tax incentives from outside California

Los Angeles’ new mayor has vowed to help stanch the flow of film and TV production jobs out of Hollywood, starting with the appointment of a film czar at City Hall. But to make a real difference, Eric Garcetti needs to convince skeptical state pols to combat the lure of rich tax incentives from outside California.

Two days after this year’s Oscars, Hollywood’s councilman Eric Garcetti, then running for mayor of Los Angeles, staged a media event at Sunset Gower Studios.

Only a smattering of reporters and photographers showed up, perhaps because the gathering was to address “runaway production,” a buzzword that means little for those outside the industry and, for insiders, is a timeworn term for a chronic, unresolved problem alongside piracy and studio accounting.

But Garcetti, a series of location managers and other crew workers who spoke in late February tried 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.

“I am starting to see people who have never made a feature film in Los Angeles,” Chris Baugh, location manager for Oscar winner “Argo,” which actually shot in L.A., told the small group outside a soundstage. “In fact, they are afraid to. They are concerned that it is too expensive and too difficult.”

These days studio chiefs insist that filmmakers they work with take advantage of out-of-state incentives to lower production costs, which on a single major motion picture can amount to savings of tens of millions. Those savings are crucial in a franchise-obsessed era when big-budget movies commonly cost north of $200 million to produce, while on the revenue side the DVD market has largely collapsed and cinema attendance has been generally flat over the past decade. In the current climate, most independent projects would not even be produced without incentives.

With the rise in the past decade of state tax breaks for movie and TV filmmaking, California, with its own modest incentive program, can’t compete when the bottom line is the sole factor in deciding whether to shoot in the Golden State.

It is no longer a given that Hollywood is the place where movies and TV shows are produced.

The California Film Commission recently released a sobering report concluding that the state “continues to experience a pronounced erosion of this signature industry.” Although the state’s incentive program has recaptured lower-budgeted features, TV movies and basic cable dramas, California is losing out big on network TV dramas and feature films. Many local businesses that support production have closed or been forced to lay off workers, and the trade unions report high levels of unemployment among their California members, according to the study.

After decisively winning L.A.’s top elective office, Garcetti put the flight of production atop his agenda. But the challenge is not only to convince those outside the biz that the city and region, to use his word, has an “emergency” on its hands, but that the state must do more about tax breaks that are still perceived by many as a giveaway to the glitterati.

Other mayors have talked about the issue; none have cited it as a priority in their inaugural address, as Garcetti did on June 30. Suggesting that it was important to act when “my political capital is strongest,” he vowed that he would create the position of film czar, who would be responsible for making the production process as smooth as possible through the thicket of City Hall red tape, and perhaps more importantly, would be the face for an industry that has historically kept a distance from downtown. Garcetti hopes to have the czar in place by the fall.

The two would presumably work closely together, much like New York City Mayor Michael Bloomberg and film chief Katherine Oliver have successfully done, to help boost L.A.’s production activity and rebrand the City of Angels as the entertainment capital of the world once again.

Earlier this year the City Council passed a set of initiatives to waive fees for TV drama pilots, which next to feature filmmaking may be the most important production category to flee the area.

Yet even if the city is ready to smooth over the bureaucratic bumps for any kind of production, it won’t change the fact that the determining factor in whether a project shoots here or in Louisiana lies in the hands of lawmakers in Sacramento, where the sense of urgency over this issues competes with many other voices and industries with differing agendas, all calling for something to be done. Now.

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Capitalizing on Clout

Garcetti has pledged to leverage his new position to be an ardent lobbyist for rescuing Hollywood production despite all the hurdles. He and his constituents must now convince Sacramento that the threat is real.

“Tomorrow we are not going to wake up with an unlimited cap on credits,” Garcetti says. “But we have to show forward progress, and I am going to be like a dog with a bone on this and stay with this. I can’t single-handedly move Sacramento, but I think we will do what works to educate our lawmakers…that this is a huge shot in the arm for our economy to land a lot of this back.”

Skeptical lawmakers can say that the state already has done what it can: its $100 million-per-year incentive program may not match those of other states (New York’s is about $420 million) but is certainly better than nothing. California elected officials renewed the program, in the midst of ever-tight state budgets, twice. The most recent renewal, a two-year extension to 2017, was passed overwhelmingly even after a state legislative analyst report concluded that the economic benefits of providing incentives would be a wash, or even a slight net loss, to the state’s coffers.

When it comes to expanding the program, Garcetti already has talked to Sacramento leaders and, he says, there is one key figure who “still needs to be convinced”: Gov. Jerry Brown.

“We had a great conversation. He doesn’t suffer fools lightly, and you better bring your data, but I did,” Garcetti says. “I showed him the impact, the multiplier effect, the benefit to the state treasury. Some studies have shown, at worst, some small debit to the state treasury, which is then multiplied many times over in economic activity. And I underscored the importance that this is a signature industry.”

Garcetti says the most unfavorable study he’s seen shows the state losing 7¢ on every incentive dollar. “But maybe that dollar is multiplied five times (by the economic activity spurred by production). If you told me I could spend 7¢ and get $5 of economic activity, or to put this in real numbers, that I could spent $70 million and get $5 billion, that is a pretty good deal.”

A spokesman for Brown said the governor was unavailable for comment. But Kish Rajan, director of Brown’s office of business and economic development, said they “will be working with industry leadership to enhance the business climate in California so this critical economic sector continues to thrive.”

This fall, the coalition that has traditionally pressed for incentives, which includes the MPAA, the Directors Guild of America, the Teamsters and IATSE, will be setting the stage for a push to expand the program in next year’s budget. A priority, says one studio executive, will be to win over powerful groups that have been opposed, such as the California Teachers Assn. The teachers’ chief argument is that budget cuts have already pinched their members, so how can the state possibly think about giving out tax breaks?

Bonnie Reiss, who advised former Gov. Arnold Schwarzenegger on establishing the production tax incentive program, says that while remedying runaway production is important, “it still has to compete with other budget priorities, and until there’s more revenue, it’s going to be a very difficult challenge to get that done in the state legislature.”

Indeed, the state’s tax credit was conceived in the cauldron of fiscal uncertainty.

For more than a decade, lawmakers, largely from the L.A. area, pressed for production tax incentives in California, but the legislation stalled. Schwarzenegger filled the California Film Commission with high profile personalities, like Clint Eastwood and Danny DeVito, in the hopes of making a stronger case. But not until his penultimate year in office did he see the incentives come to fruition —as part of an overall package to resolve the state’s budget crisis.

“Ugly Betty” had just left L.A. for New York — a psychological and financial blow representing a reversal of the historical migration of production from East Coast to West Coast. Schwarzenegger, in an interview just before leaving office, said that it came to a point where his opponents needed something, “and I just leveraged it.”

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Crying Wolf

Hollywood’s production exodus is hardly a new issue.

At a Hollywood Palladium event to press the case for action on runaway production, California’s governor, a recently elected U.S. senator and a major filmmaker showed up at a rally entitled “Is Hollywood through as the film capital of the world?”

That labor-organized event was held 43 years ago, with Gov. Ronald Reagan, Sen.-elect John Tunney and producer Robert Wise headlining the bill.

Read more at Variety