The LAEDC study notes that the nine productions for which detailed information was available resulted in a total state and local tax impact of $1.08. These nine productions have relatively large budgets and are more likely than the remaining productions to receive a 20% tax credit, rather than a 25% tax credit. In fact, only one of the nine productions included in the LAEDC sample was eligible for a 25% tax credit. Thus the per dollar impact from the nine productions studied is likely to be somewhat greater than the per dollar impact from the remaining 68 productions, which include more productions receiving a 25% tax credit and which have, on average, smaller budgets. Smaller budget films tend to have fewer non-qualifying expenses (such as above-the-line salaries for talent) and importantly, tend to devote a smaller percentage of their budgets to non-qualifying expenses. Therefore, the amount of nonqualified expenses relative to the qualified expenses and the amount of the credit will be smaller for the remaining budgets than for the budgets analyzed by LAEDC. LAEDC’s analysis does attempt to account for this discrepancy. Extrapolating, as explained above, from the nine detailed production budgets, LAEDC found that in total, $198.8 million in credits were allocated during the first two allocation years of the program. Using the Minnesota IMPLAN model, LAEDC calculated that, as a result of the productions the credits support, $201 million would be collected in state and local taxes.14 Since the $198.8 million in credits will be distributed after the taxes are collected, the LAEDC accounts for the time lapse by using the present value of the tax credit.15 Dividing the amount of taxes collected ($201 million) by the credit allocated ($189.8 million in 2011 dollars), they find that for all 77 productions utilizing the first two years of funds, $1.06 will be returned for every $1 credited. When LAEDC does this same calculation for the nine productions for which they have full budgetary information, they find that $1.08 will be returned for every $1 credited. LAEDC uses the smaller rate of return in order to account for the fact that the productions in their analysis have qualifying expenditures that are nearly twice as high as those of participating productions as a whole. The consequence of this fact (i.e., a smaller percentage of expenses subject to the credit means a larger percentage of expenditures not subject to the credit) is that estimates based on the subset of productions examined are likely to overstate the overall return 14
LAEDC used both state and local taxes in their analysis because local tax receipts are an important part of the general benefit to the state of productions being made in California. 15 One issue that is not addressed in the LAEDC report is the fact that setting aside this money in the California budget means that spending on some other program or programs will be foregone. The study does not take this opportunity cost into account in weighing the costs and benefits of the California Film and Television Tax Credit.
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