California Gov. Gavin Newsom’s expansion of the state’s film and TV tax credits program to $750 million is still on track despite warnings from the state’s legislative analyst that budget deficits could ballon to as much as $30 billion by 2028-29.
Last week, the California Legislative Analyst’s Office (LAO) projected a deficit of $2 billion for the 2025-26 fiscal year in its annual fiscal outlook, a massive improvement from the $68 billion deficit the Golden State faced this past year. The budget is expected to be balanced with minor changes.
But the outlook beyond next year is a “little more precarious,” legislative analyst Gabriel Patek told reporters. “There’s really no capacity for new commitments, because we do estimate there to be these pretty significant operating deficits in the subsequent years,” Patek said.
Robert Rivas, speaker of the California Assembly, joined Patek in calling for fiscal caution.
“We need to show restraint with this year’s budget, because California must be prepared for any challenges, including ones from Washington,” Rivas said in a statement. “It’s not a moment for expanding programs, but for protecting and preserving services that truly benefit all Californians.”
Nevertheless, legislators and Hollywood stakeholders said they’re still confident they can usher the proposed tax-incentive expansion through the five-month budgetary process in 2025.
“We will need to convince our colleagues in the legislature that an increase in the tax program will not be a net negative on the budget,” Hollywood Asm. Rick Zbur told TheWrap. “Every dollar we spend as part of a tax credit brings back tax revenues because we are keeping job activity in California. Losing those jobs will have a net negative on the budget.”
Zbur said that while there will be plenty of negotiating and persuading necessary to expand the film and TV tax program, he doesn’t feel it will clash with the call for frugal choices in Assembly budget talks.
California’s relative budget stability was a major reason why Gov. Gavin Newsom announced last month he could support a more than doubling of the state film and TV tax credit program from its current cap of $330 million to $750 million. But the LAO’s report was released before Donald Trump won the election and announced details on tariffs he wants to enact on Canada, Mexico and China.
Trump’s proposed tariffs that would add 25% to all goods from Canada and Mexico and an additional 10% on Chinese goods. China and Mexico accounted for 40% of all of California’s imported goods last year, according to the LA Times.
California isn’t the only state debating film and TV tax credit programs. Earlier this month, the Louisiana House of Representatives voted to eliminate its production incentives entirely as part of a larger package proposed by Louisiana Gov. Jeff Landry that would eliminate all of the state’s tax programs and replace them with lower corporate tax rates.
Following the House’s approval, hundreds of film workers showed up at the state capitol in Baton Rouge to urge the Louisiana Senate to restore the incentive program. The Senate did so, though they lowered the program’s cap from $150 million to $125 million in the final package approved by the legislature.
Newsom’s proposal would top the $700 million program offered in New York and make California’s the second largest incentive program in the country behind Georgia, which has no cap.
Dozens of states have introduced tax incentives to develop their own film industries, though the actual economic benefit of those programs has been brought into question. In its most recent annual report, the New York Department of Taxation and Finance found that expanding its film incentive program from its previous cap of $420 million created a net loss for the state, generating just 31 cents in revenue for each dollar spent.
Newsom, Zbur, and other proponents of the California expansion, which include Hollywood unions like Teamsters 399, argue the expansion is necessary to keep California as the country’s top state for production — and to remain competitive not just nationally but internationally.
Major blockbusters like the current box office hit “Wicked” are being shot in London. And productions that aren’t currently eligible for California incentives, like reality TV and game shows, have fled the state for more favorable tax credits elsewhere.
This has exacerbated the financial strain on California entertainment production workers who have seen their savings depleted by last year’s 191-day double strike, with many of them struggling to find employment over the past year. The most recent quarterly report from FilmLA found that the number of on-location shoot days in Los Angeles County in Q3 2024 sank 36% below the five-year average, driven primarily by a steep decline in reality TV shoots.
“An expanded film and television incentive program has implications in the budget, but it works both ways because it is not a set of expenditures,” Zbur said. “The film tax credit will result in fewer tax revenues coming in from the entities receiving them, but it will result in more tax revenues coming from the increased jobs and economic activity that will be retained.”
