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California lost more than 16,000 jobs in an eight-year period due to film and television production leaving the state, according to a report by the Milken Institute on Thursday.
The report blamed mounting job losses on staggering competition from states like New York that lure production away from California with generous tax credits. New York hands out $420 million in film tax credits each year--roughly four times what California offers.
The report's authors warned that if state leaders don't act soon, more jobs will be lost and the state is in danger of losing its status in the entertainment industry.
"We've been seeing this ongoing erosion," said Kevin Klowden, one of the authors of the report. "What is happening is we're essentially sending our California-based workers out of state or out of the country."
Klowden said New York is California's greatest competitor in the U.S. for film and TV production jobs.
While California lost 16,137 film production jobs during 2004 to 2012, New York gained 10,675 jobs during the same time period, the report said.
Erosion began with Canadian incentives
The erosion of California production jobs began in 1997, when places in Canada started offering financial incentives for films. Then, other states followed with their own incentive programs in 2005, which continued the shedding of production work from California, the report said.
California didn't start its own film tax credit program until 2009. By that time, the damage was already done. Today, the competition for production work has increased, with 43 states offering entertainment incentives, the report said.
John Hadity, an executive vice president at EP Financial Solutions in New York and a former Miramax executive, said those incentives are "a mandate" these days.
"You just can't make a movie without utilizing one of these incentives some place," Hadity said. "At the studio level, at the network level, these people depend on incentives to mitigate some of the risk on the inflated cost of production."
Production moves elsewhere
Those financial pressures have pushed studios to move their productions to places that offer tax incentives, the Milken report said.
In 2004, other states were involved in 108 films, compared to California's 128 films, the report said. That reversed in 2012, when California was involved in 104 films, and other states offered incentives for 142 films, according to the report.
RELATED: How California's film flight has affected Angelenos
One of the films that took advantage of tax incentives from North Carolina was Iron Man 3. The film, shot mostly in North Carolina, had to spend $33 million on non-North Carolina resident, non-talent labor, the report said.
TV production has also suffered in California. The state lost 11 hour-long television dramas between 2005 and 2012, the report said.
Current state of affairs
Despite the loss of production jobs, "permitted production days" is actually up 10 percent from 2012 to 2013, according to Forecast LA. However, most of the increase in recent years is due to "lower value" productions such as reality TV shows or student films, Forecast LA said, citing information from FilmL.A., which processes film permits in the city and county of Los Angeles.
RELATED: On-location film production in LA is moving elsewhere
The demand for tax credits also remains high. This fiscal year, there were 380 applicants and only about 40 will get tax credits, said Amy Lemisch, executive director of the California Film Commission.
"We are over subscribed every year," Lemisch said.
There is so much interest in the program, that after film and TV projects apply, they are put into a lottery system that will determine the order of which projects will be evaluated for the tax credit first.
But Lemisch emphasized the program has been successful at retaining jobs. Since the program began, it has retained more than 270 projects, which have spent $4.75 billion in the state, she said.
What happens next
The Milken Institute believes there is room for improvement and makes a number of suggestions on how to improve California's position for film and TV production. First, the institute said in its report that the amount of tax credits that California gives out annually ($100 million), should be increased so that there is no longer a lottery system and the credits can be given on a rolling basis. The report also suggests the state not have a "sunset date" for the tax credit program, opting instead of a "periodic review."
The report recommends money spent on digital visual effects and animation also qualify for filmed production incentives and establishing a "digital infrastructure investment credit" that would be under the state's R&D tax credit.
Some of the report's suggestions are already in a bill that was introduced in the state legislature last weeks. That bill aims to expand the state's film and TV tax credit program to a wider range of projects, including new, one-hour TV series--regardless of where or how their distributed. The bill also proposes letting big budget films apply for the tax credit.
RELATED: Legislators introduce bill to expand California film and TV tax credit program
Assemblyman Richard Bloom (D-Santa Monica), one of the co-authors of the bill, said he would like to see the state consider increasing the tax credits to film and TV by starting at the $420 million level, similar to New York.
"We need to stop looking at this as something that we need to address a little bit. We're under siege in California," Bloom said. "We lost the aerospace industry largely because the leadership in the state of California didn't act appropriately when other states were luring that business community away. We can't afford to make that same mistake again."
But Christopher Thornberg, a founding partner of Beacon Economics, is skeptical. He questioned why the film industry thinks it should get subsidies over other industries.
"The industry has more or less has created this competition among states and they have made this pitch to many places and whoever gives the largest check that’s where they are going to go and do their film production," Thornberg said.
However, the Milken report says California should leverage its strengths as the headquarters of most studios and home to the largest concentration of entertainment talent in North America.
"They are not guaranteed to remain number one," said Priscilla Hamilton, one of the authors of Milken's report.A Hollywood Exit: What California must do to remain competitive in entertainment--and keep jobs Poll: Should California devote more money to tax incentives for films/TV?
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For more on the topic, you can stream our Forum event co-sponsored by KPCC and the Milken Institute at 7:30 p.m. this evening for a panel discussion on how to keep production jobs local. You can also follow along via Twitter with the hashtag#HollywoodJobs.