Political wrangling prevented California's incentive plan from being ratified by the Sept. 8 deadline, prompting Assembly Speaker Fabian Nunez to instead shore up support ahead of next year's budget n

LOS ANGELES (The Hollywood Reporter) -- Political wrangling prevented California's incentive plan from being ratified by the Sept. 8 deadline, prompting Assembly Speaker Fabian Nunez to instead shore up support ahead of next year's budget negotiations.

Nunez, who authored AB 777, drafted a letter promising that he and other legislative leaders remain "committed to including industry tax incentives in the budget we pass next year." The letter, addressed to Gov. Arnold Schwarzenegger, was signed by Nunez, D-Los Angeles, Republican Assembly leader Kevin McCarthy, R-Bakersfield, Senate President Don Perata, D-Oakland, and Senate Republican Leader Dick Ackerman, R-Irvine.

"As you know, the motion picture and television production industry is a major contributor to our economy," Nunez wrote. "However, other states and nations are offering significant tax incentives to lure this important homespun industry away from California. That is why the tax incentives are essential to keeping motion picture and television production within California."

The bipartisan agreement does not guarantee the bill's success, but it should increase the odds as lawmakers work with Schwarzenegger to deliver a budget next summer. One risk is that the political climate could be significantly different, regardless of whether Schwarzenegger decides to seek another term in next year's election.

"As policymakers in this state, we must take a close look at why we are losing jobs to other states and countries," Ackerman said. "We must keep the jobs and industries in our state, while finding ways to encourage more opportunities for California's workers. I look forward to working with the leaders of both Houses to make this happen."

The Hollywood unions, studios and producers who championed the tax credit were disappointed that they found strong support in the state Assembly but resistance among some senators. At the same time, there was relief that the measure can be carried over to the next session, beginning in January, and that it did not get rejected outright as the state struggles with a $7 billion deficit.

Two previous anti-runaway bills have failed in California, including a 15% wage-based tax credit that was killed in committee three years ago.

In the meantime, numerous states including Louisiana, New Mexico and New York have instituted generous tax breaks for film and television producers, adding to the pressures created during the past decade by incentive packages from Canada and other countries.

Schwarzenegger has been a major proponent of the bill, but he did little to publicize it. Instead, it was left to Nunez, Sen. Kevin Murray, D-Los Angeles, and other proponents to make the case that this would primarily benefit below-the-line workers.

The plan was to subsidize a 12% tax credit on wages and other production costs, worth as much as $3 million per production. Some TV shows could get as much as a 15% break, while qualified commercial production companies could get a 10% credit.

At least 75% of principal photography would have to be done in the state, and certain costs would not be covered, including rights acquisition, development, financing, distribution and residuals.

Taxpayer advocates immediately seized on the refundable nature of the credit, which would have allowed producers to cash out whatever credit was left over after their tax obligations had been met.

Some lawmakers, especially Democrats, balked at the size of the outlay, which was estimated to be as much as $100 million. Republican concern centered on the refundable aspect and the fact that there were relatively few restrictions for filmmakers to qualify, while the criteria for television series and commercials were much more demanding.