An amendment to Gov. Arnold Schwarzenegger's planned California production incentive was released suddenly and quietly, confusing even some of those in the Hollywood community who are helping to draft

(The Hollywood Reporter) -- An amendment to Gov. Arnold Schwarzenegger's planned California production incentive was released suddenly and quietly, confusing even some of those in the Hollywood community who are helping to draft the bill. Yet California state Sen. Kevin Murray, D-Los Angeles, insisted April 21 that the incentive he's introduced on behalf of the governor represents the best shot at winning approval from other lawmakers.

Under this proposed bill, a film or television series with a budget of at least $500,000 could get a tax credit of up to $5 million on "qualified wages" or certain other expenditures provided that 75% of the total production days or budget is spent in California.

To some, the limit of the tax credit to "qualified wages" was surprising because consensus had been growing that the credit should apply to all production costs.

"It's absolutely a wage-based tax credit because we're trying to encourage jobs," said Murray. "We're not trying to encourage every type of service a movie might bring -- we just can't do that."

It also is proposed that production involving commercial advertising and music videos do not qualify for the incentive. The exclusion of commercial producers angered that faction, who note that their industry contributes about $2 billion annually to the state's economy.

"We're deeply disappointed with the bill in its current form as introduced by Sen. Murray," said Steven Caplan, executive VP of the Assn. of Independent Commercial Producers. "His proposals would leave behind hundreds of small and medium-sized businesses headquartered here in California as well as their workers, vendors and suppliers. It's our intention to lobby vigorously for the inclusion of commercials in the prospective legislation because we feel they're a critical economic engine for the state."

The challenge, Murray said, is both fiscal and one of perception. With an $8 billion budget deficit, Schwarzenegger faces no shortage of challenges without backing a bill that could be attacked as a giveaway to his Hollywood peers. Backers caution that the beneficiaries would largely benefit wage earners whose jobs are threatened by the incentives offered in other countries and states.

"People should realize that the state is broke and upside down," Murray said. "So when we have a bill that gives tax credits to movie people and the industry, we're pushing a rock up a hill and we end up with people saying that we want to add mass to the rock."

The latter was a reference to the criticism the current terms are expected to generate.

"These are exactly the same issues that doomed this bill the last time -- that people are complaining and refusing to accept that you can't have everything in the bill," Murray said in reference to a 15% wage-based tax credit that died in committee in 2002 as then-Gov. Gray Davis faced a deficit crisis.

Proponents of this legislation say that whatever its total annual cost -- and that is still being formulated -- the incentive will more than pay for itself by retaining production in the state.

The bill, SB 58, now goes to the Senate's revenue and taxation committee, followed by the appropriations committee. If it passes those it will move to the Assembly before potentially landing on Schwarzenegger's desk.

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