Overview of Diversity Efforts in the Film Tax Credit Program

AN LAO REPORT Overview of Diversity Efforts in the Film Tax Credit Program GABRIEL PETEK | LEGISLATIVE ANALYST | MAY 2025 INTRODUCTION In recent years, the Legislature has modified requirements and upcoming changes to diversity the state’s film tax credit in an effort to increase efforts in the program, compare and contrast the diversity of the motion picture workforce. the workforce diversity of productions receiving Chapter 114 of 2021 (SB 144, Portantino) required credits with the broader California workforce our office to issue a report summarizing the and population, and provide some broader workforce diversity information collected by the considerations for evaluating the expanded California Film Commission (CFC) and evaluate requirements taking effect in version 4.0 of the effectiveness of the tax credit for increasing the credit. diversity. In this report, we describe the existing FILM TAX CREDIT DIVERSITY REQUIREMENTS Film Tax Credit Created to Counteract Motion Additionally, applicants can voluntarily submit a list Picture Incentives in Other States. In 2009, the of programs and initiatives they have in place to Legislature created a film tax credit to encourage increase representation of minorities and women. motion picture and television productions to Finally, while not explicitly mentioning diversity, locate in California. The 1990s and 2000s had the Pilot Career Pathways Training Program, seen a proliferation of similar credits in other which provides training and pathways into relevant states and countries, which led to policymakers employment, is stated to target individuals from voicing concerns about projects choosing to film underserved communities. Tax credit recipients in jurisdictions with generous incentives instead are required to contribute 0.25 percent of their of in Hollywood, often referred to as “runaway estimated credit allocation to the program. productions.” The tax credit has been extended Expansion of Diversity Requirements and expanded three times since its inception, Take Effect in 2025. Version 4.0 creates new currently allowing $330 million in tax credits to be diversity, equity, inclusion, and accessibility (DEIA) allocated per year. Version 4.0 of the credit will requirements. Most notably, 4 percent of an begin in July 2025, is scheduled to sunset in 2030, applicant’s awarded credit will be contingent on and notably introduces the ability for the credit to the submission and approval of several documents be refundable. related to the applicant’s efforts to set and achieve Diversity Provisions Introduced in 2020. DEIA goals. If these requirements are not met, the Version 3.0 of the credit, which began in 2020 CFC may only certify a credit equal to 96 percent of and runs through June 2025, requires applicants the original award. The broad structure of the new to provide (1) statistics on the gender, ethnic, and requirement is as follows: racial makeup of their workforce, and (2) a written • Within 30 days of receiving a credit allocation policy outlining the applicant’s procedures for letter, applicants must submit a DEIA dealing with unlawful harassment in the workplace. Workplan that reflects California’s population www.lao.ca.gov 1 AN LAO REPORT in terms of race, ethnicity, gender, and has met or made a “good-faith attempt” to disability status and includes specific DEIA meet the goals detailed in the workplan. goals and how the applicant intends to fulfill • If the applicant fulfills these requirements and them. Workplans may not include quotas the CFC agrees that a good-faith effort has or other numerical goals regarding any been made, then the additional 4 percent protected class. of the award can be certified. There are • Prior to the start of principal photography, limited exemptions to this requirement, applicants must submit an Interim Assessment including independent productions with a that summarizes current progress made total expenditure of less than $10 million. towards goals set out in the workplan. Version 4.0 also increases the required • Within 60 days of concluding production contribution to the Career Pathways activity, the applicant must submit a Final Program from 0.25 percent to 0.5 percent for Assessment summarizing how the applicant non-independent productions only. WORKFORCE DIVERSITY IN CALIFORNIA’S FILM INDUSTRY Completed Version 3.0 Productions Hire the composition of the broader motion picture Men, White Workers at Higher Rates Than Other workforce in California by gender and ethnicity Groups. Figure 1 summarizes data collected and for both 2009 and 2023. First, the overall motion published by CFC on the gender and ethnicity of picture workforce shows a similar pattern to the labor hired for projects that have received tax credits CFC statistics in Figure 1: men and white individuals under version 3.0 of the program (2020-2025) represent the largest shares of the workforce. and have been completed. There are three broad takeaways from this data: (1) men represent over Figure 1 60 percent of individuals who Labor Force Demographics: worked on completed projects, Film Tax Credit Recipients (2) individuals identifying as white are the most represented group by a large margin, and (3) a significant Asian/Pacific Islander 1% N As a i t a iv n e 3 A % merican/Alaskan 1% minority of respondents (27 percent) Prefer Not to State 7% Black 7% either declined to respond or Female 38% identified as Multiple/Other. Hispanic/Latino 16% Motion Picture Workforce Differs in Ethnic Makeup, but Multiple/Other 20% Not Gender Diversity. The percentages presented in Figure 1 alone do not give a sense of how diverse the labor forces of version Male 62% 3.0 productions are relative White 45% to both (1) the overall motion picture workforce in California and (2) California’s population as a whole. Figure 2 shows Source: California Film Commission. Completed version 3.0 projects only. 2 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT on the next page Figure 2 shows gender and ethnicity Labor Force Demographics in California: Motion Picture Industry composition in California for Multiple/Other 3.7% 2009 and 2023, 7.4% Asian 8.5% which serve as 8.5% Female Female Black 5.8% the baseline for 34.8% 6.6% 38.8% thinking about Hispanic/Latino 16.1% whether certain 19.3% groups are under or over-represented in productions receiving credits. Male Male 65.2% 61.2% White 65.5% 57.8% One trend of note is that since the inception of the film tax credit, the share of 2009 2023 2009 2023 Californians who identify as white Note: Asian/Pacific Islander and Native American/Alaskan categories are not shown in this figure, representing a combined 0.4 percent in both 2009 and 2023. only has decreased Source: American Community Survey Public Use Microdata Survey (PUMS) with PUMS person weights. from 41.5 to 33.3 percent, Second, since the creation of the film tax credit making white in 2009, there has been a moderate decrease in no longer the largest ethnic group in the state. the share of the industry workforce that is male or Comparing Figure 1 with the 2023 data in Figure 3, white, with corresponding increases for the female, white, Black, and Multiple/Other individuals are Hispanic/Latino, Black, and Multiple/Other overrepresented among credit recipients relative to categories. Third, comparing the 2023 numbers their California population share, while in Figure 2 with the CFC data in Figure 1, white Hispanic/Latino and Asian individuals and Asian individuals are less represented in the are underrepresented. workforces of completed version 3.0 projects Available Data Provides Limited Ability compared to the overall workforce, and other to Assess Workforce Diversity. Although an racial/ethnic groups including Black and interesting exposition, the above comparisons do Hispanic/Latino are more represented. There is no not provide a perfect estimate of the relative gender significant difference in gender diversity between and ethnic diversity within the film tax credit and its version 3.0 productions and the overall motion contribution to overall representation in the motion picture industry. picture industry. One reason for this is that the CFC Mix of Over and Underrepresented Ethnic data has a 7 percent nonresponse rate and the Groups Relative to California Population. The propensity for nonresponse is not random across statute outlining DEIA provisions for the film tax projects, which suggests that the true gender and credit states that the goals of diversity workplans ethnicity representation is different than what is and initiatives should be “broadly reflective of reported by those who do respond. Additionally, California’s population, in terms of race, ethnicity, only version 3.0 projects that have been completed gender, and disability status.” To get a sense of how are included in the data, and may not represent proportional the current labor force of tax credit the set of all projects that will be completed under recipients is relative to the population, Figure 3 version 3.0 of the credit. www.lao.ca.gov 3 AN LAO REPORT Figure 3 Population Demographics in California Multiple/Other 2.6% 5.0% Asian 12.3% 15.5% Black 5.8% Female Female 5.1% 49.9% 50.1% Hispanic/Latino 37.0% 40.4% Male Male 50.1% 49.9% White 41.5% 33.3% 2009 2023 2009 2023 Note: Asian/Pacific Islander and Native American/Alaskan categories are not shown in this figure, representing a combined 0.4 percent in both 2009 and 2023. Source: American Community Survey Public Use Microdata Survey (PUMS) with PUMS person weights. EVALUATING CHANGES MADE IN PROGRAM 4.0 New Diversity Rules Provide a More Credible Four separate categories must be addressed and Incentive for Applicants. Compared to the are evaluated by CFC as part of their determination version 3.0 diversity requirements, the upcoming as to whether an applicant has made a good-faith changes in version 4.0 represent a more significant attempt to meet the requirements: incentive for production companies to engage in • Inclusive Hiring: minimizing bias during DEIA activities, since 4 percent of the total credit is the hiring process, valuing diverse contingent on enacting and documenting specific perspectives, and implementing an equitable initiatives. Whether this additional incentive will be recruiting process. enough to improve diversity remains to be seen and • Equity Education: learning about the necessitates ongoing evaluation by the Legislature. historical and contemporary experiences of We offer some considerations for these future underrepresented communities and people, evaluations below. existing civil rights and discrimination laws, New Checklist Includes Holistic Set of and setting goals for ensuring DEIA for Requirements. The effectiveness of the version everyone on the production. 4.0 diversity requirements hinge on the veracity of • Industry Building Capacity: helping to CFC’s determination of a good-faith effort. As such, increase an inclusive and qualified workforce the Legislature will want to be sure it is confident in and qualified vendor and supplier base in CFC’s processes to make this determination. The all areas that contribute to motion picture CFC’s new DEIA checklist provides a rubric for the production in California. types of DEIA activities that should be enacted and • Supplier Diversity: contracting with qualified subsequently documented in the DEIA Workplan, vendors, including but not limited to catering Interim Assessment, and Final Assessment. companies, accounting firms, equipment 4 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT rentals, and postproduction houses, owned Career Pathways Program will be easier to evaluate and operated by individuals from socially and directly as a single cohesive program. economically underrepresented groups to Demographic Data Varies in Availability. support production. The definition of DEIA adopted by the CFC and in the California Code of Regulations includes Varying Components in Workplans Will a commitment to provide equitable access to Limit Evaluation Potential. A holistic set of opportunities on the basis of a wide range of criteria as described above allows for a breadth protected classes. However, current data collection of interventions/initiatives. However, the array of on tax credit recipients is limited to gender and interventions and the range of acceptable goals and race/ethnicity. As such, it will be difficult to assess methods, including the use of external partners to the degree of representation that exists in the administer programs makes it difficult to provide a workforce of tax credit recipients in dimensions detailed evaluation of individual initiatives outside such as disability and veteran status, class, and of broad comparisons of film tax credit recipients sexual orientation. to the workforce more generally. Conversely, the OTHER CONSIDERATIONS Scope of Underrepresented Group Is It could be that DEIA requirements are having Variable. For the purposes of the film tax credit, an actual effect on representation. Conversely, representation is typically defined as the share of there is also the potential for a selection effect, the recipient’s workforce from a specific group whereby the version 4.0 requirements cause relative to their share of the overall California productions that are more diverse to select into population, with progress toward proportional California or productions that are less diverse to representation being seen as desirable. However, select out of California. This channel would still there are some cases where metrics may want to be result in Hollywood becoming more diverse and viewed more broadly. A good example of this is the representative but would do so by concentrating Black population in California. Based on the figures more diverse productions in California rather than presented above, the Black population is somewhat increasing diversity in the industry as a whole. overrepresented in California’s motion picture Evidence Suggests Crew Diversity Is industry (6.6 percent) compared to their share of Downstream of Executive Diversity. Although the total population (5.5 percent). Conversely, Black below-the-line positions make up the large majority Americans have historically been underrepresented of workers in the motion picture industry, some in both Hollywood, and many higher-paying fields studies have documented a relationship between more generally, relative to their share of the national the gender/race/ethnicity of executive positions population. Therefore, representation proportionate (such as director/producer) and the downstream to California’s population is simply one of many diversity of cast and crew for that production. Given statistics that can be considered as part of the this, additional effort or focus on diversity among state’s equity objectives. these career trajectories may have an outsized Increases in Diversity May Partially Come effect on overall crew diversity. From Selection Effects. An observed increase in • Note: This report was prepared in fulfillment of labor force diversity among productions receiving the reporting requirements of Chapter 114 of tax credits could come from two different channels. 2021 (SB 144, Portantino). www.lao.ca.gov 5 AN LAO REPORT 6 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT www.lao.ca.gov 7 AN LAO REPORT LAO PUBLICATIONS This report was prepared by Rowan Isaaks, and reviewed by Brian Uhler and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. 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