California Pledged $750 Million a Year to Hollywood. But a New Law Has a Big Catch

The entertainment industry in California won a crucial lifeline when Gov. Gavin Newsom signed a $420 million boost to the state’s film and TV tax incentives program into law in 2025.

Now, stakeholders claim that win is in jeopardy thanks to language in a recent state budget bill that was signed into law on June 29. And they’re racing to pass a solution by the end of the legislative session.

“Budget bill SB 122 puts our program at risk by retroactively changing the rules and threatening the recovery efforts of our already fragile industry throughout California,” reads one letter that entertainment unions are encouraging their members to send to legislators. “Changing the rules after the fact creates uncertainty and instability, further disrupting our struggling industry.”

The letter calls for the legislature to exempt the entertainment industry from SB 122. So far, around 350,000 such messages have been sent to legislators from union members, a spokesperson for the Entertainment Union Coalition tell The Hollywood Reporter .

The bill in question, SB 122, extends temporary caps on the use of business tax credits over $5 million in a given tax year and, starting in 2030, enshrines a permanent tax credit cap of 70 percent of a taxpayer’s liability or $5 million, whichever is greater. Practically speaking, that means that if a major studio has earned tens of millions in tax credits in a single year by locating their productions in the state, it could take years to realize the full value of those credits.

For instance Paramount nabbed $37.7 million in tax credits, including for Viola Davis thriller Ascent and a sequel series to the film Clueless , from the California Film Commission in its latest round of incentives. As the studio puts these projects into production, however, it will need to keep in mind that for now SB 122 is capping the amount of credits it can get back in a year to $5 million, with rules slightly modified starting in 2030. Same scenario for Disney, which received $45 million from California to shoot a big as-of-now untitled detective series in the state. Disney can only get back a fraction of the tax credits it earns in California annually.

Critics say this slow payout process will diminish the value of California’s film and television tax credit program which, alongside with the uncertainty created by this sudden change in policy, could persuade skittish productions to take their business elsewhere.

Legislators including State Assemblymember Rick Chavez Zbur and Senator Ben Allen — who both carried bills realizing 2025’s tax credit boost — are working on finding a legislative solution. “I am confident that we all can work together to make some changes to SB 122 that continues to allow the film tax credit program to achieve its goals, which is to preserve and grow the film and television industry in California,” Zbur said in an interview .

Sources tell THR that entertainment organizations were blindsided by finding themselves exposed to the tax credit cap. Some were allegedly told that the industry would be carved out from the bill, only to later learn that they weren’t.

To Zbur, it was a matter of simple confusion.