California legislators have introduced a new bill that could reshape the state’s animation and film industry by offering a significant tax incentive. Senate Bill 630 proposes extending a 35% tax credit to animated features, series, and shorts produced in California, provided they meet a minimum production budget of $1 million. Previously, most tax credits in the state only applied to live-action projects.
Expansion of California’s Film and TV Tax Credit Program
The new bill comes at a crucial moment for the state’s entertainment industry. Not only does it increase the current tax credit from 20% to 25% to 35%, but it also expands the annual funding cap for the program from $330 million to $750 million. This expansion is part of a broader effort to modernize California’s Film and Television Tax Credit Program, which has struggled to keep productions from relocating to other states and countries offering more competitive incentives.
Two bills initially introduced in February complement this effort by broadening the definition of a qualified motion picture under the program. The new eligibility criteria would allow additional projects including animation films, series, and shorts as well as large-scale competition shows to receive tax incentives. Additionally, the California Film Commission would have the flexibility to allocate an extra 5% in credit for productions in designated economic opportunity zones.
California’s Declining Animation and Film Production
Over the years, animation production has largely moved away from California. While Pixar remains one of the few major studios that still produces feature animation entirely within the state, companies like Walt Disney Animation Studios and DreamWorks Animation have shifted much of their work elsewhere.
For television animation, full-scale production in California has been rare for decades. While pre-production and post-production are often done in Los Angeles, much of the actual animation takes place in countries like Canada, South Korea, the Philippines, and France as well as in U.S. states such as Georgia, which offers its own financial incentives.
Beyond animation, overall film and television production in Los Angeles has dropped significantly. A recent FilmLA report indicated that production in the city was down over 30% in 2024 compared to five-year averages. States such as New Jersey, Nevada, and Utah have increased their tax incentives to attract productions, while New York nearly doubled its tax credit to $700 million last year. Meanwhile, locations like Georgia, Ontario, and the UK offer tax subsidies with no cap, making them even more attractive for studios.
Potential Impact and Challenges
While SB 630 is unlikely to completely reverse the current industry trends, it may encourage more animation projects to be greenlit in California. The bill’s supporters argue that increasing tax credits will not only bring back lost jobs but also boost economic activity in the state.
Governor Gavin Newsom has placed significant focus on expanding the tax credit program, although the final budget for 2025 to 2026 is still being negotiated. Lawmakers acknowledge that financial incentives alone may not be enough to bring productions back to California, but they believe modernizing the tax credit program is a necessary step.
Senator Ben Allen emphasized the importance of these reforms, noting that 77% of projects that fail to secure a tax credit in California end up going elsewhere. He estimated that the state has lost nearly $1 billion in production spending due to productions moving out of state.
Despite competing budget priorities including recovery efforts from recent wildfires, Newsom and legislative leaders remain committed to the tax credit expansion. The California Senate is currently reviewing the proposal in a joint hearing of the Revenue and Taxation and Budget and Fiscal Review Subcommittees.
If approved, the increased tax incentives could help California regain its competitive edge in animation and film production, ensuring that more projects remain within the state instead of relocating to other regions offering better financial incentives.