Newsom Signed a Budget That Undercuts His Own Hollywood Tax Credit Expansion

Gov. Gavin Newsom built a big applause line last year: California would expand its Hollywood film and TV tax credit program to a record $750 million annually. The pitch was simple. Stop losing productions to Georgia, New Mexico, and other states offering better deals. Bring the jobs home.

Then Newsom signed a budget that appears to undercut his own program.

According to CBS News, more than 40 California legislators sent a letter warning that a provision in the new state budget, Senate Bill 122, caps how much any company can claim in tax credits at $5 million per year. For big-budget productions eligible for up to $35 million in credits, lawmakers say that guts the incentive's value by roughly half.

The LA Times reports the budget extends an existing $5 million cap through 2029. Starting in 2030, the cap becomes $5 million or 70% of a company's state tax liability, whichever is greater. Fox Business confirms the same structure, citing a July 10 letter signed by 39 legislators urging Newsom to exempt the Film & Television Jobs Program before the cap does lasting damage.

Assemblymember Rick Chavez Zbur, a Los Angeles Democrat who chairs the Assembly Democratic Caucus and co-wrote last year's expansion, told the LA Times that lawmakers who voted for the budget believed a carve-out for the film program had already been secured.

"I don't think that anyone understood what this cap was, what it did, and that it effectively kneecapped and reverses the progress that we made last year," Zbur said.

Zbur told CBS News the practical effect is brutal. "We've taken a 35% tax credit, which we thought was effectively equivalent to a 30% tax credit in other states, that's dropped down to some place between 15% and 20%, and that just makes the California program non-competitive."

His proposed fix is a single sentence carving the film and TV jobs program out of SB 122 entirely. He wants it done within the next month and a half, before productions start planning around the wrong numbers.

This isn't an abstract policy fight. According to the California Film Commission, cited by CBS News, the expanded program's first year delivered $6.6 billion in production spending and created almost 35,000 cast and crew jobs. The lawmakers' letter, cited by Fox Business, says the program kept 133 productions in the state from August 2025 through April 2026, generating $5.5 billion in economic activity, 38,050 cast and crew jobs, and 247,934 days of work for background actors.

CBS News also talked to Frank Uchalik, who owns Heritage Props in North Hollywood and has been in the business more than 30 years. He said the industry's contraction has already forced prop houses to close. "I just think the pie is getting smaller," Uchalik said. "There are prop houses closing down." He said tax incentives take years to trickle down to small businesses like his, so any disruption to the program hits people who have no cushion to absorb it.

Newsom's office shared a statement Monday evening saying, in part, "The tax credit limitation is part of a broader fiscal proposal to ensure the state can continue making strategic investments while maintaining long-term fiscal stability." That's a legitimate point worth stating plainly: California faced real budget pressure, and a $5 million cap on corporate tax credits generally is a defensible fiscal guardrail against runaway credit claims across many industries, not just Hollywood. Treating all corporate credits the same, rather than carving out special exceptions, is arguably the more disciplined approach to state finance.

The counterargument, made by the legislators themselves, is that film tax credits function differently. Companies earned those credits in exchange for specific production commitments already made. Retroactively capping them, lawmakers argue in their letter, "creates short-term budget savings by reneging on commitments made to the entertainment industry and the working families who depend upon it for their livelihoods."

The state needed fiscal restraint, and the legislators who wrote and passed the film incentive expansion say they didn't realize this budget provision would gut it. Zbur's account, that members believed a carve-out existed before the vote, points to a drafting or communication failure somewhere between the governor's budget office and the Legislature. Nobody named in the reporting disputes that the cap's effect on Hollywood credits was unintended.

The letter, addressed to Newsom, Senate President Pro Tempore Monique Limón, and Assembly Speaker Robert Rivas, asks for a fix before the legislative session ends, roughly six weeks from the July 10 letter date. Zbur says the solution is a one-sentence bill exempting the film program from SB 122's cap.

Whether that bill gets introduced, and whether Newsom signs it, remains an open question. His office has acknowledged the budget provision publicly and says the administration will work with industry and legislative partners to keep the program competitive, but has not, according to available reporting, explicitly committed to the specific fix Zbur and the other 38 signatories are demanding.