ACT II: WASHINGTON DECRIES RUNAWAY FILMING.

Byline: Jesse Hiestand Staff Writer

The federal government stepped into the debate over Hollywood's ``runaway'' production problem Friday, detailing how Canada and other countries take $10 billion in revenue from the country by using tax breaks and other incentives.

Not only is the trend accelerating, but it threatens to irreversibly damage the domestic film and television industry, according to the 86-page report by the U.S. Commerce Department, The Migration of U.S. Film and Television Production.

``This was the wake-up call or it's millions if not billions of dollars in lost production, wages and ancillary business,'' said Rep. Xavier Becerra, D-Los Angeles, one of the congressional members who called for the study. ``The ripple effect of this is tremendous and the last thing you want to do is allow a foreign competitor to establish a Hollywood of their own.''

To that end, Becerra, a candidate for Los Angeles mayor, and others in Congress plan to introduce legislation to give Canadian-style tax breaks to low- and medium-budget productions that might otherwise go abroad to save money.

They also hope to convene congressional hearings to raise awareness of the issue, which adds to the U.S. trade deficit.

``Some industry observers fear that the exodus of film production could threaten the viability of important segments of the film production industry in the United States, with potentially devastating effects on local communities in many states,'' the report concludes.

At risk are the thousands of ``little guys,'' as the report calls the off-camera people who do construction, catering, painting and makeup, as well as the outside businesses they work with.

Some unions say the government's recognition of this problem is overdue.

``The Canadian government has taken the ball and run with it, which I give them credit for, but let's even the playing field,'' said Walter Keske, secretary treasurer of Affiliated Property Craftspersons, Local 44, in North Hollywood, where most of the union's 6,000 members have lost at least some work to runaway production.

Scenic, Title & Graphic Artists, Local 816, in Studio City estimates it has lost up to 5 percent of its 700 members in the past six months to runaway production.

``These are people who are just dropping out of the business altogether because they can't find work,'' said executive director Gavin Koon.

The Chicago Film Office estimated that for every $10 million of lost or gained revenue, 2,500 jobs are affected either way.

Film and TV production in Canada hit $3.5 billion last year. But it is not the only culprit, with the Commerce Department report naming Australia, England and Ireland among destinations for the 27 percent of U.S.-developed films and television shows produced abroad in 1998, up from 14 percent in 1990.

The economic loss from runaway production jumped from $2 billion to $10 billion in that period, according to the department, whose report summarized past studies, including a 1999 production report by Stephen Katz, an industry analyst in Encino.

``We've never had anyone in the government actually say there is a problem before,'' Katz said. ``Now we've got to make sure that our people remain the top of the game.''

Of the 270,000 Americans who work in the film industry, about 136,000 are in Los Angeles County, where Hollywood's $31 billion accounts for about 10 percent of its economy. An additional $26 billion is spent in the county on services and products that support the industry.

Much of the lost production is made-for-television movies and miniseries, of which 139 of the 308 developed in the United States in 1998 were ultimately produced elsewhere, a 30 percent increase from 1990.

Several factors account for this.

Other countries have found the quickest way to develop a production industry and skilled work force is to attract Hollywood's talent with wage and tax credits as well as financing packages on the national and provincial level.

Some productions have been able to save up to 26 percent on costs, with about 60 percent of that coming from reduced labor costs for ``below-the- line'' crews.

The Canadian government also invests in its country's film industry, nearly doubling that support from $51 million to $100 million last year.

The report finds no evidence that foreign incentives are the main reason productions go elsewhere. Globalization, rising costs and technology allowing editors and others to work just about anywhere are also factors.

California, which accounts for about 70 percent of total film and TV revenue in the United States, is fighting back. As of Jan. 1, the Film California First program began reimbursing production companies for costs associated with shooting on public property.

Federal agencies are already taking some steps to stem runaway production, according to the Commerce Department report.

The Export-Import Bank launched a Film Production Loan Guarantee Program last year to increase the number of independent films produced in the United States.

In December, the Small Business Administration began offering government-guaranteed backing for commercial loans to small independent filmmakers.

The report also suggests lawmakers do more to press other countries to drop trade restrictions that force some filmmakers to go abroad to get around film quotas.

In the meantime, those in Hollywood have offered their own suggestions, such as collecting more data, taking trade action against foreign government incentive policies and starting a U.S. Film Commission.