A few years ago there was a good deal of civic hand-wringing in Los Angeles because film and TV productions increasingly were running off to New Mexico, Louisiana, Canada – anyplace there was a tax incentive, some of which were egregiously generous.

California finally got into the game and passed its own film tax credit – a modest one – that went into effect in 2009. With the tax credit program’s expiration coming up next year, and with a bill now in Sacramento to extend it, decision-makers are starting to debate this question: Should California keep it, kill it or boost it?

My vote would be to boost it.

Look, I’m no fan of taxpayer-backed giveaways to companies or industries that just happen to be favored by elected types. But this is different. Show biz is to Los Angeles what milk chocolate is to Hershey, Pa. Without it, Los Angeles becomes just another overgrown city, and one with sanity-threatening traffic at that. What’s more, 40 other states and a number of countries are now raiding Hollywood, luring productions away with brazen giveaways, so California is more or less forced to act. If it wants to retain what’s left of the entertainment industry, that is.

The good news is that California doesn’t have to do a lot. Just enough to blunt the sharp sales pitch that other states are making.

The bad news is that the tax credit doesn’t appear to be enough. The program may have slowed the bleeding, but lots of TV and films are still flowing out of state. “Battle: Los Angeles,” a 2010 film produced by Columbia Pictures in Culver City and obviously set here, was filmed in Louisiana.

One big problem with California’s program is that a small amount is allotted – $100 million a year – and it gets used up on July 1, the first day of the budget year. Even so, applicants have only a 20 percent chance of getting a credit because demand far outstrips supply.

Another problem is that big films – those with budgets greater than $75 million – are excluded from the program.

And, finally, the tax credit is not transferrable (except for small, independent film projects). In all states except California and Kansas, a producer can sell the tax credit. Sure, the producer must sell at a discount, but he walks away with cash in his pocket. (Example, a film company with a $1 million credit sells it and gets $850,000 cash. The buyer, perhaps a big in-state company, gets $1 million off its future state tax bill for an outlay of $850,000 today. However, transaction fees would eat into those numbers.)

“There are two problems. You probably can’t get a tax credit. And if you do get one, you can’t do anything with it,” cracked Michael Kong, who started and heads a new L.A. think tank named the Headway Project.

The Headway Project last month put out a good report on the tax credit program. Several of the facts cited above, including the “Battle: Los Angeles” anecdote, are from that report. (Headway Project got no money from show biz interests to make the report.)

The report makes some sensible recommendations. It proposes doubling the credit to $200 million a year, with the second half given out on Jan. 1. It also recommends giving a portion of the allotment to big-budget films. Kong pointed out that those are the ones that employ thousands and spend millions locally – the ones the state would seem motivated to keep.

Furthermore, Kong’s report recommends making the credits transferable. For one thing, some film companies aren’t profitable enough to even use the tax credit, he said. For another, many private film companies are limited liability companies, which means the tax credits flow through to the individual owners – some of whom may not live in this state. In both cases, a portion of the tax credit is useless. The production companies would be more motivated to work here if they could sell their tax credits and get cash.

Finally, and importantly, the Headway Project’s report concludes that the state benefits by $1.04 for each $1 in film tax credits given. Sure, a different report likely would have a different conclusion and may even show a loss, but the point is, this program does no egregious harm to taxpayers.

In short, the film tax credit program, thus far, has been an experiment, a pilot program. Now, it’s time to roll it out for real. And for Hollywood to reclaim its signature industry.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].