EXCLUSIVE: Over the weekend, Iron Man director Jon Favreau organized a meeting with Marvel Studios producer Lou D’Esposito, California Film Commission member/producer Stanley Brooks, and actor Tom Arnold with California Governor Arnold Schwarzenegger to talk about the problem of runaway production. During the Saturday lunch at Caffe Roma in Beverly Hills, Schwarzenegger pledged to reach across the aisle and push for tax break legislation starting this week in Sacramento.

Will it happen? Who knows, considering that Schwarzenegger up to now has been more talk than action. He most recently railed against runaway production at a news conference on May 9th — but that was scheduled only after he received heat during another press conference for fire prevention from reporters annoying him with questions about Ugly Betty leaving Los Angeles for New York to take advantage of an Albany-passed package of fat rebates. (See my previous, Unemployed ‘Ugly Betty’ Crew Blame Schwarzenegger For Show’s NY Move.) Since then, the TV shows Life On Mars, Fringe and Kings have left Los Angeles or Toronto (where the Canadian dollar is suddenly expensive) to move to NYC as well.

Saturday’s meeting was pushed by Favreau who wants to keep Iron Man 2‘s $140 million production in Los Angeles. The director’s motivation is personal — the family man has a clause in his contracts saying his shoots must stick close to home. (During the luncheon, Schwarzenegger boasted that, on Terminator 3, he used millions of dollars of his own money to keep the production in California. People I’ve asked about this say it’s news to them…) Favreau deserves kudos for wanting to leverage his new-found clout for the greater good of the Hollywood community. Marvel, of course, only cares about the bottom line and wants to make the Iron Man sequel anywhere the studio is given the best financial deal. ”Marvel got an 8-figure rebate check on The Incredible Hulk which was shot in Canada,” Favreau tells me. “It’s hard to compete with that. But a little bit of a tax incentive in California could go a long way.”

UPDATE: Here’s one reason why this lobbying effort might succeed where others have failed: I’ve learned that Marvel Studios intends to keep $600 million in productions in the Los Angeles area if the state makes it worth their while – Iron Man 2, Thor, Captain America, and Avengers which takes the slate through 2011. ”They’re willing to make a commitment to keep all four productions here in town. They’re looking for existing studio space right now,” Favreau told me. But during lunch Schwarzenegger explained that the problem isn’t him: it’s the state legislature looking at a $15+ billion budget shortfall. Democrats want to use that tax money for more humanitarian concerns, and see providing services for the poor as more important than providing tax incentives to rich moguls. While Republicans argue that a rebate package is tantamount to a handout, and all corporations, not just showbiz, should receive the tax breaks. In August, the churlish Los Angeles Times editorial board argued that Hollywood tax incentives would end up subsidizing productions that were never at risk of leaving California in the first place. (What a moronic reason…)

Of course Schwarzenegger as a former actor and producer bears the brunt of the blame. He should have done something about runaway production his first year in office, but he squandered that political capital by calling the Democratic legislature a bunch of girlie men. Now he’s a 5th-year governor with little clout and less money. But when he leaves office and if he tries to return to showbiz, he’ll be seen as a latter-day Nero for fiddling while Hollywood burned.

It may also be too late. Since Hurricane Katrina, Louisiana is making a nice living off of hosting Hollywood productions by offering 25% cash rebates or tax credits for all in-state spending on things like equipment rentals, food, hotel rooms, and, at a lower rate, labor. The result is that in 2007 Louisiana had 53 film and television projects that pumped $400 million into the state’s economy. Its program has been so successful that other states have upped their incentive programs to stay competitive. New York recently boosted the showbiz tax credits on below the line expenses for qualified productions to 30% (up from 10%), and Mayor Michael Bloomberg added an extra 5% if a project is made within New York City limits.

Unlike about 40 other states, California does not offer a tax credit program to keep Hollywood at home. So the number of film production days shot on location in Los Angeles has plummetted nearly 40% since 1997, according to FilmL.A. Inc, a non-profit group that handles film permits. What’s at stake? Well, a major production can pump tens of thousands of dollars a day into local economy what with hotel room stays, catering, services and permits. One figure cited is that 3 weeks of filming of Memoirs Of A Geisha generated more than $4 million for Sacramento and El Dorado counties

Schwarzenegger is in favor of tax credits of more than $100 million to keep film and TV productions in California as part of an overall (and un-fleshed-out) economic stimulus package. But the best chance might be another version of Assembly Bill 1696 introduced by Los Angeles Democrat Karen Bass who’s now Assembly Speaker. It passed the lower house last year but failed in the senate. It’s time for Schwarzenegger to put the money where his mouth is and get this done for Hollywood. And no one’s better suited for some ass-kickin’ than Iron Man if Arnold doesn’t.

Unemployed ‘Ugly Betty’ Crew Blame Schwarzenegger For Show’s NY Move

Editor-in-Chief Nikki Finke - tip her here.