HOLLYWOOD — As California's budget crisis continues, Sacramento certainly has money on its mind, but it's hardly star-struck when it comes to Hollywood and its problems with runaway production.

Nevertheless, "Iron Man" director Jon Favreau and Gov. Arnold Schwarzenegger have become unexpected partners in a push to create tax breaks for film and television shows in an effort to keep their production in California, a political cause that has very little traction with state lawmakers and, to the governor's chagrin, even less footing in celebrity fundraising circles.

There's been a 40 percent decline in the number of film production days shot on location in Los Angeles since 1997, and the stampede east by the makers of high-profile projects is intensifying after New York Gov. David Paterson signed a bill in April delivering a lush new package of incentives.

There are about 40 states that covet Hollywood business enough to offer tax breaks and rebates that can significantly reduce overall production costs for a movie or TV show. The economy in these states benefits by hosting the productions, which spend money on labor and materials, hotels and restaurants and a host of other things. Michigan, Mississippi and Georgia recently have put incentives into place, and New York's new program gives a 30 percent tax rebate on a production's "below-the-line" costs — generally, expenses not related to the cast, writer, producer, director, stunts or story rights.

Schwarzenegger said he would love to sign a similar package for California. He also would like to see politically active stars and filmmakers add runaway production to their list of causes.

"No one in Hollywood takes this seriously, but they should tell everyone that comes there, every candidate, that the fundraisers are over. ... They should basically boycott until they do something on this," Schwarzenegger said. "Those candidates come and grab the money, but they don't do anything about this." One Hollywood player who has taken up the cause is Favreau, the "Swingers" star whose stock as a director has soared now that "Iron Man" has pulled in more than $570 million worldwide. The 41-year-old actor-filmmaker, who is developing an "Iron Man" sequel for a 2010 release, said that he never envisioned himself as a political creature but that this issue hits too close to home.

Favreau said that when he was about to shoot 2003's "Elf" for New Line Cinema, the studio decided at the last minute to move the production to Vancouver, British Columbia. Favreau, who had a 1-year-old son with wife Joya and another baby on the way, was given the choice of packing his bags and heading up to Canada or losing the project he had been developing for two years. The move to Vancouver was prompted by government incentives there. Favreau has since added a clause to his contract that says his films will be shot in Los Angeles, but he wants to go beyond that and work to keep other productions from leaving the state.

"When it's cheaper to film in Manhattan than here, it's pretty obvious it's reached a point where people who have resisted this should question some of their preconceptions," Favreau said. "For me, it's thinking about what's happening to this industry and also its historic importance here. ... Some people view these as handouts, but maybe it's time to look at the very simple, no-brainer logic of potential benefit to the California economy." "Ugly Betty" and "Fringe" are among the latest television shows to leave California, and, in an ironic twist, "Terminator Salvation," a revival of the killer-robot franchise that made Schwarzenegger a global superstar, is being filmed in New Mexico.

The governor blames the Legislature for the lack of California incentives, but he himself has taken considerable heat from voices in his former industry, such as Hollywood blogger Nikki Finke, who called him a "latter-day Nero for fiddling while Hollywood burned." With that backdrop, Schwarzenegger was thrilled when Favreau came forward to ask what he could do to help.

"I'm so happy a guy like him, a fantastic director, is out there getting involved in this issue and doing as much as he does," the governor said of Favreau. "He is trying to start something in Hollywood that is important. Our state is vulnerable right now." Favreau says the issue goes beyond commerce and into quality — the expertise of the crews in Southern California is unparalleled, and the discounts Hollywood gets for hitting the road often lead to unexpected concessions as far as quality and tradition.

The director was a key figure in one specific proposal: Leaders at Marvel Studios (the upstart outfit that made "Iron Man") have agreed that if significant tax incentives are put in place in the state, they will move forward with a plan to buy a studio lot in the Los Angeles area and make four films here through 2011 that have combined budgets of $600 million.

Those numbers are substantial, but no one on any side of the issue believes California lawmakers are anywhere close to embracing the tax breaks.

Critics of the idea maintain that studios will continue to shoot here simply because it's the industry's epicenter. Democrats have said the money used as production rebates would be better spent on education or health care, while Republicans consider other industries to be ranked far above Hollywood in the race for tax breaks, Schwarzenegger said.

"Since I've come into office this was something I fought for, but there was a push-back from both parties. ... For me, in Sacramento, for each $1 I got for (this issue), it was going to cost $3 in resources. The $100 million I wanted to give in incentives to studios would cost $300 million. That's the way things always work in Sacramento and Washington."