New thread on film tax credit scandal

The news keeps pouring in on the mismanagement of Iowa's tax credit for film-making, which may turn out to be among the most expensive mistakes in our state's history.

Lots of links are after the jump.

Governor Chet Culver announced on Wednesday that he is ordering a thorough review of all Iowa tax credit programs:

"That will be a part of our comprehensive review.  We're going to make that a priority and bring in all of those agency directors," Culver says.  "I believe John Frew, the new chief of staff, will be meeting with them next week."  Culver's new chief of staff starts work on Monday.

That step is long overdue; the Iowa Policy Project and the Iowa Fiscal Partnership have shown repeatedly that the rapid growth in tax credits has far outpaced the growth in state spending. (Click here to find past reports on the Iowa Policy Project's website.) Kay Henderson listed all of Iowa's 28 tax credit programs here. Todd Dorman linked to an August 2009 report on the subject by the Iowa Department of Revenue (scroll to the end of Dorman's column). In a time of budget scarcity, many of these programs should be on the table.

On Wednesday, Iowa Department of Economic Development spokesperson Erin Seidler announced that the state will not be liable for 109 film projects that received initial approval for the tax credit but were not under contract. IDED has already issued about $32 million in tax credits and has signed contracts for another 26 projects that would cost the state a total of $78 million.

Even that figure is way too high in my opinion. Subsidizing some temporary jobs in film-making will cost this state more than the four-year investment in the Power Fund. Unlike film production, many of the Power Fund projects entail collateral benefits for the public (like increasing energy efficiency and renewable energy production).

Unfortunately, Iowa taxpayers may end up being on the hook for a lot more than the $32 million already paid to film-makers and the $78 million for film projects under contract. Attorney General Tom Miller released a statement on Thursday saying, "The state's obligations and liabilities may not be determined solely by whether a contract has been signed by the parties, and statements by state officials to that effect are mistaken." Issuing tax credits for all 109 project that received initial approval would cost more than $250 million.

Charles Bruner, co-director of the Iowa Fiscal Partnership, called for ending the tax credit in a Des Moines Register op-ed on September 23. You should click over and read his whole column, but here is an excerpt:

Iowa regulations allow for $50 million in film tax credits this year, but we do not know how many jobs that $50 million creates. We do know that same $50 million is enough to pay salaries and benefits for 879 full-time Iowa teachers - throughout the state. That is a better investment in Iowa's future than a 50 percent subsidy of the film industry's mostly temporary jobs.

If Iowa established "half-priced airplane manufacturing," Boeing would be foolish not to leave Washington state to come to Iowa, but Iowa would soon be using every dollar in its state budget to subsidize that one industry - with no money left for education, health, or public safety.

Everyone likes a good show, but do Iowa taxpayers really want to foot half the bill for the production of films, or any other business activity? Louisiana recently lost a court case and now owes film companies in excess of $260 million for its film credit.

Clearly, Iowa is not alone in being suckered into establishing an excessive film tax credit, but it now needs to act quickly to curb the practice.

The legislature's Government Oversight Committee announced on September 24 that it will review the film tax credit issue later this year. Republican leaders have insisted that the investigation should start immediately, but House Speaker Pat Murphy and Senate President Jack Kibbie have expressed concerns that calling state officials to testify now could impede the investigations being conducted by the Attorney General's Office, State Auditor and Department of Revenue. At least one Republican on the Government Oversight Committee is ok with waiting:

Rep. Clel Baudler, R-Greenfield who is also a member of the committee, agreed that the film inquiry should be delayed until the committee's meeting next month. So far, Culver has taken the right steps in suspending payments and launching state investigations, he said.

"Once we have the entire information then we'll act and we better act smartly because, quite frankly, the people of Iowa are getting fed up," Baudler said.

Several Republican candidates for governor are using the scandal to make their case against Culver. Chris Rants "submitted ten questions and requests for information to the Department of Economic Development and the Department of Revenue and Finance." Rants also said the scandal illustrates Culver's "lack of attention to detail."

Bob Vander Plaats blames Culver for appointing the wrong people: "It's easy for Governor Culver to be outraged now that this scandal has been exposed. He was asleep at the switch and is responsible for the people who he hired to oversee these programs." According to the Des Moines Register on September 23, Vander Plaats said

he doesn't favor tax credits, generally: 'Is this another way for the government to pick winners and losers?'

He said instead of tax credits, he'd look at reducing taxes so that all businesses and industry could benefit.

I couldn't help noticing that in March, Vander Plaats slammed Democrats who wanted to reduce the number of tax credits Iowa offers.

Christian Fong is advocating "a 'transparency' system that would allow Iowans to access state spending details online." The Des Moines Register's Kathie Obradovich comments, "But if the film office officials weren't using the database created for tracking the tax-credit program, it's hard to imagine how the information would have gotten to the public database."

Republican blogger Craig Robinson is disappointed that Republican gubernatorial candidates and state legislators are not (yet) calling for an end to the film tax credit. They may be afraid to set a precedent, since Republicans have supported tax credits for so many industries.

It's also an awkward issue for the GOP because almost all statehouse Republicans joined with Democrats to create the film tax credit. In the discussion thread under this post at The Iowa Republican, Robinson published the roll call vote from 2007. Only one Iowa House representative (Democrat Bruce Hunter) and two Iowa senators (Democrat Herman Quirmbach and Republican Dave Hartsuch) voted against the bill.

Todd Dorman quoted Quirmbach in this excellent column for the Cedar Rapids Gazette on the "master thespians" in the legislature:

Our state lawmakers are doing some award-worthy acting in the wake of the film tax credit fiasco.

They were blindsided. They were tricked. Tax credits for luxury cars? Round up the usual suspects. Call in the Legislative Oversight Committee.

But not everyone is shocked, shocked. [...]

"It seemed to be a very poorly designed program," said Quirmbach, who believes making taxpayers silent 50-50 partners in film projects is a bad idea. [...]

Clearly, lawmakers are not directly to blame for the blatant rule-breaking and breathtaking lack of bureaucratic oversight that turned a popular program into an embarrassment.

But they also shouldn't pretend they're innocent victims.

Here's hoping that the film tax credit debacle will give legislators the political will to critically examine all tax credits during next year's session.

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