With or without abuse, value of Iowa film incentives is difficult to measure

Even before allegations of misconduct emerged last week, lawmakers and government officials should have been suspicious of the state’s film tax credit program and demanded more transparency and oversight, critics of the program contend.

Victor Elias, a senior policy associate with the nonpartisan Child and Family Policy Center, said his organization, along with the nonpartisan Iowa Policy Project, began looking at the tax credit program this summer. What they found was a program that was growing exponentially with practically no demonstrable benefit to taxpayers.

“The governor ordered an across-the-board budget cut late last year,” Elias said. “Then we saw during the legislative session that growth was limited to vital programs like expansion of childcare. So while these vital services were seeing cuts, the film tax credit is continuing to grow. So we began to ask ourselves: ‘What is this thing buying?’”

In August, Elias said he spoke with Tom Wheeler, who headed the Iowa Film Office until he was fired by Gov. Chet Culver Monday. At that time, Elias was informed that the state had issued tax credits totaling more than $31 million.

“There were another 103 applications approved by the [Department of Economic Development] before July 1 with an estimated award of about $230.9 million,” Elias said. “[Wheeler] said only about 25 percent of those projects would actually go forward, and that would mean roughly $57.7 million awarded.”

Despite spending millions, Elias found no information about what Iowa jobs, if any, were produced, how much those jobs might pay, and how long those jobs would be kept in Iowa.

“The lack of transparency and accountability is startling,” Elias said.

The tax credits, known as the Film, Television and Video Promotion Program, have been promoted by the Iowa Film Office as “1/2-priced filmmaking.” They offer qualified projects up to 50 percent Iowa income-tax credit certificates, which can be used to reduce their tax obligations or sold to any Iowa taxpayer for market prices.

Last week, allegations of misconduct emerged surrounding the tax credits. Those allegations include the purchase of luxury vehicles that were not associated with film production; filmmakers claiming payments for themselves for multiple jobs; poor record keeping; contracts that were changed to increase tax credits sought after they had already gone through an approval process; and reliance on vendors from outside Iowa.

The allegations have led to resignations from the top two officials at the Iowa Department of Economic Development and the firing of Wheeler, who was running the tax credit program almost single-handedly. Culver also suspended the tax credits while an investigation takes place.

Experience in other states

Other states have experienced fewer problems as they seek to attract investments from the film industry. New Mexico’s incentives, for instance, have been viewed as generally successful. Lisa Strout, the director of the New Mexico Film Office, told The Iowa Independent that one of the main reasons behind the program’s success is a focus on accountability.

“Accountability is everything,” Strout said. “The [film] industry wants to know that when they follow the directions things are going to qualify and they will get their tax credits. Taxpayers want to know they are getting value for their money. Accountability and transparency is very important.”

New Mexico offers a 25-percent tax credit to filmmakers who work in their state. Every expense goes through two separate audits to ensure the money is spent wisely, Strout said.

“It all goes through our state’s Tax and Revenue Department,” she said. “Those audits are not done by the Film Office or by an outside CPA. When a filing comes in, the Film Office doesn’t even look at it. Every single project goes through two levels of audit, so two sets of eyes go line by line and check to make sure these are items that qualify.”

But even in New Mexico the program has faced some controversy.

A recent study New Mexico State University found for every dollar put into the program the state would get back 14 cents in tax revenue. Another study released by the state Film Office found that for every dollar the state spends on film credits, it gets $1.50 back.

More than 40 states offer tax breaks or rebates for film and television production, but under the weight of declining state budgets, many officials have questioned the value of the incentives, some with good reason.

A study of film tax credits conducted by the Wisconsin Department of Commerce found that the Badger State’s program actually created an incentive for film producers to hire vendors from outside the state for their in-state projects. For every dollar spent on the program, the state could expect only $1.70 in return, the study concluded. For all other economic development programs, the return on each dollar invested was $161.

Wisconsin Gov. Jim Doyle in effect killed his state’s tax program after the report was released, replacing it with a $500,000-a-year grant designed to bolster Wisconsin-based film production companies.

“I would assume [the Wisconsin] analysis would be true in Iowa as well, but there is really no way of knowing,” Elias said. “It is not subject to review. I couldn’t even figure out how many jobs this creates. Whether they were full-time jobs or part-time jobs. And a film shoot only lasts for so long, so we’re not talking about permanent jobs.”

Return on investment

The Iowa Motion Picture Association has come out strongly in favor of the tax credit program. Its president, Kent Newman, said Monday that conducting a full audit of the Film Program and implementing any changes in policies and procedures is an appropriate course of action. But the program must be continued, and the governor’s suspension of awarding funds must be reversed quickly, he said.

“By suspending the production incentives the state jeopardizes putting more Iowans out of work while we are facing the highest state unemployment since 1986; as well as discouraging potential future productions from considering Iowa,” Newman said. “It simply does not make sense.”

The IMPA argues that in addition to jobs being produced for Iowans — ranging from carpenters to actors to drivers — there is also an increase in business for Iowa restaurants, hotels and other amenities.

According to the Des Moines Film Commission, there has been an increase of 16,000 hotel room rentals attributed to filmmakers in the Des Moines area alone. Shutting down the program, supporters contend, will cause producers to avoid Iowa for fear of getting wrapped up in scandal.

Stephen Jennings, owner of video animation company Grass Horse Technologies, told Des Moines NBC affiliate WHO-TV that he moved his company from Los Angeles to Mount Pleasant because of the tax credit program, and since then expanded from two full time employees to 22. Doing away with the program will result in a reduction of that workforce, he said.

Elias said it really comes down to how taxpayers want their money spent.

“If Iowa decides it wants to spend $50 million a year or more on developing the film industry in Iowa, I think a better way to do it is to do an annual appropriation for grants to make films in Iowa,” he said. “Then you have it as an expenditure of taxpayer money that is subject to annual review by the legislature.”

But with no proof of a return on the state’s investment, Elias says, the money should be spent elsewhere.

“The average cost of salary and benefits for a teacher in Iowa is $56,800 a year,” he said. “That $50 million would put 879 teachers in the classroom every year. As we’re looking at cuts, we’re saying these are 879 teachers we don’t have to fire or that we can actually hire. As opposed to 15 film projects that will be here for a few months or so and then leave.”

For now, the fate of the Iowa’s nascent film industry may lie in the hands of Attorney General Tom Miller and Auditor David Vaudt.

Gov. Culver asked both offices to conduct a probe of Iowa’s film tax credit program.

“Initially, we’re going to look at the [Department of Economic Development’s] procedures and processes for determining what the credits are and making sure what they issue is the proper amount,” said Warren Jenkins, the state’s chief deputy auditor. “We’re making sure the process is adequate. That is one of our focuses, but there might be others. It’s too early to say what may be done.”