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In Wake of Scandals, Lawmakers Seek to Limit Film Tax Credits

Two weeks ago, both the Director and Deputy Director of the Iowa Department of Economic Development (IDED), Mike Tramontina and Vince Lintz, resigned abruptly, and the manager of the Iowa Film Office, Tom Wheeler, was forced to step down following allegations of corruption and abuse of public funds. Specifically, an internal IDED audit discovered issues with the state’s film tax credit including improper oversight, the purchase of luxury vehicles unnecessary for the completion of films, and filmmakers claiming payments for multiple production jobs.

Concerned that an agency could so frivolously misuse taxpayer dollars as the state continues to search for methods to alleviate the fiscal crisis, Gov. Chet Culver temporarily suspended the program and Iowa lawmakers released information regarding applicants and recipients of film tax credits, which is normally not disclosed publicly.

This will certainly spur review of Iowa's tax credit program and disclosure policy. Transparency will allow Iowa to better evaluate whether or not the program provides sufficient social, economic, and fiscal benefits. Such accountability measures are undoubtedly necessary as state expenditures on business tax credits have increased at more than three times the rate of economic growth.

A National Film Credit Problem: This problem is not limited to Iowa, as reports by advocacy organizations and government bodies, including the Oregon Center for Public Policy, Connecticut Voices for Children, New Mexico Fiscal Policy Project, the Massachusetts Department of Revenue, and the Wisconsin Department of Commerce, have found that offering these tax credits are ineffective and provide little to no economic benefit to a state or its residents. Other states have taken tangible steps to address these problems:

  • Connecticut: Gov. M. Jodi Rell estimated that a $25 million cap for film tax credits would save the state $70 million in the next two years.
  • Massachusetts: Rep. Steven D'Amico introduced legislation, HB 3854, to limit state spending on incentives for the film industry.
  • Michigan: Gov. Jennifer M. Granholm proposed reducing the 42% refundable tax credit to approximately 37%.
  • Wisconsin: Gov. Jim Doyle offered a plan to completely eliminate the State's 25% film tax credit and replace it with a two-year, $1 million grant program to create permanent film industry jobs.

Eliminating Wasteful Tax Credits as a Budget Solution: According to the Center on Budget and Policy Priorities, Iowa had to close a $779 million gap coming into FY2010 and will likely face fiscal problems this year as well. This bleak projection is compounded by the $141 million, or 9.1%, decrease in overall state receipts in the past three months as compared to the same period last year. As government officials in Iowa and other states try to root out wasteful spending, they should also rethink allocating enormous and often inefficient business tax breaks as a better option than cutting programs for their most vulnerable residents. The public money squandered in this tax credit scandal demonstrates that blind giveaways are not a sustainable model for economic growth and a more transparent budget process is needed in the future.

Resources:
Oregon Center for Public Policy - OCPP Calls for Audit and Investigation of Film Subsidy Program
Connecticut Voices for Children - Fiddling While Rome Burns
New Mexico Fiscal Project - Economic Development Tax Credits: Are They Doing the Job in New Mexico?
Massachusetts Department of Revenue - Report on the Massachusetts Film Industry Tax Incentives
The Business Journal of Milwaukee - Commerce study slams film incentives
Wisconsin State Journal - Study: Film incentives cost 20 times more a job than other state programs
Citizens for Tax Justice - State Film Tax Credits: Next on the Cutting Room Floor?
Good Jobs First - More States Yell "Cut" on Film Tax Credits
Rep. Steven D'Amico - A Primer on the Massachusetts Film Incentives
Iowa Fiscal Partnership - Iowa Budget Belt-Tightening: Focusing on the Largest Wheels