Pull the Plug of the Film Tax Credits
- Thursday, September 24, 2009, 4:30
- Iowa, News Center, Top Story
- 1,539 views
- 8 comments
Yesterday we learned the names of the two movie producers who used the Iowa Department of Economic Development’s film tax credits to purchase luxury automobiles. Bruce Isacson, who filmed the movie “South Dakota,” apparently owns a 2008 Range Rover that cost $61,000. Donald Borchers, who remade “Children of the Corn,” owns a $68,000 Mercedes.
While neither car was used in the films, it’s safe to say both Isacson and Borchers will claim that they needed the vehicles while in Iowa working on their projects. While I’m not defending the actions of Isacson or Brochers, the legislation that was signed by Culver didn’t say that they couldn’t purchase such vehicles.
When you take away the make, model, and price of the vehicles involved in the scandal, it’s not really that big of a story. Would we be worked up if Isacson bought a Chevy Malibu for $23,000? I doubt it. The fact that a Land Rover and Mercedes are involved gives the story the drama the media needs to sell newspapers and bring in TV viewers. Maybe Governor Culver and legislators should have made the fleet of unused state vehicles sitting in a parking ramp near the capitol available for use. They should be smoke free, unless, of course, the governor’s wife has ridden in any of them.
The core problem that the purchase of these vehicles has exposed is that the Iowa legislature and Governor Culver created a bad law. Making matters worse, Governor Culver and his administration have proven that they were not prepared to oversee that the program was properly administered. The result is more bad news for Iowa taxpayers as they are on the hook for more than $300 million in tax credits to Hollywood movie producers.
Generally speaking, tax credits are good ways to encourage behavior that is beneficial to the state. On the federal level, tax credits exist to help people who are raising a family keep more of their money, and we also provide tax credits to people who going to college, getting an MBA or other advanced degree. On the state level, we provide research and development tax credits to businesses. Those are great tools to help build a diverse work force and bring long-lasting, quality jobs to Iowa. The Iowa Film tax credits don’t operate in the same way. Permanent jobs are not created, and the office that is responsible for overseeing the program is full of incompetence.
While the Iowans are now focused on the abuses of the system, other states that have doled out similar incentives are starting to wonder what return are they getting on their investment. The LA Times just recently had a story about Wisconsin’s film credits. Iowa’s elected officials should look to what happened to our neighbor to the northeast and ask ourselves if we really want to continue down this road.
The study said the production contributed about $5 million to the Wisconsin economy and about $270,000 in taxes, figures that are disputed by a film advocacy group that placed the movie’s economic impact at $7.4 million.
“We lost a lot of money,” said Zach Brandon, senior policy director at the Department of Commerce, who declined to discuss the details of the document. “We had to get off the crazy train.”
Wisconsin used to have a 25% film tax credit. Iowa’s film tax credit is 50%, and workers on these projects in Iowa don’t have to pay Iowa income tax. Now, after reviewing the success of its program, Wisconsin only offers a $500,000-a-year grant to bolster in-state film production companies.
There were warning signs that these film incentives were not all that they were cracked up to be long before Iowa passed its film tax credit law. In the fall of 2006, The Fedgazette – a regional business publication issued by the Federal Reserve Bank of Minneapolis – wrote the following:
Given current incentive levels, it’s not hard to see why. With rebates on production costs running 15 percent in Minnesota and 25 percent in Wisconsin and elsewhere (and among sundry other incentives), these subsidies will be difficult to recoup by states when taxes—sales, income, corporate—on relevant business activities are typically in the single digits in terms of percentage.
And the debate also misses the fundamental economic question of opportunity costs: What public good or service went unfunded because lawmakers decided to use finite tax dollars for film incentives, and what would be the return on this alternative investment?”
Thus far, Republicans are hesitant to call for the end of the Iowa film tax credits. Instead, Republican gubernatorial candidate Chris Rants has posed a series of questions to help determine what financial impact the scandal will have on the state’s budget. Christian Fong, who is also vying for the Republican gubernatorial nomination, is calling on Governor Culver to move forward with a state website to provide more transparency. Bob Vander Plaats, on the other hand, sees this as another example of state government picking winners and losers.
Vander Plaats said, “We need to create a fair playing field for all business. As I’ve traveled across this state, I’ve never had a business leader tell me they want a tilted playing field that they could take advantage of. They just want an even playing field so that they can compete.” Vander Plaats also said, “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.”
While Vander Plaats came the closest to calling for a repeal of the program, Republicans risk being on the wrong side of this issue if they don’t call for the program’s demise. Governor Culver has already fired three people in his administration and has identifies the two villains who misused the tax credits. His next logical step is to call for the end of the program.
Governor Culver will do so because he simply can’t continue to fund the program. He already has his hands full trying to balance a budget that starts off with a $1 billon spending gap. Republicans should call for the end of the program because Culver has shown that he is incapable of managing it and because it’s the right thing to do. Additionally, at a time when so many Iowans are out of work, it’s not politically wise to be on the side of tax credits for movie producers.
We should follow the lead of our neighbors, admit we made a mistake, and repeal the Iowa Film tax credit program. After we do that, we can find a better way to develop and encourage the film industry in Iowa. We just might want to make sure we have a competent Governor first.
About the Author
Craig Robinson has written 454 stories on this site.
Craig Robinson serves as the founder and Editor-in-Chief of TheIowaRepublican.com. Prior to founding Iowa's largest conservative news site, Robinson served as the Political Director of the Republican Party of Iowa during the 2008 Iowa Caucuses. In that capacity, Robinson planned and organized the largest political event in 2007, the Iowa Straw Poll, in Ames, Iowa. Robinson also organized the 2008 Republican caucuses in Iowa, and was later dispatched to Nevada to help with the caucuses there. Robinson cut his teeth in Iowa politics during the 2000 caucus campaign of businessman Steve Forbes and has been involved with most major campaigns in the state since then. His extensive political background and rolodex give him a unique perspective from which to monitor the political pulse of Iowa.
8 Comments on “Pull the Plug of the Film Tax Credits”
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You may be jumping to a conclusion. A program shouldn’t be terminated just because of poor administration. We need the data before permanent action, as Chris Rants and Christian Fong are appropriately seeking to gather. The data may well show that the Iowa program has the same nominal impacts as the Wisconsin one, and if that is the case, then the General Assembly would be remiss if it took no action. You always hear that the film industry comes to places like Iowa because of low wages – maybe that’s enought to bring business here. Question – did only Ds vote for this tax credit program when it was enacted?
Passed the house on April 10, 2007 by a vote of 95-1 (Hunter voted no, and Forristall, Schickel, Winckler, and Zirkelbac were absent) However Schickel and Wincler later stated in the journal they would have voted yes if they were present.
The ayes were, 95:
Abdul-Samad Alons Anderson Arnold
Bailey Baudler Bell Berry
Boal Bukta Chambers Clute
Cohoon Dandekar Davitt De Boef
Deyoe Dolecheck Drake Foege
Ford Frevert Gaskill Gayman
Gipp Granzow Grassley Greiner
Heaton Heddens Hoffman Horbach
Huseman Huser Jacobs Jacoby
Jochum Kaufmann Kelley Kressig
Kuhn Lensing Lukan Lykam
Mascher May McCarthy Mertz
Miller, H. Miller, L. Oldson Olson, D.
Olson, R. Olson, S. Olson, T. Palmer
Paulsen Petersen Pettengill Quirk
Raecker Rants Rasmussen Rayhons
Reasoner Reichert Roberts Sands
Schueller Shomshor Smith Soderberg
Staed Struyk Swaim Taylor, D.
Taylor, T. Thomas Tjepkes Tomenga
Tymeson Upmeyer Van Engelenhoven Van Fossen
Watts Wendt Wenthe Wessel-Kroeschell
Whitaker Whitead Wiencek Windschitl
Wise Worthan Mr. Speaker
Murphy
The nays were, 1:
Hunter
Absent or not voting, 4:
Forristall Schickel Winckler Zirkelbac
Senate
Yeas, 48:
Angelo Dvorsky Kettering Rielly
Appel Fraise Kibbie Schmitz
Beall Gaskill Kreiman Schoenjahn
Behn Gronstal Lundby Seng
Black Hahn McCoy Seymour
Boettger Hancock McKibben Stewart
Bolkcom Hatch McKinley Ward
Connolly Heckroth Mulder Warnstadt
Courtney Hogg Noble Wieck
Danielson Horn Olive Wood
Dearden Houser Putney Zaun
Dotzler Johnson Ragan Zieman
Nays, 2:
Hartsuch Quirmbach
Absent, none.
“Generally speaking, tax credits are good ways to encourage behavior that is beneficial to the state”
what the ?!?!? are you kidding me ? letting elected officials pick one business over another is always a bad idea. right now Google and Microsoft get huge tax breaks to do business here, while small software publishers like 8monkey Labs in Waterloo get nothing. whenever you have to bribe people to do business in your state, its a sure sign that your tax code stinks.
All of the state tax credit programs should receive more scrutiny. We are probably not getting our money’s worth on most of them, including the film tax credit. The Iowa Fiscal Partnership and the Iowa Policy Project have been sounding the alarm on this issue for a long time.
Thanks for posting the roll call vote, Craig. Neither party did its homework before voting to approve this program.
Thanks for this article and the response regarding the initial vote. I am one of the producers who submitted applications to the State for Tax Credits. I submitted 12 applications. I received 2 contracts from the State. I signed the contracts and sent them back to the State office the week before the resignations. I never received signed copies. I was to begin production on Monday. Needless to say the entire production is in limbo.
I write to put a face to the Credit Program. I am not a Democrat. Last year I voted for Ron Paul. I believed he was the only true Conservative running and admire him personally for his faith & profession both as a physician & Congressman. I understand the issues regarding the opposition to the Program. If one wants to practice true Capitalism, then this or really any of tax credit or government subsidized program should be abolished. On that theoretical level I agree with Vander Plaats about creating an even playing field. However in real application this is not how our system works today. To do what is discussed takes incredible political will. Our agricultural industry is heavily subsidized as everyone knows. The subsidies for ethanol production is enormous. I have done tax accounting for 15 years as well as filmmaking, I have seen first hand some of these benefits. A basic scrutiny of this industry would undoubtedly bring up a lot of hard questions, first of which is any environmental benefit the fuel actually has.
Casinos are another obvious target. The advantage casinos has over its competition in the the dining & bar/nightclub industry is huge, to say the least. The gambling monopoly alone is one thing. The allowance of hours of operations, inexpensive food & beverages subsidized by the gaming, and the most obvious the smoking ban. I personally dislike the act of smoking in public places, but understand fully the anger of private business owners when their establishments are shut down if smoking occurs & yet the people can smoke in the casinos. I was told recently by two women that they were at a Styx concert held in the outside area of a casino. When they attempted to smoke their cigarettes they were forced to go inside the Casino. Smoking was not permitted outside on the grounds.
So, if one advocates free enterprise across the board. Where does one start in this State? I doubt anyone will address those two industries & the breaks they receive. These industries and their government allowances dwarf the Film Credit issues.
Now I will address these issues. I am a recipient. I am bias because of my desire to receive their benefits. I fully understand the issues and realize the importance of transparency & oversight. In my particular case, I hired a bonded Line Producer to formulate my budgets. She would lose her license if the figures categorized were not accurate. In order to use her services, all the positions, except for a few specialized ones, had to be measurable W-2 positions that paid in State & Federal taxes. They also had to have Workman’s Comp. I realize that many of the budgets submitted by other companies did not go through this process. I did. I also submitted 12 projects. Why so many? Because I know this industry. This was a calculated decision. These 12 projects were to be engaged over the next 5 years. It was a business model to grow an industry here in Iowa with the focus to create long-term employment and stability for not only myself but others. I know this business often goes project to project, especially if no infrastructure is available in the given locations. Our priority is to create infrastructure. 5 years of regular productions can create infrastructure….buildings, consistent personnel, & a base of equipment. These 12 projects with Tax Credits backing them are seen as collateral by banks. I have been working with a local bank through this process. I have been told by them that they would not entertain a notion of working with me without these Credits, no matter how good or viable the projects are. I know first hand this to be true. I have shot most of the first project submitted. It is a Civil War documentary, primarily on the Western Campaign to take the Mississippi River. It is a story that has got everyone’s attention in the history field, because it deals with a forgotten battlefield called Champion Hill, the battle that won the Vicksburg Campaign. Historians from all over the country spoke with us, because the wanted this story out. We have as good as historians on film as out there, including the Burns series. Despite this, no matter how good of material, how good it looked on film, etc. no bank would work with us to get funding to get the proper post-production. Investors here in this State were also leery because they didn’t know how the business works. This type of business activity simply has not been recognized here in this state, prior to the Credits.
I now have the ability to finish this film correctly and get this interesting & important story out to the public… if the State honors the contract they sent me. The 2nd project is next summer. It is a documentary regarding the Mississippi River & the importance of this entire valley to the formation of the country. The 3rd one was called Hardship to Hope. It is a Christian television series showing transformational stories to be shown on Sunday mornings. “Faith in action”. Unfortunately the budget was completed after the moratorium was issued….no contract was issued on this one. The first two still have a chance. This one likely will not. I called one of the hosts tonight, a pastor’s wife, after returning from Des Moines and talking with our local State Senator to tell her the news.
All of these projects had generated incredible excitement by the local people I’ve been involved with. The notion that these are not sustainable or “attractive” jobs is not founded in real application. Sure there are “extra” work that pays little and not sustainable, neither is detasseling corn, but I, and thousands of youth, did it as a rite of passage growing up here in Iowa. There is also real jobs created such as the two dozen jobs at Grasshorse Studios in Mt. Pleasant, primarily a post -production facility. These are “cool” jobs that keep educated, tech-savvy youth here in the state.
On my way back from Des Moines, I stopped in Washington to tell one of the potential crew members the news. He has been a cameraman from Extreme Home Makeover since it began 6 years ago. He eventually got his nephew & niece working regularly on the show. They have traveled around the country making this program. He wants off the road. He wants to return to Iowa, his home state, and settle down. The Credits and the long-term production plan we put together gave him this opportunity. He and the other two were going to begin work on our production earlier this week. He announced happily to Extreme co-workers last week that he was doing his last show. Now he has to return. The Credits gave him the hope to return here. As he said, this was a dream come true to return to Iowa to do what he loves.
He and his family are long-term Republicans. We talked tonight about the impact upon Culver who he personally hopes is not re-elected. Film Tax Credits should not be seen as exclusively a Democratic program. Your own statistics on the vote prove that Republicans were equally invested in the legislative initiative. Now press the majority Democrats in office to administer the program right.
No Republican in today’s business climate though should embrace government grants as an answer over Tax Credits. Wisconsin for example, is one of the most highly taxed states in the Union. (One of the top ten.) It should not be the primary source for program replication, especially when they are citing hypothetical examples as their models for ending the Credit system. No surprise they are now offering grants. That is a big government model. These programs install lifelong bureaucrats who tend to favor certain types of funds distribution. Look at public television or radio. Can one truly say that it is politically objective? Tax Credits should have strict oversight. No question. It should be about accounting though, not content. Would our show, Hardship to Hope, get a government grant? No. Tax Credits are objective in form. Unless Republicans embrace total free enterprise “across the board” and I mean total, including agriculture, gaming, etc. then Republicans need to be realistic about today business climate.
The most realistic way to build infrastructure in this State is through Tax Credits. This is especially true in a creative industry such as film & television, where government grants shape content and impacts greatly the messages given to the viewing public. This is a powerful medium. The industry should not just be dismissed or given to big government or Hollywood companies. A good lesson in the positive impact of media can be seen in the history of Shenandoah and the impact of the seed companies & the radio shows they produced. Local talent exploded. Acts such as the Everly Brothers were given a platform to begin. They are now a part of Americana and that little Iowa town will always have that legacy to draw from. What is wrong with advocating such local, positive culture again…using new technology?
I recognize that my position here on this issue is compromised. I have applied for Tax Credits. I want this to continue for my own & others interests to not be lost. I am from Iowa though and see this as a genuine opportunity for widespread economic change in this state. I want Republicans to not just see this as “Hollywood liberals” getting free money. An effective Republican position is to: 1) Demand oversight, which obviously was not in effect. 2) Focus on some of the specific allocations. Large, out of state companies should not be favored, even if they do have the star power and financial backing. (I sat in on some industry panel discussions. Comments afterwards from local producers were along these lines, “Don’t tell me Iowans can’t handle these type of jobs. Just because they have the specialized technology in L.A. doesn’t allow them to justify taking funds back there to do the necessary jobs. Bring the equipment & infrastructure here. Iowans can do those jobs as well as anyone.”)
3) Really work with companies here in Iowa that want to create jobs & be here long-term. Iowa needs infrastructure for this industry to work. I can build the most fuel efficient car in the world in my garage. Unless I have infrastructure though, not another one will be built.
It is easy to say, “get on the right side of the issue & cancel the program…and then down the road we can offer some sort of other incentives to encourage the film industry here in Iowa.” I can tell you from real world experience, having sat in a meeting today, that the film industry is here now. Real activity is happening here now because of the Tax Credits. The system needs refined and better governed. To advocate throwing it out right now is not understanding the full impact of that position. National companies will not come back. I lived in L.A. for three years doing this work. Iowa will continue to be a joke there. For evidence google the latest L.A. Times article on this issue. Local companies, like Grasshorse, will end. They are already stretched thin because of the start-up costs associated with this industry….now halt production incentives completely. They will not survive long here and be forced out of the State. Our Civil War film will be made, but will not be industry quality and be relegated to Civil War re-enactment sales, if we can financially justify traveling around the country selling them ourselves.
As for the Republican Party, if you keep this position & use it as a chief political weapon next year…keep this in mind. This program is only two years old. It generally takes at least a year for these productions to hit the market. I sat in a meeting today and was amazed at how many name actors are in this State now filming and how many more are poised to come in the next few months. Many of these films will be coming out prior to next year’s election. If there is a string of hits and/or quality shows, including ones made by state-owned production companies, this position of, “end the program immediately” will not be so attractive. Culver could be praised for holding up the industry through tough times & political posturing. Iowa, after retooling the program, could become a model for the industry.
Hollywood is decentralizing. Technology and access are forcing that. Middle America & its values need to recognize the forces at play and not throw away the opportunities given. We do not have to accept Hollywood values just because we accept the industry into the State. Iowans are hard-working, honest people and this should be reflected in the emerging industry. Republicans should work to shape this industry into the image of Iowa. It should not position themselves as hostile to the industry that is already here, but needs guidance as it becomes part of our regular economy & identity. The right side of the issue is not an easy short-term solution like, “End the system now.” The right side is having a long-term vision for this industry within Iowa. Let’s see Conservative values which are really Iowa values shape this industry and guide into a lasting place in our State’s economy.
You all need to read the above comment, even though it’s long. Most of the discussion, er sniping, that goes on on this site involves very abstract issues. This is not. This is the story of how a person is affected by a well-intended government program. I’m envisioning a bunch of middle-aged government workers with a flip chart, all democratic, but maybe hiding behind independent designations because they are such good civil servants that they don’t want to seem partisan (which is another way of saying that they are REALLY partisan). They are all in a room to determine which film projects to give money to. The civil war one? No, because small children might be scared by the blood and gore and women are shown in subservient positions. The Christian series? Certainly not, because it doesn’t equally praise all religions and no religion. This is what happens when taxpayers can’t choose how to recieve their tax credits – the government work group gets into the grant approving mode. We need to think more deeply about the practical impacts of the abstract policies we espouse in these comments.
I agree with Mr. Hazel, and anonymous…Iowa would do well to nurse this tax credit program. Personally I think it would be kind of cool to develop an Iowa based film industry,