Culver expands review of troubled film industry credits program

DES MOINES – Iowa's starring role in luring film projects with financially attractive tax credits threatened to bomb Monday as concerns and criticisms grew over the way the state incentive program has been administered.

Officials in Gov. Chet Culver's administration worked to get a fix on the program's status in the light of lax oversight, potential abuses, administrative “irregularities,” and uncertainty over how much taxpayer money has been obligated for projects that contracted for the incentives – problems that caused Mike Tramontina to resign as director of the state Department of Economic Development, landed film office director Tom Wheeler on paid administrative leave and forced Culver to suspend the program pending further review.

On Monday, Culver asked Iowa Attorney General Tom Miller, State Auditor David Vaudt and Mark Schuling, director of the state Department of Revenue, to assist in an independent review and to recommend way to improve the tax incentives so taxpayers' interests are “fully protected.”

"This is not about harming the growing film and television industry in Iowa, but about protecting public funds and the best interest of Iowans," Culver said in a letter to Miller, Vaudt and Schuling.

"I am very troubled by reports of the lack of oversight and accounting procedures of tax credits under this program,” he added. “My first priority on this issue is to the taxpayers of Iowa, and I know that Attorney General Miller and Auditor Vaudt will help us to quickly identify changes that need to be made and how we can best move forward."

Meanwhile, film industry representatives held a news conference Monday to urge Culver to reconsider his decision to suspend the film, television and video program and halt the issuance of more tax credits or the payment of qualified expenditures pending further review.

The Iowa Motion Picture Association issued a statement calling the implementation of new accounting procedures an appropriate course of action, but said suspending the program during the state “is not the answer” and could jeopardize projects.

“There are many films currently in production and planning for production in the state later this year, and by suspending the production incentives the state jeopardizes putting more Iowans out of work while we are facing the highest state unemployment rate since 1986, as well as discouraging potential future productions from considering Iowa. It simply does not make sense,” according to an IMPA statement.

Lawmakers initially approved an incentive program that provided a 25 percent tax credit to investors and a 25 percent tax credit to producers for money spent for qualified purposes in Iowa for film, television and video productions.

The program was amended July 1 to place a $50 million yearly cap on taxpayer outlays and to require that filmmakers have at least a four-year presence in Iowa. The proposed changes triggered a California-to-Iowa gold rush in May and June among filmmakers to sign up for the incentives before the changes took effect in July.

DED spokeswoman Erin Seidler said so far 22 projects shot in Iowa were awarded about $32 million in tax credits. But Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said there is concern those payouts could balloon when due to what DED officials called an “explosion” of interest in the tax credits.

“Clearly, people saw it as an opportunity to take advantage of an extremely generous credit under the old rules that allowed you to take the credit all in one year and there was no cap on it,” Bolkcom said.

“I applaud the governor's decision to push the pause button on the program,” he said. “There have been enough serious concerns raised about this audit that we need to make sure that the taxpayer investment here is appropriate and it's accountable and it's transparent. Some of the initial concerns that have been raised, if they're true, are serious problems.”

Before resigning his DED post, Tramontina issued a memo to three Culver administration officials last week indicating an internal audit found “irregularities” which the governor later called “very troubling” in suspending the program due to “insufficient” accounting procedures.

Tramontina indicated the internal audit found an abuse of the tax credit's program guidelines when two luxury vehicles were purchased but never used in a film. It also determined that many vendors were not from Iowa, that there were inadequate files and receipt documentation, that changes in contracts with filmmakers were made after they received DED approval; and that many ledger sheets contained vague and overly broad explanations.

Bolkcom said the problems with the film incentive program represents “a warning signal” for lawmakers to pay closer attention to the tax credits that are authorized in the state budget. Lawmakers put an overall cap of $185 million on economic development tax credits for the current fiscal year, but Bolkcom said he expected lawmakers to consider implementing greater oversight when they convene the 2010 session next January.

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rod.boshart@gazcomm.com