Culver wants all state tax credits reviewed

OTTUMWA – Gov. Chet Culver said Wednesday he wants a thorough cost-benefit review of all state tax credits in light of problems associated with film incentives to make sure taxpayers are getting value from their investments.

The governor also said he wants film tax credit applications to come under the same intense scrutiny that projects undergo to receive tax investments via the state's Power Fund, Vision Iowa and Values Fund programs. He said pending applications for film tax credits should start with the state Economic Development Board's due diligence committee before moving to the full board for approval.

Also, Culver said he plans to have his new chief of staff, John Frew, meet with state agency directors next week to begin a comprehensive review of all state tax credit programs. Lawmakers last session put a $185 million cap on economic development tax credits – including a $50 million cap on the film incentives – but state Department of Revenue estimates indicate tax credit liabilities could grow from $217 million in fiscal 2007 to over $497 million by fiscal 2013 without factoring in a recent spike in film credit applications.

Meanwhile Wednesday, DED officials released a status list of applications for the state's film, television and video project promotion program indicating 109 applications initially have been approved with an estimated $504.8 million worth of spending in Iowa. Another 22 projects projected to spend nearly $65 million have been approved and received tax credit certificates, while 26 projects are under contract with an estimated $156.2 million to be spent in Iowa.

While the overall estimated expenditure for Iowa from new film activity attracted by Iowa's tax credit program totaled $725.9 million, state officials said many of the proposals were concepts that may never move to actual production.

The state's incentive program provides a 25 percent tax credit to investors and a 25 percent tax credit to producers for projects that spent at least $100,000 in Iowa. The program was amended effective July 1 to place a $50 million yearly cap on taxpayer outlays and to require filmmakers to have at least a four-year presence in Iowa – but many applications were filed before those changes took effect.

Speaking aboard an excursion train traveling through southern Iowa Wednesday, Culver said the lack of that intense scrutiny of film tax credits opened the state to alleged abuses, mismanagement, lax oversight and other problems that caused a shakeup in top leadership at the state Department of Economic Development and its film office.

“Something went wrong, clearly – terribly wrong, and what the motive was and exactly how that happened is exactly the answers we're trying to get as quickly as we can and its' unclear now how all of that transpired and how they were able to do that without an auditor catching any irregularities,” he said.

Culver has called in the help of Attorney General Tom Miller, State Auditor David Vaudt and the state Department of Revenue to review “very disturbing” developments that prompted the governor to suspend the film tax credits. He said the action was prompted by revelations that tax credits were used in the purchase of two luxury vehicles by filmmakers; that numerous applications lacked adequate receipts and documentation; and that contracts were altered or increased after gaining DED approval.

Culver said the program suspension would continue as long as it took to ensure Iowa taxpayers are protected, to “claw back” money and hold accountable anyone who exploited the program, to make sure filmmakers are abiding by Iowa labor laws, and to hold those accountable that may have mismanaged the program. He and other state officials said they would not rule out the possibility of criminal or civil action as the probe moves forward.

“I was very disturbed by some of the things that I learned. Buying luxury vehicles that weren't used in films, it sounds like someone was trying to take advantage of the program,” he said. “My point is if you tried it we're going to claw back and hold you accountable and we're not going to tolerate that in this state.”

In the case of the luxury vehicles – a $61,000 Land Rover bought in conjunction with the “South Dakota” movie and a $52,775 Mercedes purchased as part of a “Children of the Corn” television project – Culver legal advisor Jim Larew said the state has heard back from one purchaser who indicated a willingness to reach an accommodation “to make it right” as part of a contractual claw-back clause.

“How far and what the agreement would be as to what's the fair apportionment for use for the film versus personal use afterwards is something we would look at,” Larew said.