Two more DED officials lose jobs in film tax credit probe

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.

The burgeoning probe into alleged abuses and mismanagement of the state's film, television and video promotion program claimed two more state officials Monday with the departures of Tom Wheeler as manager of the Iowa Film Office and Vince Lintz, deputy director of the state Department of Economic Development. Wheeler had been placed on paid administrative leave last week pending a review of “irregularities” in the film tax credit program.

Gov. Chet Culver announced that he had dismissed Wheeler effective immediately, with DED official Amy Johnson serving as interim manager of the film office – a division of the economic development department.

Culver also accepted Lintz's resignation. That followed last Friday's announcement that DED Director Mike Tramontina had resigned as questions swirled around the oversight of a state film tax credit program that already has paid about $32 million for 22 projects filmed in Iowa over the past three years.

Culver administration officials 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 forced the governor to suspend the tax credit 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."

Warren Jenkins, a deputy state auditor, said he expected a meeting of the top state officials would take place yet this week. He noted that the program has drawn dramatically in a short period of time but some things that have come to light in recent days have raised concerns.

Jenkins said he would not rule out that the ongoing probe could result in criminal charges but he added “there's no foregone conclusion that there will be any charges. It's just one of the possibilities that we keep an open mind on. It's early on and we'll see where it leads us.”

Meanwhile, film industry representatives held a news conference Monday to urge Culver to reconsider his decision to suspend the tax credit program and to halt the issuance of more tax credit certificates and the payment of qualified expenditures pending further review. They also gave Wheeler a vote of confidence and attributed any problems to inadequate state staffing and resources to properly administer the program.

Kent Newman, president of the Iowa Motion Picture Association, called 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,” he said.

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 – a level filmmakers noted equates to at least $64 million in positive benefits to Iowa's economy.

But Sen. Joe Bolkcom, D-Iowa City, chairman of the Senate Ways and Means Committee, said there is concern those tax credit payouts could balloon in future months due to what DED officials have called an “explosion” of interest in the incentives.

 “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.

Tramontina's memo indicated DED officials had contacted the claimants of the two luxury vehicles – a Mercedes and a Land Rover – demanding a return of the value for the credits. He also said plans called for requiring at least two individuals to justify their charges and DED staff was revising the program's administrative rules to set a sliding scale for the award of credits based on the percentage of Iowans hired and other proposed changes to be considered by the Economic Development Board at its October meeting.

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.

Democratic leaders in the Iowa Legislature issued a joint statement Monday calling Culver's action encouraging and prudent to ensure additional accountability and scrutiny with regard to the Iowa Film Office.

“It was prudent for the Governor to announce plans today to involve Attorney General Tom Miller and State Auditor David Vaudt to ensure that every fiscal and legal avenue is pursued against anyone who may have abused this program,” according to the statement issued by Senate Majority Leader Mike Gronstal of Council Bluffs, Senate President Jack Kibbie of Emmetsburg, House Speaker Pat Murphy of Dubuque and House Majority Leader Kevin McCarthy of Des Moines.

“We are also reassured by their commitment to lift the suspension of the program as soon as it makes sense for responsible projects,” they added.

Meanwhile, GOP minority leaders Rep. Kraig Paulsen of Hiawatha and Sen. Paul McKinley of Chariton called for the Legislature's Government Oversight Committee to examine the film tax credit situation when it meets on Thursday.

“The governor's lack of oversight and failure to properly manage the film tax credit has not only put the program in jeopardy, but already wasted millions in taxpayer money,” Paulsen said in a statement. “Republicans will work to bring more transparency and openness to this initiative.”

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