Tuesday, October 20, 2009

Iowa Tax Program Update

After yesterday's post, I got into a great Facebook discussion with attorney/writer/producer/sales agent, Darlene Cypser (@DarleneCypser) of Colorado. She was kind enough to provide a link to the actual auditors' report which ostensibly caused the governor to shut down the program. Darlene suggests that, based on this report, there was definitely a problem. I don't disagree, but we probably differ slightly on where to place the blame.

I have to agree that the report describes circumstances under the program that were almost certainly not in the state's best interests. Ultimately, I think the report supports my suggestion that more careful planning and operation is critical for a successful program. My reading of the report is that a lot of smart Hollywood people figured out ways to mostly stay within the letter of the law while maximizing their tax credits using strategies that the State of Iowa never anticipated.

And I think that's the key. I think Darlene wants to hold Hollywood accountable, but most everything I read in that report could probably have been anticipated and prevented with more careful planning and drafting of the law. I don't want to sound like a typical L.A. entertainment lawyer (or at least like the popular misconception that we are a bunch of arrogant sharks), but if the Iowa regulators understood the Hollywood movie-making culture, they would know that every effort would be made by producers to squeeze the maximum dollars out of the law as it was written. They could have hired any number of consultants that would likely have anticipated every maneuver, and then they could have crafted the law to prevent most of the alleged abuses.

You can't blame a producer for chasing dollars any more than you can blame a lion for eating an antelope. It's what they do. Some people may not like the way they do it, but it is naive to think that they would leave any money on the table. That's not consistent with the prevailing culture of Hollywood film making.

As far as the governor's reaction, even after reading the audit report, I think I would have been much quieter and less dramatic in my response. Clearly some things weren't working. So, they could slow down the application process, get some better regulations written, quietly replace a few people and continue the program. I think that the starting and stopping is potentially much more damaging to their perceived desire to build a film industry than any over-payments. They should just take what they've learned, correct their course and keep going.

Ok, that's all from me on this topic. I think it is probably more interesting to me than to most of you. I'll look for something a bit less dry for my next post.


newbizleader said...

Great insight, Roger. Thanks for taking the time to provide your comments. The fact you came back to this after learning more should let most know...you aren't the typical Hollywood attorney type! ;)

Roger Goff said...

Thanks, I genuinely appreciate that. I really try to counter that stereotype.

david geertz said...

just my two cents here on this matter but I think the best way to apply a soft money program would be to have two types of funding.

1. A below the line costs fund which could only be applied to labor that can demonstrated as having a result on screen. This fund should always have a cap on outsiders earnings as well and should promote local spending. If a Key Grip comes from Hollywood and is demanding that his entire crew from LA come with him that's a waste of money as the funds go into hotel, travel, and per diems where they should go into local labor that can work under the Key Grip.

2. Their should be a dangle portion of the fund that becomes the states ownership in the film. This should also be capped. To get the equity you have to use part 1 as stated above.

I think if you capped the investment portion at 8-10% on films having a below the line budget of less than 20M you would have people lining up to come to your town and the economic impact ratios ( in film they are about 2.5:1) would demonstrate a positive result for the community providing the funding.

but hey...what do i know?

Roger Goff said...

Apparently, quite a bit.

Frank Haroldson said...

The problem here is that the "independent" auditor's report is written from a political position to cover the IDED Director and Governor's rears. Read the cover sheet they put out with all the caveats and the fact they admit they didn't even review all the material. Where is the other side of the story or the response to the allegations in their report? This is a total white wash trying to blame one guy for all the problems. There are factual errors that will be revealed in a true audit by the State Auditor. Making one guy (Wheeler) a scapegoat for the lack of staffing and management oversight is really a Hollywood movie script not the truth. Come on... one guy duped the entire Department of Economic Development (which has a legal and compliance dept), the Revenue Dept, the Governor's office and others to the tune of more than $50 million... not possible. And why would he do this?

Roger Goff said...

It is great to get a different perspective on it, Frank. There is an obvious logic to what you are saying. I don't think it changes the point about careful planning and management, but if that report was written as part of a political agenda, then it perhaps puts a different light on it. Thanks for the contribution.