SADOW: Now The Movie Industry Wants To Sue To Keep Their Free Stuff

Having already taken more than a billion dollars out of Louisiana than they put it, filmmakers and related interests backing an industry mouthpiece group don’t appear to mind draining a little more of the people’s money through lawsuits they can’t win, because they do desperately want to keep riding the gravy train.

In the aftermath of the enactment of Act 134, which among other things placed a limit of $180 million on the amount of Motion Picture Investor Tax Credits that could be redeemed a year for the next three fiscal years and limited to $30 million the amount any single production could receive, the Louisiana Film Entertainment Association said it expected holders of the credits to sue the state, claiming that the restrictions violate contractual obligations, and it will join them with one of their own.

Which, unless the group suddenly has turned into a civil libertarian outfit that takes on laws at least somewhat out of philosophical objections that is contrary to its history of shilling for a law that returns anywhere from 13 to 23 cents to taxpayers for every dollar they shell out, on the surface seems a curious thing for it to do. After all, although no central repository identifies who holds what credits, likely only a small minority are held by producers and other interested parties who back the group, because these are not refundable and therefore only can be used against Louisiana tax liability. What they owe never ends up very large and almost every production, sometimes dramatically (one film took away $35 million worth against a liability a fraction of that), exceeds that, so producers take advantage of the guaranteed selling clause to the state that currently pays out 85 cents on the buck or sell them to brokers. This puts most of these into the hands of Louisiana citizens and businesses (and politicians), who have nothing to do with this group.

But understand who ends up siphoning taxpayers as a result of this, and it becomes understandable. While laws passed this session tighten the requirements, the very nature of the program encourages more profligate spending by producers; in essence, giving them a quarter more of whatever for free, because by qualifying for a 30 percent credit on an expense that you can sell back to the state at 85 percent, that a 25.5 percent bonus. And the aftermarket generally fetches even higher prices. So why order hamburger when taxpayers will upgrade you for free to ground round? Buying better or more means more of the people’s money spread around to a relatively small number of individuals.

However, the cap discourages that strategy because if you plan on redeeming credits sooner rather than later, if your amount is a quarter higher, you risk not coming in under the year’s cap (which is first come, first serve) and may have to wait at least a year for the remainder. Producers fear the cap means no more or as  much shrimp cocktails for them, and productions will be less grandiose, meaning fewer employed and positive spillover effects so this stokes the worries of ancillary firms that make their money off of the industry that support the group.

The same logic applies in gauging the desirability of the credits as an incentive. While the industry does not hold the vast bulk of extant credits that suggests a cap on redemption should not concern it, instead movie-makers fear that with the three-year moratorium on unlimited redemption that holders of these may rush for redemption as soon as possible, freezing out immediate redemption possibilities with the state and causing their value to go down in the aftermarket as a result. In turn, as the value of the bribe decreases, so does the volume of business, again meaning fewer productions and less business for the ancillary concerns. (Anecdotal evidence suggests that exactly this sentiment has entered Hollywood’s stream of consciousness, if perhaps not yet acted upon.)

And while the organization has put out a statement attempting to argue the unconstitutionality of the new act, which claims the new law constitutes a “substantial impairment” of a contract, almost the entirety of that assertion becomes laughable when considering that the state in no way says it will not honor or devalue the credits, because not only does the cap eventually expire but also if the cap is reached in a year, credits claimed past the limit then may be carried forward to a future tax year. You still get the full benefit, just not upon demand. This illuminates the inconsistent argument made by the organization: why should only the holder of the cap be able to select the timing when they may be redeemed? Why shouldn’t the state have an equal ability to do that? And the argument that the new restriction is unconstitutional because it is “neither reasonable and [sic] necessary, nor justified by a significant and legitimate public purpose” is absurd on its face: balancing a budget and the spending decisions part of that process unquestionably are duties legitimately exercised by government as representatives of the public and its purposes. As a result of these errors in analysis, arguments even more divorced from reality are made in this document invoking the “takings” and “equal protection” clauses of both the U.S. and Louisiana constitutions.

The only plausible argument made by the group in the brief concerns the rare instance in which a redemption occurs on the same day the cap is hit, where (the new law doesn’t actually address this, but promulgated administrative law might choose this as an approach) apro-rata formula is used, the possibility of which could mean a tax return could be filed with unpaid tax liability and invite penalties. However, administrative rule-making could prevent unfair consequences in this unusual situation, and certainly that provides little justification to overturn the law with such an easy administrative solution at hand.

In short, because it feels so much potential lucre could be cut off by the law, to tap into what it sees as a voluminous pipeline of cash the industry is willing to try longshot lawsuits that will cost them some money. Of course, it will cost Louisianans also to defend them, which is the final insult the greedy of the industry and its hangers-on heap upon the state: what’s a bit more to make the citizenry surrender when you’ve already picked their pockets for a net over one billion dollars? They’ve never cared for the welfare of the people, so it’s a stretch to think they would start now by abjuring legal action, owning up to how they have sacked the state, and being grateful and graceful in accepting their gravy train accommodations have gone from club car to first class.



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