State Sen. JP Morrell should not be worried, but be happy with HB 829, for the ticking time bomb it contains makes the Motion Picture Investor Tax Credit look more and more like an undead vampire you can’t kill that continues to suck the life out of Louisiana.
Morrell acted all upset when the conference committee forwarded state Rep. Joel Robideaux’s instrument approved ultimately by the Legislature, which then progressed on to Gov. Bobby Jindal’s disposition. Echoing the industry’s representatives, he decried the outcome, claiming he was left out of final negotiations over the bill – even though he sat on the conference committee dealing with it. That’s probably because from the start of the year in discussions of reforming the wildly generous credit he acted as the industry’s most reliable shill among legislators, and those individuals more interested in beginning to address the program’s chronic wastefulness – at best it returns less than a quarter to taxpayers for every dollar they surrender to filmmakers – knew he would contribute nothing to addressing the fiscal hemorrhage it has become.
Except that they didn’t quite accomplish it. The bill establishes a $180 million annual cap – although considering that implies a waste of over $135 million a year this actually makes progress as the last few years have averaged in credits paid out of over $250 million annually – on credits redeemed, not certified. The industry fears that, with several hundred million of these outstanding, redemptions could crowd out a significant portion of new expenditures that qualify for credits (Morrell did have several bills pass that marginally tightened program qualifications that should save a little on the amount of credits issued).
Redemption rather than certification as the limitation metric makes sense because otherwise this could cause potential producers to rush to make films at the beginning of every fiscal year, may exclude bigger productions whose backers felt they could not be certain about getting all their claims in before the mark was hit, and makes for a true expense cap – redemption could occur years after certification, and many presented at once could throw a particular year’s budget way out of whack. Further, the redemption cap allows any single production only $30 million of these credits.
However, the problem is that for the awarding by redemption instead of at certification, both necessary to have a cap that brings predictability to budgeteers and for it to apply fairly for past recipients as their credits become much less valuable by an inability to redeem them because of a cap that could stretch into perpetuity, the bill had to acquire a sunset date, at the end of fiscal year 2018 that also applies to the single-production limit. This prevents holders of these credits and those who would acquire them from making a legal case that the state reneged on a deal, despite noises coming from them about how a limit built on redemption rather than certification would trigger legal action.
More realistically, potential receiving entities and their hangers-on have embarked upon a political strategy of asking Jindal to veto the bill, employing that contention that filmmaking in the state will dissipate through enactment of the legislation as justification. In doing so, they make a remarkable admission: without the credit – that is, without the state paying at least a portion of their state tax liabilities if not all of them and also extra money by their ability to sell the credits to others that leads at least indirectly to state subsidization – they won’t do business in Louisiana. Rather than lamenting that, the citizenry should cheer, for, unless one directly benefits from this subsidy, who would want to keep around an activity that provides a less than 300 percent negative return on investment?
Plain and simple, the industry admits only the legal bribery involved keeps the swarm around, and if it no longer can feed as greedily in Louisiana as compared to somewhere, it’ll decamp to somewhere else to get larger handouts. Which should be the point of the program – make it so that it attracts the most efficient producers with state resources to reach the goal of the credits paying for themselves, not those in it for the free dough at taxpayer expense.
But the necessary evil of the sunset clause threatens to wreck this entire objective. Particularly large studios or patient investors can wait out the next three years, and if the law remains unchanged, pounce after Jul. 1, 2018 on the again-unlimited pot of taxpayer bucks, with any sized production. That environment only peripherally will limit efforts and dollars paid out over the long run and put the state back where it started, hosting the gorging locusts.
So for this to work at all, the Legislature must come back within three years and change the cap to include certifications and in size. This can work if in the interim the state figures out exactly how much in certifications have gone out the door, add to it a reasonably cool-down figure, and then terminate the program after so many years. For example, let’s say as FY 2018 came to close there was known to be $500 million in unredeemed credits. The law could be reenacted to say in FY 2019 $150 million would be certified or redeemed, the next year $140 million, then successively $130 million, $120 million, $110 million, and finally $100 million, after which from FY 2024 on there would be no redemptions and that the maximum amount of redemption for any given previous year would be $100 million. This effectively stops the subsidization after FY 2022 but gives the industry plenty of time not only to adjust to having to make it on its own but also gives credit holders an opportunity with some flexibility to cash in.
Absent this kind of change, HB 829 really only shifts refunds that would go out to some in the next three years to occur four years or more in the future, a temporary solution to a chronic problem. Unless a stake, even incrementally, is driven through the heart of the program, it will continue to stalk millions of taxpayers to the advantage of few in number, maybe in the thousands and some not even state residents. Which is why any complaints heard about the bill and calls for a veto of it illustrate only the exceptional level of greed of program beneficiaries who by that action show themselves so uncompromising that they won’t countenance even temporary restraint of their gravy train.