SADOW: For The Film Tax Credit Crowd, Discretion Is The Better Part Of Valor

Understand that the retreat of special interests wishing to siphon more tax dollars from citizens to make movies is not because of their generous and cooperative nature, but because the correlation of political forces continues to swing even more decisively against them.

After making a big show of threatened lawsuits against the state for changes to its Motion Picture Investors tax credit, last week the group representing filmmakers and ancillary entities announced they had dropped that strategy. The changes put a cap on how much in credits would be redeemable each year for the next three, and included other tightening of criteria to receive them that would diminish their availability and generally favor in-state efforts. The group asserted that suing essentially would make the film environment in state look unfavorable, which it wished not to encourage.

Yeah, right. It’s not the legal climate that has changed; as previously explained, the shills had a weak case from the start challenging the constitutionality of the new law, a threat which properly understood constituted a bluff. With this strategic alteration signaled, this proclamation and explanation serve as another bluff to try to magnify the power of an increasingly weak hand. The very fact that the group had to publicize the demise of a nonexistent suit shows an attempt to leverage power by trying to create the impression that it is discarding that plan in exchange for policy-maker compliance in changing the law essentially before the cap bites, in a way more favorable to the interests it represents. In others words, it’s trying hard to convince the political class that it’s the one with leverage and can call the tune.

Perhaps the industry drew the impression that this tactic could work by the state’s demonstrated weakness in application of the law to date, by interpreting the law in its implementation in the most favorable way possible to the industry. For example, one provision capped credit eligibility at $3 million per person employed, but the state said it will apply that only to personnel directly hired. If contracted through another party – and frequently films hire actors who have set up their companies that contract them out – these salaries are exempt from this criterion. This treatment undoubtedly makes the industry think that it can get further relaxations through the Legislature in the first half of the year that practically will revert the legal structure surrounding these credits back to its previous form, known for its generosity and for returning to taxpayers less than a quarter of every tax dollar spent.

But that accommodation probably won’t last long given the trending direction of the governor’s race. Perhaps the friendliest candidate to date towards the industry has been Lt. Gov. Jay Dardenne, not only because he authored the original law setting up the generous program, but also as almost immediately after the bill became law he alleged publicly in support of the industry that a major studio now questioned its commitment to film in Louisiana.

The problem is for film interests that Dardenne basically drags the rear in the contest, according to the latest polling. Meanwhile, the strongest polling candidate and favorite, Sen. David Vitter, has given every indication that he sees no reason to roll back the changes in principle, and suggests he might go farther still in limitations. Significantly, he immediately countered Dardenne’s allegation in saying his conversations with the studio yielded no such abandonment of the state in the offing. Vitter so far has made as a major campaign theme the restructuring of the state’s inefficient fiscal system, and certainly a program the net costs of which run into the hundreds of millions of dollars a year seems ripe for change by this measure.

Simply put, if you make threats from a position of strength, if your adversary does not alter behavior, you carry through with them to get what you want. If these turn into called bluffs, this reveals your weakness. If you can impose your solution from strength, you don’t call off use of that strength to talk nicely with your adversary in the hopes of getting him to cede a winning hand. The industry knew its lawsuit threat was hollow, and as it looks less and less likely to have a preferable occupant of the Governor’s Mansion next year, now it’s making heightened efforts to cut its losses by this seeming rapprochement.

Which means that at the beginning of 2016 when a special session of the Legislature will commence (all candidates have pledged to call one), it’s not time to ease back but to hit the accelerator on defunding corporate welfare to filmmakers. The new governor should roll back the administrative interpretations favorable to the industry that defang the recent changes and press the Legislature to lower the cap still more, not to increase it as the industry hopes. With an estimated $400 million in unused credits outstanding, the law could place a $150 million cap over each of the next five years, which would include some room for something like $350 million in new credits, before going to zero, giving the industry plenty of time to develop indigenous infrastructure and human resources to stand on its own.

Louisiana’s citizens, wrestling with a structural deficit, cannot afford any money-losing subsidization, much less $135 million or more a year for the next three years. On this issue, progress rather than retreat is the order of the day.

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