Lights. Camera. Action.
But not of the kind favored by Louisiana’s film and television industry.
Instead, the state Legislature will begin to take action next week on bills that would pare and perhaps even phase out tax subsidies that have cost taxpayers $1.3 billion over the past seven years while making Louisiana a more popular — and more financially rewarding — place to film movies than Hollywood.
Next week’s legislative hearings will be only the first step in a lengthy process to determine the fate of Louisiana’s Motion Picture Investor Tax Credit, under which taxpayers cover 30 percent of a production’s local expenses.
The tax credit program, among the most generous in the country, cost the state treasury $223 million in 2014, down from $251 million in 2013, but up dramatically from $114 million in 2008. Most of the movies and TV shows are filmed in New Orleans, Baton Rouge and Shreveport.
As The Advocate reported in December, taxpayers in 2011 gave away more money to one movie, “Green Lantern,” than they gave to the University of New Orleans this year.
Most of the bills offered this year would give the program a haircut, but they vary widely in how far they would go.
One would kill the program in four years, another would cap the program at $150 million per year and yet another would set a $300 million cap, which could actually mean an expansion in the program. Many of the measures would limit some of the expenses that the state now subsidizes, such as a star’s multimillion-dollar salary.
Several bills would tighten anti-fraud provisions, at a time when a high-profile federal trial is underway in New Orleans in a case involving three people accused of abusing a related program — of tax credits for film infrastructure projects — to defraud taxpayers.
It’s far too early to know the ultimate fate of the film tax credits or whether Gov. Bobby Jindal will deem any changes in the program a tax increase that he would oppose. But many legislators seem swayed by reports from independent economists who say the tax subsidies generate a poor return on the state’s investment — a conclusion disputed by those who benefit from the program.
The program’s supporters point out that the industry now employs about 15,000 people in Louisiana. Their trade group, the Louisiana Film and Entertainment Association, released a study this month claiming that up to 14.5 percent of tourists to Louisiana in 2014 came because of the movies made here and that the benefits in terms of jobs created, taxes paid and tourists induced to visit Louisiana balance out the loss of direct tax revenue.
Loren Scott, a retired LSU economics professor, said he found those claims to be laughable.
He produced a report last month for Louisiana Economic Development, the state’s economic development arm, showing that the program generated only 23 cents in tax revenue for every dollar paid out by taxpayers in 2014. The economic agency awards the tax credits, known as “certificates,” which can be used in future years.
Another recent study — by two LSU economists and one from Tulane — concluded that “the film tax credit should be viewed as an ongoing spending program that provides some benefits to the state.” It recommended that “caps should be placed on the expenditures for the program, so that it is not an open-ended entitlement.”
Legislators have taken the notion of caps to heart, but they differ widely on the proper amount.
First up for the Louisiana House’s tax-writing panel, the Ways and Means Committee, will be the measure that most concerns the film industry. House Bill 276 would cap the state’s film subsidy program at $50 million in the fiscal year that begins July 1 and stop issuing any more tax credits beginning in 2019. That bill is scheduled to be heard Tuesday.
State Rep. Lance Harris, the bill’s sponsor, said he would rather have the government give the money spent on film tax credits to the state’s colleges and universities, whose budgets the Legislature and Jindal have cut repeatedly in recent years. These institutions are facing another $211 million cut in state aid under Jindal’s proposed budget for next year.
“Every study shows we spend more than we take in,” said Harris, R-Alexandria, who is also chairman of the House Republican delegation. He said it’s time for the film business to operate on its own, without continued subsidies.
The film association is calling upon supporters to attend Tuesday’s committee hearing to oppose Harris’ bill and stand out by wearing red shirts.
Rep. Jay Morris, R-Monroe, has authored House Bill 213, which would cap the program at $50 million per year indefinitely. Morris would have the state economic development agency decide who gets that money each year based on the amount of economic bang for the buck to Louisiana.
“We’ll have to cut a lot of things this year” to eliminate the state’s projected $1.6 billion deficit for next year, Morris said. “The film industry receives one of our more generous subsidies.”
Rep. Ted James, D-Baton Rouge, wants a $150 million annual cap. But his House Bill 633 also would restrict the program by no longer allowing individuals or companies that finance films and television shows to sell their tax credits to others, typically for about 90 cents on the dollar.
Under the present law, movie and television financiers may sell the credits if they don’t owe any tax liability to the state that they can offset. They also can return the credits to the state for a check worth 85 cents on the dollar.
James, who developed his bill in conjunction with the Louisiana Budget Project, a sharp critic of the program, also would cap at $1 million the individual salaries that producers can deduct for actors, directors and other high-priced personnel, as well as limit other so-called “above the line” expenses, such as travel.
“I won’t be upset if my bill means fewer movies but prevents the emergency room closure of a hospital in Baton Rouge,” James said.
Sen. Robert Adley, R-Benton, would establish a $208 million annual cap with Senate Bill 266 and would end the sale of tax credits.
Sen. J.P. Morrell, D-New Orleans, has spent considerable time studying the issue after creating the Louisiana Entertainment Industry Development Advisory Commission in 2013 to propose changes.
His Senate Bill 96 offers the most generous cap — $300 million per year. “But I’m not hard and fast on that figure,” he said.
Morrell doesn’t want to go much lower, though. “Capping the program at $200 million per year really sends the wrong message across the nation, especially to states that are competing with us or are looking to expand their programs,” he said.
Morrell has closely consulted with the film and motion picture industry but said he is not their favored legislator.
“When drafting my bills, I did my best to address the obvious issues and flaws in the program while still making it accessible to the film industry and Louisiana citizens to utilize the credit,” he said.
With other bills he has offered, Morrell would limit deductions on some expenses and would make it easier for the government to recover credits given to people caught defrauding the program by requiring all applicants to sign sworn affidavits beforehand. The sworn affidavit is intended to prevent a repeat of a case in which an independent auditor ordered the state in February to issue $6.5 million in credits to a man who had been convicted of swindling the film tax credit program.
Meanwhile, Rep. Julie Stokes, R-Kenner, is sponsoring a slew of measures aimed at stamping out fraud. Nearly a dozen people have been charged with ripping off the program since its 2002 inception.
House Bill 735 would withhold taxes on the above-the-line personnel in an attempt to make sure they pay their fair share. While tax returns are not public, actors and other top earners in the industry generally don’t have their taxes withheld up front because their fees are paid to a “loan out corporation.” Stokes believes this allows them to skip out on taxes.
House Bill 604 would require Louisiana Economic Development to select and hire the firms that audit the film producers’ tax credit claims, a change supported by Christopher Stelly, who manages the program for the agency. Currently, the producers hire the audit firms, which Stokes said creates an incentive for them to inflate the credits that their clients can claim.
Overall, though, she supports the program.
“I’m not comfortable with cutting off the tax credits,” Stokes said. “I do think the program benefits Louisiana.”
Follow Tyler Bridges on Twitter, @TegBridges. For more coverage of the state capitol, follow Louisiana Politics at http://blogs.theadvocate.com/politicsblog/.