If Malcolm Petal was a character in some big-budget caper film — perhaps even one of the numerous movies shot in Louisiana since the state instituted its generous production tax credit — he might well be the protagonist.
Movies are big on anti-heroes these days, and Petal, a lawyer-turned-convicted-crook who admitted to ripping off the film tax program to the tune of $1.35 million, would fit the bill. Maybe he’d even be portrayed by a charming George Clooney type, as a wily rebel taking on the establishment, a David versus a Goliath.
Hollywood can distort things that way.
So, it turns out, can the tax credits that have created what’s popularly referred to as Hollywood South.
The real-life Petal’s crime was a classic inside job, and his targets weren’t faceless bureaucrats but Louisiana taxpayers. With the help of Mark Smith, who then oversaw the program and who also pleaded guilty, Petal inflated expenses allegedly incurred by local productions and, in turn, received inflated tax credits, which he then sold. Smith, who pocketed kickbacks from Petal, also admitted to interpreting the then-nascent program’s rules in his benefactor’s favor.
Now, amazingly, Petal has managed to victimize the taxpayers again, to the tune of a whopping $6.5 million, because an arbitrator decided that Smith’s approval of some of Petal’s claims were valid at the time.
“So, if you bribe a public official, which Petal admitted to, you can still collect on the favors the public official gave you,” explained Robert Travis Scott, president of the watchdog Public Affairs Research Council, who covered the film scandal as a reporter for The Times-Picayune. Talk about a juicy plot twist.
This all comes as the Legislature is preparing to grapple with a massive $1.6 billion shortfall for next year and hopefully to take a good, hard look at how programs like the film tax credits affect the bottom line.
The program is certainly popular and fun. It draws movie stars to our midst, attracts good publicity and puts locals to work.
But it’s also distorting, and not just in the way that Petal and Smith were able to so easily exploit.
Their crime would not have been possible if the program didn’t provide tax credits to moguls who don’t even accrue tax liability in the state, a situation that creates a separate marketplace to buy those credits and sell them to locals who do owe taxes; that’s what Petal’s company, LIFT Productions, was set up to do.
In fact, it’s distorting to refer to the payouts as tax credits at all because the state often just cuts checks to players that exceed their tax bills.
Subsidies is more like it, and generous ones at that.
While rules have been tightened since Petal and Smith first looted the program, theirs is not the only scandal it’s spawned. Last week, WVUE’s Lee Zurik aired a lengthy piece about a reality show based on the Saintsations, the NFL franchise’s dance team, which got $1 million in tax credits. But while producers claimed the project cost $5 million, insiders interviewed by Zurik suggested that the show, which never aired, probably cost $250,000 max. The credits were approved in 2011, several years after Petal and Smith entered their pleas.
Both cases serve as cautionary tales of how the program, if not policed aggressively, provides distorted incentives. The behavior doesn’t even have to rise to the level of criminality; even perfectly legal compliance can lead to an effective rip-off of taxpayers. Consider this startling detail revealed by The Advocate’s Gordon Russell in the 2014 series “Giving Away Louisiana”: Taxpayers wrote a bigger check to the big-budget, locally filmed “Green Lantern” production than they did in 2014 to the University of New Orleans.
Turn on the spigot of big money, and the thirsty will always line up. That’s how it goes down in the movies. It’s also what happens in real life.