In an effort to tackle the skyrocketing costs of one of Louisiana’s most high-profile giveaway programs, two New Orleans-area lawmakers have drafted legislation that would cap costs and eliminate certain expenses now subsidized under the state’s generous film tax credit program.
The biggest changes would be setting a $300 million limit on the program’s annual cost, with any unused dollars being added to the next year’s allotment, and imposing a cap on the proportion of so-called “above-the-line” spending that Louisiana taxpayers will subsidize on any particular film. Such spending typically involves the fees paid to actors, directors and other “talent,” and critics have complained that the state reaps little benefit from picking up 30 percent of those costs, as current law allows. The legislative session begins April 13.
While the proposed changes, outlined in two separate bills authored by state Sen. J.P. Morrell, D-New Orleans, and state Rep. Julie Stokes, R-Kenner, are aimed at making the film program more efficient, longtime critics of the program called the changes timid and said they would do little if anything to control the program’s spiraling costs and improve its questionable returns.
To reach the $300 million proposed annual cap on tax credits, for instance, would require substantial growth of the program, which has never issued more than $251 million worth of credits in a single year. Even at that level, Louisiana has become the nation’s busiest locale for feature filmmaking.
Jan Moller, director of the left-leaning Louisiana Budget Project and a vocal critic of the film program, praised various aspects of the proposed legislation but called a $300 million cap “laughable.”
“That doesn’t come close to controlling the cost, which is the real problem with this program — what it’s costing the state,” Moller said. “And it’s especially problematic the way they want to roll it over, so if you have a couple of soft years, the cap would be so high that it would be utterly meaningless. Unless you can control the costs, the rest doesn’t really matter that much.”
Sherri McConnell, who oversaw the state’s entertainment programs for years and now serves on a panel recommending changes to them, was more charitable.
“I think the idea of a cap is a very good one,” she said. “I think it is fiscally responsible of the state; it gives them some predictability when budgeting. The size of the cap is probably where a lot of the debate will take place.”
Stokes said she “would be willing to explore a lower cap” and emphasized the draft legislation was just a starting point for discussions.
While many critics have questioned Louisiana’s generous subsidy of above-the-line spending, Moller, McConnell and others wondered whether the proposed changes strike at the heart of the problem. The critique of subsidizing high fees to actors, directors and others — which can reach $10 million or $20 million in some cases — is that those fees typically aren’t recirculated into the economy because the actors and directors live elsewhere.
And even when a film features a well-known star, it’s rare for the film’s above-the-line costs to exceed 50 percent. The threshold typically is reached only when a famous actor makes a relatively low-cost film, which makes the outsized salary a bigger portion of the overall pie.
The real question for policymakers, Moller said, is whether it makes sense for Louisiana to cover 30 percent of an actor’s $10 million fee, regardless of how much the overall film cost.
Morrell disputes that, saying that setting a cap on individual fees would drive much of the industry out of the state. He said that his proposed solution would likely mean that Louisiana would only lose films such as Nicolas Cage’s “Left Behind,” in which the actor’s fee alone accounted for more than half the film’s budget — a film Morrell would have been happy to see made elsewhere.
Moller countered that he’d rather see the state limit its subsidy to 30 percent of an actor’s first $1 million in fees on a particular project, as the Jindal administration proposed two years ago.
State-sponsored studies have found that Louisiana taxpayers get less than 25 cents back in tax money for every $1 they invest in the film program, and films with high above-the-line costs are generally seen as the worst offenders.
Under Morrell’s proposal, the state also would end its practice of paying for airfare, insurance premiums, bond fees and other costs that often go to out-of-state companies and offer little benefit to Louisiana taxpayers.
As for the size of the cap, Morrell said that having a cap would be an important start, noting that none of the state’s various tax-credit programs currently have a cap. While the size of the cap will certainly be debated, Morrell said it would give the program more predictability and would allow room for modest growth.
“At least this puts us in a position where we know the worst-case scenario,” he said.
The proposals will be discussed at the next meeting of the Entertainment Industry Development Advisory Commission, set for Wednesday in Baton Rouge. Morrell chairs the panel, and Stokes is a member. Morrell said it appears the proposed legislation has attracted criticism from both proponents and opponents of the film program, and he predicted a rollicking debate.
Apart from the new caps they would set, the draft bills authored by Morrell and Stokes attempt to tighten the program’s regulation in ways mostly welcomed by the program’s critics.
Another provision of the proposed legislation would allow those receiving film tax credits to cash them in to the state for 90 cents on the dollar; currently, the state pays 85 cents on the dollar. The recipients of the tax credits — typically corporations with no tax liability — may also sell the credits to people who do have tax obligations.
That change would likely dry up much of the market for such sales, and thus might save the state some money. When recipients return the credits to the state, the net cost to the state falls by 10 percent, under the terms of the new bills.
The proposed reforms also attempt to improve the auditing of film expenses, often cited as a weakness in the program and an invitation to fraud.
Under current law, the filmmakers seeking the credits hire the auditor, leading to questions about the auditor’s independence. Morrell’s bill would have the auditor instead be engaged by the state’s Economic Development Department, which ultimately issues the credits.
And the bills also aim to improve the scrutiny of so-called “related-party transactions” — payments that filmmakers make to themselves or to companies controlled by them or others financing the film. Because such payments are subsidized by the state, they can invite corruption, and a number of the fraud cases the program has spawned have involved such payments.
The legislation would call for an audit by the state Office of Inspector General any time filmmakers report making any related-party transactions. It also would set a limit — 12 percent of a film’s overall cost — on the amount of such transactions that could be eligible for subsidy.
Follow Gordon Russell on Twitter, @gordonrussell1.