Jan Moller is one of the leading critics of Louisiana’s generous incentives for the film industry, so he’s thrilled that the Legislature this year put limits on the expensive program for the first time.
But he thinks lawmakers botched the job, putting him in the rare position of agreeing with film boosters and saying the reforms probably will have to be overhauled when the Legislature next meets — likely in a special session shortly after a new governor takes office in January.
This year’s action was “a short-term solution,” said Moller, head of the left-leaning Louisiana Budget Project, which regards the film program as a form of corporate welfare. “I’d be shocked if it isn’t revisited in the special session.”
While lawmakers made a raft of changes to the film program, the pivotal one was the first cap on the program’s cost.
The motion-picture program — under which Louisiana taxpayers reimburse filmmakers for 30 percent of their local expenses — has traditionally had no ceiling, making it hard to account for the program in the state budget and allowing it to grow rapidly. When presented with bills — tax credits, actually — the state must simply pay them.
The new legislation imposes a limit of $180 million on the program, which allows the Legislature to budget for it just as it does for everything else. And the limit likely would mean less film activity in the state: In recent years, the program has cost well over $200 million a year and, in some years, more than $250 million.
In the current fiscal year, which ends Tuesday, $308 million in credits have been issued.
How exactly the new law will play out is unclear, but already there have been threats of litigation and claims that the new limit essentially will kill Louisiana’s burgeoning movie industry.
Initially, the Legislature was considering a “front-end” cap, which was easy to understand: It would limit to $180 million the amount of credits issued in each upcoming fiscal year. Under that plan, tax credits already issued would not have been affected; in other words, companies seeking to redeem their tax credits still would have been able to do so, without limit.
The problem was that it wasn’t clear that a front-end cap would have done anything to address Louisiana’s immediate crisis: a projected $1.6 billion budget shortfall in the next fiscal year.
Sure, it would have helped limit the program’s cost in future years, as only $180 million in new credits would be issued each year. But for the fiscal year that begins Wednesday, the effect was less clear because of the typical lag time between when credits are issued and when they are redeemed. So the Legislature opted instead for a “back-end” cap, which specifies that no more than $180 million in credits can be cashed in during each of the next three years.
That allowed the Legislature to claim $70 million in savings — a small but significant contribution to closing the budget gap.
“Really, their only interest in this bill was to squeeze cash out of the program for the next fiscal year,” said Robert Travis Scott, president of the watchdog Public Affairs Research Council.
PAR, like the Louisiana Budget Project, has long criticized the film program, but like Moller, Scott views the fix the Legislature came up with as ham-handed.
“This is the way we do things in this state,” Scott said. “We need to save money for next year, so we change a whole program to save money but not necessarily to make a better program.”
Scott and Moller both agree that a front-end cap would have been a better solution, even if it didn’t help with the current budget crisis.
“What we’ve said all along is: ‘Go ahead and live up to your responsibilities, and put appropriate caps in place to make this a better program,’ ” Scott said. “But they were finally in such a terrible money crunch that they said, ‘We’re just not going to pay people.’ ”
What remains to be seen is how the cap will actually play out on the ground. Officials with the state Department of Revenue hope to announce some ground rules in the next few days, but for now, confusion reigns.
Typically, filmmakers sell their credits to companies with tax liabilities, which then use them when they file taxes. Sometimes, the credits aren’t used for several years; until the recent session, they had a shelf life of 10 years. That number was reduced to five in the new law.
It’s unknown how many tax credits have been issued but not yet redeemed. State officials declined to offer an estimate, but some industry observers say the number could be in the hundreds of millions of dollars.
Film industry boosters already have said they are likely to challenge the new law in court. Any lawsuit likely would turn on whether the state can legally change the rules regarding how already-issued credits may be redeemed.
Say, for instance, that a company is now in possession of $100,000 in tax credits. When those credits were purchased, there were no limits on using them; however, the company now could find itself unable to exercise the credits in an upcoming year if the cap already has been reached for that year.
A related question is how the state will determine when the cap has been reached. Normally, the credits would be redeemed at tax time. But if hundreds, or thousands, of taxpayers all turn in forms around the same time, claiming credits that collectively exceed $180 million, how will the state determine who gets them? Will people try to file their taxes months early to cash in the credits, even if they later have to amend them?
Aside from the confusion the new law creates, critics of the film program gripe that the reform doesn’t necessarily put a brake on the program because it doesn’t limit in any way the number of new credits that are issued.
Of course, the existence of the back-end cap — and the potential for slower recouping of costs — may well slow film activity in Louisiana and thus diminish the program’s size over time.
Lt. Gov. Jay Dardenne said last week that Disney-ABC has placed a moratorium on new projects in Louisiana until the tax credits situation is resolved. He said the new law “creates unnecessary instability and uncertainty in the industry, and it is already having detrimental effects.”
But the Legislature’s in-house fiscal analysis of the bill noted it is possible filmmaking will continue to expand and that when the three-year, $180 million annual cap expires, there will be a long line of filmmakers and investors waiting to be paid — and the state will have no choice but to pay up. Moller compares it to a “balloon payment” on a mortgage.
Ironically, Moller notes that the potential for long lag times could make it harder for independent filmmakers to take advantage of the program — which is antithetical to the broader goals of the legislation.
Along with instituting a cap for the first time, the new law seeks to encourage truly local filmmaking. It does that in part by offering richer incentives for filmmakers who use Louisiana residents on their crews and for films based on homegrown screenplays.
But the “little guys” the legislation hopes to nurture likely will be less able to afford to wait two or three years to cash in their tax credits, Moller said, whereas a studio like Warner Bros. is probably wealthy enough to wait out the cap.
That’s a frustration shared by Sherri McConnell, who used to oversee the state’s film program and who has since become a constructive critic of it. McConnell was involved in drafting much of the new bill, and she is proud of the parts of it that aim to create a film industry more firmly rooted in Louisiana.
The back-end cap, she said, “unfortunately allows continued Hollywood production because they can wait for the tax credits. But the little guys probably can’t.”
While the new law is far from perfect in the view of film program boosters and critics alike, McConnell hopes it has begun a debate on how Louisiana can build a film industry more intelligently and get more bang for the considerable bucks it has thrown at Hollywood.
“The fact that homegrown filmmaking and sustainability have become part of public policy, however flawed, may be a starting point for where we go in the special session,” she said. “Let’s hope so.”
Editor’s note: This story was changed on June 30 to correct the number of tax credits issued to date in the fiscal year ending June 30, 2015.