Policy-makers fail public again on film tax credit reform

While tax reform to begin the process of eliminating the income tax would have been great to have achieved, the single largest disappointment of the just-concluded regular session of the Louisiana Legislature was almost nothing was done to rein in unproductive tax credits, despite an entire commission studying the matter after the previous session’s end. And of these, failure to make meaningful change to the motion picture investor tax credit program should rankle taxpayers the most.

Not only is this the single biggest waster of the people’s money of all such items extant, where citizens get back fewer than one dollar for every seven transferred to mainly wealthy individuals (including state elected officials), but also the time was just so ripe for it to happen. Mounting budget pressures plus the commission’s exposure put the credit in the crosshairs, so the political will seemed present to make major modifications. There was talk, and legislation, about capping what would be claimed for salaries and other expenses and limiting qualifying investors’ stakes, and even sunsetting the program after a couple of years if it did not prove cost effective.

The move by a group of legislators calling themselves the “fiscal hawks” to find new sources of revenues also seemed to make meaningful change more possible. They talked up cutting the reimbursement levels of this and other credits in order to find dollars to offset their Great Satan of “one-time money.”

And then … nothing really happened. The “hawks” became more interested in the insertion of a different of one-time money, a tax amnesty, than cutting out credits of any kind as part of their abandonment of tax increases they initially supported. Specifically regarding film, several of the group’s more vocal members – state Reps. Jim Morris, Alan Seabaugh, Thomas Carmody, Jeff Thompson, Cameron Henry, and Walt Leger – represent areas where much studio activity courtesy of the credits occurs and so perhaps didn’t want to have to explain to the special interests benefitting how they were going to take their bottle away. Leger went further, by amending out of a bill any reduction in the fiscal year 2014 budget that would have helped in swapping the one-time money, negating its utility for their purposes.

Gov. Bobby Jindal also backed off plans to modify the program. His initial tax swap idea would have reduced the credits’ utility anyway, but even with that discarded he lost his nerve and the modification talk disappeared. The Department of Economic Development, which oversees the program, cooperated in the sitzkrieg strategy by not releasing the program’s most current data to show its tremendous drain to the state. This again exposes the Achilles’ heel of Jindal’s otherwise solid conservatism – allowing government policy to pick and choose at taxpayer expense winners in fields of commerce through the use of government incentives, and even specifically crony capitalism by favoring certain firms for location decisions.

In the end, only state Sen. Danny Martiny’s tepid SB 165 made it through, which adds marginally to the reporting requirements of credit applicants and will make barely, if any, fiscal impact. Worse, because tax credits may be reduced only in sessions in odd-numbered years and the 2015 session rolls around in an election year, the next realistic opportunity to reform the program’s inefficiency won’t come until 2017. That could mean, at current levels, perhaps a net $1 billion more will have been transferred from the citizenry to the hands of a few in that span.

As state Sen. Jack Donahue, who had headed the commission, lamented, “It won't be long before we're spending more on rebates for motion pictures than we are on higher ed, and won't that be sad for Louisiana.” If he’s speaking in general fund terms, to where tax revenues would go without the credits, he may be overstating the case a bit; after the “hawks” machinations on then operating budget bill HB 1, the general fund will have $534 million apportioned to higher education – but this year’s credits may end up being half of that. By 2017, the figures may be much closer together.

Despite conditions for beneficial change never being better, the idiocy and lack of political courage continues, with taxpayers continuing to pick up the hefty tab.