Iowa AG: State lifting film tax credit suspension

AP News
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Posted: Nov 24, 2009 11:32 AM

Iowa Gov. Chet Culver has lifted his suspension of a film promotion tax credit program for projects previously submitted by movie makers, Iowa Attorney General Tom Miller announced.

Miller said Monday the decision only affects movie makers who already have applied and that no new registrations will be accepted until after Culver and the Legislature have had a chance to re-evaluate the program next year.

Culver suspended the program in September after allegations of improper spending and sloppy bookkeeping by the Iowa Film Office.

Backers of 28 film projects had contracts with the film office and officials say contact has been made with 12 of them. There are 105 other registered projects and letters have been sent to those companies offering an opportunity to negotiate a contract.

Miller said if the state does not hear from a company by Dec. 15, the registration will be canceled.

A criminal investigation into the handling of the tax credits is ongoing, Miller said. He cited several problems discovered during the initial stages, including claims for tax credits and expenditures not being properly vetted, or vetted at all.

The formula used for awarding the tax credits also was not properly administered, he said.

The film office frequently referred to a 50 percent tax credit or "half-price" movie making. Instead, there was a 25 percent credit for payments made to an Iowa individual or business for costs related to the production of a movie. There also was a 25 percent credit for expenses incurred outside Iowa, and that credit was determined after the amount spent in Iowa was subtracted from the total cost of the movie.

"Nowhere does it say 50 percent anywhere in the statute," Miller said.

Miller said part of the ongoing investigation is into possibly fraudulent claims by movie makers. He said some movie makers created an Iowa business or corporation through which tax credits were awarded for out-of-state expenditures.

"These shell companies had little or no connection to Iowa and were set up to take advantage of Iowa tax credits, under the film office's improper interpretation of the law," Miller said.

In some cases, more than $4 million in tax credits were paid to a company that only spent $400,000 in Iowa, Miller said.

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To date, about $32 million has been awarded for 22 film projects.

"We're going to see if there is a way to get some of that back," he said.

Fred Hubbell, the acting director of the Iowa Department of Economic Development, said part of the blame rests with the department, which oversaw the program.

"We did not have proper interpretation of the statute," he said. "We did not have adequate oversight of the program."

Hubbell promised that personnel changes would result in better program oversight. He said more review is needed before determining the program's future.

"We have a really bad mess we need to clean up but that doesn't mean it was a bad idea when the Legislature approved it," Hubbell said.

Culver said in a Monday statement that Iowa is legally obligated to move forward with existing contracts and approved applications. But he said further abuses won't be tolerated.

"The days of out-of-state companies fleecing Iowans are over," he said.