Greater New Orleans legislators urge veto of film industry cap

22nd June 2015   ·   0 Comments

By Christopher Tidmore
Contributing Writer

State Senator JP Morrell urged Governor Piyush Jindal to veto the $180 million cap on the film tax credit enacted in the last hours of the legislative session concluded June 11, 2015.

The retroactive cap (HB 829) will apply to not only future credits given to the industry, but to ones already granted as well. This has already had a chilling effect on film projects in the state, he contended in an interview with The Louisiana Weekly.

Whether Jindal will veto the legislation, though, Morrell admits, is a difficult question. As the Democratic explained about the GOP Chief Executive’s dilemma, “I never say this, you will never hear me say this, but the legislature has put the Governor in a difficult position.”

The $70 million in savings scored by the Legislative Fiscal Office staffers would have to be equaled with $70 million in line item veto cuts in the budget.

The good news, explained Morrell, was that many of the reforms in the funding percentages of the film credit program that he did get passed might also produce the revenue, if only Jindal gives then a chance to work.

Even Morrell’s reforms do not produce enough revenue.

He says the Governor should veto the legislation due to the potential for lawsuits. If movie producers try to cash in tax credits that have been certified, but not yet redeemed for cash, he contended, they could hit the $180 million threshold imposed by the bill.

Not only would that leave no money for future productions, essentially killing the movie and TV industry in Louisiana, but those who already hold the credits could file lawsuits against the state. “The problem with that cap is that it’s illegal,” Morrell emphasized. “And once the lawsuit is filed…you don’t save any money. Not only do you not get the $70 million in savings, but you are spending money on lawyers.”

The film industry plaintiffs could argue the Louisiana Treasury violated contract law by revoking payments in credits to which already agreed to redeem. This would mean that the state would not collect a dime in revenue next year, giving the Governor the right to veto, as the monies would be uncollectable.

The legislature did not have to give Jindal this Faustian choice, the State Senator lamented, “I’ve been working for two years [for a compromise]. I put together the Entertainment Industry Develop­ment Advisory Commission where I brought in everyone, both proponents and opponents, of the film tax credit and tried to work out what we could do functionally to trim the credit, to make it more predictable, more reasonable, and a better return on investment without killing it.”

“Well, after two years of work I came up with a lengthy, robust plan to do that. And basically with in the last week of session, all the work I had done was thrown the window in a dash to get quick cash.”

“We had always discussed from the beginning of session capping the film tax credit. However, it’s all about the type of cap. The cap we were talking about out which is the cap that even the true opponents, the Louisiana Budget Project [who] is no fan of the film tax credit [endorsed]. The cap we were talking about was the cap on credits awarded, not a cap on the credits being redeemed. When you cap how many credits are being awarded, you allow for the industry to adjust to a new paradigm shift. And, really allow the state for future years to control how many credits are out there on the market.”

“What you saw happen, and what has caused all of this chaos, is they choose instead to go with a redemption cap. Which basically means, they can give out as many credits as they want, you as a taxpayer can claim credits, but the state gets to decide when you get to claim those credits. And, that is not only completely illogical, it creates a fallacy that really harms the budget in so far as they way its currently structured.”

“Let’s say right now there are several films in the pipe that create almost $400 million in tax credits. The way this credits is set up — it’s a rolling cap — if those films get their credits, and they turn around and redeem those credits, or people redeem those credits on their behalf, they could essentially cap the film tax credit for the entire three year period.”

“The state will only pay you back for $180 million in credits per year. These films that are outstanding currently are over $400 million. That means when all of them show up and say ‘We want our money,’ the state will not only cap this year, they will cap future years paying up that one chunk of money.”

“And what happens at that point is which is really what kills the industry, is that once the state is capped out for two or three years, and say we no longer have any money to give anyone who holds a film tax credit, that means when a new film is looking for a site location, and they are deciding between this state and other states, they are going to say, ‘Why would I go to Louisiana where if I get a credit, it has no value for two or three years? Why not go to Georgia, where they don’t do crazy things like this?”

Despite Morrell’s and his allies’ efforts to push the enactment date to January 1, 2016, they failed to convince the House and Senate leadership. If Governor Jindal does not veto HB 829, the legislation will take effect on July 1.

There are several justifications that Jindal can use to make up the $70 million, Morrell noted. Some of the reforms that he and Rep. Julie Stokes wrote into the original legislation did bring about extensive budgetary savings, but legislative staffers refused to score the savings adequately enough.

Morrell and Stokes banned the use of the credits for air travel, and improved the payment percentages for those that work on the crew of a money mostly local Louisianians — versus the stars. As he noted, “Simply lowering the below the above the line cap from 50 percent to 40 percent generated $40 million. The legislative fiscal office gave me $7 million.”

In other words, the governor has the option to veto the cap and then go into the Revenue Estimating Conference in a couple of months and see whether Morrell’s and Stokes’ reforms proved as profitable as they promised. If they are, he could hold off any cuts until then.

Of course, Morrell argued, Jindal could also say, “If the law is illegal and unenforceable,” the Louisiana Treasury will realize no savings, and the governor has the cover to veto.

Metairie Republican State Representative Julie Stokes, Morrell’s coauthor of the reform package, said, “I think he [Jindal] is getting tremendous pressure to veto the bill…As a CCA, I would not want to put these credits on someone’s tax bill, and then have them denied…To me, I don’t think this is a very difficult win in court [for the film industry] and then you have no cap.”

Better to veto it now, she maintained.

This article originally published in the June 22, 2015 print edition of The Louisiana Weekly newspaper.