By LEE ROOD • lrood@dmreg.com • September 21, 2009 Des Moines Register
A state official said Monday criminal charges could be forthcoming in the wake of widespread mismanagement and abuse reported in Iowa’s tax-credit program for filmmaking.“I would not rule that out,” said Chief Deputy Auditor Warren Jenkins. “It appears there was a failure to do what is required by law."Gov. Chet Culver on Monday asked Auditor David Vaudt’s office, the Department of Revenue and Attorney General Tom Miller to assist in a review of a state tax-credit program run out of the Iowa Department of Economic Development’s film office.
“I am very troubled by reports of the lack of oversight and accounting procedures of tax credits under this program,” Culver said. “My first priority on this issue is to the taxpayers of Iowa, and I know that Attorney General Miller and Auditor Vaudt will help us to quickly identify changes that need to be made and how we can best move forward.”Failure to perform duties required by law is a crime in Iowa. Those who exceed the authority of their office, make contracts “that contemplate expenditures ... known by the person to be in excess of that authorized by law” or who fail to report receipt or expenditures of public money are, at the very least, committing serious misdemeanors under existing statutes. Knowingly making false records of any sort (documents, certificates or receipts) amounts to a felony.Neither the auditor’s office nor Iowa’s Department of Revenue was consulted by economic development officials about problems in the mushrooming film program until problems surfaced last week, according to both revenue Director Mark Schuling and Jenkins. (Auditor David Vaudt was tending to a medical emergency in his family.)“I think it’s very unusual to not be informed or at least involved,” Jenkins said. “And to me, it’s unusual to hire an auditor without even talking to us.”Culver on Friday froze the tax-credit program, officially known as the Film, Television and Video Promotion Program, administered by the Iowa Department of Economic Development. The state’s DED director, Mike Tramontina, resigned his post after a still ongoing audit uncovered poor management and record-keeping and apparent abuses by film producers.Tom Wheeler, manager of the Iowa Film Office, was placed on paid administrative leave. Wheeler was juggling a reported 50 to 60 current projects and proposals for projects.Culver said new tax-credit certificates would not be issued until questions about the administration of the program were answered.“This is not about harming the growing film and television industry in Iowa, but about protecting public funds and the best interests of Iowans,” Culver said.A memo from auditors investigating irregularities in the program suggested producers and film executives took personal advantage of the program as state administrators paid little attention.
Tramontina resigned after he informed the governor and other state officials of sloppy record-keeping and abuse of the program, including allegations that filmmakers had purchased luxury vehicles for themselves.According to a memo about the audit's initial findings obtained by The Des Moines Register, auditors found a long list of bookkeeping lapses in the program, which has authorized $32 million in tax credits for at least 20 film projects since its inception in 2007.The program was aimed at promoting filmmaking in Iowa as a way to contribute to the local and state economy.The program could cost the state up to $300 million, an Iowa lawmaker said over the weekend. That’s because movie producers rushed in May and June to get $208 million in tax credits committed before a new spending cap began July 1.Schuling said he could not answer a question on the minds of many movie makers and their workers: Which tax-credit projects will the state ultimately honor?“That’s a tough legal question. It’s something that we have to take a look at,” he said. To what extent will we be disallowing tax credits? I don’t have answers to that. It’s just real premature.”Jenkins said he believes the state will be obligated to live up to any legal contract that it signed.Iowa Fiscal Partnership, an arm of the nonprofit, nonpartisan organization that analyzes budget and tax issues, issued a statement Monday saying it supported the suspension and investigation of the film credit program.“The initial investigation has exposed the film credits, as currently in place, as a boondoggle that is draining our state treasury,” a statement from the partnership said. “This is coming at a time when our state leaders are anticipating budget cuts. All spending — including spending through the tax code — needs to be on the table when considering cuts to the budget.”Mike Owen, communications director of the Des Moines-based partnership, said the film-credit program is one of many tax-credit programs in the state that should raise questions with taxpayers. “One of the problems with this program ... is that these tax credits spend money but aren’t subject to regular review or scrutiny like other programs within state government,” he said.Aside from lax management, there were some fundamental policy questions thatneeded to be answered even before abuses were discovered, Owen said. State leaders, can’t tell the public whether the program is achieving what it was intended to do, he said. “Without better transparency and scrutiny even by legislators, how are we going to get the information?”The Iowa Department of Economic Development’s last state audit was for the fiscal year that ended June 30, 2008. The audit identified no problems within the film program, but that was before the film office was deluged with more than 100 applications for tax-credit projects.Jenkins said the audit for the 2009 year is not complete. Especially when programs undergo big increases in activity, he said, state departments have a responsibility to tell auditors where a closer look is needed.
The tax credit program – officially known as the Film, Television and Video Promotion Program – had been administered by the Iowa Department of Economic Development. The state’s DED director, Mike Tramontina, resigned his post on Friday.Culver said he has asked the state’s Economic Deveopment Board not to approved further tax credit certificates until questions about the administration of the program are answered.“This is not about harming the growing film and television industry in Iowa, but about protecting public funds and the best interests of Iowans,” Culver said.
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