Lawmaker Responds To Studio's 'More Tax Breaks Or We Walk' Letter With Eminent Domain Seizure Amendment

Politics

from the I-guess-it's-back-to-Hollywood,-where-people-treat-each-other-right dept

Tue, Apr 1st 2014 10:09am — Tim Cushing

Here's the sort of thing that results when bad behavior is greeted with worse behavior.

The bad behavior is production companies seeking tax breaks. Politicians love to grant these tax breaks because a) they like having celebrities around and b) they've bought into the perception that somehow shooting a movie or TV series in town is a net fiscal gain for the community. Generally speaking, the first is almost always true and the latter is seldom ever true. A 2010 Tax Foundation study found that most cities granting tax breaks make back less than $0.20 per dollar "invested."

Media Rights Capital, the company behind Netflix hit "House of Cards," has already collected $26.6 million from the state of Maryland. But it isn't enough.

It began late last month when Charlie Goldstein, the senior vice president of Media Rights Capital, sent a letter to Maryland Gov. Martin O'Malley, threatening to leave the state if the show was not provided with millions of dollars more in tax credits for which it believes it should qualify.

In the letter, Goldstein wrote that the company would "break down [their] stage, sets and offices and set up in another state."

This is standard operating procedure for studios -- playing cities and states off each other in hopes of obtaining perpetually escalating tax breaks in exchange for a steadily diminishing ROI on taxpayer funds. Totally the sort of thing the state should have expected when it started handing out free money.

The response, however, was even worse. Rather than calling the studio's bluff and helping it pack its bags, a legislator chose to do this:

Delegate Bill Frick introduced an amendment to a budget bill that would allow Maryland to seize the production company's property under eminent domain in the event it leaves the state.

Of all the wrong things legislators have ever done, eminent domain is one of the very worst. Bill Frick has an excuse, however.

Frick said the move was inspired by the style of politics depicted on "House of Cards" and by the show's ruthless protagonist, Frank Underwood, who is played by Kevin Spacey. He told Business Insider, he thought, "How would Frank Underwood respond?" Frick said his eminent domain plan was the "most dramatic" thing he could think of to counter MRC's threat.

In what will surely be recorded in the legislative history books as a "Frick move," a legislator has managed to outdo the studio in terms of sheer, manipulative nastiness. Yes, Frick would do Frank Underwood proud, but is that what we really want from our legislators?

Frick's amendment doesn't specifically name the studio but its cutoff line of $10 million or more in tax breaks leaves "House of Cards" stranded on an island made of taxpayer funds. It also puts the legislator in the rare position of openly espousing Marx's calls for the State to seize the means of production from the Elite, something that plays better in hazy dorm rooms than in a system where corporations have been determined to be "people."

While Frick's amendment passed a voice vote in the House of Delegates, the state Senate approved its own legislation -- which increases the tax credits available to companies -- with a 45-1 vote. Either way this pans out, the taxpayers will lose -- whether they're footing the bill for more tax breaks that won't create long-term wealth, or watching their representatives carve a legislative toehold for the future seizure of certain businesses.

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Filed Under: bill frick, eminent domain, house of cards, maryland, movies, studios, tax breaks, tv
Companies: media rights capital, netflix

54 Comments

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ChurchHatesTucker (profile), 1 Apr 2014 @ 10:15am

Not novel
Maryland tried this "negotiating tactic" once before, in an attempt to keep the Baltimore Colts.

You'd think they'd have learned.
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Anonymous Coward, 1 Apr 2014 @ 10:23am

Re: Not novel
If the Baltimore Colts are mooching far more tax payer money then they're paying in (which is the case of pretty much every professional sports team) then who cares if they leave?

Sounds like a win to me to lose a moocher that leeches off the rest of the tax payers.
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Anonymous Coward, 1 Apr 2014 @ 10:32am

It depends...
" b) they've bought into the perception that somehow shooting a movie or TV series in town is a net fiscal gain for the community. "

Actually this is true in some (many) cases. The key is to carefully balance the costs/gains. States and provinces that do this well have benefited. Oregon certainly realizes a positive ROI on it's very modest incentive program. British Columbia, Ontario and Louisiana have built thriving long term production industries through corporate bribery, most people in those states seem to think it a success.

But some states have given way too much for too little. Michigan's overspending debacle comes to mind. New York is spending huge sums, and many other states (for instance South Carolina, Georgia and Maryland) are spending considerable amounts. California is debating whether to budget 400 or 600 million (!) to this form of corporate welfare. I have to wonder how they can possibly get a positive ROI on this.

One thing to realize though, this is not new. Corporate subsidies have been going on for a long time, in all kinds of industries, not just mine. I'm not saying it's right or wrong, just calling for some perspective.
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That One Guy (profile), 1 Apr 2014 @ 10:33am

Re: Not novel
The eminent domain trick, or the 'Alright then, you need any help packing your bags?' trick they should have done in this instance?
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Anonymous Coward, 1 Apr 2014 @ 10:33am

Don't let the door...
Hit you on your way out...

I take that back, if possible I would like to be standing there to slam it on your ass just before you make it out!
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Anonymous Coward, 1 Apr 2014 @ 10:34am

you do realize it's April first right?
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anon, 1 Apr 2014 @ 10:39am

blaaaaaa
This is free money to the executives of the studio, with maybe a few thousand on top of the millions the actors get.

Blatant blackmail and i believe this should be stopped, if any tapxpayer money funds either a movie or tv show then that tv show and movie must be on all free to view channels and within 6 months free to download for anyone on torrent sites, No more getting taxpayer money to take something then charging the same taxpayer to watch the content they have paid to create.

Yes i am in a dream world but that just shows how far from reality the studios and politicians are.
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Anonymous Coward, 1 Apr 2014 @ 10:41am

Re:
you do realize it's April first right?

Ilya Somin wrote about this over at Volokh on March 28.

There's a March 27 story in the Baltimore Sun.
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AricTheRed (profile), 1 Apr 2014 @ 10:46am

I hate it when that happens!
I, like many other Americans, am absolutly opposed to special interests getting free public funding.

Unless it's me...
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Just Another Anonymous Troll, 1 Apr 2014 @ 10:53am

I'm not sure if I should be cheering for Frick sticking it to these jerks for basically saying "give us money or we will leave and you don't want that because us being here gets your city money" or booing for him threatening to seize all their stuff because they were jerks.
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Anonymous Coward, 1 Apr 2014 @ 10:53am

The one thing about eminent domain is that it must be done for a public purpose.

There is no logical reason why the state would need the property in question. This would be simple retaliation against a company, with no public benefit. Passing and attempting to enforce this law would just result in the state losing a huge lawsuit.

And, you know, they'd have to PAY for that property. If they wanted to put conditions on the subsidies, they had to do that before they gave them, not after.
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Anonymous Coward, 1 Apr 2014 @ 10:59am

Re:
You should be booing him. Eminent domain is a necessary evil at best. Using it to punish a company is unacceptable.

Try and imagine the government being able to just take your stuff if you plan to leave the state. If the government has the right to do this to companies, they have the right to do this to individuals.
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AricTheRed (profile), 1 Apr 2014 @ 11:11am

Re: Re: Govt seisure
"They" do this all the time, at the airport or on the highway. TPTB are taking from The People all the time.
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Mason Wheeler (profile), 1 Apr 2014 @ 11:15am

Re:
This would be simple retaliation against a company, with no public benefit.

I'd actually take the opposite view, on purely factual grounds. If the production company sought tax incentives under a premise of stimulating the state's economy in return, and instead they've been leaching and not holding up their end of the bargain, and now they're brazen enough to try and extort even more money out of the state, then the state has been defrauded and they very much do have a public-benefit interest in being made good, because that money that got ripped off was the public's money.
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That One Guy (profile), 1 Apr 2014 @ 11:21am

Re:
As far as I know, TD doesn't do anything special for April 1st, the stories/articles are the same then as they are all other days.
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Rich, 1 Apr 2014 @ 11:32am

Re: Re:
Which is awesome of them. Slashdot is just completely unreadable on April 1st.
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tpkc_klick, 1 Apr 2014 @ 11:38am

I think it's worth pointing out here that it's no skin off Media Rights Capital's nose if Maryland tells them to take a hike, which is part of the reason companies engage in this sort of subsidy seeking behavior. They basically get to move into an area, squeeze it for every subsidy and tax break they can, and then skip town when somewhere else offers them a better deal (all while not delivering on any of the job and economic growth promises they made to justify the subsidies in the first place). Hitting them with eminent domain, while very much a nuclear option, at least means they don't get to just take the taxpayer's money and run without some kind of penalty.
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Anonymous Coward, 1 Apr 2014 @ 11:39am

Re: Re:
The state and the public are not the same thing so having the state seize the assets isn't a public-benefit. In fact it could be yet another step in the opposite direction if it discourages others from investing in the state. If they don't want to offer the tax incentives anymore because they're not realizing the benefits they expected then just stop offering them. Threats like this create a chilling effect which only causes more problems.
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Anonymous Coward, 1 Apr 2014 @ 11:39am

Re: Re: Not novel
There is always a promovation angle on these things. Baltimore gets mentioned in so many homes when the team does well, that people will know the brand. How you value that promovation in terms of expected increased tourism and goodwill for local companies and so on is impossible to measure economically. It is the same as performance art or other temporary attractions. I would expect the value of such moves to decrease significantly as more cities do the same kind of things, but that thinking doesn't seem to penetrate the political calculations.
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Anonymous Coward, 1 Apr 2014 @ 11:41am

Re:
Hitting them with eminent domain is both illegal, that's not what eminent domain is for, and counter productive. Now you've created uncertainty on the part of investors that haven't just been exploiting your tax incentive structure and that's a bad thing for the public. The correct response was the learn from their mistake and simply stop offering the tax incentives. 'Going nuclear' in this case is just making things worse.
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Anonymous Coward, 1 Apr 2014 @ 11:47am

Re: It depends...
Only if you completely ignore what could have been done with the funds had they never been taken from local businesses and citizens in the first place could you really arrive at a positive ROI. It's a ROI for the legislatures budget maybe, the community as a whole? Highly dubious.
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HegemonicDistortion (profile), 1 Apr 2014 @ 11:47am

Re: Re:
Exactly. Only the better route, I think, would be to file a tax lien on their property. The company can either hold up their end of the bargain or pay back the incentives.

Of course in many cases these things are just corporate welfare, and the companies receiving them don't really have any/many obligations beyond staying there for the duration of the incentives.

The way companies play states and municipalities off of one another in order to suck up public funds, I'm not sure that the best solution isn't for the federal government to levy a corporate tax that completely offsets these tax incentives, forcing companies to make decisions based on business concerns.
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Anonymous Coward, 1 Apr 2014 @ 11:59am

Re: It depends...
�Delegate Mark Fisher and the �House of Cards��, Southern Maryland News Net, March 25, 2014
� In their analysis of the bills, the non-partisan [Maryland] Department of Legislative Services indicated:
�The primary beneficiaries of the tax credit are film production entities and that the majority of tax credits have been awarded to or encumbered for companies that are not Maryland small businesses.�
�Had the State simply purchased $30 million of Netflix stock in July of 2012 for $60 per share, the value of the stock today would be $189 million. That�s a $159 million profit! This is why States should not be using other people�s money to pick winners and losers,� said [Maryland Delegate Mark] Fisher [(R-Calvert)].�

� �The primary beneficiaries of the tax credit are film production entities.�

� �The majority of tax credits have been awarded to � companies that are not Maryland small businesses.�
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Anonymous Coward, 1 Apr 2014 @ 12:07pm

Re: Re:
Cease their assets and call it something other than 'eminent domain'. Call it payment for what is owed. If you get caught for tax evasion what may the IRS do? They may cease your assets. Not under eminent domain but under other clauses. If you break certain laws the government may cease your assets. Why not here?
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Anonymous Coward, 1 Apr 2014 @ 12:08pm

Re: Re: Re:
(or call it a penalty for lying to legislators and not delivering on their promises)
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John Fenderson (profile), 1 Apr 2014 @ 12:47pm

Re: It depends...
"Oregon certainly realizes a positive ROI on it's very modest incentive program."

It's not clear this is true. It's a matter of some debate in Oregon, in part because there's no clear way of actually measuring what the return actually is.
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John Fenderson (profile), 1 Apr 2014 @ 12:49pm

Re: Re: Re:
Agreed. I avoid reading many web sites on April 1st because of that inane tradition. I'm glad Techdirt doesn't do this.
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John Fenderson (profile), 1 Apr 2014 @ 12:52pm

Re:
"The one thing about eminent domain is that it must be done for a public purpose"

This may vary from state to state, I don't know. But where I live this is absolutely not true. Yes, it's technically true, but the definition of "public purpose" is so broad that the most of the cases of eminent domain that happen consist of taking someone's property and selling it on the cheap to commercial developers to build yet another strip mall or something equivalent.
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btr1701 (profile), 1 Apr 2014 @ 1:11pm

Re: Re:
> You should be booing him. Eminent domain
> is a necessary evil at best. Using it to
> punish a company is unacceptable.

Agreed. Of two evils here, the idea of the state seizing (stealing) private property because the owners of it aren't doing what the government wants is abhorrent. It exhibits a clear lack of respect for the fundamental rights guaranteed under the U.S. Constitution and even introducing it should be grounds for the removal of the politician that thought it up.

On the other side of the equation, all HOUSE OF CARDS did was ask for tax breaks? Do they deserve them? No. Should they get them? No. Which is what Maryland should tell them. But they're free to ask and asking isn't even in the same universe of bad as the seizure amendment.
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btr1701 (profile), 1 Apr 2014 @ 1:14pm

Re:
> The one thing about eminent domain is that
> it must be done for a public purpose.

Not anymore. Not after Kelo v. City of New London, 545 U.S. 469 (2005), quite possibly the worst Supreme Court decision in the last 50 years.

Now the government can take private property from one person and hand it over to another and that counts as a "public purpose".
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Anonymous Coward, 1 Apr 2014 @ 1:31pm

I'm a little confused...
Who are the pirates again?
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PRMan, 1 Apr 2014 @ 1:49pm

Re: Re: Re:
Actually, I haven't seen a single April 1 article on Slashdot today. I'm really disappointed, actually.
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PRMan, 1 Apr 2014 @ 1:50pm

Re: Re:
But in this case, the state paid for all that stuff. Only makes sense that they can seize it if they leave.
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PRMan, 1 Apr 2014 @ 1:52pm

Re: Re:
But I love the guy that eminent domained the Supreme Court Justice and all her friends after she wrote in favor of this.
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PRMan, 1 Apr 2014 @ 1:52pm

Re: Re: Re:
It's "seize", but I agree with you.
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btr1701 (profile), 1 Apr 2014 @ 2:34pm

Re: Re: Re:
> Cease their assets and call it something other
> than 'eminent domain'. Call it payment for what
> is owed.

I'm assuming you mean "Seize their assets"?

In any event, it doesn't matter what they call it, the 5th Amendment says the government can't just take private property without paying for it.

HOUSE OF CARDS fulfilled its contract with Maryland for the tax credits they've already received by shooting the first two seasons in Maryland. If Maryland wants them to stay, HOUSE OF CARDS is asking for a new deal. Maryland is not coming through with a new deal, so HOUSE OF CARDS wants to shop around elsewhere. That's perfectly acceptable behavior, and certainly nothing that should subject private citizens to property confiscation.
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Jake, 1 Apr 2014 @ 3:55pm

Point of Clarification
Is "eminent domain" different to the British legal concept of the Compulsory Purchase Order? (Which has its issues, but involves paying a fair price for the seized real estate.) Because if all those studio facilities were at least partly built on the taxpayer's dime then I can see why the state might want them back.
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Anonymous Coward, 1 Apr 2014 @ 4:13pm

Re: Point of Clarification
Is "eminent domain" different to the British legal concept of the Compulsory Purchase Order?

Here's a definition from The People's Law Dictionary [law.com]�

eminent domain:
n. the power of a governmental entity (federal, state, county or city government, school district, hospital district or other agencies) to take private real estate for public use, with or without the permission of the owner. The Fifth Amendment to the Constitution provides that "private property [may not] be taken for public use without just compensation." The Fourteenth Amendment added the requirement of just compensation to state and local government takings. The usual process includes passage of a resolution by the acquiring agency to take the property (condemnation), including a declaration of public need, followed by an appraisal, an offer, and then negotiation. If the owner is not satisfied, he/she may sue the governmental agency for a court's determination of just compensation. The government, however, becomes owner while a trial is pending if the amount of the offer is deposited in a trust account. Public uses include schools, streets and highways, parks, airports, dams, reservoirs, redevelopment, public housing, hospitals and public buildings.
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any moose cow word, 1 Apr 2014 @ 4:22pm

Re: Re: Re: Re:
Everyday is April 1st here. The outrageous and stupendous things people do isn't bound to a single day.
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Wally (profile), 1 Apr 2014 @ 7:59pm

Eminent Domain
Eminent Domain can be abused, but given that MPAA production companies often make cities (hello I'm from Ohio, we don't give Disney or Tigue Productions (Kevin Costner's Production Company) pay and then give tax breaks for filming here, "Frick's Law" is only fair and reasonable. In order to shoot a major movie scene on site in a city, you have to shut down a few grids and perimeters for a number of weeks until second unit can move in to get stock footage...This costs most cities hudreds of millions of dollars...I think Maryland has something there...Usually Disney and Tigue only ever shot at Cleveland's sports arena's or in the case of The Avengers...Tower City Mall...I admire Frick for having the freaking balls of steal to do this :-3
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trollificus, 1 Apr 2014 @ 11:12pm

Re: It depends...
How do they get a "positive ROI?" Easy: MULTIPLIERS!

Sports franchises employ whores...errr..."economists" who specialize in producing reports for the consumption of legislators considering subsidies for the fat cat owners...errr..."revenue producing job-creators who own sports franchises", and they have a commonly-agreed-upon multiplier of 7. That is, for every dollar of taxpayer money handed over, the local economy benefits by a factor of 7. Such a deal.

Hollywood, not being averse to the over-the-top approach, may be using the Economic Development Authority's model, which, in a 2006 study undertaken in response to efforts to cut back funds handed over to campaign contributors...errr, sorry..."invested in local economies", declared a 31-to-1 multiplier!! Every dollar put forth by the EDA generated 31 dollars in magical investor money! That's one helluva multiplier.

Even without magic multipliers, (and not even considering access to famous actors, starlets, parts as 'extras' for family members (or in the case of sports team subsidies-access to athletes, free shoes and use of stadium suites)), of course a politician sees benefit in giving up incentives: if the"R"is yours and "I" is the taxpayers', it's a win/[redacted] situation, amirite?
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trollificus, 1 Apr 2014 @ 11:18pm

Re: Re: Re:
*sigh* Much as I like to see a greedy Hollywood producer get smacked down, btr's post has logic and reasonableness going for it.

Still...Goldstein's "They can't do this...can they?" reaction would have been entertaining as the show itself, eh?
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Who Cares (profile), 1 Apr 2014 @ 11:19pm

Re: Re: Re:
Which means you agree with the proposition that anyone who leaves the state can have their assets seized since anyone and everything these days has received/used some form of government assistance.
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trollificus, 1 Apr 2014 @ 11:21pm

Re: Re:
"The one thing about eminent domain is that it must be done for a public purpose"

After the Supreme Court's horrible, counterintuitive ruling in Kelo v. New London this is not a given.
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fitzfilmfx (profile), 2 Apr 2014 @ 1:37am

Re: It depends...
What state has not accrued a net loss from film subsidies? Corporate subsidies distort the market unfairly. Film workers have to move from state to state to catch the subsidy wave. Film has almost 0 infrastructure, when the subsidy dries up, they're gone. These incentives should be abolished nation wide, and countervailing duties placed on nations that do the same. That would be a free market and a fair playing field.
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Jeremy Lyman (profile), 2 Apr 2014 @ 5:06am

Re: Not novel
Frick said they're going to check all the Mayflower trucks, so we're good.
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John Fenderson (profile), 2 Apr 2014 @ 7:21am

Re: Re: Re: Re:
I think that their April 1 gag was the autoplay audio that reads the articles to you.
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Pragmatic, 4 Apr 2014 @ 5:18am

Re: Re: It depends...
Hmmm... it's being framed wrong.

Giving money to studios as an "investment" needs to be done in a way that provides a reasonable chance of at least recouping that money. Specific targets should be set and each item properly identified and accounted for. They seem to be merely throwing money at these people for no reason other than the hope of meeting Kevin Spacey, or something.

FIFY

It's not about picking winners and losers, it's about being a good steward of other people's money, which they have entrusted to the state to be spent for their benefit. When the money is given to studios simply because they'll up and take their ball with them if they don't get it, the people don't benefit. That's bad stewardship.
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Pragmatic, 4 Apr 2014 @ 5:23am

Re: Re: Re: Re:
^All of the above. "I'll help you pack" would have been the correct response.

Eminent Domain = slippery slope.

Let's not go there.

If we must have it, keep it for egregious malefactors and criminals AFTER a successful prosecution. Grabbing people's stuff on the mere suspicion that they MIGHT be up to something naughty doesn't sit right with me.
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Pragmatic, 4 Apr 2014 @ 5:26am

Re: Re: Re: Re:
If they only took items to the value of the assistance received that might be okay, but I'd want to see a fraud or extortion case go to court first, and any seizure based on a successful outcome. If you can't make the case, they keep their stuff and you learn not to give money to shysters in future.

Nabbing stuff because assistance was received? I'm with you on that, Who Cares.
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Pragmatic, 4 Apr 2014 @ 5:27am

Re: Re: Re:
Oh, good point, HegemonicDistortion.
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Pragmatic, 4 Apr 2014 @ 5:30am

Re: Eminent Domain
balls of steal

LOL! I see what you did there...
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Anonymous Coward, 4 Apr 2014 @ 5:57pm

Re: Re: Re: Re:
You're right. I haven't been able to think straight lately, I bumped my head about a little over a month ago and I've been somewhat of a wreck since.
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stacie, 29 May 2014 @ 5:11pm

Re: I'm a little confused...
About what? This is a classic case of hypocrisy! The hollywood elitists who have no clue that hollywood is the ultimate example of capitalism, screaming to turn this country into a socialist welfare system. But they want tax breaks? And as far as the writer's comment about "creating tax breaks that will not create wealth" or some such nonsense, tell that to Texas. They are giving tax breaks to major corporations who are leaving these highly taxed states in droves! And in the process, they are creating plenty of wealth!
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