The Out And Out Corruption Of Hollywood's State Subsidies

from the needs-an-investigation dept

Fri, Jun 5th 2015 8:24am — Mike Masnick

For many years, we've written about what an incredible scam state tax subsidies to filmmakers are. Various states shove each other aside trying to throw more money at Hollywood, if they just agree to make their films locally. Hollywood insists that these subsidies are good for the states, because they "create jobs." But the details almost always show otherwise. They are almost always a massive loss to the taxpayers. What jobs are created are temporary -- and often filled by people who fly in from out of town. What "downstream" economic benefits are created are marginal at best. Almost every study of these subsidies has found that they lose money overall. And yet, the states keep expanding these programs, sometimes betting pension funds on them.

So the big question has to be: why do states keep throwing money at Hollywood this way?

The answer, it appears, may have an awful lot to do with out and out corruption.

Christopher Koopman recently wrote a post, digging through some of the Sony hack emails, highlighting how this isn't just about states wanting some "Hollywood glamour." There's often some other stuff going on:

In the past few years, film programs across the country have been wracked with criminal charges and convictions. Louisiana is in the midst of a criminal trial against individuals charged with fraudulently collecting more than $1 million in state film tax credits for the creation of a film studio in New Orleans. Massachusetts has faced its own criminal trials over tax credit fraud. And in Iowa, a state audit found $26 million in improperly issued tax credits, and a subsequent investigation resulted in 10 criminal cases and 7 convictions. The state ultimately suspended its program in 2009. Nearly six years later, the state is still in the midst of sorting out the criminal trials surrounding its program.
This corruption has also extended to those in positions of determining how these programs work and who receives the available funds. California is currently in the midst of its own film-subsidy scandal involving a state senator, Ron Calderon, who headed the select committee on film and television and was a member of the California Film Commission. Indicted on 24 felony charges, and facing a maximum sentence of 396 years in federal prison, Calderon is accused of accepted cash bribes from an undercover FBI agent who he thought was associated with an independent film studio. In exchange, he agreed to advocate for an extension of the film tax credits.

And then, of course, there's the fund-raising hook. Hollywood scratches a politician's back? The politician scratches Hollywood's back:

Politicians also use their support for incentives, or the threat of removing them, to induce political contributions for Hollywood beneficiaries. For example, in another Sony an email dated January 6, 2014, NY Governor Andrew Cuomo’s “people” request Sony commit to raising $50k by July of 2014. The email continues, “$50k is a heavy lift since most of it needs to come from individual contributions (only $5k can come from corp.)” There are then several other emails from Sony’s head of government affairs soliciting contributions. In one of them he notes “Thanks to Governor Cuomo, we have a great production incentive environment in NY…Because of all of this, I think it’s important to significantly support his reelection efforts…”

So, notice that there are three parties at work here -- but only two of whom are actually represented. Cuomo gets campaign funds he wants. Hollywood gets tax breaks they want. It's just the taxpayers who aren't represented and get shafted.

And, as Koopman notes, each year the MPAA sends out a celebratory email highlighting just how much the studios have been able to fleece from taxpayers:

As you have requested annually, attached is the State Government Affairs Department Annual Report for 2013. As you will read, this year MPAA saved the member companies collectively an estimated $110.08 million in corporate tax liability on an annual basis and approximately $86 million in potential regulatory, administrative, compliance and legal fees, also annualized, as a result of accomplishing legislative objectives in the states.

Since 2007, the aggregate annual savings secured by MPAA for the member companies in connection with key corporate state tax legislation is approximately $439.08 million. This is a result of the enactment of single sales factor apportionment in California, and New York City as well as favorable advertising and licensing corporate tax sourcing formulas adopted in North Carolina, Michigan, Illinois and Louisiana.

In addition, states awarded an estimated $1.5 billion in production tax credits in 2013, according to the Los Angeles Times, which MPAA either was engaged in enacting or keeping in place. The majority of those credits went to MPAA member companies as a result of motion picture and television location production in various states, with per project savings ranging from 10 to 30 per cent.

We had another successful year thanks to the hard work of Melissa Patack, Angela Miele, Sarah Walsh, Brian Cohen and Carlin Scrudato, as well as all of your tremendous support, engagement, and encouragement. Also, special thanks to the executives on the state tax, legal and IP working groups, whose expertise and involvement is invaluable. As you know, our contract advocates in the 50 states, who are critical to our success, work tirelessly for MPAA and the member companies. Our coalition partners also played major contributing roles, in particular NATO, DGA, SAG, IATSE and Teamsters.

I don't begrudge the MPAA/studios doing this. Of course, they're going to scrounge for free money from the states who are willing to give it. But it seems problematic given how these programs time after time after time have been shown to be massive failures, often leaving states in serious trouble. At the very least, it seems to deserve deeper scrutiny by the public and government officials as to exactly why states are so ready to hand out this kind of money.

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Filed Under: andrew cuomo, corruption, hollywood, movie subsidies, subsidies, tax breaks
Companies: mpaa

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Magical Mimi, 5 Jun 2015 @ 8:56am

Massachusetts tried to get rid of their tax incentives for films and TV shows in their last big budget battle. And of course that died due to political infighting. I wonder how many of the people against it were getting nice big Hollywood donations.
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tqk (profile), 5 Jun 2015 @ 9:02am

$430 million, $1.5 billion, for only $50 grand! What a deal!
It's amazing how cheaply these politicians sell themselves. The benefactors end up with fortunes, for less spent than for an average SUV.

Chris Dodd must be one hell of a negotiator to get them to put out as much as they pay for his efforts. I'm sure the studios are damned near livid that he managed to get them to pay him as much as they do.

Cheap bastards making a killing, yet they bitch and moan incessantly about infringers robbing them blind.
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- OldMugwump (profile), 5 Jun 2015 @ 9:10am
  
  Re: It's amazing how cheaply these politicians sell themselves.
  I've noticed that too, long ago.
  
  Buying your local politician is really an incredibly good deal in terms of value for money.
  
  Which explains a *very* great deal about what is wrong with our government.
  
  But I don't think we can really blame those who take advantage of these "deals". That's just human nature - if there's money on the table, only fools and saints don't pick it up.
  
  The problem is the design of the system. As long as government officials have the *power* to give away tax dollars, they'll find ways to justify doing so.
  
  The only long-term solution is to take the power away.
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- Anonymous Coward, 5 Jun 2015 @ 10:55am
  
  Re: $430 million, $1.5 billion, for only $50 grand! What a deal!
  On the citizen side it looks like they are trading $430 million, $1.5 billion for $50k.
  
  On the politician side: "$50k bonus to do something i already get paid for. $50k for nothing."
  
  The politician also understands that $$$ = votes, despite what the definition of democracy might imply.
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- Anonymous Coward, 5 Jun 2015 @ 1:49pm
  
  Re: $430 million, $1.5 billion, for only $50 grand! What a deal!
  If I were a politician in addition to the $50K I would demand a commission on the ROI. You're right, what cheapskates, making all that money and only giving me a measly 50K. How dare these big businesses take advantage of simple minded naive politicians like this. The politicians deserve more for all their hard work and someone ought to stand up these businesses using them as low pay slave labor. Perhaps politicians should go on strike or start a union demanding higher wages for their contributions.
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Not even half the story, 5 Jun 2015 @ 9:30am

This is FINE, but if talking fascism START WITH GOOGLE.
Google Joins Apple Avoiding Taxes With Stateless Income
http://www.bloomberg.com/news/articles/2013-05-22/google-joins-apple-avoiding-taxes-with-state less-income

And go on to Elon Musk getting 4.9 BILLION in government subsidies:
http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html

Corruption is not difficult to find. It's just that Masnick targets his railing to a FEW, and always omits "innovators" he favors, such as Google and Tesla.

Take the Copia link at bottom of this page to a colorful big graphic stating that Google directly funds Masnick.

Now to be clear for the fanboys: I've NO objection to this about MPAA, nor defend them in least: I'd HANG them all! This is simply stating facts and pointing out what Masnick never says.
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- Anonymous Coward, 5 Jun 2015 @ 10:53am
  
  Re: This is FINE, but if talking fascism START WITH GOOGLE.
  That is just avoiding taxes using loopholes that many large corporations use.. The US just needs to have a better strategy to handle that type of tax evasion. That is nothing compared to using bribery to take subsidies money.
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- JMT (profile), 5 Jun 2015 @ 4:45pm
  
  Re: This is FINE, but if talking fascism START WITH GOOGLE.
  In a post about political corruption, you once again bring up Google's tax avoidance. So not only are you off-topic, you accuse Mike of being selective while focusing on Google for doing the same thing as every large corporation on the damn planet, many for a heck of a lot longer. You take hypocrisy and obsession to new levels.
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amberb (profile), 5 Jun 2015 @ 9:32am

Sweet Irony
I think it's hilarious that an FBI-actor-wanna-be posing as a film studio exec nailed them. Maybe that guy was trying to audition for a new career. Since his acting skills were good enough to fool the senator, I think they should hire him.
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Whoever, 5 Jun 2015 @ 9:47am

Typo?
are three party's at work here
That should be "parties"
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- Anonymous Anonymous Coward, 5 Jun 2015 @ 11:50am
  
  Re: Typo?
  Well, maybe there are three party's at work. I wonder if we can get invited?
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  - Anonymous Coward, 5 Jun 2015 @ 1:30pm
    
    Re: Re: Typo?
    [SLOW CLAP]
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Anonymous Coward, 5 Jun 2015 @ 10:09am

Hollywood & Liberals a strange love affair
Liberals hate rich people. Liberals love Hollywood and celebrities in general. Celebrities are rich. So why do liberals love them?
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- jupiterkansas (profile), 5 Jun 2015 @ 10:11am
  
  Re: Hollywood & Liberals a strange love affair
  Maybe because you're wrong that liberals hate rich people?
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  - John Fenderson (profile), 5 Jun 2015 @ 2:28pm
    
    Re: Re: Hollywood & Liberals a strange love affair
    I can't find a single thing in there that was correct.
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- Groaker (profile), 5 Jun 2015 @ 12:44pm
  
  Re: Hollywood & Liberals a strange love affair
  I take it you haven't noticed any right wing Hollywood types espousing smaller government and lower taxes while leaching the taxpayers. And not just Hollywood. This has become a standard practice for for mid to large size business.
  
  A pox on both their houses.
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Anonymous Coward, 5 Jun 2015 @ 10:28am

Why just the focus on "Hollywood" when subsidies are extended to virtually every large company in virtually every industrial segment? The largesse extended to "Hollywood" in my experience pales in comparison to what is extended to sports franchises, large tech companies, large pharma, and every other manner of company that is able to put together a BS story about economic development touting "jobs, jobs, jobs".
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- Matte Object (profile), 5 Jun 2015 @ 10:47am
  
  Re:
  Maybe because most of those jobs aren't highly mobile.
  
  The film industry is, by definition, a highly mobile industry, all of it's infrastructure requirements fit into one of their white trucks. Even soundstages are just converted warehouses and there's no shortage of those around the country.
  
  Film subsidies don't create jobs, they just rent them temporarily at huge expense - remember that these aren't tax cuts, the states renting the jobs are covering up to a third of the cost of making a film just in exchange for hiring a few locals and the second they stop giving Hollywood free money, Hollywood leaves (look at North Carolina).
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  - Anonymous Coward, 5 Jun 2015 @ 10:57am
    
    Re: Re:
    Maybe because most of those jobs aren't highly mobile.
    
    The film industry is, by definition, a highly mobile industry, all of it's infrastructure requirements fit into one of their white trucks. Even soundstages are just converted warehouses and there's no shortage of those around the country.
    
    Film subsidies don't create jobs, they just rent them temporarily at huge expense - remember that these aren't tax cuts, the states renting the jobs are covering up to a third of the cost of making a film just in exchange for hiring a few locals and the second they stop giving Hollywood free money, Hollywood leaves (look at North Carolina).
    
    There was an established film industry since the 1980's in NC long before there were incentives. The Carolco Studios (now Screen Gems) in Wilmington was booming for decades. Incentives accelerated that boom. And because many state incentives are tied to local hires, indigenous workers are entering the business and people from out of state are moving there permanently; buying homes, shopping, etc. That is all economic activity beyond simply earning wages.
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    - Anonymous Coward, 5 Jun 2015 @ 5:32pm
      
      Re: Re: Re:
      I'm still waiting for Chris Dodd to produce the truck drivers and corn farmers who magically lost their job from piracy.
      
      If I held my breath for that long, I'd be a deity by this point.
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- Mike Masnick (profile), 5 Jun 2015 @ 11:55am
  
  Re:
  Why just the focus on "Hollywood" when subsidies are extended to virtually every large company in virtually every industrial segment?
  
  Because those subsidies are the most glaringly problematic. It's true that other industries get subsidies, many of which I find problematic, but those tend to be for PERMANENT jobs or building local factories and such. With Hollywood, the incentives are for these 2 to 3 month projects that every study has shown does not benefit the locals at all.
  
  On the flip side, subsidies for more PERMANENT factories and the like do at least have *some* evidence to support that they benefit locals.
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Anonymous Coward, 5 Jun 2015 @ 10:51am

Why just the focus on "Hollywood" when subsidies are extended to virtually every large company in virtually every industrial segment? The largesse extended to "Hollywood" in my experience pales in comparison to what is extended to sports franchises, large tech companies, large pharma, and every other manner of company that is able to put together a BS story about economic development touting "jobs, jobs, jobs".

Why indeed? Perhaps because Masnick has a pathological hatred of the studios and is perfectly willing to overlook the same conduct by everyone else.
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- Mike Masnick (profile), 5 Jun 2015 @ 11:57am
  
  Re:
  Perhaps because Masnick has a pathological hatred of the studios and is perfectly willing to overlook the same conduct by everyone else.
  
  I actually like the studios, and like the movies they produce. I just also don't think they should be wasting taxpayer money and bragging about it to themselves.
  
  You feel otherwise?
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  - Anonymous Coward, 5 Jun 2015 @ 12:27pm
    
    Re: Re:
    "Perhaps because Masnick has a pathological hatred of the studios and is perfectly willing to overlook the same conduct by everyone else."
    
    I actually like the studios, and like the movies they produce. I just also don't think they should be wasting taxpayer money and bragging about it to themselves.
    
    You feel otherwise?
    
    What? You like the studios??? Since when?
    
    Since you've done your usual excellent job of presenting a bias, one-sided view of things; perhaps more open minded readers would enjoy seeing a different perspective:
    
    https://gallery.mailchimp.com/e28d224d6e18e9b93a4d4079a/files/Economic_Impacts_of_the_Lo uisiana_Motion_Picture_Investor_Tax_Credit_April_2015.pdf
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    - John Fenderson (profile), 5 Jun 2015 @ 2:32pm
      
      Re: Re: Re:
      Hmm, it looks like there's a lot of speciousness in that document to me.
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        Anonymous Coward, 5 Jun 2015 @ 4:15pm
        
        Re: Re: Re: Re:
        Hmm, it looks like there's a lot of speciousness in that document to me.
        
        Funny. I was think the same thing about the piece of shit Masnick relied upon as evidence.
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        Anonymous Coward, 5 Jun 2015 @ 5:33pm
        
        Re: Re: Re: Re: Re:
        You mean university studies pointing out how the RIAA/MPAA's wild screams of how their industries are starving and dying are wrong, every time?
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        Anonymous Coward, 5 Jun 2015 @ 8:25pm
        
        Re: Re: Re: Re: Re: Re:
        No I mean the piece of shit studies that say that tax incentives to attract motion picture and television production never pay for themselves.
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        techflaws (profile), 5 Jun 2015 @ 10:24pm
        
        Re: Re: Re: Re: Re: Re: Re:
        Being mad at the facts really suits you, LOL!
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        Anonymous Coward, 7 Jun 2015 @ 7:59am
        
        Re: Re: Re: Re: Re: Re: Re:
        So your plan is to deny state audits pointing out how Hollywood is screwing things over for everybody?
        
        Yeah, I look forward to seeing how that plan works out.
        
        Also, nice to see you trolls continuing to use TOR to spam the site with multiple IP addresses.
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Aj, 5 Jun 2015 @ 11:39am

There is always an influx of money from film. If Louisiana gives a 30% tax credit to a film that spends $24 Million, the film gets 7.2 million back. The company still spent $16.8 million in the state that wouldn't have otherwise been spent. How is this a loss? In Louisiana, more and more film professionals are buying homes and settling down. There are more films and television being shot. More being written. More being SET in Louisiana. This is expanding tourism also. There are criminals in every government program. The people who got caught are proof that the system works because they got caught. I work in film and see the millions being spent. Louisiana has a film industry in place and it is working.
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- That One Guy (profile), 5 Jun 2015 @ 11:51am
  
  Re:
  Nice numbers, pity they have nothing to do with reality.
  
  Here's an article from a while back talking about how pretty much every single movie subsidy ends up losing the taxpayer money, not gaining as you would seem to be arguing.
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MadAsASnake (profile), 5 Jun 2015 @ 12:49pm

So, when they have finished with FIFA, do you think they'll go after Hollywood corruption?
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Anonymous Coward, 5 Jun 2015 @ 1:40pm

not just over 'tax breaks' or whatever you want to call them, EVERYONE on the public side gets well and truly fucked by the movie and recording studios every single day! as stated in the article, when studios scratch politicians backs, politicians scratch the studios backs. has it only just, or perhaps still not yet, dawned on every single law that comes into being that protects the studios, all the bullshit about how much the studios are losing year on year, how many jobs have been/are being lost that all these things are done to protect an industry that pays less tax per year than an out of work street cleaner, restricts what people can do with physical media they have legally bought and prevents the advancement into the digital age, not for any reasons other than the old fuckers who are in charge of those studios throw money at the politicians who can do them the most good, as stated, scratch backs! those same politicians, again, as stated in the articles suddenly gain 'campaign contributions' and another law gets enacted that stops people from copying what they own and even stops the next 3 generations from copying that same piece of media! what needs to happen is what is reported in this piece, but it needs to be x10 as rigorous! people need to be put in the position that tells them that any more 'protecting of the media studios' will result in serious consequences for them. perhaps then, people can start to enjoy what they buy instead of being shit scared that they will be lifted for $150,000 and or jail time just because they are listening to a music disk, for example, on their mp3 player, when they bought the music on cd!!
this is the first article i've read where there are possible consequences for a politician for having aided the studios, i hope it isn't the last! i also hope that those in law enforcement and courts get to feel the same heat as well!!
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JMT (profile), 5 Jun 2015 @ 4:51pm

Don't let them off the hook so easy
"I don't begrudge the MPAA/studios doing this."

I do. Corruption is not an activity carried out by one party. The studios know exactly what they're doing and exactly how bad is is. This is just one of the many reasons that their moral arguments against piracy have absolutely zero weight.
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toyotabedzrock (profile), 5 Jun 2015 @ 11:44pm

So I need to point out they are using an all women political pandering fraud team, but don't hold your breath waiting for feminists to yell at them. The gay community would not stay silent.
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Gary Mont (profile), 7 Jun 2015 @ 11:41am

Sand: Ostriches do not, but People definitely do.
"At the very least, it seems to deserve deeper scrutiny by the public and government officials as to exactly why states are so ready to hand out this kind of money.

What??

The article repeatedly states exactly why "states are so ready to hand out this kind of money".

Kickbacks, favors, graft, bribes, and billions in profits and millions of dollars - lost - that can be divvied up by an army of criminals and politicians.

Its just another in a long, long list of ways and means of spending tax payer's money on things that will make friends in high places very happy and generate favors from those friends in return.

I thought that was obvious before the news of massive criminal activity revealed by Sony's in house crime-team emails.

To keep asking why is to admit your just not paying attention, or that you just don't like the answer.

----
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