Verizon Thinks It's A Good Idea To Mock New Jersey Taxpayers After Ripping Them Off For Years

from the so-long-suckers dept

We've noted a few times how Verizon has a rich history of taking taxpayer money, subsidies and tax breaks, then promising fiber deployment that never occurs. When it then comes time for local municipalities to hold the telco's feet to the fire, campaign contributions ensure any investigation is short lived. It happened in Pennsylvania, it happened in New York City, and it recently happened in New Jersey, when state officials let Verizon off the hook for a 1993 promise to evenly deploy fiber across the state in exchange for billions in benefits.

Shortly after state officials let Verizon walk away from its obligations, they also granted Verizon exemption from regulations requiring it continue servicing DSL customers whose lines were paid for in large part thanks to billions in subsidies. As we've noted, companies like AT&T and Verizon are hanging up on customers they don't want to upgrade, and forcing them instead to notably more expensive and capped wireless services. Many customers would prefer Verizon maintain or upgrade their fixed-line broadband connections, since they've paid an arm and a leg for them.

About fifty annoyed municipalities have now formed an alliance aimed at holding Verizon's feet to the fire. Collectively, they're trying to explore ways to hold Verizon accountable, require it to deliver promised upgrades, or at the very least maintain existing DSL lines until something better comes along. Verizon's response? To mock these people as Luddites:

"But Verizon New Jersey spokesman Lee Gierczynski has called this "misplaced fear" resulting from "misinformation and misunderstanding about copper networks, fiber networks and the reliability of those networks." "This is a classic example of how some people fear new technology so they reactively reject it instead of accepting it, no matter how irrational that fear may be," Gierczynski said.

Except that's not what's happening here at all. People aren't angry because they're afraid of fiber upgrades, because the majority aren't getting those upgrades. They're angry because Verizon's trying to shovel them to "good enough" wireless service with low caps and steep $15 per gigabyte overage fees. Like AT&T, Verizon would have you believe that having your less expensive, unlimited DSL line replaced by a hugely expensive LTE connection (you may not even be able to get) is a step into the Utopian telecom future. Verizon's spokesman shows just how tone deaf the company is by then suggesting these folks should be mocked:

"He added: "I think people are going to look back and laugh at people ... just like who were a part of the Anti-Digit Dialing League."

Of course what people are actually going to look back on and laugh (or cry) at is Verizon's ability to take billions in subsidies, do little to nothing with it, convince regulators to turn the other cheek to outright theft, then mock annoyed consumers when they try to complain.

Filed Under: broadband, innovation, new jersey, subsidies
Companies: verizon

The Out And Out Corruption Of Hollywood's State Subsidies

from the needs-an-investigation dept

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.

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

Despite Losing Money Year After Year, States Still Wondering How They Can Hand Out BIGGER Subsidies To Hollywood

from the this-taxpayer-money-is-burning-a-hole-in-my-common-sense dept

Fool me once, shame on me. Fool me annually and let me get my checkbook! Losses continue to mount, but some very resilient states are still willing to throw more taxpayer money at the film industry. Michigan -- a state that seems to be able to generate at least one fiscal horror story per year -- is one of the nation's most consistent losers. Two years ago, it bet the state pension fund on film-related subsidies… and lost. When the "investment" failed to generate a return, nearly $2 million was removed from the already-underfunded retirement pool. One small town pinned its hopes and dreams on a film project that promised 3,000 new jobs but instead fell apart, dragging the town towards insolvency.

Michigan has made some moves in the right direction after being burned so often by Hollywood and its fleeting, mercenary "interest" in its state. It paid out nearly $100 million in subsidies in 2011, but that number has dropped to $38 million for the coming year. Michigan House Minority leader Tim Greimel is pushing to bring that back up to $50 million, claiming that the program has been a great job creator -- an assertion that couldn't be farther from the truth.

The state has funnelled $500 million in public funds to its fledgling film industry since 2008, and has almost nothing to show for it. While some jobs were created—temporary production crews, mostly—those were offset by the losses to the sectors of the economy that had to finance the film subsidy (i.e. Economics 101).

In fact, over the past 15 years, job creation has remained almost flat. According to the Bureau of Labor statistics, there were 1,537 in-state jobs in the film industry in 2001. As of 2013, there were 1,564. And in that particular year, the subsidized industry didn't create a single job.

This boondoggle currently costs Michigan taxpayers $50 million a year and even the state’s own economic development agency (MEDC) reported this costly subsidy failed in 2013 to create one permanent job,” said Tricia Kinley, senior director of tax and regulatory reform at the chamber, in an press release.

A study released in 2012 showed that for every Michigan dollar spent on subsidies, the film industry only generated $0.11 of in-state revenue. And yet, politicians like Greimel are still insisting the best way to make money is to spend money -- year after year after year.

The same issue is under discussion in Pennsylvania, another state suffering from budget overruns and the odd desire to throw away the better part of every subsidy dollar. Despite a $2.3 billion deficit, some legislators are thinking of increasing the state's film subsidies.

Senate Bill 218, introduced by state Sen. Wayne Fontana, D-Allegheny, would raise the cap to $125 million. It’s now $60 million a year.

Senate Bill 219, also by Fontana, would allow for “rollover” of tax credits approved for a project but not ultimately awarded.

To push for these bills in the face of some heightened resistance, Fontana is trotting out some very suspicious numbers. The Department of Community and Economic Development -- an entity that sounds neutral but in reality administrates the film subsidies -- claims this handout has generated thousands of jobs and billions in revenue.

Since the program’s inception, nearly $433.5 million in film production tax credits have been approved/awarded to film production companies under the program. These companies, in turn, have directly injected close to $1.8 billion into PA’s economy; generated an estimated $3.2 billion in total economic activity; and supported an estimated 21,700 jobs (based on 2014 IMPLAN multipliers).

There are big problems with the Department's fuzzy math, as Rachel Martin at Watchdog.org points out. For one, it grabs unfinished and pending projects and mixes them in with completed projects to up the totals for both the number of jobs and the amount of money generated. Looking at the state's financial statements reveals something completely different.

[F]rom fiscal 2007 to 2013, only $55 million in credits were awarded and 2,700 jobs were created.

A more sobering assessment put together by the state's Independent Fiscal Office takes a lot of the irrational exuberance out of the Department's fluffed numbers. There's no "anything's possible" math to be found here. The report takes a very long and detailed look at the fiscal performance of the state's film subsidies and finds that -- much like other states -- handing out money to Hollywood doesn't make it rain locally.

In terms of budgetary return, a 2013 report by the state Independent Fiscal Office, “Uncapping the Film Production Tax Credit: a Fiscal and Economic Analysis,” found the state got a return of 14 cents on the dollar for tax credits, from state taxes generated by the program.

This pitiable return rate remains completely unchanged from the conclusions drawn by the Tax Foundation in 2010. Pennsylvania's film subsidies hand out dollar bills to film producers and then follow along behind them to catch any change that might fall out of their pockets. It's easy to sell subsidies to legislators, who are often more interested in the reflected glory of Hollywood projects than in safeguarding the funds they've been entrusted with.

The report also debunks the notion that film subsidies are job creators, much less wealth generators.

Wages constitute more than 60 percent of production expenses receiving credit under the FPTC, and the economic effects of the FPTC depend heavily on the amount of credit-eligible earnings that leave the state. Nonresidents spend only a small share of their earnings in the state while working on a production, thus limiting the impact on the state economy… According to data analyzed by the IFO, approximately 70 percent of production-related wages were paid to nonresidents.

The bottom line, according to the IFO?

The net, fully phased-in fiscal impact for the additional credits authorized in FY 2013-14 is estimated to be -$46.5 million at the lower end… and -$93.1 million at the higher end of the range.

Of course, if Pennsylvania decides to limit or dump its subsidies, it will soon discover that all the money it spent in the past has purchased nothing in the way of loyalty.

As an example of the mobility and fickleness of the industry, consider the show “Banshee.” It filmed its first three seasons in North Carolina, but packed up after that state eliminated its tax credit program and replaced it with a much smaller grant program.

The show will now film in Pittsburgh, which has a built-in irony, given that the show’s setting has always been the fictional Banshee, Pennsylvania.

Given the deficit the state is facing, you'd think legislators would be more than happy to drop the subsidy, if only to prevent the leakage of another $50-90 million. But the glamour of show business -- even if only admired from afar -- is tough to resist. It's easy to mistake the busy milling around of temp workers and nonresident stars for created jobs and positive economic impact. Throwing away 9/10ths of every dollar simply doesn't make sense, especially in a state already severely overdrawn. But nothing involving both Hollywood and accounting ever adds up.

The math is so severely screwed up that the original home of the stars is upping its subsidy ante in hopes of luring Hollywood back to Hollywood.

Between 2004 and 2012, the California entertainment industry lost 16,137 film production jobs. During that same period the state of New York increased its entertainment employment by 25 percent. The Milken Institute attributes this shift in employment to the billions of dollars in robust incentives from competitive states like New York, New Mexico, Texas, and Louisiana.

If you can keep all of the money in one place, a state might turn a profit. But with productions scattered all over the US, California will just be another state throwing money at fickle, mostly uninterested productions. A short-term "bribe" never buys loyalty, especially not in the Land of 1,000 Backstabbings. The film industry is still very cutthroat and California's decades-long slide into legislative absurdity has made movie-making within its heavily-taxed confines very unattractive. (And then there's the labor stranglehold, but we'll let that go. For now...) The solution? More taxes! But this time mostly from the little people!

The legislation will increase the annual allocation of state tax credits to $330 million per year, more than triple the current amount, starting with fiscal year 2015-16 and lasting for five years. [...]The legislation also provides extra incentives — beyond the current 20% — for visual effects and music scoring, as well as to producers who shoot in parts of the state outside of the Los Angeles region.

The industry is -- and has been for years at this point -- pay-to-play. Unfortunately, it's the states' long-term residents who are paying the most, and reaping none of the benefits.

Filed Under: california, hollywood, michigan, movies, pennsylvania, states, subsidies, tax payer funds

Rep. Latta Breaks New Ground In Introducing Anti-Net Neutrality Bill Where Almost Every Claim Is Laughably Wrong

from the impressive! dept

Rep. Bob Latta achieved an impressive feat last week in introducing some legislation, which he claims is to make sure the internet remains "open and free." While we're big supporters of an "open and free" internet, what's most amazing here is that almost everything that Latta claims about the bill is not true -- including the whole "open and free" bits.

Congressman Bob Latta (R-OH) today introduced legislation to ensure the Internet remains open and free from government interference by limiting the Federal Communications Commission’s (FCC) authority to regulate broadband under Title II of the Communications Act.

So, first, he's saying "open and free" not in the way that internet users, innovators and entrepreneurs can set up businesses, but rather "open and free from government interference." This is, simply, bullshit. While I tend to lean on the "less regulation" side for many things, people claiming that net neutrality is a fight about "regulating the internet" are one (or more) of the following three things: (1) stupid (2) ignorant or (3) lying. The internet is already heavily regulated. The question around net neutrality is not "do we regulate or leave unregulated" -- it's what type of regulation makes the most sense.

Remember, telcos are happy to be classified under Title II for their fiber, because that's how they're able to get subsidized access to power poles and conduits (and the ability to dig up yards and bury new lines). They're also "regulated" in how they get spectrum for wireless communications. The broadband providers are thrilled to be regulated in these ways because it has made it easier and cheaper to build their networks and to keep out pesky competition.

The idea that broadband should be "open and free" from government interference is simply untrue. If the broadband providers really wanted that to be true, then they shouldn't be making use of rights of way access granted by the government. Somehow, I don't see Latta asking Verizon and AT&T to change that...

The legislation comes after the FCC released a proposal to reclassify broadband Internet access under Title II as a telecommunications service rather than an information service.

Except, of course, the FCC did no such thing. It, in fact, released a Notice of Proposed Rulemaking (NPRM) which explicitly does not propose to reclassify broadband under Title II. It actually proposes to keep broadband as it was, preferring to put in place new rules under Section 706. The only thing on Title II is that, while making it clear the FCC is focused on Section 706, it asks the public to comment on what it thinks of Title II as an alternative. To outright claim that the FCC has proposed reclassifying is blatantly false.

Isn't it great that Congressional Representatives flat out lie to the public?

“In light of the FCC initiating yet another attempt to regulate the Internet, upending long-standing precedent and imposing monopoly-era telephone rules and obligations on the 21st Century broadband marketplace, Congress must take action to put an end to this misguided regulatory proposal,” said Latta.

Except, again, the internet has always been regulated in some form, this request for comments has upended no long-standing precedent, and broadband providers have long made use of those very same "monopoly-era telephone rules and obligations" to get government subsidies to install their broadband infrastructure. Oh, and again, the proposal does not actually suggest what he claims it's suggesting.

So, both the reasons and the overall claim of the proposal are simply wrong. Who elected this guy?

“The Internet has remained open and continues to be a powerful engine fueling private enterprise, economic growth and innovation absent government interference and obstruction. My legislation will provide all participants in the Internet ecosystem the certainty they need to continue investing in broadband networks and services that have been fundamental for job creation, productivity and consumer choice.

Yes, the internet has remained mostly open and is a powerful engine of private enterprise at the service level by keeping the network level free from discrimination. And the FCC claims to be looking for a way to keep that in place, while the telcos who are supporting Latta's proposal are looking to do the exact opposite: to limit private enterprise by allowing the infrastructure players to discriminate against services they don't like. Latta's legislation does not provide "certainty" to anyone other than Verizon, AT&T and Comcast -- all of whom will get to double-charge and increase profits.

Instead, it will create massive uncertainty for basically every other business that uses the internet. It will devastate investment into internet startups, because those with great new ideas will know that they'll have to pay extra just to reach people online. It will entrench big companies who already have the power to pay, while cutting off upstarts and innovators. It will take away the incentives for the big broadband providers to actually invest in infrastructure, because when their networks get clogged, they can charge more to internet companies. That means, the US will fall even further behind on the internet.

It makes you wonder why Rep. Latta is so against small businesses and innovation.

Oh, no, there's no reason to wonder. We already know. Latta is bankrolled by the big broadband companies with AT&T, NCTA, Verizon, Comcast, Time Warner Cable, American Cable Assocation and Centurylink among his top campaign supporters. Because, of course they are.

Yes, we know that politicians mislead the public, but this is to an egregious level. Nearly everything about the reasons, the intent and the impact of Latta's legislation are completely incorrect. There are reasonable debates to be had about whether or not reclassifying broadband under Title II makes sense. But you won't get that from this bill. Thankfully, Latta can't find any other politician willing to co-sponsor his ridiculous bill, so it appears that even many other politicians heavily funded by the broadband companies recognize how totally dishonest this particular bill is.

Filed Under: bob latta, fcc, net neutrality, open internet, regulations, rights of way, subsidies, title ii

Verizon Begs To Be Classified Under Title II For Subsidies; Screams About Parade Of Horribles Any Other Time

from the title-ii-shell-game dept

If you've been paying any attention at all to the whole net neutrality fight, you'd know that the key issue is whether or not broadband services should be reclassified under Title II of the Telecom Act. In the early to mid-2000s, the FCC declared both cable and DSL broadband to be information services under Title I, rather than telecommunications services under Title II. This basically means they are not subject to common carrier rules, including non-discriminatory rules that are the key issue around net neutrality. And, of course, the telcos are putting up a big fight over this, listing out a supposed parade of horribles that would happen if they were reclassified under Title II.

There's just one big problem with this: those very same telcos with those very same networks are begging to have them classified under Title II at other times. Basically, the telcos absolutely love Title II when it gives them all sorts of subsidies and tax breaks.

Here, for example, you can see Verizon making it quite clear that its FiOS fiber service should be classified under Title II in New Jersey. They've done the same elsewhere. Here they are in DC. The reasoning here is simple to understand. For all the talk of why they hate Title II, Verizon (and AT&T) know that Title II gives them tremendous subsidies in the form of access and rights of way. Basically, the only way they can get the right to rip up the ground or access existing conduits and electrical poles to lay all that fiber -- is to be classified as a common carrier under Title II. So a bunch of Verizon's applications concerning its FiOS service are entirely about why they should be classified as Title II.

But here's the little dance move they pull. They claim that this infrastructure must be considered Title II, in order to get those subsidies, tax breaks and rights of way. And they insist that it's proper to classify it as Title II because it offers voice service over those lines. But, at the very same time, they claim that all other services that they provide, must be classified under Title I.

Oh, and it gets better: they claim that in order to pay for all of this (even though they're getting all these breaks and subsidies), they have to raise the prices on telephone service -- which they've done at a fairly astounding rate.

And, we're not done with the scam yet. As we've been describing for years, part of this shell game is that Verizon promises that, under Title II, it will install this fiber to everyone -- and then never delivers. And then, for the final kick in the gut, after it fails to deliver on those promises, it gets local politicians to drop the requirements it agreed to in order to get the subsidies.

And... this doesn't even touch on the issue of "IP transition," where after they get all these tax breaks and subsidies based on the claims of providing (increasingly expensive) "voice" services under Title II, the very same telcos will want to turn off that voice service, in favor of voice service over the internet. Now, voice services are clearly moving to the internet, and that's reasonable. But this is part of the telco shell game. Get all these tax breaks and subsidies by pretending all of that fiber was a Title II service, but then shut down the Title II covered-telco service the first chance they get, and shift it to an "information" service under Title I. Voila: they get all the tax breaks and benefits of Title II for installing the infrastructure, but then don't have to meet the obligations of a common carrier which they promised to meet in order to get those subsidies.

It's almost astoundingly brilliant if we weren't all left paying the (increasingly larger) bill for worse service.

Either way, whenever you see the telcos listing out the parade of horribles under Title II, it might be worth reminding them that they, themselves, were the ones who insisted on classifying their own networks under Title II because of all the "benefits" it brought.

Filed Under: access, broadband, fcc, fiber, fios, net neutrality, rights of way, subsidies, title ii
Companies: verizon

Decades Of Failed Promises From Verizon: It Promises Fiber To Get Tax Breaks... Then Never Delivers

from the this-again? dept

A decade ago, we wrote about how Verizon had made an agreement in Pennsylvania in 1994 that it would wire up the state with fiber optic cables to every home in exchange for tax breaks equalling $2.1 billion. In exchange for such a massive tax break, Verizon promised that all homes and businesses would have access to 45Mbps symmetrical fiber by 2015. By 2004, the deal was that 50% of all homes were supposed to have that. In reality, 0% did, and some people started asking for their money back. That never happened, and it appeared that Verizon learned a valuable lesson: it can flat out lie to governments, promise 100% fiber coverage in exchange for subsidies, then not deliver, and no one will do a damn thing about it.

Because here we are about a decade later, and basically the same damn thing has happened in New York City. At least this time, Verizon actually had a fiber service to offer -- the well-known FiOS -- which it "promised" to cover 100% of NYC by 2014. Back when that was announced in 2008, Karl Bode at BroadbandReports correctly warned that you should take that promise with a large grain of salt, both because of Verizon's past failures to live up to promises, as well as the loopholes hidden in the agreement.

It looks like he was right on both accounts. As the account (linked above) at the Verge notes, the language actually is that Verizon just needs to "pass all households," which is interpreted loosely:

There were a lot of caveats in the contract, however. Verizon is only required to "pass all households," a vague term that means the fiber need to extend "to a point from which the building can be connected to the network." Verizon is not obligated to make that connection, however. As a result, the company is now claiming around 75 percent accessibility, even though the number of New Yorkers who can actually sign up for FiOS is probably much lower. A study by public advocate Bill de Blasio concluded that just 51 percent of households in New York have fiber access. The city and Verizon dispute these figures.

Verizon is blaming landlords, but as the Verge points out, when someone made a big stink on the radio recently about the lack of FiOS in his apartment, Verizon contacted him the very next day, and had service at his apartment within 3 weeks. The simple fact is that Verizon has been trying its damnest to get out of the wired business altogether. Back when Ivan Seidenberg was in charge, he made a giant bet on fiber, which is why Verizon became such a national leader in broadband with FiOS -- a service that people really seem to love. However, Wall Street has always hated it, because it's capital intensive, and Wall St. recognizes that without any real competition in the broadband space, Verizon can avoid investing in such infrastructure upgrades, and just swim in larger profits while America's broadband infrastructure suffers and falls further and further behind other countries. Once Seidenberg left, the beancounters quickly took over and looked for ways to stop all that investment. Why invest in the future if there are no competitors to push you to do so?

The fact that Verizon had made this big deal with NYC? Well, Verizon knows it doesn't need to care because it doesn't appear that the NYC government cares at all. The most telling part of the article at the Verge is this tidbit:

The city seems satisfied with how Verizon has held up its end of the bargain. When asked whether Verizon had met its contract obligations, the mayor’s office first asked The Verge what Verizon had said, then referred us to DOITT [the Department of Information Technology and Telecommunications], which actually has the contract. DOITT referred us to the mayor’s office. When told that the mayor wasn’t commenting, DOITT suggested we speak with Verizon. When pressed, a spokesperson said, "We just don’t have anything to add here."

Nice work, Verizon: you've fleeced yet another place.

Filed Under: broadband, fiber, nyc, promises, subsidies, tax breaks
Companies: verizon

Michigan Bets The State Pension Fund On Hollywood Success, Ends Up Stuck With The Tab

from the you-can-only-take-my-money-for-so-long,-before-you-take-it-all! dept

We've written before about cities and states luring Hollywood studios with multimillion dollar subsidies in the hopes of giving their local economies a bit of a bump. In nearly every case, this has been a money loser for the locale involved. A 2010 Tax Foundation study found that most states were lucky to see $0.20 in revenue from every dollar handed out. And yet, this surefire money loser remains incredibly popular.

The latest case of self-victimization belongs to the state of Michigan, which lured the production of "Oz The Great and Powerful" to the state with a $40 million subsidy.

Michigan has 4.5 million individual taxpayers, and the state gave the film studio $39.7 million to shoot the movie in Pontiac. That works out to a subsidy of $8.82 per taxpayer while average ticket prices nationwide are $7.96.

The subsidy was granted in 2010 when the program refunded up to 42 percent of Michigan expenses to film makers — essentially a check from the treasury to Hollywood studios. The program expired, but the Legislature, dominated by Republicans, overwhelmingly decided to keep it around.

As the article points out, the studio basically received paid admission from every taxpayer in the state. But that $40 million was apparently just a "good start," because the state soon found the studio knocking at its door again, cap in hand.

As part of the financing process, the filmmakers wanted to borrow about about $18 million in municipal bonds. In order order to do that, they needed a backer. So the state stepped in, and agreed to use its state worker pension funds as a guarantee. "If the investors failed to pay," the New York Times reported in a piece on the deal last December, "the retirees would be on the hook."

One would expect a Disney-backed venture to be able to scrounge up payments on an $18 million loan simply by digging around in the couch cushions. But one would be mistaken.

Michigan Motion Pictures Studios, which is being celebrated in the local media for having made the movie, "Oz The Great and Powerful," in Pontiac, has missed its last three payments on $18 million in bond obligations...

According to state officials, the state retirement system has made three payments since February of last year totaling $1.68 million.

This isn't good news for the state's pension fund, which is already underfunded by several billion dollars. It's pretty much guaranteed that the state will never recover the entire $58 million given to Michigan Motion Pictures Studio, either in the form of added revenue or even loan payments, for that matter. And Michigan should know better. According to the study mentioned in the first paragraph, Michigan's return-on-investment sits at $0.11 per subsidy dollar.

But Michigan Motion Picture Studios (formerly Raleigh Studios) can explain. You see, it was doing just fine... until the state decided to cut its allowance.

In March 2012, Raleigh Studio's then-chief financial officer Steve Lemberg blamed the studio’s financial struggles on the film tax credit being reduced.

The state reduced the tax credit from $100 million when the studio was being built in 2011 to $50 million last year. Gov. Rick Snyder has $25 million budgeted for tax credits this year.

There's something inherently flawed with a business model that relies heavily on being handed free money in exchange for the vague promise that a small percentage of it will be pumped back into the local economy. But I suppose it could be worse. Much, much worse.

The city of Allen Park recently requested an emergency manager after losing what will turn out to be tens of millions of dollars on a failed movie studio project that promised to create 3,000 jobs. It created none and left the town nearly bankrupt.

That's the sort of thing that happens when politicians get stars in their eyes and roll out a red carpet made of constituents' money. The best case scenario is still a money loser, as any economic effects are brief and underwhelming. The worst case scenario is taxpayers are on the hook to bail out their own pension funds or, in the case of Allen Park, their hometown.

Filed Under: failures, great and powerful oz, michigan, movie industry, subsidies

Florida Lawmakers Try To Stop Subsidizing Videogames; Send That Money To Hollywood Instead

from the we-NEED-to-throw-this-money-down-a-hole,-but-WHICH-ONE? dept

Florida legislators are looking to dial back the tax credits they've been handing out to Electronic Arts over the past couple of years, citing concerns that "people sitting at computer terminals" just aren't bringing in enough taxable revenue.

"Can you tell me why video games need a tax incentive?" Sen. Eleanor Sobel, D-Hollywood, asked Department of Economic Opportunity Executive Director Jesse Panuccio at one point.

"I just don't see video games as an issue that's going to bring a lot of people to Florida and [bring] big expenditures," added state Sen. Gwen Margolis, D-Coconut Grove.

They may be right -- these tax incentives aren't paying off. After all, EA received $9.1 million during the 2011-12 fiscal year and is looking to score another $14.5 million to underwrite (full retail price!) roster updates for Madden NFL, NCAA Football and the latest iteration of Tiger Woods PGA Tour. EA, which has been in Central Florida since long before the subsidy train started rolling, defended its grab of state incentives by saying the money has "motivated the company to expand its Central Florida workforce during the last three years." That may be true about the last three years, but as is pointed out elsewhere in the article, EA employs fewer people today than it did in 2007.

Don't get me wrong. I don't think EA should be given tax breaks and other incentives in order to continue operating in Florida. In fact, I'm of the opinion that if a business needs subsidies to get by, it's probably not much of a business. However, they are a fact of life at this point, and giving businesses a tax break to move to your state is a powerful persuader. Many locales compete for the affections (and taxable revenue) of large companies, throwing larger and larger amounts money at them in hopes of a decent return on their investment.

If these legislators want to drop the subsidies, more power to them. Unfortunately, they don't want to get rid of subsidies. They just want to throw the money in another direction.

"To have such a concentration of it going to games — I mean, people sitting at computer terminals — I'm not sure most of us really think that's film," said state Sen. Jack Latvala, R-Clearwater. "Film is movies. … People have to hire a lot of folks and they have meals and have to stay in a hotel room."

"I think we ought to be focused on those kinds of things [rather] than games," he added.

"Do you consider any difference if a company is already situated in Florida and has a stable workforce, compared to a company that comes into the state and hires people that might not be hired otherwise, purchases food for the people they've hired, provides lodging for them?" [Sen. Geraldine] Thompson asked.

Oh, I see. You just want to take these extraneous fiscal crutches and offer them to a different member of the entertainment industry. This doesn't really change anything. Sure, legislators want to believe that a big Hollywood production will boost the local economy for the duration of the shooting, but prior experience shows that Hollywood-aimed subsidies rarely improve the financial situation of anyone other than the studio receiving them.

As was previously covered here, a study showed that nearly every subsidy program developed to attract motion picture studios to various locations has turned out to be a losing proposition. Most of the states studied recovered less than $0.25 on every tax dollar invested. Why? Because when a studio rolls into town to shoot a movie, it brings in a lot of its own talent. Sure, there are some temporary bumps to food and housing income, but when it's all said and done, the studios roll out of town slightly richer, leaving their hosts stuck with the bill.

Despite these losses, states continue to wave ever-increasing amounts of money in the air while shouting "Pick me!" at every passing entertainment concern, gambling away their constituents' tax dollars. Florida's legislators seem to be no different. They've mistaken movie studios for good-natured philanthropists and written off "people sitting at computer terminals" as a drain on the economy. It's a "spend money to make money" plan that has failed to pay off time and time again. All these legislators are arguing over is on which losing horse they should put their money.

Filed Under: eleanor sobel, florida, jack latvala, movies, subsidies, video games
Companies: ea

Embedded In The Fiscal Cliff Deal: Hollywood Gets A Big Tax Break

from the how-nice dept

Last month, we wrote about some of the more ridiculous subsidies that Hollywood studios get these days, in which approximately $1.5 billion in taxpayer money goes straight to Hollywood studios in the US (and even more internationally). While the reasoning given for most of these programs is that they create jobs, a thorough study of the various programs showed that almost never happens. Of course, most of those programs have been state subsidies. The federal government also has its own subsidies for Hollywood -- and they just got renewed in the fiscal cliff deal, despite being scheduled to expire.

It's one of the head scratchers that some noted would take people by surprise given all of the talk about the "fiscal cliff." Here's what it looks like: Like many such things, this started out with good intentions, with the idea being to help small, independent films stay in the US. But that changed:

The original tax incentive applied to productions costing less than $15 million to make ($20 million in low-income areas). The 2008 extension applies to all films, up to a deduction of $15 million (or $20 million in low-income areas). The incentive is especially generous to television series; it applies to each TV episode.

Apparently, this sucker costs the American taxpayer about $150 million per year. As that link notes, "Disney's Gotta Eat." Yes, this was just one of many such "pork" efforts slipped into the fiscal cliff deal -- along with things like providing Goldman Sachs subsidies for its headquarters, special breaks for NASCAR, tax benefits for Puerto Rican Rum, and more -- so perhaps it's not that surprising. But, it's stories like this that explain why so few people trust Congress, and why they're fed up with "crony capitalism."

Filed Under: fiscal cliff, hollywood, movies, pork, subsidies, tax breaks