ABQJOURNAL OPINION/GUEST_COLUMNS: State Film Subsidy Program Needs Careful Investigation

Sunday, January 09, 2011

State Film Subsidy Program Needs Careful Investigation

By Rep. Dennis Kintigh
Republican, Roswell
          At this time New Mexico remains stuck in recession and the state is facing extremely hard decisions about the upcoming budget. Everything must be intensely examined, including the film subsidy. In the debate about the film subsidy many claims are thrown around about the supposed economic benefit.
        After two years of falling revenue the state of New Mexico is still facing a $400 million shortfall in the budget. We have cut take-home pay for teachers, squandered our reserves, postponed needed repairs to our roads and highways, and we have even raised gross receipt taxes on all purchases.
        Meanwhile, the film subsidy remains untouched and has cost New Mexico taxpayers over $135 million in the past two years.
        The New Mexico film subsidy pays film makers $25 for every $100 they spend. An independent analysis by New Mexico State University shows the state recovers less than 15 cents for every taxpayer dollar given away. Supporters of the subsidy point to a competing study by the accounting firm Ernst & Young that purportedly shows the subsidy program produces $1.50 in revenue for the public treasury for every $1 paid out by the taxpayers.
        Interestingly, on Dec. 20 the Wall Street Journal carried a news report that the New York state attorney general is planning a lawsuit against Ernst & Young for lying about the condition of a Wall Street financial firm that later collapsed.
        This is not the first time Ernst & Young has been accused of falsifying data.
        In 2008, the New Mexico Film Office and the New Mexico State Investment Council jointly contracted with Ernst & Young for an evaluation of the New Mexico film program. The SIC is responsible for protecting and growing the state's Permanent Fund.
        At the very same time the SIC contracted with Ernst & Young to "study" the film industry, SIC was suing Ernst & Young for lying in a different matter. SIC was part of a class action lawsuit filed in federal court in the Northern District of Alabama. Ernst & Young was accused of falsifying reports to inflate the value of Healthsouth stock to deceive institutional investors.
        Ernst & Young denies any wrongdoing, but in June 2009 agreed to pay the plaintiffs $109 million.
        In another matter, on Oct. 26 the auditor for the state of Iowa released a 277-page report detailing his examination of that state's film subsidy program. The Iowa program is very similar to what we have here in New Mexico.
        The Iowa auditor found that 80 percent of the money paid out was done inappropriately.
        Among the items discovered by the auditor was the use of "shell companies" by out-of-state filmmakers. This was done to make payments appear to be going to Iowa companies.
        Additionally Iowa discovered many film makers submitting inflated deferred payment invoices. In this scheme two different salaries are set for workers. The higher payment only applies if the film sells for a very high price, which rarely, if ever, happens. However, the higher salary, not the one actually paid, is the one submitted to the state for a 25 percent tax credit.
        In New Mexico, these invoices are considered taxpayer records and cannot be examined even by a member of the Legislature.
        The previous administration assures us that all was just fine. Somehow I find it difficult to believe an industry so corrupt in Iowa is "pure as the driven snow" here in New Mexico.
        These are just a few of the facts about this incredibly expensive program that need to be examined.
        More and more states have reviewed these subsidies and have concluded they are not good use of the taxpayers' money.
        Kansas has suspended its program. Iowa and New Jersey have also suspended theirs. Rhode Island has imposed a cap, and Arizona has let the program expire.
        As legislators we are facing difficult and demanding decisions about how to serve the citizens of this state. There have been suggestions we close some college campuses and raid the Permanent Fund. We need to look at the actual facts and not be controlled by the political posturing of Hollywood special interests.
        We cannot ask taxpayers of New Mexico to sacrifice more and more to subsidize one privileged industry no matter how glamorous.

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