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Governor set to veto a bill for tax credits
By Dennis J. Willard
Beacon Journal staff writer
Published on Sunday, Dec 21, 2008
Gov. Ted Strickland is going to veto the 25 percent transferable film-production tax-credit legislation passed during the lame-duck session of the Ohio General Assembly, but the concept is far from dead.
There are already 43 other states offering financial incentives to large Hollywood production houses and smaller, independent film companies to lure them to roll the cameras within their borders.
Before getting into the fine points of the debate, one must ask why Ohio once again is following almost every state rather than leading or, at minimum, being a front-runner in attracting industry, creating jobs and resurrecting our economy?
Louisiana started this trend in 2001 and has built a significant film production industry down on the bayou.
Ohio? Well, seven years later and counting, we could be 44th.
Now, Strickland maintains he is going to veto the legislation because tax credits should be debated in the context of negotiations over the two-year state budget, which will begin early next year.
And that is true to a degree, but there is always a political side to governing, and in this case, Strickland is holding back on as many major policy matters as possible as he awaits the Democrats formally taking control of the Ohio House in January.
When the debate begins next year, and it will come because Democrats are going to embrace the concept with reborn enthusiasm once they rule one house of the legislature, the major sticking point is going to be the transferable tax credits.
These are, in essence, a commodity that can be bought, sold and resold. The individual or company that eventually is reimbursed by the state may have only a tangential relationship or, in some cases, absolutely nothing to do with the film production.
Here's how it works in concept:
A production company convinces an investor that it is going to spend $20 million on a film and will earn $5 million in tax credits that can be used to reduce the tax liability of an individual or business in Ohio.
The investor, and there is an entire financial industry that has been developed from these credits, purchases the $5 million in tax credits at less than face value.
Industry insiders have indicated the price varies, but often falls at around 90 percent of value, so the production company has now sold the credit up front for $4.5 million, which can be used to place people on the sets and roll film.
The buyer may be an individual or business in Ohio with the income and tax liability to cash in the $5 million tax credit and, in essence, save $500,000. There may be a middleman, be it investment firm, broker, or bank, etc., that either buys and resells the tax credit or arranges a transaction between the film production company and the Ohioan with the tax liability for a piece of the action.
This broker concept irks Strickland, his development director, Lt. Gov. Lee Fisher, and Rich Levin, state tax commissioner, because they believe that it is an inefficient and potentially wasteful approach to providing financial incentives to film companies.
The truth is, should the state decide to grant a 25 percent tax credit, it matters not how many times the certificates change hands, because the bottom line is the production company, not the state, eats any reduction in value once the credits are resold.
In the above $20 million example, the state's liability is $5 million, plain and simple. The producer that sells the $5 million for $4.5 million is out $500,000, but in return the company has up-front money to film.
Levin can argue that taxes should not be commodities or take on other philosophical differences with the tax credits. He could even make a grand statement about how insane it is to give a company 25 cents back on every dollar it purports to spend on production in Ohio, but tax credits are becoming an industry standard and this is not about a sane tax policy.
Other states are doing it, and like the Chicago White Sox and Shoeless Joe Jackson in Field of Dreams, if Ohio doesn't build some sort of competitive tax incentive policy, Hollywood will not come.
State Sen. Dale Miller, D-Cleveland, proposed limiting tax credit transactions to address concerns from Levin that tracking the certificates is costly and burdensome to the state.
This is a standard refrain from the Strickland administration. Let's call it the whiner clause, defined as: Don't make us do any more work.
No one argues that the state's General Revenue Fund will lose money in the tax credit proposition, in the range of 70 to 90 cents on the dollar.
State Rep. Matt Dolan, R-Novelty, who pushed the bill in the Ohio House, said the loss in state tax revenue will be made up by the creation of jobs and economic development. In other words, this is an investment into local communities that will benefit all of the state long term.
Nehst Studios has indicated it will relocate in Cleveland and spend $100 million annually if the tax credit bill becomes law.
Another sticking point related to the tax credits next year will be defining what is and what is not production costs in Ohio.
The bill that Strickland will veto in the next few days gave companies the ability to broadly define those costs, including flying in workers and equipment from outside Ohio, purchasing equipment from other states and a number of other expenses.
Ivan Schwarz, with the Greater Cleveland Film Commission, explains Ohio's Catch 22.
Since no industry exists here now, the state can only build a film industry by attracting producers here with a tax credit for crew and equipment from outside Ohio.
This is true to a degree, but some states have established minimum percentages that must be spent on in-state workers and equipment to ensure some of the promised land's money stays local.
But that is a debate for another time and another legislature not too far in the future.
Dennis J. Willard can be reached at 614-224-1613 or dwillard@thebeaconjournal.com.
Gov. Ted Strickland is going to veto the 25 percent transferable film-production tax-credit legislation passed during the lame-duck session of the Ohio General Assembly, but the concept is far from dead.
Get the full article here.
Comments
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Tallmadge, OH
Posted 07:00 AM, 12/21/2008
Good go Strickland. Ohio would not have seen any increase in revenues from this stupid bill anyway. Just another Repukicans con game.
Akron, OH
Posted 09:11 AM, 12/21/2008
Nice. Teddyboy is goin' to veto a bill that would bring some money into the state. Optin' for no money at all, seems to be the demoncritter way.
