Rotten Peaches: How Governor Kemp, Cowed Politicians, and Hollywood Villains Enable Paying $198,000 for EACH Motion Picture and Video Job in Georgia

Free Republic Vanity ^ | April 25, 2022 | PoconoPundit

[poconopundit]

Batman battles numerous supervillians, but none is more clever than the Riddler, the best criminal mastermind in Gotham City.  The Riddler has no superhuman powers, but he excels at creating elaborate riddles, puzzles, and traps that constantly fool and evade Batman and the police.

Now in the real-world state of Georgia, dear FReepers, there's a taxpayer fraud scam so ingenious and intricately woven that it's likely the work of a gang of Riddlers.  Indeed, the schemers have spun their crime to the public as a great commercial success — which, of course, has only fueled the fraud's growth. 

The fraud is a decade-old state "business development" program designed to attract film and video industry jobs to Georgia.  This story shows why the program is not delivering on its promise, even as hoodwinked Georgia voters are told that politicians and film industry saints have miraculously transformed Georgia into a "second Hollywood" and created "92,000 film and video jobs" across the state — or so say Governor Kemp's cronies.

An Epic Fraud of Cecil B. DeMille Proportions

Georgia has been awarding hundreds of millions of dollars for more than a decade to the film and video industry through so-called "tax breaks" (actually these are full-blown subsidies as we'll soon discuss).  For its fiscal year 2021, Georgia awarded its biggest payout ever: a whopping $1.2 billion in incentives.

Georgia is also the most generous state by far in the amounts it awards Hollywood.  While most of the leading states who woo movie moguls have capped their annual incentives, Georgia has ZERO spending caps, yet paid four times what California spent.  See the chart:

What's the Payoff in Actual Jobs for Georgians?

The whole point of paying Hollywood incentives is to create Georgia jobs.  But Georgia state government has closed its books on the film industry program for more than a decade.  Only last year did Georgia finally pass a law that will steadily require auditing the program in future years.

Meanwhile, this operational secrecy has frustrated any serious discussion of questions like "How many good jobs where created?" or "what's the real benefit to Georgia?".

This is why we put together an Excel spreadsheet that estimates the actual motion picture and video industry jobs and wages that existed in the Peach State in 2021.

We believe our analysis has weight because it does NOT rely on the numbers of biased parties, such as Georgia's Business Development Department, state politicians, or firms in the Motion Picture and Video business.

Instead it uses statistics provided by a non-partisan and authoritative source, the Bureau of Labor (BLS) Statistics of the U.S. government, who annually tracks specific industries and 800 occupations within each state.

The BLS data shows the big picture: we used a few straightforward calculations and estimates to make it easy for the Georgia taxpayers to follow the logic.

Download the spreadsheet here (film_industry_fraud_in_georgia.xlsx -- 3.4 Mb).   It explains our methodology and provides links to the on-line jobs and wages data on the BLS website.  Here is the spreadsheet's summary table:

The table above estimates Georgia's total film/video industry jobs at 6,059 with wages paying $362 million dollars for 2021.

Now $362 million is only 30% of $1.2 billion, so we can assume the credits are paying not just for work done by Georgians, but also all kinds of equipment, plane tickets, hotel rooms, and the wages of non-resident industry workers from other states.  Indeed, the statute allows such expenditures.

But here's where the fraud gets ridiculous.  If Georgia taxpayers are paying more than three times the cost of all Georgia workers employed in the industry, it's no longer just an "incentive" -- Georgia is paying for the full payroll of every Georgian film/video part and fulltime job in the state, and tossing Hollywood an added $838 million of taxpayer money on top of that.

Now that's what I'd call a great deal for Hollywood... and an incredible fraud of Georgia families and small businesses! 

How Does Georgia's Bang-for-the-Buck Compare to Other States?

Let's look at Georgia's payouts from another angle.  Given the huge Hollywood subsidies, shouldn't Georgia compare favorably to other states in the number and quality of jobs created?

Well, to make that comparison, we looked at the high employment jobs in the Arts, Design, Entertainment, Sports & Media (ADESM) sector of the Industry.  And here's what the BLS data tells us:

• Contrary to the hype about Georgia being the second Hollywood, Georgia is actually in 5th place among states in number of ADESM jobs.

• California and New York hold 42% of ADESM jobs and in terms of wages.  Actually they are even more dominant since the annual wage rate is much higher for ADESM professionals in NY and CA.

• Florida with zero incentives and Texas with a modest $45 million in capped incentives lead in the Southeast and greatly out-perform Georgia in job development bang-for-the-buck since the Rotten Peaches state has lower jobs despite $1.2 billion in 2021 incentives.

• Finally, it's not as if the top 5 states have a monopoly on film/video industry jobs.  Thirty three (33) states offer incentives and almost half the ADESM jobs go to states other than the top five.  In short, jobs are still going to plenty of states, but only Georgia is paying billions for its meager 4% of the film/video business.

A Strong Scolding from Georgia's Internal Auditors

You know some monkey business is afoot when your own audit department writes a scathing report about your lack of adequate fraud and audit controls.  That's the gist of a 45-page report issued in January 2020 entitled, Performance Audit Report No. 18-03 -- Administration of the Georgia Film Tax Credit.

Here are the incriminating opening paragraphs of the state auditor's report:

"As Georgia’s largest and arguably most generous credit, the film tax credit must be accompanied by sufficient controls to ensure that production companies are entitled to the credits granted.  Due to control weaknesses, companies have received credits for which they are not eligible and credits that are higher than earned."

"Production companies receive a tax credit up to 30% of reported in-state expenditures if they spend at least $500,000 on qualified productions.  While not unusual for a state film tax credit, Georgia’s rate is higher than the income tax rate and rates for many other Georgia tax credits."

"Additionally, the credit is uncapped for film production companies and can be sold to other taxpayers, providing taxpayers with an even greater incentive to misstate financial information to their benefit."

"While the state has granted billions in credits, it does not have an adequate system of controls to prevent the improper granting of credits.  We found issues with the credit’s administration by the Departments of Revenue (DOR) and Economic Development (GDEcD).  The issues can be attributed to limited requirements and clarity in state law, inadequately designed procedures, insufficient resources, and/or agency interpretations of law that differ from our own."

The report goes on to say that despite granting more credits than any other state, Georgia requires companies to provide less documentation than any other, as the following map illustrates:

The Media's Role in Keeping the Scam Alive

Over the years, Hollywood's allies in the broadcast and media industries have worked overtime to keep Georgia's massive subsidies coming.  Here are two examples of hyped stories:

• Why Georgia is becoming the new U.S. film production capital -- CNBC, December 2021 story and video.

• How Georgia Became the Hollywood of the South -- Time Magazine, July 2018.

Indeed, it appears Hollywood may be playing state Republicans and Democrats against each other.  Republicans, who drove the Film Incentive program from the beginning, still control the governorship and statehouse.  And yet Democrats also strongly favor the incentives. 

Why isn't Stacey Abrams going after the Republicans on this juicy fraud?  The question answers itself.

Governor Kemp didn't invent this Georgia tax break scheme.  He inherited the program from another Republican governor, Nathan Deal.  But it's under Kemp's watch that the Hollywood subsidies have skyrocketed.

Now considering the meager number of jobs and annual incentive payments going into the billions, why has Kemp not capped payments like all the other states?.  Does Hollywood have Kemp over a barrel?  You'll recall: last year Republicans where widely criticized by Hollywood stars over anti-abortion laws and the Election reform bill passed last year.

Are the massive incentives paid to the Film/Video industry a kind of ransom payment Kemp owes Hollywood in an election year?  Given the gross financial mismanagement in this case, we are justified in asking such a question.

The Riddler's Illusion: Turning Incentives into "Tax Credits"

When you're trying to hide your fraud scheme from the public, is useful to twist words.

The Georgia film/video incentives are cast as "tax credits", which (on the surface) implies having to pay a lower tax.  But how is a tax credit useful to the film/video firm submitting its bill to Georgia?  After all, Hollywood firms generally don't own property in Georgia, so they have little to no tax liability in the first place.

Ah!  But what if the Hollywood firm is allowed to sell those tax credits to someone who lives in Georgia?  I'll bet there are plenty of high-income Georgia residents who would be pleased to pay 80 to 90 cents on the dollar to acquire those tax credits and save a bundle in next year's Georgia taxes.

So you see what's going on here?  The genius of this film/video scam is it's a double whammy.  It both richly subsidizes the movie moguls and puts money in the pockets of -- you name it -- politicians, insiders, Republican and Democrat donors.  Maybe even friends of Brian?

And there's no accountability: the sale of credits is done anonymously.  You can't get a list of the people who cashed in film credits because that would violate their tax priiiiiivacy.

Then, to close the deal, the complete lack of audits enables all kinds of accounting shenanigans.  You begin to see why this fraudulent scheme has a life of its own.  Or to quote the famous Aqualung song:

Brian stole the handle and
The train it won't stop going
No way to slow down.


Jethro Tull, Locomotive Breath

Second Hollywood? A Flawed Goal from the Start

Even after a decade of enriching Hollywood at taxpayer expense, Georgia has failed to build a sizeable motion picture and film business in the state.  There are actually a few good reasons why even trying to create a "second Hollywood" was an impossible dream:

• Top Artistic Talent Lives and Works in New York and California — Talented artists feed off a community of other talented artists.  They know each other both personally and professionally.  And it's hard to break into that community if your career grew up outside it. 

  What's more, the BLS data shows New York and California talent is especially in demand in high-end jobs, such as art director, where two-thirds of industry wages go to professionals in those two states alone.

• Multi-Cultural Richness — Are people with superior film industry artistic or business talent moving their families to Atlanta?  I suspect very few have done so.  One key reason is they don't want to sacrifice the cultural richness they find in big cities like Los Angeles and New York.  A rich culture is hard to define, but it often includes things like having an international melting pot of cultures and cuisines, museums, theaters, historic architecture, and a vibrant arts scene.

• Not a Tourist Destination — One important calling card that Florida and California have is people fly to those states to vacation and have fun.  Georgia has far fewer attractions and if you're looking for beaches, well, that's a six-hour drive to Savannah.

It's time for Georgia's government to stop throwing more good money at a failed experiment that should have been killed a long time ago. 

It's embarassing to read Georgia's economic development brochures on-line.  They are shamelessly promotional and seem to convey the message: "If you bring your business to the Peach State, we're happy to give away the store"   and they don't even own the store!  The taxpapers do, and they are being ripped off.

An honest appraisal of Georgia's virtues must be the starting point for any economic development plan.  And the state does have some attractive points.  It's a great place to raise a family.  The weather is a big improvement over the frigid Northeast.  Trees and bushes flower all year long.  The good weather and lower cost of living is a magnet to retiring Baby Boomers.  And there's a strong culture around football and other sports. 

When Will Georgia Citizens Stand Up to End the Madness?

The scale of Georgia's cover-up in its Motion Picture/Video Industry incentives fraud is so pervasive that it may take several years to stop this elaborate Sting operation on the taxpayer.

But despite the hundreds of state legislators who remain silent, there are a few voices leading the fight to restore sanity.  Here's the perspective of two courageous watchdogs:

“Georgia’s Film Tax Credit is the state’s largest special-interest tax break — costing over $1 billion per year — with virtually no safeguards to ensure benefits to Georgians."

"Capping the credit would allow the state to manage the erosion of our state’s tax base while allowing lawmakers to better support high-return programs and services such as health care.  Lawmakers should place a cap of $100 million on the program, while ensuring the credit is targeted to companies that locate in Georgia and hire in-state workers.”

Danny Kanso, policy analyst at the Georgia Budget & Policy Institute, as quoted in a Variety magazine story




"State budget documents released today show Georgia's film tax credit payouts continue to climb.  The state issued $1.204 BILLION in film tax credits last year.  That's $320 per Georgia household and 4.5% of the state-funded budget in FY 2021."

"The cost is enormous and we're not getting a positive return.  It has to be one of the worst 'economic development' programs ever.  It needs to end."

J. C. Bradbury, economics professor at Kennesaw State, Georgia

[poconopundit]

This Georgia corruption story is so alarming and crooked that it took me a couple weeks of research to create the spreadsheet and explain the complex web of deceit.

Look forward to hearing the observations of fellow FReepers!

[Army Air Corps]

Ping, for your interest.

[logi_cal869]

Interesting read, excellent presentation of research.

I’m left wondering which media corporations have benefitted the most.

[DIRTYSECRET]

If they get their money back it’s a good deal. Until corporate welfare is eliminated it will continue.

[rlmorel]

BFL

[Gaffer]

One question that comes to mind is how many elected Georgia politicians who shepherded this arrangement got special favors from the industry (e.g., like free campaign videos, publicity, etc.)

[poconopundit]

How many elected Georgia politicians who shepherded this arrangement got special favors from the industry (e.g., like free campaign videos, publicity, etc.)

* * *

Good thinking, Gaffer.

[who_would_fardels_bear]

Thanks for the work to collect this data. The economic benefit to Georgia also includes aiding hotels, restaurants, etc. who cater to the film employees but that's true for all states.

I thought Atlanta was a hip place for Black entertainers. Maybe the subsidies should be focused on them as they might settle there and create a Black alternative to Hollywood.

In any case, the selling of credits has to be stopped. How do they even justify that? Are these like carbon credits?

[liberalh8ter]

I think I found where your missing Georgia incentive money went…..Stacey Abrams and the Star Trek movie.

Great presentation!

[Bob434]

Maybe send this to Newsmax or some conservative news or blog site? All the research is done for them, which they like, will,save them,the trouble of doing it themselves. Who knows you knight even be invited on to talk about it if they find it intriguing enough to feature.

[KarlInOhio]

For its fiscal year 2021, Georgia awarded its biggest payout ever: a whopping $1.2 billion in incentives.

Unlike sports stadiums, there is no specific place you can point to and say "this is a temple of waste". All you get are a bunch of TV shows or movies with a peach logo and a "made in Georgia" line in the end credits. The ones I really remember are the Archer cartoons where the voice actors phone it in from wherever they live. I don't know if the animators live and work in Georgia. They might just have one file server in Georgia to count it as a Georgia production.

[jacknhoo]

I appears to me that this is designed to turn Georgia blue and that is the only reason for the massive and un-capped tax incentive to exist. The program is currently uncapped, meaning that all productions that spend at least $500,000 in the state in a year are guaranteed a 30% credit on their expenses. The credits are also transferable, meaning that studios can sell them at close to face value to other taxpayers.

It all started with Sonny Perdue in 2008:
https://www.georgia.org/newsroom/press-releases/georgia-boosts-incentives-for-entertainment-industry

When we needed to cap the abuse of these incentives:

David Ralston screws GA:

“I’m not prepared to run that industry out of Georgia,” Ralston said. “I think the industry is good for the state, puts a lot of people to work. It provides opportunities for many, particularly younger Georgians, to pursue their interest in the film industry here without moving to New York or California. So the last time I checked, that bill will have to come through the House.”

Georgia Senate Panel Proposes $900 Million Cap on Film Tax Credit
https://variety.com/2022/film/news/georgia-film-credit-cap-proposal-1235218414/

[marktwain]

A cut in taxes is not a cost to taxpayers.

Repeat: Lower taxes is not a cost.

There is no reason to believe the taxes would be paid if the incentives were not in place.

[Gaffer]

It’s easy if you remember that most politicians NEVER do anything for ‘free.’ IMO, Raffensperger and Kemp are two of the worst that Georgia has.

[Altura Ct.]

Bmark

[poconopundit]

Good points, jacknhoo.

Yes, you may be onto something about trying to turn the state blue. Of course, the damage the RINO reds are giving to Georgia is appalling already.

Ralston fails to address the key issue: are the incentives working? They are not, and he well knows it. He and Kemp MUST be held accountable for keeping this program going.

[poconopundit]

I don’t know if the animators live and work in Georgia. They might just have one file server in Georgia to count it as a Georgia production.

* * * *

Excellent, KarlInOhio. There are so many ways the movie industry can spin these expenses as “Georgia jobs”.

[Lazamataz]

Thank you for your stellar efforts! I will dive deep into this later today.

[poconopundit]

Thanks, Laz.