Sunday, May 17, 2009

Taxpayers Deserve to See What They are Paying For

The following essay appeared on Heath Haussamen’ blog. It was in response to a column by Mr. Eric Witt, the Governor’s Deputy Chief of Staff. Through out this debate I have mentioned the study of the film subsidy by the Arrowhead Center of New Mexico State University. That study is available on line here. The Ernst & Young study touted by the film industry can be examined here. In addition the Legislative Finance Committee staff economist did a comparison of the two stufies. That analysis is found here. I urge every interested individual to read all three and form their own conclusions.

Taxpayers Deserve to See What They are Paying For

As a first time State Legislator, I have been surprised by the intensity of the interest in my position on the film industry subsidy, or as some call it “The Film Incentives.” The film subsidy program requires the State to pay film production operations 25% of their qualifying expenses. This program will cost New Mexico over $50 million. The question is “Is it worth it?” When my legislation to repeal the film industry subsidy died in committee on March 3rd, I expected that to be the end of the matter. However, a few days ago, Mr. Eric Witt, the Governor’s Deputy Chief of Staff, published an essay critical of my position.

The Studies

Several assertions in Mr. Witt’s column were incorrect. He touted the independence of a study done by the firm of the Ernst & Young and claimed that the study done by the Arrowhead Center at New Mexico State University is not quite as independent because its funding comes from the Legislature. But Witt fails to acknowledge that the Ernst & Young study was contracted by the New Mexico State Film Office and the State Investment Council (SIC). Both of these agencies are connected to the film subsidy program.

The Ernst & Young study claims that for every taxpayer dollar spent, the State or local government receives $1.50. Interestingly, the Ernst& Young study asserts that the film subsidies increase tourism, generating $.55 out of the $1.50, over a third of the purported benefit. However, there is no direct economic evidence to support this claim. This is just one example of the “curious” conclusions in the Ernst & Young study.

SIC Loan Program

Another part of the film subsidy program is the loan program administered by the troubled State Investment Council (SIC). Instead of interest payments to the State’s permanent funds, movie companies are to pay a percentage of the film’s profits. Amazingly, none of the films that have received “zero interest loans” have shown a profit. This SIC program cost the State over $12 Million in 2008.


Following the debate of my legislation, I had a dialog with twenty to twenty-five individuals from the film industry. Unfortunately Mr. Witt was not present. The position of the opponents of my legislation after this two hour meeting was that there was no room for compromise with the industry. No one was willing to consider a cap on expenditures or a phase out of the program.


Mr. Witt is correct in stating that advocates of this program are happy to tout its reported benefits, but there is no way to obtain any real details to verify their claims. Early in the session I called and asked for data on film production reimbursements made by the Tax and Revenue Department. I received no information from my phone calls. Finally after three letters to the Secretary for Tax and Revenue, I received a list that consisted of seventy-two payments to film production companies. The Tax and Revenue Department has so far refused to provide me with the address, officers, registered agents, or owners of these film companies. Tax and Revenue has also refused to provide details regarding the qualifying expenditures made by these companies. This refusal to provide information essential to a fair evaluation of the program is the basis for my concern about secrecy.

Following my first phone call to the Tax and Revenue Department, I received a personal visit from Mr. Witt. During that visit, Mr. Witt stated it might be possible for him to arrange a situation where I could look at data unavailable to the public. However, I could not make copies, I would be prohibited from taking notes, and I would be responsible should the data make it into the public domain. I declined his offer.

The Need for Transparency

During my first session in Santa Fe, I actively pursued efforts to increase transparency in our State government. I submitted a bill to put the State budget online. This bill was tabled, but a memorial to study this concept was passed. I also did webcasting from the House Judiciary Committee. I firmly believe transparency is critical to clean, fair, and effective government. There are individuals who seriously support the incentive program for the film industry. There are others who have grave doubts about its appropriateness. The public is bombarded with conflicting claims and statements. The only real way to resolve this is with total transparency.

The Film Incentive program is estimated to cost us $50 million in 2010 at a time when state employees are taking a pay cut. The District Attorneys who are responsible for protecting us from dangerous criminals will have a 1.9 % budget cut this year. Many other agencies are also facing larger cuts. This film subsidy program is unique in that no other budget item in our state takes so much money from the public treasury with so little public accountability.

Who are getting these payments? What is the address of the production company getting the taxpayers’ money? Who are the officers/owners of these companies? Exactly what have they done to qualify for your money? Where and from whom did they make purchases and when? These are the types of questions I believe need to be answered about a subsidy program that will cost New Mexico taxpayers $50 million this year and more in the future.

The Film Incentive program demonstrates how the current lack of accountability and transparency raises doubts and concerns in the minds of the public. Whose interests are being served? New Mexico Taxpayers deserve to know the answers.