Arizona lawmakers are currently living in “La La Land.” No, really. They want to dole out $150 million of your dollars to sign checks to woke Hollywood producers to literally California our Arizona.
SB1708, sponsored by Senator David Gowan, passed out of the Senate last week by a vote of 21-7. It provides a tax credit for a percentage of movie production costs: 15% for productions up to $10 million, 17.5% for productions between $10 and $35 million, 20% for productions over $35 million, and the opportunity for an extra 2.5% on top for positions held by Arizona residents, if the production is filmed in a qualified facility or primarily on location, or if it was produced in association with a long-term tenant in a qualified production facility.
The worst part—it’s refundable. This means that if Hollywood producers wipe out their tax liability to zero, the remaining tax credits come as a check from you, the taxpayer.
Movie production is a multi-billion-dollar industry. They do not need a subsidy. But because one state was willing to cut them a check a few decades ago, they now seek the highest bidder. It’s a race to the bottom for Arizona. Very soon, $150 million won’t be enough, and the industry will send more lobbyists down to the Capitol to razzle dazzle lawmakers into doling out more taxpayer dollars.
These production companies are more than able and happy to pick up and jet-set from one location another—even in the middle of production. If Arizona isn’t willing to pay more, another state or country will, and we’ll be left in the dust.
Georgia taxpayers gave the movie industry $1.2 billion last year. To keep up, California, home of actual Hollywood, is doubling its cap from $330 million a year to $660 million. Kevin Costner is currently lobbying the Utah legislature to provide a carveout in their $8.3 million cap for credits, raising it for movie productions in rural areas. Costner is telling Utah he wants to film 5 films there if the cap is raised. And star struck New Mexico recently more than doubled its cap, after spending hundreds of millions from their general fund to pay off a backlog of credits.
But while these states are fighting to out-bid each other, others have scrapped the idea. 13 states have eliminated their Hollywood subsidies in the past 10 years, and several others have scaled theirs back. And for good reason. A recent study of the subsidies in New York, Louisiana, Georgia, Connecticut and Massachusetts found that despite $10 billion in taxpayer dollars spent, there was no statistically significant impact on employment.
If this seems like such a bad idea that it should be illegal—it likely is. The Arizona Supreme Court recently ruled that the government cannot include “anticipated indirect benefits” such as projected sales and tax revenue as part of the consideration with a private party under the Gift Clause in the Arizona Constitution. In other words, Hollywood dazzling lawmakers with projected economic development leading to increased tax revenue is an “irrelevant indirect benefit” that cannot be included in the consideration.
In addition to the bill’s terrible tax policy and obvious unconstitutionality, Arizonans do not want their hard-earned dollars being used to send checks to Hollywood. We do not want to subsidize their woke movies, and do not want thousands of liberal California voters shipped into Arizona on our own dime.
Tell Your Lawmakers to OPPOSE SB1708!
Right now, lawmakers are considering a $150 million REFUNDABLE tax credit for woke Hollywood producers.
Arizonans have been shouting “Don’t California my Arizona” for years. But SB1708 pays to literally California our Arizona, shipping in thousands of Hollywood voters on the taxpayer’s dime. Regardless of the industry, Arizona taxpayers don’t want their hard-earned dollars going to corporate welfare with any refundable credit.
Send a message to Arizona lawmakers today and tell them Don’t California our Arizona: OPPOSE corporate welfare and OPPOSE SB1708!
As usual, bad ideas at the legislature just
don’t seem to die. Lawmakers are considering legislation to expand the “Angel
Investment” Tax Credit Program, a scheme that would dole out millions to
wealthy investors to subsidize their risky venture capital investments in
Arizona. Even worse, these same investors and businesses will also be
exempt from paying any capital gains tax to the state.
Under the bill, employees at the Arizona Commerce Authority will select “qualified” investors (I.E. politically connected millionaires with relationships with the Arizona Commerce Authority) for a generous tax credit to hedge their potential losses in risky new start-up companies. And if the business venture does pan out, the investor can then sell and pay zero to the state in capital gains. Great deal for them, a bad deal for every other taxpayer in the state.
The argument made in defense of the program is that Arizona
needs the tax credit to attract more venture capital to Arizona, otherwise good
ideas won’t locate here. This of course is not true. Good business
ideas will attract capital because investors stand to gain millions of dollars
in profit to do so.
And if a business is unable to
attract the start-up capital it needs without the credit, it means the venture
is extremely risky and should be avoided. After all, we don’t stand to
benefit monetarily from the businesses’ success, why should we therefore
shoulder the losses of its failures? And if a business was to attract the
necessary start-up capital regardless of
the tax credit, why are taxpayers subsidizing a business activity which would
have occurred anyway?
Venture capital investing is inherently risky. Successful
speculations have the potential to enrich their investors immensely. The
Arizona Commerce Authority is not better equipped than the free market to
facilitate these types of transactions or properly gauge risk.
Taxpayers should not be in the business of subsidizing risky
venture capital investments by wealthy investors that stand to reap windfall
tax benefits. It’s a program that picks winners and losers among taxpayers,
among venture capital investors, and among aspiring entrepreneurs.
This
year HB2732, sponsored by Representative Ben Weninger, is being
sold as both. The Low-Income Housing Tax
Credit (LIHTC)
program is a federal program by which qualified investors are incentivized
to build housing projects for low-income persons with generous income tax
subsidies.
How it works.
It is a
sweetheart
deal for banks, insurance companies and investors. The Arizona program allows for $8 Million a
year of tax credits that can be matched with the subsidies offered through the
federal program. The bills mirror the
federal LIHTC percentages and can be carried over for 5 years.
To
illustrate the business model, a $10 Million project qualifies for 9 percent
tax credits. That is $900,000 a year and
$9 Million over the course of the 10 year carry forward period. Banks sell these credits to other investors
who make up a pool to finance the project.
Some projects are even able to bridge financing gaps with other
government programs. But not only are almost the entire project costs
subsidized by the taxpayer, another $2.2 Million is generated through tax write
offs from real estate losses, depreciation and interest expenses.
This
mechanism is supported by many layers of middlemen who add to the cost of
building these projects. As a result,
the program is lucrative for investors, and very costly for the taxpayers.
How it actually doesn’t work.
For
several years now, this program has been sharply scrutinized by various parties
including the Office of Government Accountability (OGA), think tanks, and the
media.
Much of the gamesmanship of
the program revolves around the submittal of construction costs which the OGA
determined varied drastically from state to state and project to project.
The average LIHTC project cost $218,000, yet
only $9,400 of it was the cost of the land; a ratio observably out of whack.
This is par for the course for a program which in the past has been scandalized
by construction kick-back schemes. The
program has been gamed in other ways.
Just last Fall, Wells Fargo made an over $2 Billion settlement with the Department of Justice for nation-wide collusion to devalue the tax credits. Hundreds of millions of dollars have been
siphoned from the program in these ways resulting in far fewer units being
built for the poor at a great cost to taxpayers.
Neither
at the state nor federal level, did necessary oversight exist to ferret out
inflated budget projections and fraud.
In fact, only seven of the 56 agencies around the country awarding these
credits has been audited in the program’s 30-year history.
And yet the feds continue to soak increasing dollars into the program each year, though the actual number of units being constructed dwindles. According to an investigation conducted by NPR, the $9 Billion LIHTC program is producing fewer units than it did 20 years ago yet taxpayers are paying 66 percent more in tax credits. Aside from the fraud, another factor likely being the many syndicators, consultants, and financiers that work in their margins into the complicated process.
What else this reveals.
The OGA’s report on the vast cost variations in building state to state, reveal another critically important truth. Jurisdictions with onerous and restrictive land use regulations drive the high costs to build there. These incentive programs in fact reward states that cause their own affordable housing crises and fleece taxpayers all at the same time. A report issued by the National Association of Homebuilders and the National Multifamily Housing Council estimated that 32 percent of multifamily costs were attributable to regulation.
In fact, studies of housing prices have shown costs have directly increased with land use regulations. As a result, federal housing affordability spending is almost two times higher in the most regulated states than the least regulated states.
There are better ways.
It is
long-time policymakers address affordable housing for American families by
addressing the root of the problem and tailoring assistance programs that serve
those in poverty, not only those seeking a profit.
Under the new federal administration, director of Housing and
Urban Development (HUD) Ben Carson, has looked to do just that. Instead of continuing
to reward bad behavior by local governments, his agency has discussed attaching
HUD grants to regulatory reforms proven to lower housing costs. HUD’s position that they won’t continue to
aid in the affordable housing problem by subsidizing it – is also a signal to
states that they should look to curb their own contributions to the problem
instead of simply seeking more federal handouts. In Arizona, one of those factors is the
residential rental tax – which disproportionately impacts low-income
individuals.
Reforming
land regs is a long-term endeavor and won’t solve the immediate need for
low-income people in unaffordable housing markets.
But
there are better ways to structure programs than the convoluted LIHTC
program. One such proposal with
bipartisan support are “Housing Choice Vouchers (HCV).” Instead of
incentivizing profiteers to supply housing – HCVs empower individuals and
families to access housing in places they desire to live.
This
approach allows low-income families to move to higher income places which often
gives them access to better jobs and school districts and affords children of
low-income families’ greater opportunities to succeed. Because the LIHTC programs provide greater
incentives for building in designated areas of greater poverty, it has the direct effect of actually concentrating poverty and segregating poor people.
Arizona lawmakers should help poor people and
protect taxpayers.
The
expansion of this 34-year-old failed federal program in Arizona would be a big
mistake. The bill being pedaled this year is not being backed by advocates for
the poor; but by those who stand to gain the most – insurance companies,
investors and banks. If lawmakers truly
care about the poor – and the taxpayer – they will resoundingly reject HB2732.
Today the Arizona Free
Enterprise Club released a new study evaluating the cost of Low-Income Housing
Tax Credits (LIHTC) in Arizona and Washington and how LIHTC have performed
compared to other government backed housing affordability programs. The review determined
that in both states, LIHTC have led to a significant increase in the cost of development
and construction when compared to similar market rate housing.
In his analysis, economist Everett
Stamm determined that a “lack of oversight and transparency, requirements to
pay higher wages and inadequate cost control measures all attribute to the
higher development costs” associated with LIHTC. Stamm concludes that even if proper reforms
were implemented with LIHTC, other tenant-based programs, such as the Housing
Choice Voucher Program, are better suited to provide housing for low income residents
than LIHTC.
Evidence that LIHTC drive up
construction costs and fail to keep housing affordable add to the list of
concerns that exist with the program. “There is ample evidence, both from
the Government Accountability Office and the US Department of Justice, that the
Low-Income Housing tax Credit Program has been rampant with fraud and other
criminal activity and lacks basic oversight to determine any tangible benefits,”
said Scot Mussi, President of the Arizona Free Enterprise Club.
“If the legislature is
serious about addressing housing affordability, they should look at options
that are tenant based and that drive down the cost of construction. Low income
housing tax credits accomplish exactly the opposite,” Mussi
continued.
In Arizona, there is
currently a
proposal to spend $8 Million to expand the LIHTC program, which is being
aggressively pushed by developers and investors that will financially benefit
from the tax credits.
The complete study by the Club on LIHTC can be viewed by clicking HERE.
For
months now, the AZ Attorney General Mark Brnovich and the Arizona Board of
Regents (ABOR, the governing body for Arizona State University) have been in
embroiled in a hot legal battle over taxpayer subsidies for wealthy developers.
At
the center of the legal dispute is whether ABOR has violated several provisions
of the Arizona constitution designed to protect taxpayers from crony capitalist
giveaways.
Evidence
suggests that they have.
The
framers of Arizona’s constitution understood that property taxes are a zero-sum
game, and that any levy assessed should be as fair and equitable as possible. If someone pays less as a result of a special
interest carve-out, everyone else will be forced to pay more. To prevent picking winners and losers
through the property tax code, the framers installed several key protections in
our constitution:
Uniformity
Clause, “all taxes shall be uniform upon the same class
of property within the territorial limits of the authority levying the tax, and
shall be levied and collected for public purposes only.”
No Evasions, “no property shall be exempt which has
been conveyed to evade taxation”
No Exceptions, “All property in the state not exempt under the laws of the
United States or under this constitution or exempt by law under the provisions
of this section shall be subject to taxation to be ascertained as provided by
law.
No Gifts, “Neither the state, nor any county, city,
town, municipality, or other subdivision of the state shall ever give or loan
its credit in the aid of, or make any donation or grant, by subsidy or otherwise,
to any individual, association, or corporation.”
ASU Projects: Research Park, Marina Heights,
and Omni Hotel Are Evidence of Gamesmanship:
“Research Parks”
In
the 1980’s ASU formed a “research park” which strived to have private business
and students working alongside each other in educational pursuits to launch
ideas into the marketplace. This was
permitted legislatively, and the university paid the same rate of taxation as
other users in the same classification but on a mere 1 percent of their
property value. It soon became quite
obvious that the mission of the research park was creeping beyond the original
intent of the legislation and as a result, major corporations were enjoying
major tax deference for what was their normal business operations.
Between
the research parks of University of Arizona and ASU, they host approximately 50
companies in 4 million square feet.
These companies don’t pay property taxes but instead pay a “tariff” to
the university as well as the city. All
the other jurisdictions, including the State of Arizona who rely on property
taxes, get absolutely nothing.
Marina Heights
Marina
Heights is located on Tempe Town Lake and includes the well-known “State Farm”
building. In December 2017, with a deal that captured headlines in the state, the building’s “lease-back”
was sold to a business partnership that includes Arizona icon and business
insider Jerry Colangelo for almost $1 Billion – one of the largest commercial
land transactions in state history.
One
of the most valuable assets of the property was the value of not paying taxes. In fact, that value is approximately $12.1
Million a year of which $3.45 would be owed to the State, $6.6 to the Tempe
Elementary and Tempe Union school districts, and $1.2 million to the Maricopa
Community College District. Not only do
these jurisdictions have to back fill their budgets and other property owners
make up that difference, but other like businesses must try to compete with a
colossal tax advantage.
In
typical ABOR fashion, the Omni Hotel transaction is a sweet deal for developers
and less so for taxpayers as a whole. ASU
will spend $19.5 Million to construct a conference center and parking garage
and pay $8 Million to the hotel for use of that parking garage to the profit of
the hotel. ASU will only be allowed use
of the conference center 7 days out of the year.
It
is a 60-year lease with an express provision of evading taxes by requiring a
“in lieu of taxes” payment of $1 Million a year. The hotel is only on the hook for $85 per
square foot for rent even though within two blocks there are other hotels that
sold for a market rate of $212 – 216 per square foot – a seemingly $9 Million
subsidy.
Given
the explicit intentions of the state constitution to protect the property tax
base from chicanery of the system; ABOR’s long-standing history of using their
tax-exempt status to shield corporate entities should not be ignored. AG Brnovich is doing a service to every taxpayer
in the state by calling for an end to this blatant illegal practice.
Afterall,
ASU is also constitutionally bound to make tuition “as nearly free as
possible.” Year after year of tuition hikes on Arizona
students are certainly hard
to square with hundreds of millions of dollars in corporate giveaways.
Lawmakers in New Mexico are in a self-imposed quandary. They’ve adopted a lucrative tax credit program for the film industry they simply can’t afford yet can’t walk away from.
The Enchantment State dolls out 25-30 percent rebates for production related expenses up to $50 Million a year. This spending cap is one of the only mechanisms of restrain in the program which is financed straight out of the state’s general fund.
Pressure to uncap the program has mounted due to New Mexico owing $380 Million in backlogged credits. If these trends continue – this debt will grow to $700 Million by 2023 – and a film claiming a credit, then wouldn’t be reimbursed for up to 14 years.
Now Governor Lujan Grisham and lawmakers want to make a one-time payment to clear this backlog as well as remove the annual spending cap so they can have the ability to throw unlimited chum in the water to lure Hollywood sharks.
Only two other states in the country have uncapped their film subsidy programs: Illinois and Georgia. The irony of Georgia’s unconditional love for Hollywood is manifold. The state’s program is rife with abuse. Warner Brothers defrauded the state by charging them $600,000 for an airplane never used in the movie “Sully.” And yet this didn’t stop an award-winning display of hypocrisy when Hollywood stars called for a boycott of Georgia when a Republican Governor was elected. For a state that calls themselves “Y’allywood,” they were harshly reminded that despite spending $200 Million a year on extra caviar money for film stars, when it comes to the real insider VIP party, they’re not on the list.
States are tripping over themselves to throw money at the rich and famous for an industry whose loyalty cannot be bought. They will happily continue to jet-set around the world anywhere the highest-bidding government will pay them for honor of their appearance. The political ridicule they throw in for free.
New Mexico lawmakers are doing their best to pretend they aren’t completely owned by their starlet masters. Their bill also includes razzle dazzle “reforms” including tightening up for what expenditures can be reimbursed (a notoriously abused standard.) And what one would think is a laugh line, requirement for better acknowledgments of New Mexico in the film credits… A little more “limelight” is what New Mexico taxpayers are getting for the promise to dole out hundreds of millions to entitled movie makers.
Despite the flop of film tax credit programs around the nation, states continue to fall for this fool’s errand. Just this year a bill was introduced by Representative Bob Thorpe at the Arizona legislature to divvy out some of the state’s business tax credits to film production. Luckily the bill didn’t get traction.
However, if there is any lesson to be learned by lawmakers in Arizona from New Mexico – it is once you start feeding the lions – they become more voracious – it becomes harder and harder to stop. And for states that think that will keep the lions from biting – think again.
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