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

[qaz123]

One more thing I’d like to toss out there as I know there is someone out there that knows a bit more about the money and accounting part of this mess...

With the advent and advances of things like CGI, many things that needed to be done “in person”, in the past, are now done with computers. Especially with regards to special effects.

There doesn’t seem to be many “blockbuster movies” anymore where they spent $100,000,000 making it.

In Covington, Ga there’s a place called, CineLease. Small time facility, nothing like those things out west in Hollywood, that seem like cities themselves. Right now they’re filming in a small dive bar in Covington, The Depot. Their trucks and equipment take up the small parking lot out front but nothing crazy and they aren’t even effecting traffic. Chances are they’ll be there another day or so, if they’re not gone already.

It seems like most of what they’re filming in Georgia, for all the hype, is small stuff, Netflix movies/series, tv shows, commercials, Amazon productions, maybe a few location “shoots” here and there.

The Walking Dead, for the most part, was filmed in the woods and abandoned industrial sites around Senoia, Ga. However, the folks that made that show gave the city of Senoia the small subdivision(Alexandria) they built for part of the show and they’re now selling the homes.

So, after all that, my point......Kemp and the rest say that the industry generated $4.2billion in economic activity. No idea where they get that number, but for all intents and purposes, why didn’t they say $4.2gagillion. How much, collectively was spent on all the filming? Did it all add up to $1,200,0000,000. I can’t imagine renting out a dive bar in Covington costing all that much.

Is the industry filming in this state for FREE. Sure, they spend X-amount of dollars. But are they getting all of it back with the tax credits, in addition to being able to write off all the expenses?

[poconopundit]

Some interesting observations there, qaz123.

What you say makes sense.  Great story in April/May Forbes magazine about a company called BlackMagic from Australia.

How An Aussie From The Housing Projects Became A Billionaire Making Gear For Next-Gen Spielbergs

The entrepreneur builds low priced video cameras based on Apple iPhones that sell for as high as $6,000.  Competing products from Sony cost $95,000 and up.

The story explains how a lot of visual effects are used in movies nowadays.  For instance, the entire background for a scene could be virtual reality.

From the story:

"If you’re going to put nine cameras on a rig, you must have at least ten cameras on location.  If those cameras are [gold standard] Alexas, you’re talking about $500,000. The studio is not gonna pay,” says Nicholson, noting that [his] turquoise ocean scenes were shot in Puerto Rico, color-corrected on set using [cheap] DaVinci Resolve software and streamed at 20k resolution on a 160-foot-wide LED screen surrounding the actors during filming on a soundstage in Burbank, California."

Bottom line, high quality, low end cameras are delivering 90% of the value of cameras that cost 10 times as much.  And you can separate the background (using visual effects) from the foreground in your film.

That opens up filming sites to almost ANYWHERE.  Indie movie makers get a path to cheaper production.  And I surmise there will be less demand for the hassle/trouble of shooting movies in remote locations like Georgia.

Unless of course, Georgia is subsidizing you for every Georgia job per year at $360 million and another $800 million on top in expenses you can tack onto the bill you send Georgia.

Has there ever been a state as corrupt as the Georgia Peach?  Rotten for Georgia taxpayers, but a really sweet deal for Hollywood and Kemp's friends.

[qaz123]

Illinois, Michigan, Chicago, Detroit…..Georgia in some great company

[poconopundit]

The Walking Dead, for the most part, was filmed in the woods and abandoned industrial sites around Senoia, Ga.

* * *

You said it right there, qaz123.  Filming in the woods...  Abandoned industrial sites...  In other words, that filming could be accomplished anywhere.

So why Georgia then??  Because unlike any other state, Georgia pays ALL expenses of that filming -- workers, equipment, airfare for the director, etc.

I'll bet "The Walking Dead of Georgia" is a standing joke in Burbank conference rooms.