Auditors with the state comptroller’s office documented “serious concerns” about the management of state film incentive programs and found that leaders of the Department of Economic and Community Development disregarded their statutory requirements, including giving $4.5 million to out-of-state companies.
Leaders with the Tennessee Film, Entertainment and Music Commission; the Department of Economic and Community Development; and the Department of Revenue have failed to make sure that public incentives for filmmaking businesses were administered properly, according to the audit.
Auditors questioned more than $9.8 million in incentive spending.
And auditors found little to no evidence that the incentives have drawn new businesses or jobs to the state.
Clint Brewer with the Department of Economic and Community Development has not responded to attempts to get a comment on this issue.
A spokesman for the Department of Revenue said he had no comment on the issue.
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But Blake Fontenay, spokesman for the comptroller’s office, said leaders discussed the issue Tuesday during a legislative subcommittee meeting.
“Committee members raised a number of concerns about the report’s findings and asked for explanations from the film commission about what they’ll do to address them,” Fontenay said via email. “The film commission representatives said they have already made changes to the incentive program and adopted other safeguards to ensure that similar problems don’t recur in the future.”
State legislators will likely decide if there will be penalties for these problems, he also said.
Film commission authority
In 2006, members of the General Assembly passed laws that gave the film commission authority to provide certain financial incentives to draw movie production companies to Tennessee, according to a news release from the comptroller’s office.
The film commission falls under the Department of Economic Development, and the two agencies partner to bring in film producers and increase the state’s film/television business by offering a 17 percent reimbursement incentive for certain expenses, according to the audit.
The Department of Revenue also created an additional incentive program for the film commission, according to the audit.
The Department of Revenue’s incentive involves the return of up to 15 percent of a production company’s approved in-state costs, if the company has established or partnered with a facility with a Tennessee headquarters.
“We observed misrepresentation of headquarters information; the disregard of obvious pass-through arrangements between out-of-state companies and in-state investors not in keeping with the spirit of the law; failure to identify inconsistent data between the film commission application forms and Department of Revenue letter rulings; and a general lack of due diligence in verifying the legitimacy of headquarters facilities in accordance with the spirit of the law,” according to the audit. “Also, we found little or no support that the headquarters incentive has led to new, permanent film producing facilities or new, permanent professional Tennessee jobs in the film industry.”
But auditors questioned whether the incentives given were properly determined and whether some incentives meant for filmmaking companies in Tennessee were improperly awarded to out-of-state businesses.
The auditors also found that incentive payments did not always meet the program’s guidelines or have the needed documentation.
Auditors also found that a former executive director had a possible conflict of interest that wasn’t adequately disclosed. The former director’s spouse worked for a legal firm that was involved in at least three film projects that got incentives, according to a news release from the comptroller’s office.
According to the audit, legislators may want to consider reviewing and revising state laws to clarify and align them with goals for film production incentives.
Auditors also said that the 15 percent incentive program is poorly written and has few controls. They said more investigation may be needed to see if funds were improperly awarded and if those funds need to be recovered, according to the audit.
They said that leaders with the Department of Economic Development and Department of Revenue should evaluate the questionable headquarters incentives to help decide if any funds need to be recovered.
“In carrying out the new 25 percent incentive program, the film commission should establish guidelines and controls for qualifying for the incentive and approving incentive payments,” according to the audit. “As the program continues, the commission should review the guidelines for accuracy.”
The audit includes responses from leaders of the Film, Entertainment and Music Commission; the Department of Revenue; and the Department of Economic and Community Development.
Both responses say that leaders “concur” with the auditors' findings.
It outlines the deficiencies in the 15 percent headquarters film tax credit and said that leaders worked with legislators to repeal that during the 2012 legislative session.
Leaders also outlined other ways they have addressed the problems.