Film tax credits trial to begin amid Louisiana budget crunch

By The Associated Press

A film production tax credit program that has been lauded for making Louisiana home to productions such as “NCIS: New Orleans” and “12 Years a Slave” is also lamented for its cost to state government. And it’s at the center of a federal criminal trial opening in New Orleans on Monday (April 13).

The defendants are two film industry executives and a New Orleans lawyer. They are accused of taking part in a scheme to bilk the state out of more than $1.1 million in film tax credits.

But in a sense, the film credit program is on trial as well, and not just in New Orleans. Coincidentally, the federal case opens on the same day that the Louisiana Legislature’s annual session begins up the highway in Baton Rouge. Among the issues as the state deals with a projected $1.6 billion budget shortfall for the next fiscal year: Whether and how to rein in a film tax credit program that cost the state $220 million last year. There also are bills to tighten auditing requirements and oversight because of concerns about fraud.

Estimates of the credit program’s economic effect vary. A recent state-financed study estimated the film industry, in 2013, brought in $1.2 billion in sales and $811 million in household earnings, supporting as many as 13,175 direct and indirect jobs. A rosier estimate for the same year came from the Motion Picture Association of America and the Louisiana Film Entertainment Association: 33,520 direct and indirect jobs, $1.2 billion in household income and $4 billion in economic activity.

Critics say the benefits come at too high a price. Meanwhile, periodic scandals have marked the program, like the one in which prominent players and coaches for the New Orleans Saints were victimized by a man, sentenced to prison in 2010, who sold tax credits he never actually obtained.

In the trial that opens Monday, the defendants are Peter and Susan Hoffman, identified in court documents as an estranged husband and wife and principals in Seven Arts Entertainment and related companies; and Michael Arata, a New Orleans lawyer also involved in the film business.

The law at the heart of the case lets movie production companies get a tax credit — at the time of the alleged crime it was up to 40 percent — of certain infrastructure costs. Those are defined as the “purchase, construction and use of facilities that were directly related to and utilized for motion picture production in Louisiana.” If tax credits earned exceed the business’s actual tax liability, the credits may be sold to another party that wants to use the credit to pay off its liabilities.

Federal authorities say the Hoffmans and Arata, through companies they owned, bought the dilapidated Whann-Bohn mansion at 807 Esplanade Ave. just outside the French Quarter in 2007, with plans to turn it into a post-production facility. The alleged crime was using fraudulent documents to obtain tax credits for work that was not actually done on the renovated mansion, credits that Arata purchased at a discount from his partners, then sold at a profit to local businesses and people.

The defendants have pleaded not guilty. Aside from various technical legal issues, the defense includes the fact that the Esplanade mansion was indeed renovated into a production and post-production facility operating since 2012. Amid defense documents is a brochure touting the facility’s role in productions including the movie “Ransom” and the HBO “True Detectives” series.

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Story by Kevin McGill with Melinda Deslatte, The Associated Press.

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