225BatonRouge.com

Attorney John Sweeney is pacing anxiously in his Los Angeles office. It’s the first week of January, and he has quit asking his investors, producers and directors to be patient. He screens phone calls to avoid the subject. Sweeney is downright fuming. He has the investors, the location, and the support from East Feliciana Parish to buy a building there to be turned into movie soundstages and a film school. But the state Film Office and Division of Administration have yet to approve tax credits on the deal. The whole project has tangled in red tape for three months, and some of the projects on his slate are beginning to look at other locations.

“We won’t continue on if we can’t compete,” Sweeney says. “We’re not Sisyphus. We didn’t want to fight. We wanted to make movies, but we made the mistake of believing the advertising.”

The advertising has been loud and proud since 2002: Louisiana wants to be “Hollywood South,” and it’s willing to give filmmakers and film infrastructure healthy incentives to make that happen. Since the initial tax incentive program passed in 2002, Louisiana has been a major Hollywood player, hosting Oscar winners like Kevin Costner, Sean Penn and Denzel Washington and high-profile movies like The Dukes of Hazzard, The Guardian and The Runaway Jury.

But it’s hard for Sweeney and others struggling to earn state approval for their projects to believe the party line anymore.

According to a Motion Picture Association of America report and The Times of Shreveport, since 2002 nearly 30 states have passed film incentives of their own, and another eight, including Texas, are gearing up to do the same.

What’s worse, with others hearing stories like Sweeney’s, Louisiana could be earning a reputation in “time is money” Hollywood as a place where competition is squashed and bureaucratic red tape can grind potential projects to a halt.

Baton Rouge in particular has a tough time competing. First, New Orleans is a unionized production center which means producers don’t need to pay per diem stipends for food and lodging to crew within 60 miles. Baton Rouge sits just outside of that perimeter, making it a challenge for the city to build up a local crew base.

All producers are concerned with hurricane risks in the state, and for insurance purposes Shreveport proves beneficial, with almost zero chance that a hurricane will shut down a film in progress.

Baton Rouge has landed some film productions, but the studios and production facilities the area needs to make film a permanent industry here have had delays and difficulties with state government.

John Sweeney’s project, Armada Studios, originally planned to convert a warehouse in East Feliciana into a soundstage, post-production facility and technical film school. But like four other major movie studios and production facilities planned for the Greater Baton Rouge region, Armada Studios has had difficulty getting the state’s preliminary blessing for its tax credits.

Their first crucial step here is getting a pre-certification letter signed by the three key players: the Division of Administration, the Governor’s Office of Film and Television Development and the Louisiana Economic Development department. The letter simply guarantees that, after an independent audit and examination of expenditures, tax credits will be granted to the producers in the first year, as stated in the law creating the incentives.

A pre-certification letter is no guarantee because the project still must materialize according to the producer’s application. But it’s crucial for producers, who often use the signed letter as collateral to secure additional loans or to attract new investors to a project.

SPREAD ’EM

Questions about this process and the Film Office began mounting last fall. With tax credit applications still pending for the Celtic Media Center in Baton Rouge and Emerald Bayou Studios in New Roads, Sen. Ken Hollis called for a Commerce Committee meeting Dec. 14 to find out what exactly was going on.

At the meeting, Film Office Executive Director Alex Schott said that 12 studio and production facility project applications had been received by his office, and four of them had been pre-certified, including one in the Baton Rouge area: Rep. Gary Beard’s Louisiana Film Institute.

Beard declined to reveal details of his project, but the Film Office and Division of Administration did not allow it to take earned tax credits in the first year, like recent studio projects approved in New Orleans and Shreveport. Instead it was required to take its tax credits amortized over a seven-year period.

Problem is this process, referred to by DOA’s Bill Black and LED lead counsel Richard House as “spreading credits” is not in the legislation, nor is it in the state’s draft rules dated February 2007. And it has sparked complaints and even confusion, not to mention attracted the attention of lawmakers.

“The idea of spreading is simply to make sure the assets purchased that qualify for the credit stay here and do the work that they’re intended to do,” Black said at the Dec. 14 meeting at the Legislature. According to Stephen Moret, CEO of the Baton Rouge Area Chamber, the state wants to spread these credits because it is receiving applications for projects much larger than anticipated, projects for which sizeable tax credits would be material to the total state budget.

The first major project the state approved last June was the Louisiana Institute of Film Technology’s $185 million Film Factory in New Orleans. Next, two Shreveport projects—LIFT’s wave tank facility, and Michael Morrhead’s Stage Works studio—earned pre-certification last fall. But since then state officials and the Film Office have become much more cautious with the incentive program.

And this is where the spreading of credits comes into play. Unfortunately, Baton Rouge’s projects applied for certification during this more cautious approach.

Did lawmakers who created Louisiana’s film incentives in the first place intend for the credits to be spread over time? Secretary of State Jay Dardenne, who authored the legislation while he was in the state Senate, says the answer is no.

Dardenne fielded many complaints about the tax incentive program and delays from the Film Office as a senator, and he understands it is difficult for the Department of Administration to project lost revenue based on tax credits. Still, he says, spreading credits is a disincentive for film investors. “But if that is Division’s official stance, then it needs to be immortalized in the law.”

When 225 spoke with Mark Smith, who ran the Film Office from 2001-2005, he was unsure about the mechanics of spreading tax credits, that’s how new the idea is. “That sounds to me like a cap,” says Smith, who left the Film Office to care for his ailing mother and now operates a small film company incubator. “That may be a good thing to keep the program because if you get too many issuances of credits and the state can’t afford it, this could be a way to prevent that.”

But Smith adds that industry professionals need to be informed up front about the spreading of credits, whether through rules or legislation. He says it could be handled in the upcoming legislative session. Without that knowledge, it’s easy to understand how outside producers view the caveat of spreading credits as a bait-and-switch tactic by the state.

BRINGING BACK THE DRAFT

For months the official line from the LED has been that the Film Office is operating strictly under a set of unpublished draft rules.

One of the officials who complained about tax credit delays by the state at the Dec. 14 meeting with lawmakers was former Lt. Gov. Bobby Freeman, who helped bring Everybody’s All American to Baton Rouge in the 1980s.

“I went to [Schott’s] office, and I asked for the rules and regs, and they said they didn’t have any rules and regulations,” Freeman said. “I said ‘Well, how do you accept or deny or approve any recommendations for film credits?’ And Schott said ‘We do it on an individual basis.’ ”

Schott disputes this.

“Mr. Freeman is mistaken that I said that there were no rules and regulations. I noted that we were in the process of promulgation of rules and that the process has yet to be completed,” Schott said in a prepared statement. “We review each submission on its own, individual merits as we will continue to do once the rules are promulgated.”

There is no evidence the Film Office has ever abused this lack of clearly defined standards to show favoritism or play politics. But the more immediate issue is an overall lack of clarity. For instance, officials have never written into the rules anything that bars giving tax credits going to producers of pornographic films. The certification of pornographic films, like any other potentially controversial project, is left to the sole discretion of the Film Office and LED.

Schott said at the Dec. 14 meeting that his office would never certify a pornographic film. But as Sen. Ken Hollis pointed out, if it’s not stated in the rules, there is nothing to stop the next person in his position from doing so.

The mere fact that within a lucrative growth industry the Film Office and Division of Administration wield such significant, discretionary power—power that remains largely unregulated—is an issue that some in the industry and in state government say needs to be addressed quickly.

“In my mind, that’s crazy,” Sen. Robert Adley says of the Film Office’s individual application approach. “People either qualify for the incentives or they don’t. I don’t know how you pick and choose who’s going to get these incentives.”

Adley adds he doesn’t understand why the certification process for film incentives should be removed from the Department of Revenue, where most other tax-related functions are kept.

THE RULING PARTY

Just about everyone agrees an unregulated Film Office has caused confusion and disorganization for the tax incentive program. The absence of clear, consistent rules has frustrated a number of producers, and among the state’s major cities, may be hurting the Baton Rouge area the most.

New Orleans-based LIFT was first to submit its infrastructure application for tax credits, and since then LIFT has seen the most expedient and lucrative benefits from the state tax incentives. LIFT received pre-certification for a tax credit equaling 40% of the $185 million spent on a New Orleans sound stage and vo-tech school called the Film Factory.

But LIFT attorney Tres Bernhard concedes the absence of approved rules has been detrimental to his project. “The rules not being promulgated yet has slowed our project down in the middle of New Orleans and is slowing the biggest job creation engine,” Bernhard says. “It just creates issues, but I have never seen complicated rulemaking on the state level move as fast as anyone would like it to. It’s just government.”

BRAC’s Moret agrees. “Not having established rules and regulations has resulted in confusion and a lack of clarity as to what is eligible for tax credits and what the payout structure will be,” he says. “We need rules for an objective approval process, and we have to be careful not to erode the benefit of the credit by delaying payout too long. It’s a delicate balance.”

In early January, John Sweeney still had not received any written communication from the Film Office on his proposed Armada Studios project he turned in Nov. 13. Celtic has been waiting since they turned in their application Sept. 11. Sweeney’s exasperation flared, so he called Chris Stelly, the office’s Economic Development Manager.

“Are you f------ with us?” Sweeney asked him flat out.

“No, we’re not,” Stelly assured him. Sweeney gave him the benefit of the doubt.

Then on Jan. 10 Sweeney received a letter from LED stating the Armada Studios project did not meet the requirements of the tax credit program.

The rejection letter signed by Schott of the Film Office was a page and a half long. Sweeney’s response was a 200-page salvo. Three weeks later Sweeney’s fears were realized. The delays and uncertainty caused two productions he could have brought to Louisiana to move camp to New Jersey instead.

“The only sure thing I know is that we’ve lost the optimum time to shoot in Louisiana, and I’ve probably lost my credibility,” Sweeney said. “What do I say to my filmmakers? How do I get my year back?”

None of this sat well with Sen. Robert Marionneaux, who scheduled a meeting with Gov. Kathleen Blanco for Jan. 26 to discuss Armada Studios and other pending projects. But Blanco’s office cancelled that meeting days beforehand.

Frustrated, Marionneaux wanted to call another Commerce Committee meeting, but that has yet to materialize. “I don’t understand, is the goal to run people away?” he said. “If they don’t like the 40% tax credits, they need to introduce new legislation and stop trying to change things by default.”

On March 19, the Senate Committee on Revenue and Fiscal Affairs rejected by a 4-3 vote emergency rules proposed by LED meant as a stopgap measure until final rules could be passed. As of press time, it was back to square one.

Facing the possibility of construction losses without emergency rules, LIFT’s Malcolm Petal disagreed with the committee’s rejection of the emergency rules. But former Lt. Governor Bobby Freeman, who represents the Louisiana Studio City project in West Baton Rouge Parish, said the rules were flawed and gave state officials too much discretionary power.

Michele LeBlanc, who chairs the Louisiana Bar Association’s Arts, Entertainment and Sports Law Committee, represents several movie companies looking to do business in the state, and says she’s seen more than her share of red tape and delays. “The state is not giving away money,” she explains. “The tax credit is a piece of paper.”

LeBlanc wants to see the tax incentives applied fairly to everyone, which she believes should require an appeals process written into the rules or new legislation. As it is now, there is no formal way of appealing a denial other than suing the state in court.

EVERYBODY’S TALKIN’

Unlike Vegas, what has happened in Louisiana hasn’t stayed in Louisiana.

Last November James Chambliss, who is in pre-production on two films in the St. Francisville area, was riding in an elevator at the American Film Market in Santa Monica, Calif. He overheard a conversation between two other delegates. When one of the men said he was interested in shooting a picture in Louisiana, the other told him filmmakers have a hard time with their tax credits in the state. “And they did not talk in a Southern twang, so they were not from here,” Chambliss said at the Dec. 14 Commerce Committee meeting. “So they are somewhere now repeating the same thing they talked about in that elevator. So you’ve got a perception problem.”

Another perception some both within and outside Louisiana share is that the Film Office is not trying to promote different regions and different companies, instead favoring LIFT, a majority of whose productions shoot in the New Orleans and Shreveport areas.

In an interview with the Lafayette Daily Advertiser in January 2006, Lafayette Convention and Visitors Commission Executive Director Gerald Breaux expressed his frustrations with the Film Office. “My pet peeve is that we haven’t been seeing production companies directed to south central Louisiana,” he said. “The disconnect I have found is once they get to the state film office, there may not be an all-inclusive-you-can-film-anywhere-in-the-state conversation that goes with that.”

Area producer Joe Castille agreed with Breaux’s assessment in the same article, but when reached for further comment by 225, Castille hung up the phone.

Breaux now describes any delays or hitches from the Film Office and DOA as “the normal heavy bureaucracy of state agencies.”

While Breaux may have changed his tune in the last year, Tracy Paddock has not. Based in Los Angeles, Paddock is a 16-year veteran of the entertainment industry who serves as a consultant to film productions and defense contractors. She says the state needs to do a better job of encouraging competition.

“As a producer, if I come in and there is only one vendor, I know they’re going to hold me hostage,” Paddock says. “Producers need options.” Unfortunately, Paddock has heard just the opposite about Louisiana. She has heard that movies coming in are encouraged to use the production services of one company or else they won’t have enough crew. “Now, if I’m hearing that, then other people outside the state are hearing it,” she says.

Both Alex Schott of the Film Office and Richard House of LED say there has been no favoritism shown and that the Film Office does its best to aid all projects. “We look at each project the same way,” House insists. “We’re not in the business of picking winners and losers.”

With more and more states offering incentives to film productions, though, it’s not hard to imagine producers passing over Louisiana for a state with similar tax credits and a better reputation.

“It’s a period of growing pains,” says the Chamber’s Moret, “but we have a reputation risk in Hollywood if we don’t get this straightened out soon.”

DEAL OR NO DEAL?

Things took a surprising, but positive turn for Sweeney’s Armada Studios project when he hired attorney Wayne Read to represent his interests in Louisiana.

On Feb. 23 the Division of Administration offered Sweeney a deal: take the tax credits over a period of seven years and move your operation from the greater Baton Rouge area to an existing community center in LaPlace, and the Armada Studios application, now bundled for $86 million, would then earn its pre-certification letter.

LaPlace Councilman Sean Roussel even told Sweeney that if he buys the 42,000-square-foot building now being leased in part by LIFT for $15,000 a month, Armada can have the adjoining acreage free on which to build a film school. Unfortunately by the time this offer materialized, Sweeney’s original investors had already pulled out.

“I told John, ‘Let’s look at the financial impact of [spreading the credits], and if it doesn’t blow the business model out of the water, let’s do it,” Read says. While the Department of Administration’s deal may work out for Sweeney, a move to LaPlace means the Baton Rouge region has lost millions in studio construction and film projects to the Greater New Orleans area.

“We lost a $75 million project for East Feliciana Parish, plus $100-$300 million a year in film production,” says Larry Thomas, chairman of the East Feliciana Economic Development District. “I don’t blame [Sweeney’s] investors for pulling out.”

Mark Smith says Louisiana needs more studio projects like Armada, projects that not only provide soundstages and post-production facilities, but more trained crews to work on films. “The window is closing on Louisiana,” Smith says. “We have to look to the future, change the way we do things and be proactive.”

A recent study performed by Economics Research Associates and released by LED shows Louisiana hosts the third-highest number of film productions annually, behind only movie giants California and New York. This ranking is credited to the state’s pioneering tax incentives. But the same study shows that when states’ “homegrown” industries and infrastructure are measured, Louisiana slips to No. 8, behind Georgia, Illinois, Tennessee and others.

Smith says Baton Rouge has positioned itself to be proactive with the hiring of Amy Mitchell as the first executive director of the Baton Rouge Film Commission. Mitchell spent five years working for Miramax and describes her new job as being a “field agent” for the industry in Baton Rouge. Smith says Mitchell is in the position to lobby for those Baton Rouge area projects to get certified.

Mitchell says her short-term goals are to develop an online database of locations and local crew, and to brand the Baton Rouge region not just as “Hollywood South,” but with a global entertainment identity.

According to LIFT attorney Tres Bernhard, Mayor Kip Holden has bent over backwards to make shooting films easy in Baton Rouge. LIFT recently opened an office here, and Bernhard says he has a few projects in mind for the area. But without permanent studios and production facilities, movies shooting here are little more than the circus coming to town.

So what about those outstanding movie studio construction projects?

At press time, Celtic Media Center in Baton Rouge, Studio City in Port Allen and Emerald Bayou in New Roads were still waiting on pre-certification.

Studio City Louisiana, a daring $325 million facility which will house River Studios & Filmport in West Baton Rouge, received a guarantee from the state Bond Commission for financing in mid-February. It also received high marks from Dr. Robert Newman, the economics department chair at LSU. According to Newman’s economic impact report, Studio City will result in $553.8 million in new sales its first year and directly employ more than 2,000 workers once it is fully operational in 2009. Still, the project has yet to earn approval from the Film Office and the DOA.

The Celtic Media Center, located in buildings abandoned by rapper Master P off Airline Highway, is plowing forward with construction regardless of its tax credit status. According to project manager Howell Gibbens, Celtic’s Phase I building, including 10,500 square feet of sound stages, will open in June. Initial projections had the same building opening last fall.

Celtic CFO Bob Bayham told 225 he will reserve comment on the situation until the project has been pre-certified, which he hopes will happen soon. The Film Office has had Celtic’s project application since Sept. 11. “Things have dragged on,” Gibbens says. “But Sherri McConnell stepped into her new role at LED to expedite that.”

In February McConnell was named to the entertainment industry development director post at LED, a managerial position that has her working with the Film Office as well as clusters for music and digital media. Both Mark Smith and Stephen Moret believe she will improve the processes that have drawn the ire of industry professionals and legislators alike.

LED would only allow 225 to speak with McConnell via conference call with LED attorney Richard House. To her credit, McConnell spoke candidly and said she’ll make the certification of outstanding Baton Rouge-area projects a top priority. “My frustration with this process probably landed me the job,” McConnell said frankly. “I truly don’t know specifically what the hold-up is with Celtic not being pre-certified. It’s a process issue. There needs to be some streamlining.”

CUT THE TAPE

It seems Hollywood producers aren’t the only people asking questions about Louisiana’s film tax incentive program.

According to Larry Thomas, on March 13, two FBI agents turned up unannounced at his East Feliciana home and wanted to ask him about the state Film Office. Still smarting after his parish lost John Sweeney’s Armada project, he apparently had plenty to say.

“The [FBI] agents asked pointed questions about the state Film Office,” he says. “They were here for three hours.” Thomas would not disclose specifics of the conversation for fear of hindering the FBI’s inquiries.

The FBI office in New Orleans would neither confirm nor deny an investigation.

Asked if the LED knew about a possible FBI probe, House said it’s department policy not to discuss such matters. “We have no comment,” House said.

On March 19—the same day a state Senate committee rejected the LED’s temporary rules—state officials finally pre-certified Armada Studios for tax credits, but for only $14 million out of its $86 million budget. Worse, they asked that the tax credits on the $14 million be spread over 10 years.

John Sweeney found himself again pacing in his Los Angeles office and fuming. It had taken some work on his attorney’s part, but Sweeney had warmed to the state’s idea of relocating Armada Studios from East Feliciana to St. John Community Center in LaPlace. Sweeney was even optimistic that he could find new financial backers after the prolonged process caused his original investors to back out.

But the state’s decision to pre-certify only a fraction of his $86 million budget effectively kills his deal. Sweeney’s attorney will question the decision and investigate further, but the net effect is that Sweeney probably will walk away.

Only days before officials decided Sweeney’s fate, state officials told TV reporters they were happy with progress on the deal. They even held Armada up as positive example at the Senate committee meeting March 19.

“On the bright side,” Sweeney says sarcastically, “in killing my project, for the first time the Louisiana bureaucracy showed some efficiency.”