Corporate Welfare Fraud, Massachusetts Edition

by Josh Barro

Last year, Iowa’s film subsidy program was brought down in a fraud scandal. Now, Massachusetts’s film subsidy program has a scandal of its own:

A Los Angeles-based filmmaker was charged Friday with defrauding Massachusetts of almost $5 million in inflated tax credits for two movies he made along the state’s scenic Cape Cod shoreline…

Under Massachusetts law, movie production firms are eligible for a 25-percent tax credit for payroll and filmmaking expenses incurred in the state. But in a scheme prosecutors allege began in 2006, Adams is accused of intentionally inflating expenses when completing forms for the tax credit.

Prosecutors say an investigation that started in 2010 found evidence he submitted expenses for the two movies, resulting in the state overpaying some $4.7 million to his production companies. Prosecutors said one of Adams’ false claims was paying actor Richard Dreyfuss $2.5 million when his actual fee was $400,000.

You got that? In order to defraud the state of Massachusetts, this producer’s alleged strategy was to lie about how much money he paid Richard Dreyfuss. The more you pay Dreyfuss (who, if I’m not mistaken, lives in Manhattan) the more Massachusetts taxpayers pay you.

Many states, including New York, offer film subsidies only for “below-the-line” expenses–that is, they exclude salaries paid to actors, directors, writers and producers. The theory is that above-the-line expenses go toward payments and salaries that are more likely to remain in state. Programs like New York’s are bad enough, but Massachusetts’s choice to subsidize high actor salaries is complete insanity.

Massachusetts actually advertises its few restrictions on creditable expenses as a feature of its film subsidy program. Here’s language from the Massachusetts Film Office (emphasis mine):

[U]nder our bi-partisan film tax credit law (originally signed by Governor Mitt Romney in 2005 and significantly upgraded by Governor Deval Patrick in 2007) studios, producers and filmmakers–who either shoot at least half of their movie or spend at least half of their production budget in the Commonwealth–are eligible for a tax credit equal to 25 cents for every new dollar of spending they bring to Massachusetts. No caps. No limits. No pre-authorization. No pre-certification. No lines. No waiting. No muss. No fuss.

No caps. No limits. Sounds like a pretty sweet deal. Where do I sign up? (Incidentally, while the version of this law signed by Romney was pretty bad, it at least included a $1 million cap on creditable salaries. That cap was eliminated in Patrick’s 2007 “upgrade” of the program.)

Last year, I wrote about how film “credit” programs are the new voodoo economics. Eight states have ended their film subsidy programs as a result of the fiscal crisis. Perhaps, in the wake of this scandal, Massachusetts will be number nine.