by n8ture » Sun Feb 21, 2010 12:13 am
In the weeks before Iowa's film program collapsed last fall, several top economic development officials were negotiating with a Minnesota filmmaker who fought for more than a year for tax breaks on services that never cost a dime, newly obtained state correspondence shows.
The correspondence — e-mails from August and September before film incentives were suspended — also shows top managers in the Iowa Department of Economic Development were scrambling to clarify rules aimed at preventing the type of abuse for which film office manager Tom Wheeler would be fired on Sept. 21.
Department officials knew Wheeler had no experience with film tax credits, which lawmakers created in 2007. Yet the e-mails turned over to The Des Moines Register this month suggest others in the department who had far greater experience with the law, compliance and tax credits were not on top of the mushrooming program, either.
Wheeler's first court appearance on a charge of official misconduct is Thursday. His lawyers question whether he is being made a scapegoat for wider mismanagement of the state-run program.
"The Attorney General's office is claiming that Wheeler's duties mandated under the law were to market, implement, inspect applications, contract, review, inventory, audit for fraud, audit for reasonableness, and respond to all complaints about a $300 million tax credit program," attorney Angela Campbell of Des Moines wrote in a court motion filed Friday. " ... If a court determines that Wheeler did have one of the duties above, no one at IDED or at the attorney general's office told him he had this legal duty."
E-mails to and from Wheeler and former Department of Economic Development chief Mike Tramontina confirm several people at the department — division heads, lawyers, compliance officers and others — were privy to some of the worst problems facing the film program in the two months before it was suspended.
In August and September, for example, several officials knew Minnesota filmmaker Wendy Weiner Runge still was trying to obtain tax credits for services in which no money changed hands. She and other filmmakers were placing pressure on Wheeler to make decisions quickly while the program was growing at a record pace.
Runge has been charged with first-degree theft.
The attorney general's office accused Wheeler earlier this month in a criminal affidavit of misinterpreting and largely ignoring the legislative act that created the film incentives. Prosecutors said that "under Wheeler's direction, the film program became one of the few, if not the only, incentive programs in the nation to allow credit for 'services in kind.' "
Tramontina and his deputy, Vince Lintz, were asked to step down in late September. Other top economic development employees involved have emerged unscathed thus far.
Facing no discipline were Jeff Rossate, who directly oversaw Wheeler and the film program; Amy E. Johnson, coordinator of the agency's business development division and its most experienced tax credit expert; Terry Roberson, chief financial officer, who was supposed to screen expenditures; and Melanie Johnson, the department's general counsel, who was supposed to sign off on all new projects, provide guidance on state law and help administer new agency rules.
Bob Brammer, a spokesman for the attorney general, said he would not comment on why others have been spared in the ongoing investigation of what happened. "It is not appropriate for us to discuss questions relating to criminal investigations or prosecutions," he said.
Minnesotan sent tip on abuse in June 2009
The affidavit filed earlier this month shows Wheeler was aware of potential problems with Runge's movie in June of last year. That's when he received a letter from a man named Jim Brewer, who spelled out the alleged fraud perpetrated on taxpayers by Runge.
Brewer, of Minneapolis, said he had run into Runge, president of Polynation Pictures, while on vacation in Los Angeles.
"She explained how she puts in millions of dollars in phony deferments with people she knows, then gets tax credits to cover it," Brewer wrote.
"She walks away having the state pick up the whole bill. As an example, she said, she spent $750,000 on her film 'The Scientist,' but she's put in for over $2 million dollars in tax credits," Brewer wrote.
The attorney general's affidavit alleges Wheeler never followed up on Brewer's tip except to write him a letter that was later returned.
But several other state officials were already aware of Runge's use of in-kind services, deferred payments and pass-through companies while seeking tax credits for her production, the Department of Economic Development e-mails show.
The attorney general's affidavit notes that Iowa's Department of Revenue weighed in on some expenditures for "The Scientist" as early as 2008, during production of the movie.
E-mails also show Amy Johnson was seeking clarification of what to do about Runge's applications for credits for in-kind and deferred payments as late as September - nine months after several people in her department and the revenue department signed off on tax credits for the film.
Amy Johnson sent one such e-mail to Tramontina, with copies going to Melanie Johnson, Wheeler and Rossate. Also copied on the message was Runge, who had been dangling the prospect of building a sound studio in Newton to a variety of state officials.
"Wendy is looking to confirm that an 'in-kind service' can be treated as an investment in the film," Amy Johnson wrote the group on Sept. 9. "Wendy has assured me that these 'in-kind services' are limited to businesses, which are providing tangible property such as photography equipment, lights, screens, computers, sound equipment, etc."
Tramontina responded with more questions. He later tried to hold off Runge, saying new rules for the film incentives wouldn't be completed until October.
Department of Revenue chief Mark Schuling said this week that he had no idea Runge had sought credits for free or deferred expenses. He said he would not have approved them if he had known.
"The statute is pretty clear," he said. "Unless there's been an expenditure, it wouldn't qualify for the tax credit."
Among the services for which Runge and her partners successfully claimed credits worth $1.85 million in December 2008: $3.2 million paid to West Productions, the project's "pass-through" entity, which was known to the Department of Economic Development.
That sum included $2.5 million to Maximus Production Services - owned by Matthias Saunders, photography director of the film - for services in which no money actually changes hands. Saunders also faces a felony theft charge.
Runge made an initial court appearance Friday, but she did not speak. Her attorney, Chad Primmer of Council Bluffs, said she would be vindicated.
"All my client did was come to Iowa to make movies," he said. "This woman is not a criminal."
Wheeler was behind on work, e-mails say
Wheeler's supporters have long said the state provided him little support as he attempted to manage one of its largest economic development programs. The e-mails obtained by the Register support that contention.
Michael Blouin, a former economic development chief, and others have said Wheeler was hired in 2004 to provide primarily marketing of the state's relatively small film industry. But in the weeks before Wheeler left office last year, he had more work than he could handle, his e-mails suggest.
By late August, Wheeler reported that he had approved 103 applications for pending projects worth as much as $230.9 million in tax credits.
Dozens of filmmakers, financiers and others e-mailed questions about pending incentive contracts that were overdue and about a host of changes to the film law that took effect in summer 2009. Several questioned whether specific expenses — such as planes, license payments for music, workers from out of state — would qualify for credits under new rules being developed by the economic development department.
Wheeler, who had no law degree or previous experience drafting contracts, apologized on an almost daily basis for being tardy in fulfilling requests. He tried but had little luck getting anything more than part-time help. Co-workers rebuffed his attempt to put off some events so he could write new contracts, the e-mails show.
In August, Tramontina brought in auditors after the discovery that state incentives might have been used in the purchase of two luxury vehicles. But the e-mails suggest key people in the department were only beginning to sound alarms.
On Aug. 31, Rossate wrote Tramontina, copying Lintz and Amy Johnson, to ask about the negotiations with Runge.
"It was conveyed to me that you verbally determined that 'yes' these would be recognized as full value. She is apparently wanting some written assurance and is still waiting for this," Rossate wrote.
"My concern is that this program and these 'in-kind' services are becoming a back door for abuse."
On Sept. 16, five days before Wheeler was fired, Tramontina e-mailed the governor's budget director about the looming crisis and other issues, the correspondence shows.
"We've got several issues that we should talk about," Tramontina wrote, asking to talk about the credits. "When we're not talking, I don't know what you are thinking."
On the morning of Sept. 17, Tramontina sent another e-mail to Jim Larew, general counsel to Gov. Chet Culver, telling him he had several film projects pending before the Department of Economic Development's board that morning.
"This will not lessen any administration's options for oversight or slowing spending. However, if I pull them from agenda now it is a big red light that eliminate the option of continuing the program in a prudent way," Tramontina wrote.
"Next steps on this are important I don't want to take a hasty decision without you."
The same day, the governor's budget chief wrote to ask Tramontina to identify Wheeler's immediate supervisor.
Tramontina responded: "Film office is part of Business Development Div. of which Jeff Rossate is the Director. Why do you ask?"
At 5:15 p.m., Lintz sent agency employees notification of Tramontina's resignation.
