By Rachel Ochman
The trial of filmmaker Wendy Weiner Runge has all the flair of a Hollywood drama: a tax scandal in the millions of dollars, the silver screen, the toppling of a pyramid of insiders. But the venue—Des Moines, Iowa—is about as far from Tinseltown a film can get.
Runge, charged with first-degree theft among other counts, faces the music this week as her trial unfolds and with it, the details of a scandal that prompted the state to suspend its film-incentive program until 2013. The filmmaker could be on the hook for $1.85 million in transferable tax credits applied to, what the prosecution argues to be, sham production expenses for science-fiction film “The Scientist.” The 45-year-old mother of four faces a maximum penalty of 25 years behind bars.
A number of states have paid billions of dollars in tax incentives to lure an industry formerly locked down by California studios. Governors of states like Michigan, Ohio and Texas—among many others—lobbied hard to encourage film production on their turf. Forty-four states offered movie-production incentives and 28 offered film tax credits in 2009, according to a Tax Foundation report. Last year saw the first dip in state participants over the past decade when four states suspended or terminated their programs completely.
The idea sounds enticing: draw glitz, glamour and, most importantly, jobs to the state. Yet the programs are highly controversial, criticized for draining taxpayer dollars and producing small returns on the investment. They attract primarily short-term jobs and offer little opportunity for workers to develop skills that aren’t film-industry specific. “It is unlikely that movie production incentives generate wealth in the long run. Most fail even in the short run. Yet they remain popular,” says the 2010 Tax Foundation report.
In 2007, Iowa ramped up its tax-incentive program, and it quickly became one of the most generous in the country. Just two years later, then-governor Chet Culver suspended the program after an internal audit revealed numerous examples of foul play. The audit found that 80% of the $32 million in tax-credit certificates issued under the film program had been doled out improperly. Experts now estimate the state’s total liability for the program at about $200 million, or $66.67 per Iowan, according to Joe Kristan, CPA at Roth & Company, P.C. and proprietor of taxupdateblog.com.
The scandal took down six employees from Iowa’s Department of Economic Development, including its director and his deputy. And Culver lost his re-election bid for the governor post. Meanwhile, two of Runge’s former partners cut deals to cooperate with the prosecution. One, Mattias Saunders, already pleaded guilty to first-degree theft. Prosecutors allege Saunders grossly inflated rental-equipment expenses for the set, among them: two brooms at $225; six road cones, $1,350; stepladders, $1,350.
Runge and her two partners, Saunders and Zachary LeBeau, share ownership of Polynation Pictures, LLC. The company submitted an initial budget estimate for “The Scientist” of $767,250 in September of 2008. That figure climbed to $1.8 million just a couple of weeks later. Yet the company received expenditure tax-credit certificates of $1.85 million on total expenditures of $3.7 million. Much of the difference: a) isn’t accounted for b) stems from payments never made c) had no apparent link to the movie’s production or d) went to out-of-state payment recipients, according to the audit.
Previews for Runge’s trial promise a mix of high-profile witnesses and attorneys, and plenty of mud-slinging. Readers, do you think Iowa’s crackdown will be a lesson to the broader group of tax-credit exploiters? Or will scammers try to get away with misdeeds until they’re caught?