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Jul 12, 2012 6:09 AM by AP

Setbacks for agency in recovering film tax credits

BATON ROUGE, La. (AP) - After legislative auditors questioned the handling of a state program that issues tax credits for moviemaking, leaders of the Louisiana Department of Economic Development said Wednesday they have little option but to sue two companies that received about $935,000 in ineligible credits.

And they said they can't file even a lawsuit until the district attorney in Orleans Parish finishes his own investigations.

The auditors say members of the economic development team improperly issued thousands of tax credits for expenditures made by two companies making a documentary about the Mardi Gras season called "Blaine Kern's Mardi Gras: Building of the Greatest Free Show on Earth."

Legislative Auditor Daryl Purpera said Blaine Kern Artists Inc. and Louisiana Entertainment and Production LLC took advantage of vague state laws to list normal operating expenses as production costs.

Lawmakers on the Legislative Audit Advisory Council came down hard on the Department of Economic Development, repeatedly asking what they were doing to get the money back and why they decided to approve the tax credits.

"We are in fact in the process of seeking recovery in the amount of any wrongfully issued tax credits in this particular case," said Stephen Moret, secretary of the state economic development agency.

Leuanne Greco, executive counsel for the agency, said the Orleans Parish district attorney's office has been conducting its own investigation and the agency would step back while that takes place.

Sen. Robert Adley, R-Benton, pressed her further, asking what would happen to the issued tax credits if the DA decided not to pursue a criminal lawsuit. Greco said they were in the process of assembling evidence in order to file a lawsuit.

Christopher Bowman, assistant district attorney in Orleans Parish, said his office initially requested an audit into production of the documentary.

"Having received the report, the matter was referred to the U.S. attorney's office," he said.

A spokeswoman at the U.S. Attorney's Office for the Eastern District of Louisiana said she could not confirm or deny any investigations.

Christopher Stelly, director of the Office of Entertainment Industry Development, said that when the agency reviewed the expenditures, an independent certified public accountant had supported and validated the issued tax credits. Stelly said they also had "three statements from the principals involved in the production attesting that these were non business related expenditures."

The tax credit program, implemented 10 years ago, has helped make Louisiana one of the largest film producing states in the country, Moret said. The initial certification for the tax credits began in 2006, under Gov. Kathleen Blanco's administration. The final certification was authorized in 2009, Moret said.

According to the audit, he said 95 percent of the expenditures the companies listed were not eligible for the tax credits they eventually received.

Blaine Kern Artists Inc. and LEAP ultimately sold $935,114 in credits for $821,343 to 23 individuals, the audit said. LEAP is a company that finances and brokers tax credits, according to the auditor.

The audit says that $2.9 million of the expenses claimed by Blain Kern Artists were for normal business operations - such as the building of floats. Another $209,848 was given to LEAP for producer fees with little documentation on what services were rendered, according to the audit.

Blaine Kern Artists said in their response to a request for additional information from legislative auditors in February that "the Development Office's consistent policy at the time our production was being filmed was to certify all such costs as eligible for tax credits."

Blaine Kern Artists said the agency should not single out their production for disparate treatment because they didn't propose a rule banning normal business expenditures of live entertainment events from being counted toward tax credits until January 2012.

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