Iowa’s payouts spike with film credit deals

Rod Boshart, CR Gazette –

Judgments paid by the state of Iowa spiked to nearly $13.2 million last fiscal year as attorneys negotiated settlements to resolve claims and disputes caused by employee mistakes, workplace misconduct or other damages involving government operations.

Nearly half of the payout approved by the State Appeal Board in fiscal 2012 involved pre-litigation settlements with film projects that sought state tax credits under an ill-fated state incentive program that was shut down in 2009 after an audit showed millions of dollars worth of tax credits were awarded improperly. State officials also paid large sums to settle claims brought against regent universities.

“The numbers are really out of whack this year” compared to past fiscal years when the claims paid by the State Appeal Board ranged between $2 million and $4 million, said Joseph Barry, the state’s risk manager within the Iowa Department of Management. The fiscal 2012 payout was the second highest in more than a decade, topped only by 2008 when TouchPlay settlements made up a major share of the record $23.5 million in judgments the state paid in that year.

More than $5.6 million was paid to settle claims stemming from the now-defunct state tax credit program.

The state appeals panel authorized a settlement of more than $4.12 million for two finance companies associated with “The Experiment” film project and nearly $1.4 million to two companies associated with “The Crazies” film project. Nearly $60,000 was paid to TriCoast Iowa Productions LLC in a pre-litigation settlement for the film “Smitty” and $40,000 was paid to O.C. Basketball Productions LLC for a pre-litigation settlement for the “Winning Favor” project.

Created by the Legislature in 2007, the state film tax credit program provided a 25 percent tax credit for production expenditures made in Iowa, and a 25 percent tax credit for investors for projects that spent at least $100,000 in Iowa.

Program suspended

Former Iowa Gov. Chet Culver suspended the program in September 2009 after state Department of Economic Development employees raised concerns that credits were being issued for the purchase of luxury vehicles that were later taken to California for personal use.

Nearly $32 million worth of tax credits were granted to 22 film companies. A state audit released in October 2010 found alleged abuse and mismanagement of the credit program and detailed $25.6 million in tax credits that appeared to have been issued improperly to film projects.

After the scandal broke, six people within the state Department of Economic Development lost their jobs, including former Iowa Film Office manager Tom Wheeler, who was one of seven people who have been convicted of criminal charges stemming from the film tax credit fiasco. Chad Witter, 39, the primary accountant for the Changing Horses Productions film company and a tax credit broker for several film projects, is standing trial in Polk County District Court on five felony charges linked to the tax credit program.

The Iowa Attorney General’s Office has been working with filmmakers to settle claims for projects properly conducted under the program’s perimeters, and Barry said only a handful of smaller, outstanding claims have yet to be settled.

Iowa Auditor David Vaudt, a State Appeal Board member, said the film tax settlements “helped spike up” the overall fiscal 2012 payout.

Employee education

Vaudt praised Branstad administration officials and the Attorney General’s Office for working hard to educate state employees on ways to prevent or minimize problems and to streamline the settlement process to “get things settled as quickly as we can and hopefully reduce or at least keep down the liability exposure to the state.”

“I think we’re doing a good job in trying to limit our liability,” the auditor added. “Being the state that we’re in and the types of services we provide, we’re always going to have exposure, but the key is how to we limit that exposure and minimize the risk and the liabilities to the state.”

UNI, UI settlements

Also in the fiscal year that ended last June 30, the state reached a $2.1 million settlement in a claim brought against the University of Northern Iowa in Cedar Falls stemming from a June 2003 incident involving a child attending a summer day camp in Germany supervised by UNI Camp Adventure student interns.

According to State Appeal Board documents, Blake Jermon, 10, was attending a camp in Hanau, Germany, when the group went on a field trip to a local pool. Blake was injured at the pool and later died as a result of complications from the injuries. The administrator of Jermon’s estate claimed the state was negligent in “failing to administer and manage the Camp Adventure program, failing to properly train and supervise Camp Adventure employees and/or child-care givers, and failing to properly supervise Blake Jermon.”

Also, the State Appeal Board agreed to pay $1,875,000 as part of a $3.75 million settlement of a lawsuit claiming that negligence by University of Iowa hospital employees during a birth caused severe disabilities to the baby. The lawsuit was filed by Jonathon and Martha Fountain of Iowa City and their son, now 5, who suffers from cerebral palsy and other serious health conditions.

Half of the settlement money came from the state’s general fund while the other half will come from a UI physicians group.

Settlements

Yearly general fund judgments/settlements paid by state government

Fiscal year Payout

2012: $13,176,314

2011 : $3,780,323

2010 : $6,854,958

2009: $2,552,812

2008 : $23,530,913

2007 : $6,741,962

2006 : $6,221,012

2005 : $8,526,313

2004 : $8,252,713

2003 : $4,231,783

2002 : $4,146,646

2001 : $2,920,520

2000 : $2,163,541

Source: State Appeal Board