Mismanagement of Iowa’s state film tax credit program has led to more personnel changes at the Iowa Department of Economic Development this week. On Monday three longtime employees of the department were dismissed: general counsel Melanie Johnson, Jeff Rossate, and Amy Johnson. The Des Moines Register reported,

Rossate, as division administrator for business development, was the direct boss for film office manager Tom Wheeler. Johnson was Rossate’s No. 2 as the coordinator of the business development division.

The Des Moines Register reported on Saturday that e-mails showed those officials were privy to some of the worst problems facing the film program in the two months before it was suspended.

Amy Johnson had been serving as interim director of the film office before she was dismissed. IDED announced Tuesday that attorney Jessica Montana will be the new interim director of the film office. Montana has worked on IDED’s regulatory assistance team since 2007.

I wonder whether the latest dismissals will complicate the criminal case against Wheeler and two film producers. Wheeler was fired from IDED shortly after the scandal broke, and earlier this month the Iowa Attorney General’s Office charged him with non-felonious misconduct. His defense attorney will now be able to claim that Wheeler’s boss and others knew about problems with the film tax credit program.

No matter what happens with that case, I don’t envy IDED director Bret Mills, who needs to sort out this mess. Mike Tramontina resigned as IDED director when the film tax credit scandal broke, and Fred Hubbell served as interim director of the department until Governor Chet Culver appointed Mills in late December. The Iowa Senate confirmed Mills unanimously this month.

Here’s hoping state legislators will put the film tax credit program out of its misery. A bill is pending to suspend the tax credit until July 2011, but the program was ill-conceived from the beginning and doesn’t deserve to be revived. There are a lot better ways for the state to spend up to $50 million a year.

Meanwhile, the Des Moines Register reports today,

Eleven film companies are suing Iowa’s Department of Economic Development, saying they believe certain documents that have not been released since the scandal broke – including expenses and budgets they reported to the state – should be kept confidential.

Scott Brennan, an attorney for the film companies, said Tuesday there is a difference between public curiosity and public interest in the ongoing probe. His clients believe they were guaranteed “by contract and by statute” that certain trade secrets would be kept secret.

The attorney general’s office and the Register argue that the records – first requested last fall – are public under state law and should remain so because they are of significant public interest. The two sides met in court for the first time Tuesday.

According to a brief filed Tuesday by Michael Giudicessi, the newspaper’s lawyer, “Whether evidenced by the very requests of the Register and other news organizations for access, the suspension of the film tax credit program by the governor’s office, the conducting of an independent audit by the department, the vast and increasing amount of taxpayer dollars involved or the ongoing terminations … it is clear that the public interest is not served by any degree of continuing secrecy.”

The Iowa Legislature has been moving at an unusually fast pace during the shortened 2010 session. It’s time to catch up on what’s happened at the statehouse over the past three weeks. From here on out I will try to post a legislative roundup at the end of every week.

February 12 was the first “funnel” deadline. In order to have a chance of moving forward in 2010, all legislation except for tax and appropriations bills must have cleared at least one Iowa House or Senate committee by the end of last Friday.

After the jump I’ve included links on lots of bills that have passed or are still under consideration, as well as bills I took an interest in that failed to clear the funnel. I have grouped bills by subject area. This post is not an exhaustive list; way too many bills are under consideration for me to discuss them all. I recommend this funnel day roundup by Rod Boshart for the Mason City Globe-Gazette.

Note: the Iowa legislature’s second funnel deadline is coming up on March 5. To remain alive after that point, all bills except tax and appropriations bills must have been approved by either the full House or Senate and by a committee in the opposite chamber. Many bills that cleared the first funnel week will die in the second.  

Republicans have complained for years about Democrats allegedly spending too much on “big government,” but a majority of Iowans think state government is about the right size, according to the latest poll by Selzer and Co. for the Des Moines Register. The poll surveyed 805 Iowa adults between January 31 and February 3 and has a margin of error of plus or minus 3.5 percent. Respondents were asked, “In general, do you think the size of state government is too big, about right, or too small?” 52 percent said “about right” and only 39 percent said “too small.”

The Des Moines Register poll also indicates that Iowans would rather tap into the state’s tax reserves, raise fees and perhaps even raise taxes than impose massive service cuts or lay off hundreds of state workers.

The poll tested eleven options for balancing the budget and asked whether that option should be considered, strongly considered or taken off the table. The largest majority (76 percent) said consolidating some state government services should be considered or strongly considered. The Iowa legislature will pass a government reorganization bill this session, but the savings won’t be large enough to avoid other painful budget decisions.

The next largest majority (61 percent) supported considering taking up to $200 million from the state’s cash reserves. But even that probably wouldn’t be enough to balance the 2011 budget.

The other three options that at least half of respondents said should be considered were “increase fines, license fees and other user fees” (53 percent), expand gambling by allowing casinos to host large poker tournaments (51 percent) and raise the sales tax by 1 percent (51 percent).

The Register reported that several political observers found the sales tax numbers most surprising. I was more surprised to see the public evenly divided on raising the income tax. Some 48 percent of respondents said “lawmakers should consider raising state income taxes by a half percentage point; 50 percent said that idea should come off the table.”

The Register’s poll found much less support for “cutting services to thousands of Iowans” (just 33 percent favored considering that option, while 60 percent said it should be taken off the table). Only 42 percent favored considering laying off hundreds of state employees or consolidating school districts. Only 43 percent said legislators should consider eliminating all business tax credits. Just 45 percent said reducing the number of Iowa counties should be on the table.

My point is not that politicians should put blind faith in the wisdom of crowds. I don’t agree with every finding in this poll. I’d rather reduce the number of counties and scrap many business tax credits than raise the sales tax, and I find Iowans’ support for the film tax credit baffling.

The larger message from this poll is that Iowa Democrats should not cower in fear when Republicans bash “big government.” Offered a range of choices for balancing the state budget, most Iowans would prefer not to see services slashed. The Register’s November 2009 poll pointed to the same conclusion, finding broad support for spending increases Democrats have adopted in recent years.

Republicans will be cheered by the portion of Selzer’s latest poll that found one-third of Iowans called themselves supporters of the “tea party” movement, and a majority believe state government is spending too much money. To me that suggests the framing of the budget issue will be critical for this November’s elections. Democrats need to convince voters that they did all they could to find efficiencies in state government without cutting priority areas. If Republicans object, for instance, that the state could have saved tens of millions of dollars by ending the preschool initiative started in 2007, Democrats must point out that doing so would have cut off early childhood education for about 13,000 Iowa kids.

The Iowa Attorney General’s Office filed the first criminal charges in connection with the film tax credit scandal today.

Tom Wheeler, who stepped down in September as manager of the office, faces a charge of non-felonious misconduct in office. Wheeler, 41, is accused of failing to verify the eligibility of applicants for the state’s film tax credit program.

Also charged is Wendy Weiner Runge, who was executive producer of a 2008 film, “The Scientist.” Runge is charged with first degree theft and is accused of taking property belonging to the state of Iowa by unlawfully reporting inflated values on applications for tax credits.

UPDATE: A later version of the Des Moines Register story noted that charges have also been filed against “Matthias Alexander Saunders, another business owner and photography director; and three limited liability corporations tied to the movie [“The Scientist”].”

The Attorney General’s Office press statement is here, and on that page you can download documents related to the charges filed. Governor Chet Culver fired Wheeler shortly after the scandal broke last September. Iowa Department of Economic Development Director Mike Tramontina and deputy director Vincent Lintz both resigned.

It sounds as if Wheeler’s attorney will be Gordon Fischer, a name familiar to many Iowa Democrats. WHO-TV journalist Dave Price posted a statement from Fischer at the Price of Politics blog. Excerpt:

We are disappointed with the Attorney General’s decision to file criminal charges under the facts and circumstances of the situation as we know them. The state has decided to pursue a novel theory of criminal liability and it is our position that their decision is a mistake that is not supported by the facts or the law. However, because they have chosen this path, Tom’s focus must now necessarily shift from trying to help the state develop a functional, and economically beneficial, tax incentive program to defending against the criminal charges. Because of this shift in focus, we will need time to review the state’s charging documents before anyone can make specific comments about the facts underlying the Attorney General’s allegations.

UPDATE: The Des Moines Register published more comments from Wheeler’s advocate:

Gordon Fischer, whom Wheeler hired shortly after a multi-agency investigation began in September, said the state was making Wheeler the fall guy for poor oversight of a program overrun with applications.

“It’s really, really disappointing that they made the decision to try to criminalize this,” Fischer said. Wheeler, he said, “continually raised to his supervisors that the workload was very heavy (inside the firm office), and he was doing the best he could with limited resources.”

The Iowa legislature is likely to eliminate the state film tax credit this session. Last week Iowa State University economist Dave Swenson wrote a good column at InsiderIowa.com about why this program was flawed from the start:

An ad hoc cabal of arts boosters, state and local economic developers, impressionable legislators, and an uncritical me-too response to other states’ attempts in this extremely iffy arena led to what was proudly billed as half-price film making in Iowa.  That is, incredibly, 50 percent of qualifying in-state film-making expenditures could be claimed as state income tax credits.  And even if you didn’t generate enough economic activity to use the credits, you could sell them on the secondary market to some other Iowa company that wanted to lower their state taxes.

It was a fiasco on three fronts. First, the grant of a fully-refundable credit on 50 percent of costs was fiscally unsustainable, legislatively irresponsible, and set the stage for the documented abuses that occurred. Second, Iowa does not have the population, talent, geography, climate, visual amenities, and the whole array of agglomerations that would support a meaningful and sustainable year-round film industry. It never will. And third, the creative economy, as in arts and entertainment, will not be a leading driver of the Iowa economy because they all had it backwards:  arts and entertainment clusters of the kind described by Mr. [Richard] Florida [author of The Rise of the Creative Class] are a result of other economic growth not the cause.

Iowa does not have a Hollywood, Nashville, Taos, Santa Fe, Austin, Memphis, or even Branson to build from.  Iowa is farms, biotechnology research and development, manufacturing, finance and insurance, health care, and universities.  Those are Iowa’s key industries, and the creative content of many of those industries is quite high.  They are full of biologists, agronomists, actuaries, mathematicians, chemists, engineers, computer scientists, and other physical, medical, and social scientists.  That is Iowa’s creative economy, and that is the portion of the state that will drive most job growth and innovation in the next decade.  It has art and cultural centers, but no art and cultural centers that are driving regional or statewide growth in other industries.

The film tax credit will end up costing Iowa taxpayers tens of millions of dollars. It’s a costly reminder that consensus ideas aren’t always good ideas.  

The legislative session begins this week, and budget issues are likely to dominate the proceedings.

Some state tax credits will be scrapped and others curtailed if lawmakers enact recommendations released on Friday by a commission Governor Chet Culver appointed. State Senator Joe Bolkcom, who chairs the Ways and Means Committee in the upper chamber, has vowed to pass as many of the recommendations as possible. I expect major pushback from corporate lobbyists against many of the proposals, however.

House Speaker Pat Murphy is not ruling out significant layoffs of state workers. It really is unfair to balance the budget mostly on the backs of state workers, especially since demand for state services increases during a recession.

I was surprised to see Culver’s chief of staff, John Frew, suggest a scaled-back version of “fair share” legislation could pass this session. If Democrats don’t have the votes for a prevailing wage bill, I can’t imagine they’ll get 51 votes for fair share, but I hope I’m wrong.

Kathie Obradovich previews other issues that are likely to come up during the legislative session.

Democratic leaders insist a constitutional amendment to ban same-sex marriage is off the table, but Republicans will use every trick in the book to try to bring the issue to the floor.

Roxanne Conlin plans to visit all 99 counties in her Senate campaign, just like Senator Chuck Grassley has been doing every year for the past three decades.

In other news, Iowa may be on the verge of coming out of the deep freeze. I read today that the highest temperature recorded anywhere in Iowa since January 1 was 20 degrees Fahrenheit one day in Keokuk (southeast corner of the state). How are you surviving the cold? I’ve been wearing slippers, wool sweaters and extra layers. My kids still insist they are comfortable running around the house in pajamas and bare feet. Our dog could walk for miles, even on the days when it’s been below zero F when I’m out with him.

This thread is for anything on your mind this weekend.

Following up on my review of news from the first half of last year, I’ve posted links to Bleeding Heartland’s coverage of Iowa politics from July through December 2009 after the jump.

Hot topics on this blog during the second half of the year included the governor’s race, the special election in Iowa House district 90, candidates announcing plans to run for the state legislature next year, the growing number of Republicans ready to challenge Representative Leonard Boswell, state budget constraints, and a scandal involving the tax credit for film-making.

On Monday Governor Chet Culver appointed Bret Mills as the new director of the Iowa Department of Economic Development. Mills will replace Fred Hubbell, who agreed to serve as interim IDED director this fall after Mike Tramontina resigned due to problems with Iowa’s film tax credit.

Up to now, Mills has been director of the Iowa Finance Authority. Also on Monday, Culver appointed Joe O’Hern to replace Mills as IFA director. For the last three months, O’Hern has been interim deputy director of IDED.

In addition, Culver announced plans to move the HOME Investment Partnership program from IDED to the Iowa Finance Authority: “This not only will help streamline our housing efforts, but it will ensure that IDED is staying true to its mission: attracting new businesses, growing current companies, and retaining and creating jobs statewide.”

The press release from the governor’s office contains more background on the HOME program and short official bios of Mills and O’Hern. Given their qualifications, they should have no trouble being confirmed by the Iowa Senate.

The film tax credit fiasco sparked the turmoil at IDED, and the department won’t issue new credits under that program for the remainder of this fiscal year. However, film credits already awarded will cost taxpayers tens of millions of dollars.

The upside is that all state tax credits are being subjected to much more scrutiny. Debates about scrapping or scaling back some of the business tax credits will be among the most contentious issues of the 2010 legislative session. Ordinarily, I would not expect legislators to defy any well-funded corporate interests, but this year the budget is so tight that I see no way they can continue with the status quo. Lee Rood reported for the Des Moines Register earlier this month:

Iowa’s incentives for filmmaking may have been the most generous in the country, but they were not the first of the state’s tax credits to skyrocket in cost.

Over the years, other carrots offered by the state to stimulate job creation, development and research have grown dramatically – while sometimes being subject to limited oversight.

A Des Moines Register review of some of the state’s biggest tax credit incentives found state leaders had reason to worry about runaway costs, lack of transparency and waste long before Iowa’s botched attempt at using tax breaks to jump-start a film industry made international news.

That review found the state auditor had identified almost identical oversight problems in another tax credit program; state law required almost no outside oversight of some of the biggest credit programs; and authorities already knew that a portion of projects that tapped the most widely used programs had problems […]

In yesterday’s Register, Rood reviewed five tax credits that “could cost the state more money over the next five years than the film-making tax incentives […] for research, job training, historic preservation, development in distressed areas and high-quality jobs.”