Iowa Attorney General Tom Miller

The audit, conducted by the accounting firm Clifton Gunderson LLP, found oversight problems regarding the tax credit program, known officially as the Film, Television and Video Promotion Program.

Their findings include a lack of proper invoices and documentation on 20 of the 22 film projects that received credits; changes in contracts after they were already approved without proper authorization; credits used for out-of-state vendors; purchase of items not associated with film production (such as luxury vehicles); and credits for labor that was not allowed to be included in the program.

In response to the report, Iowa Attorney General Tom Miller issued a statement saying his office, along with the Polk County Attorney’s Office, State Division of Criminal Investigation and State Auditor, will be undertaking a criminal investigation related to the Iowa Film Office tax credit program.

“We are not permitted by ethical rules to discuss the possible subjects, focus or other details of the investigation,” the statement said, later adding: “The Attorney General’s Office will work to recover any tax credits or funds obtained illegally or not in compliance with the Film Office statute. Approximately $32 million in tax credits have been issued, and we will review them in detail and seek recovery wherever they were obtained in violation of the law.”

Gov. Chet Culver suspended the tax credit program Sept. 18, after allegations of misconduct surrounding the Iowa Film Office emerged. Since the, IDED’s top two officials and the head of the Iowa Film Office have either resigned or been fired.

The full audit report can be found here.

Tom Wheeler, who was put on paid administrative leave on Friday after problems were discovered in the Film, Television and Video Promotion Program, has been dismissed effective Monday afternoon, the governor said in a statement. Wheeler was in charge of negotiating tax-credit deals with filmmakers and was running the tax credit program single-handedly.

In addition, the governor has accepted the resignation of Vince Lintz, deputy director of the Iowa Department of Economic Development. That department oversaw the Iowa Film Office. The director of IDED, Mike Tramontina, resigned on Friday.

IDED is currently reporting to Richard Oshlo, director of the Department of Management, while new leadership for the department is being considered.

The controversy surrounding the tax credits emerged last week after an internal audit discovered problems in the program such as filmmakers claiming payments for themselves for multiple production jobs and for the purchase of luxury vehicles that were not associated with film production.

The governor’s political rivals are already pouncing on the controversy. In a joint statement to the media, House Minority Leader Kraig Paulsen, R-Hiawatha, and Senate Minority Leader Paul McKinley, R-Chariton, said Culver’s lack of oversight and failure to properly manage the film tax credit has not only put the program in jeopardy “but already wasted millions in taxpayer money.”

The two GOP lawmakers also sent a letter to Senate President Jack Kibbie, D-Emmetsburg, and House Speaker Pat Murphy, D-Dubuque, asking that the Legislative Oversight Committee investigate the tax credit scandal.

Culver asked Attorney General Tom Miller and Auditor David Vaudt to assist in investigating the program Monday morning. No time frame has been set for that probe.

The Des Moines Register reported Monday afternoon that “criminal charges could be forthcoming” in the investigation, citing comments from Jenkins. However, in an interview with the Iowa Independent, Jenkins said his statement was more hypothetical than a prediction.

“When I was talking to the reporter from The Register, we had been involved in this for probably all of two hours,” he said. “The reporter was asking me ‘Where could this go? Could there be criminal charges?’ Basically, I said based upon not really knowing anything about this yet and what is involved, I wouldn’t take criminal charges off the table.”

The idea of criminal prosecution is always on the table when the auditor’s office gets involved in an investigation, Jenkins said.

“If we find something that could be criminal, we will refer it to the county attorney, and the county attorney will make a determination as to whether criminal charges would be filed,” he said. “I certainly would not say it is likely in this situation, but as we go into any investigation, we keep our eyes open and we look for all possibilities.”

Gov. Chet Culver asked Auditor David Vaudt and Attorney General Tom Miller to assist in an investigation of the Film, Television and Video Promotion Program after allegations of misconduct and lax oversight emerged last week.

Jenkins said at this early stage, it is still unclear exactly where the investigation will go and how long it will take to finalize. To start, staff at the auditor’s office will organize a meeting with the attorney general’s office and the Department of Revenue.

“One of the first things is to figure out what has already been done,” he said. “As far as any details, we haven’t been involved long enough to know what’s already been done and figure out where to go from there.”

Auditor David Vaudt, left, and Attorney General Tom Miller will assist in the investigation of the film credits program.

“This is not about harming the growing film and television industry in Iowa, but about protecting public funds and the best interest of Iowans,” Culver said in a statement. “I am very troubled by reports of the lack of oversight and accounting procedures of tax credits under this program. My first priority on this issue is to the taxpayers of Iowa, and I know that Attorney General Miller and Auditor Vaudt will help us to quickly identify changes that need to be made and how we can best move forward.”

In a letter to Miller and Vaudt, as well as to Mark Schuling, director of the Iowa Department of Revenue,  Culver asked for a review of the film tax credit program, and to provide advice and recommendations on how the program can be improved in a way that meets the intent of the legislation which created the program and protects the interests of Iowa taxpayers.

Last week allegations of misconduct surrounding the tax credits, known officially as the Film, Television and Video Promotion Program, led Gov. Culver to suspend the program. An internal audit of the program found that credits were not used properly. For instance, some credits were used to purchase luxury vehicles (a Mercedes and a Land Rover) that were not used directly on the film and the amount of credits claimed was the full purchase price rather than the lease cost during the project. The audit found numerous irregularities, ranging from substandard reporting of how credits were used to using venders who reside outside of Iowa.

The allegations also caused the director of the Iowa Department of Economic Development, Mike Tramontina, to resign and the state’s film manager, Tom Wheeler, to be placed on paid administrative leave.

Below is the letter Culver sent to the attorney general, auditor and Department of Revenue Monday morning:

September 21, 2009

Thomas J. Miller
Attorney General of Iowa
Hoover Building
Des Moines, IA  50319

David Vaudt
State Auditor
State Capitol
Des Moines, IA  50319

Mark Schuling
Director, Department of Revenue
Hoover Building
Des Moines, IA  50319

Dear Attorney General Miller, Auditor Vaudt and Director Schuling:

By this letter I seek the assistance and review by your respective offices of the operations of the Iowa Department of Economic Development’s (IDED’s) Film, Television and Video Project Promotion Program and your recommendations as to how the administration of that program can be improved to assure that the Iowa General Assembly’s legislative intent is carried out and that the interests of Iowa’s taxpayers are fully protected.

As you may know, this program was originally established by the Iowa General Assembly under Iowa Code section 15.393.  Under it, projects registered with IDED may qualify certain expenditures for tax credit certificates.  The tax credit is for 25% of the qualified expe3nditures.  A film investment tax credit equal to 25% of the qualified investment in a film project is also available.

In 2009, the Iowa General Assembly passed two bills related to the film credit.  Senate File 480 expanded the credit to include compensation for the principal director, principal producer and principal cast members as long as these persons are Iowa residents or an Iowa-based business.  The bill also made other changes based on the dollar amounts of individual projects.  Senate File 483 created a cap of $185 million on various IDED programs, including the film tax credit.  IDED has allocated $50 million of the $185 million for fiscal year 2009-1020 for the film tax credits.  It has also drafted rules related to this program at Iowa Administrative Code (IAC) 261, Chapter 36.

The Department of Revenue (IDR) processes tax credit certificates claimed on the income tax returns. IDR issues a replacement tax credit certificate if the original tax credit certificate is transferred to another person.  IDR has drafted administrative rules in connection with the film program at IAC 701-52.34.

While there have been many reported benefits resulting from IDED’s implementation of this program, our office very recently learned that there have been insufficient procedures in place to assure a full and accurate accounting of expenditures made to enable persons to qualify for tax credits under the program.   A memorandum outlining program administrative deficiencies issued by former IDED Director Michael L Tramontina is enclosed for your information and review.

Until all reasonable questions about the administration of this program are answered, I have directed IDED’s Board of Directors that no further schedules of qualified expenditures be approved nor any further tax credit certificates be issued.

I seek the review, advice and recommendations of your respective offices as to how this program can be improved and how pending issues can be resolved efficiently and effectively, allowing us to move forward in a manner that is consistent with the intent of this legislation and that protects the interests of Iowa taxpayers.

I pledge the full cooperation of my Administration in this effort and look forward to working in a productive manner with each of you with respect to these matters.

Sincerely,

Chester J. Culver
Governor of Iowa

State Auditor David Vaudt

Vaudt said the state’s budget is in deep trouble and Iowa needs to reverse course.

“I truly believe this is not going to happen unless Iowans have a clear picture of what’s really happening with our finances,” he said. “I know that if I were to run for governor, there would be some that would try to discredit important financial information that I’m providing to Iowans. They would do that by simply questioning the motives, since I would be running for governor.”

The last thing he wants to do, Vaudt said, is diminish his ability to keep Iowans informed about what’s happening with state finances.

“I’m flattered that Iowans would come forward and encourage me to run, and I have seriously considered that over the last several months,” he said, later adding: “But I will not be a candidate for governor in 2010.”

Vaudt has been highly critical of the budgets put together by Democratic legislators. He said at a press conference today that the fiscal 2010 budget plan passed last month relies too heavily on one-time money to fund ongoing expenses and could result in a big gap in 2011.

Sioux City businessman and two-time gubernatorial candidate Bob Vander Plaats remains the only candidate to publically declare his intentions to challenge Democratic Gov. Chet Culver next year.

Vaudt did say he will stand for reelection to a third term as auditor.

Both men have said previously that they are considering challenging Gov. Chet Culver next year. But in order to do so they would have to give up their current office, and most observers consider them safe bets for re-election if they do stay put.

Northey told the Associated Press’ Mike Glover that he is “leaning toward running for secretary of Agriculture,” but that his final decision would come this summer.

Vaudt said he hasn’t officially made up his mind, but according to Glover, “seemed more focused during the interview on his accomplishments as auditor.”

This comes on the heels of former Gov. Terry Branstad and Vermeer Corp. CEO Mary Andringa telling the Des Moines Register Wednesday that they will not run in 2010. So far, only Sioux City businessman and two-time gubernatorial candidate Bob Vander Plaats has officially thrown his hat in the ring.

However, former Republican Party of Iowa Political Director Craig Robinson reports on his blog that state Rep. Christopher Rants of Sioux City is beginning to “lay some ground work for a potential campaign,” visiting Davenport, Cedar Rapids, Des Moines and Council Bluffs in the days since the legislative session ended. Rants said previously that Culver’s handling of the same-sex marriage issue would make him more likely to run for governor in 2010. Despite being ousted as minority leader late last year, Rants took a leading roll in the waning days of the 2009 session, spearheading his party’s efforts to overturn the Supreme Court’s gay marriage decision and casting one of only three votes against changes to the state’s sex offender laws.

Others who have indicated they are exploring a run include former state Sen. Jeff Lamberti of Ankeny, state Rep. Rob Roberts of Carroll, Ames businessman and GOP financier Bruce Rastetter and U.S. Rep. Steve King of Kiron.

Vaudt has joined a group of conservatives around the country who say their states should decline some of the federal money, including Lousiana Gov. Bobby Jindal and Mississippi Gov. Haley Barbour. Vaudt didn’t cite specific programs or dollar amounts, but he did say a short-term gain should not be allowed to create a huge bureaucracy down the road.

“I would sort through each piece of the stimulus package and try and say ‘where does it fit Iowa the most,’” [Vaudt] said.

Even if governors turn down money, the economic recovery law includes a provision allowing state legislatures to override governors.

Vaudt has said publicly that he is considering a run for governor in 2010. While his conservative bonafides on economic policy have been well documented, his views on social issues are less well known. Vaudt told Burns that he has “standard” conservative positions on social issues, including being anti-abortion. But he would make exceptions for rape and when the life of the mother is in jeopardy.

State Auditor David Vaudt

“The gas tax is historically where we’ve gotten the funds for our roads and bridges,” said Vaudt, a possible 2010 GOP gubernatorial candidate. “It can provide a more long-term revenue stream than other options.”

Both chambers of the Legislature are currently weighing bills that would raise the fuel tax 8 cents over two years. In addition to legislative Democrats, conservative groups like the Iowa Farm Bureau and local chambers of commerce have voiced support for the increase, along with Republican state Agriculture Secretary Bill Northey. Iowa hasn’t increased its fuel tax since 1989.

The millions of dollars the state will receive from the recently passed federal stimulus bill will help in the short run, Vaudt said, but once that money is gone, Iowa will still be left with the question of how to maintain its roads.

“One thing we haven’t seen enough details on yet is how much the federal stimulus is going to bring to Iowa that might be used for infrastructure related projects and how that is going to impact the needs analysis,” Vaudt said. “But that is just going to be a short-term fix. That money will be gone in a few years, and we will still need a revenue stream to maintain our infrastructure.”

Warren Jenkins, Vaudt’s chief deputy auditor, said consumers are also going to be more receptive to a fuel tax increase if it helps them avoid other costs.

“I think people are looking at whether it’s going to help avoid a repair bill for their cars because (of) the poor condition of the roads and bridges,” he said. “Whether it’s a blown tire or alignments or general wear and tear because the roads are so bad, there is a trade-off there that I think people get.”

Vaudt said another factor that could soothe taxpayers’ fears is that the funds raised by increasing the gas tax are constitutionally protected from being shifted to another project.

“The money will be spent on what it was collected for, as opposed to being shifted over to pay for other things,” he said. “I think that’s part of what is generating more support for gasoline tax than what we’ve seen in other areas.”

Opposing a gas tax increase are Gov. Chet Culver, a Democrat, and Republican legislative leaders. Culver has said he prefers his $700 million bonding plan. Vaudt said bonding would have the same short-term effect as the federal stimulus, except it will need to be paid off over 20 years.

“I think if you take a look at it, if you use bonds, it’s going to be a fix over a short-term period of time versus a gas tax that will provide a steady revenue stream,” Vaudt said. “The other part with bonding is you’re going to pay interest costs, too.”

Another factor to consider, Vaudt said, is how much infrastructure work Iowa can undertake in a short time period. The federal stimulus money will fund “shovel-ready” projects that can start soon.

“There would be a lot of money put into construction,” he said. “Do Iowa companies have the capacity to do all that work or will we be bringing in out-of-state workers to do some of it, especially if we pass bonds on top of that? It’s something we should be looking at, as I don’t think we have all the details on the table yet.”

Iowa’s infrastructure needs are the victim of short-term thinking, Vaudt said, and it is time that changed.

“If we did longer-term planning, we would have the ability to at least take a look at what we’re doing, what the requirements are upcoming and how we’re going to meet those needs,” he said, adding: “There is no magical right or wrong answer. I think if you talked to the average taxpayer, they would say they don’t want taxes increased, period. But at the same time Iowa has to decide what revenue stream we need in order to provide these services.”

The five-term Republican said “converstations are taking place” about what his campaign team might look like and who is likely to support him. However, he does not have a timetable for making his decision.

“I think I bring a different kind of philosophy as a candidate, one that might separate me from others and would be helpful to the Republican party now,” Roberts said. The party has “distinct points of view of the values of the Republican party and the direction it should take.”

“A campaign for governor should be more about leadership than about issues, about who is capable of leading not just the party, but the state,” he said.

Sioux City businessman Bob Vander Plaats officially entered the race last week. Other Republicans, like state Secretary of Agriculture Bill Northey, state Auditor David Vaudt and businessman Bruce Rastetter have also said they are interested in challenging incumbent Gov. Chet Culver in 2010.

No one is sure how vulnerable Gov. Chet Culver will be in 2010, when he will likely run for reelection, but this week, we have a better picture of which Republican political figures might challenge him.

There’s Bob Vanderplaats, a well-connected social conservative who was 2006 GOP gubernatorial nominee Jim Nussle’s running-mate.  Vanderplaats formally launched an exploratory committee yesterday because, well, he did not already have a committee that could raise money for his statewide campaign.  His biggest challenge?  Prove to GOP primary voters that he’s more than a single-issue candidate, that he is a serious, electable candidate statewide.

Then there are Secretary of Agriculture Bill Northey and State Auditor David Vaudt, two Republicans who have proven they can win statewide.  In recent interviews, neither would rule out challenging Culver in 2010.  You can take them at their word that they haven’t decided whether to run yet, but it’s a safe bet that they’d be happy to accept contributions to their already-existing campaign committees if you’d like to get in on the ground floor…  Their biggest challenges?  Balancing the desire to wait and see how vulnerable Culver is with the need to enter the race early to sew up the GOP nomination.

Will both Northey and Vaudt run?

Not likely.  They would have to decline to run for reelection to their current offices before getting very far in the gubernatorial race.  Why would both of them give up their jobs just so one of them could lose in a messy primary and have nothing?  Both of them stand very good chances of being reelected in their current jobs if they want to keep them.  The only way I see them both running is as a ticket, which, now that I mention it, is an interesting possibility, but I have no actual evidence that a deal is in the works.

How vulnerable is the governor?

The easy answer is that we’re too far from November 2010 to know.  But we do know a few things.  Midterm elections are typically bad for the political party that controls the White House, so there is some thought that Culver will be vulnerable in 2010 for that reason alone.  Some also believe that in times of economic uncertainty, voters tend to blame the party that’s in power.  Of course, there is also the conventional wisdom that says that voters tend to trust Democrats more than Republicans when they are worried most about making ends meet.  Many questions remain.