The ruling could have bigger ramifications down the road, as several filmmakers who have been denied tax credits weigh legal action against the state.

Iowa Eye Entertainment LLC sued the Iowa Department of Economic Development earlier this month alleging the state breached its contract regarding issuing tax credits to finance their work. The company received initial approval from the state to receive tax credits, but after Gov. Chet Culver suspended the film credit program in the wake of alleged misconduct, the filmmakers were told they were never under contract to get the credits.

District Judge Glenn Pille agreed with the company’s assertions and said he will hold a hearing Friday before he orders the state to issue the credits.

“The court finds that the underpinning facts surrounding plaintiff’s request are relatively undisputed,” Pille’s ruling said.

The state contends that the projects are among 109 that received initial approval but were not under contract to receive funding. Therefore, because there was no contract, the state is not required to provide funding. Iowa Attorney General Tom Miller has said that may not be true.

Miller’s spokesman, Bob Brammer, said the attorney general’s office is “considering all our options, including whether to ask the Iowa Supreme Court to review the decision.”

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

Des Moines-based Iowa Citizens for Community Improvement and Chicago-based National People’s Action have compiled data showing 46 percent of African-American and 35 percent of Latino homeowners in the Des Moines area that received a mortgage from Wells Fargo were given a high-cost, subprime loan. Only 20 percent of white borrowers were given these loans.

When only low- or moderate-income borrowers are factored in, African-American and Latino homeowners in Des Moines were four times as likely to receive a subprime loan as their white counterparts.

Similar numbers in other parts of the country have sparked legal action against Wells Fargo, which is not only the nation’s largest mortgage lender but is also the largest employer in Central Iowa, with more than 11,000 full-time employees in 2008.

So far, no legal action has been taken in Iowa.

The city of Baltimore sued the company last year claiming it engaged in a pattern of predatory lending practices in the city’s poorest neighborhoods, specifically targeting African-American neighborhoods for high-risk and unfairly priced loans.

The practice, known as reverse redlining, is prohibited under the federal Fair Housing Act.

Earlier this month, Illinois Attorney General Lisa Madigan filed a similar lawsuit against the company, claiming Wells Fargo specifically targeted heavily populated African American and Latino areas for high-cost loans, while whites with similar income levels received lower-cost loans.

Madigan’s lawsuit contends that Wells Fargo’s practices “transformed African-American and Latino neighborhoods into ground zero for subprime lending.”

The suit also claims some borrowers were led to believe that they were getting loans from Wells Fargo Home Mortgage, which is principally a prime lender, when in fact their loans were from a subprime unit, Wells Fargo Financial. Both of those entities are headquartered in the Des Moines metropolitan area.

Bob Brammer, a spokesman for Iowa Attorney General Tom Miller, said his office is monitoring Illinois’ lawsuit but has not taken any action so far on this particular issue.

Miller is no stranger to the subprime mortgage crisis. He was one of the main attorneys general in a lawsuit last year accusing Countrywide Financial Corp. of unfair and deceptive tactics in its loan-origination and servicing activities — and that borrowers often were put in structurally unfair and unaffordable loans.

The company eventually agreed to provide loan modifications to up to 397,000 borrowers nationwide.

Miller’s office also helped establish the “Iowa Mortgage Help” initiative, which set up a hotline and Web site to offer free counseling for homeowners in financial distress.

In a statement to the Iowa Independent, Wells Fargo said the allegations are a complete mischaracterization of the company’s lending practices.

“We have a long-standing commitment to fair and responsible lending,” the company said. “The policies, systems and controls we have in place ensure race is not a factor in the pricing or products we offer. Our controls are designed to ensure our lending is fair, responsible and nondiscriminatory. Our pricing is competitive and reflects the risk in the transaction including credit, loan type, loan-to-value ratio and property type. Prime pricing is made available to all borrowers who qualify.”

State Attorney General Tom Miller has pushed for passage of the legislation for nearly a decade. The bill, House File 712, passed 95-1 in the House. The Senate later approved it 48-0.

“This new law creates a private right of legal action for Iowans who are victims of consumer fraud,” Miller said. “Iowans now finally join the citizens of every other state in having the important right to be able to go to court to protect their rights as consumers.”

Consumer advocates were pleased with its passage, but said Tuesday they would continue their fight next year to reverse the exceptions included in the bill. In order to finally assure passage, the attorney general’s office and supporters of the bill agreed to protect a wide array of professionals and service groups from new lawsuits.

As pointed out by an editorial in the Des Moines Business Record last month, the list of exempted businesses is long:

Insurance companies. Attorneys. Financial institutions. Doctors. Veterinarians. Architects. Banks. Retailers that advertise a product with advertising prepared by a supplier. Print publications and broadcast outlets, in connection with the ads they run. Telephone companies. Cable TV providers. Public utilities. Funeral directors. Real estate agents. Charity volunteers. Physical therapists. Optometrists. Anyone whose conduct is permitted by government. And more.

With exemptions like these, who needs the phone number of a lawyer?

“It makes me wonder whose voices were being listened to by our legislators – big business or their constituents,” said Adam Mason, a community organizer for Iowa Citizens for Community Improvement. “In a time of bank bailouts, credit fraud, mortgage fraud and other corporate fraud, one would think the political will would have been there to stand up to these corporations and say enough is enough. Hopefully they revisit this legislation next session and take a more principled stand for our consumers.”

The lawsuit was filed last year by Choose Freedom Iowa, the Iowa Bar Owners Coalition, Clinton’s Organized Bar & Restaurant Owners and Froehlich Properties Inc. just as the state’s smoking ban went into effect. The suit claimed that the ban was unconstitutional.

The groups sought a temporary restraining order against enforcement of the ban while the lawsuit worked its way through the courts, but a judge last August refused to grant the order.

One of the plaintiffs, Brian Froehlich of Wilton, told the Associated Press that the group was “redirecting their efforts and will support the bars that are going to court to protect their businesses.”

In a statement released after the lawsuit’s dismissal, Iowa Attorney General Tom Miller said there are 44 liquor license enforcement actions involving the smoking ban currently before the Iowa Alcoholic Beverages Division.

“We will continue to support enforcement of the law and defend any challenges to the constitutionality of the law,” Miller said. “The great majority of Iowa businesses are obeying the law, and we will not allow a small minority to flout it.”

The Alliance Defense Fund (ADF), a legal advocacy group founded in 1994 by Focus on the Family’s James Dobson and the late Bill Bright of Campus Crusade for Christ, sent an e-mail to each of Iowa’s county recorders asking them to tell their staff that they “shall not be required to issue or process a marriage license, or to perform, assist or participate in such procedures, against that individual’s religious beliefs or moral convictions.”

The e-mail, which was sent out in conjunction with the Iowa Family Policy Center, says Iowa law protects citizens from being forced to “violate his or her conscience.”

The ADF then offers to “provide free legal review and defense” for any county recorder that adopts a “conscious clause” and is challenged “on the basis of its content.”

“Government employees who believe in marriage as the union of one man and one woman should not be penalized for abiding by their beliefs,” said ADF Senior Legal Counsel Doug Napier.

The e-mail comes on the heals of a petition drive pushed by Republican state Sen. Merlin Bartz asking opponents of same-sex marriage to collect signatures and deliver them to county recorders demanding that they ignore court’s decision and deny marriage licenses to couples of the same gender. Bartz has since had an ethics complaint filed against him saying he is trying to pressure local elected officials to break the law.

Attorney General Tom Miller has repeatedly warned county recorders that they do not have the authority to refuse to issue marriage licenses to same-sex couples. The Iowa Supreme Court unanimously ruled that the state’s ban on same-sex marriage was unconstitutional, and “recorders do not have discretion or power to ignore the Iowa Supreme Court’s ruling,” Miller said.

The court’s ruling goes into effect Monday.

Iowa law says that an elected official can be removed from office for refusal to perform duties of the office or for willful or habitual neglect.

The ADF promotes itself as a response to the American Civil Liberties Union. In its 2007 fiscal year, it spent nearly $30 million, according to Guidestar, with the goal of protecting what it regards as the place of Christianity in public life. The group has taken on cases involving embryonic stem cell research, religious displays on public grounds, the Boy Scouts of America’s policy barring gay scout leaders and efforts to stop the husband of Terri Schiavo from disconnected from her life-sustaining feeding tube.

Iowa Attorney General Tom Miller

Miller was responding to a petition drive being pushed by Republican state Sen. Merlin Bartz and the Iowa Family Policy Center that is trying to convince county recorders to deny same-sex couples marriage licenses in defiance of a recent Supreme Court ruling.

“We expect duly-elected county recorders to comply with the Iowa Constitution as interpreted unanimously by the Iowa Supreme Court, the highest court in Iowa,” Miller said in a statement to the Iowa Independent. “Our country lives by and thrives by the rule of law, and the rule of law means we all follow the law as interpreted by our courts — not by ourselves. We don’t each get to decide what the law is; that would lead to chaos.  We must live by and follow what the courts decide.”

Bartz is asking citizens to deliver signed petitions to Iowa’s 99 county recorders on Monday, the day the Supreme Court’s verdict goes into effect and same-sex couples can legally obtain marriage licenses. Any county recorder that doesn’t abide by the Court’s ruling would be in violation of the law and face removal from office.

“Recorders do not have discretion or power to ignore the Iowa Supreme Court’s ruling,” Miller said, adding: “If necessary, we will explore legal actions to enforce and implement the Court’s ruling, working with the Iowa Department of Public Health and county attorneys.”

For several days his office has advised county recorders around the state that they are required to comply with the Supreme Court’s decision, Miller said, which means they must issue marriage licenses to same-sex couples as they have in the past to opposite-sex couples.

Last week, Bartz attempted to insert language into a bill that would have allowed county recorders to refuse to issue a marriage license as a “matter of conscience” without fear of prosecution. The language was ruled out of order. Later, a clerk to Republican state Rep. Kent Sorenson was found to be contacting county recorders asking them why they were willing to follow the Supreme Court’s ruling, since “it’s not a law, it’s an opinion.”

But the Court’s ruling concluded that language “limiting civil marriage to a man and a woman must be stricken from the [state] statute, and the remaining statutory language must be interpreted and applied in a manner allowing gay and lesbian people full access to the institution of civil marriage.”

County recorders do not have the authority to ignore the Court’s ruling, Miller said.