Could Digital Domain mess hurt incentives?

More scrutiny as Florida loses DD facility and the $20 mil the state granted

The bankruptcy filing of Digital Domain has already created a fallout in a state all too familiar with boom and bust: Florida, which had staked some $20 million that a new production facility would prove a lucrative new way forward for jobs in a faltering economy.

On Friday, the visual effects house closed its Port St. Lucie facility, with some 300 workers losing their jobs. The state’s current governor, Rick Scott, has launched an investigation into the 2009 awarding of a $20 million job incentive grant made under the administration of his predecessor, Charlie Crist.

Press scrutiny has turned to why Digital Domain received such a lucrative package for an untested enterprise, as the facility was also to venture into work on government production contracts.

The fallout from Digital Domain has also generated new scrutiny of the state’s incentive programs and could have an impact on production tax credits offered in other states. Those programs have faced already pressures in states struggling to close budget gaps, while Iowa suspended its incentive program after the discovery of fraud and abuse.

But Vans Stevenson, senior VP of state government affairs for the Motion Picture Assn. of America, said such abuses were “isolated” amid a history of credits “that generally works everywhere.”

Moreover, the Florida incentive is different from most production tax credits, he noted. The latter is paid out after a project is submitted, a production wraps and an audit is done. “It is a different kind of credit in terms of the benefit that the state gets immediately, before there is one dime that is coming out of the treasury,” he said.

Perhaps most vocal since the collapse of Digital Domain have been reps for the non-profit Enterprise Florida, the agency that was charged with making recommendations to state economic development officials on whether to award such grants. Enterprise Florida recommended against the grant, but “the process was not followed,” a spokesman for the agency said; state lawmakers passed an amendment that provided the funds to Digital Domain anyway.

“There are statutory requirements for awarding these funds, and they did not meet these requirements,” said Enterprise Florida spokesman Stuart Doyle.

According to the Palm Beach Post, then-state Rep. Kevin Ambler (R-Tampa) authored the amendment, clearing the way for the grant and arguing at the time that the state risked losing the company if the process dragged on. Ambler did not return a call for comment; nor did Crist, who is now in private practice.

Ambler lost re-election in 2010 but was later tapped by then-CEO John Textor to serve on the board of Digital Domain Media Group, and a company spokesman said he continues to hold that post. Yet exactly what authority that has remains in doubt, as the company’s bankruptcy reorganization includes splitting up the firm, with the visual effects business kept separate from the rest of the company. According to Florida state campaign finance records, Textor gave $500 to Ambler’s campaign in 2009.

The city of Port St. Lucie also is grappling with the Digital Domain bankruptcy and how a bond issue that helped finance the company’s studio facility will be repaid. According to the Post, the city has annual debt payments of $3.7 million on the bonds, and Digital Domain makes the payments through a lease with the city.

Doyle, the spokesman for Enterprise Florida, said that the Digital Domain project’s “estimated return on investment did not meet the state’s guidelines for the amount of closing fund being considered at the time.”

Enterprise Florida sought to distance itself from the grant, perhaps fearful that it will tarnish the rest of the agency’s economic development efforts, and made an effort to point out that the process was “circumvented.” They also sought to point out that under Scott, “a tighter review process for the use of incentive funds is being implemented.”

“By the time Digital Domain enlarged the scope of its project to 500 jobs and a request for $20 million in incentives, Enterprise Florida had been removed from the vetting process, which is designed to protect whether a company is able to meet its job targets and give the state a solid return on its investment,” Gary Swoope, president and CEO of Enterprise Florida, said in a statement.