Will an FBI Sting Stymie Efforts to Supersize California’s Production Tax Incentives?

As Sacramento was shaken by news of an “Argo”-esque FBI sting operation aimed at State Sen. Ron Calderon’s support for film tax incentives, it raised concerns that it will make a planned push to expand the California credits all the more difficult.

Calderon has not been charged with a crime. On Wednesday, Al Jazeera America posted a sealed FBI affidavit describing a sting operation in which undercover officers went to elaborate lengths to pose as independent film producers seeking Calderon’s help in expanding the credit. According to the affidavit, Calderon accepted up to $60,000 for his family, among other enticements, in exchange for pushing to lower the threshold for movies eligible for incentives from $1 million to $750,000. In one instance, Calderon is quoted telling one of the agents, “I told you man, anything you can do, any help you can do for my kids, is, you know…That’s diamonds for me. That’s diamonds.”

“I am pretty disappointed in a lot of ways that the FBI chose to create this fake studio to bribe a public official,” said Paul Audley, the president of FilmL.A., the nonprofit in charge of permitting for the region. “Separating the sting from the reality of what we are trying to do is going to be an issue. It is very, very bad timing.”

A Sacramento insider familiar with the issue put it bluntly: “I would suspect that it will have some sort of impact, in that motivations are going to be suspected.” While advocates for an expanded credit will have a wealth of data to try to make their case, “This whole affair will cast a cloud over the discussion.”

Some insiders suggested that if a lawmaker were to propose lowering the threshold now, it would only raise suspicions, but Audley and others say that has not been part of the push by unions and the studios.

Assemblyman Mike Gatto, who is working on legislation to expand the credit, with plans to unveil it early next year, said, “This isn’t about the entertainment industry; this is about an investigation. That is a very, very important distinction to be made.”

He said that the news of the investigation is “very unfortunately” coming as “we are trying to have a meaningful policy discussion on trying to maintain filming in California. It just so happens that the industry chosen (for the undercover agents) was the film industry. I don’t think it should affect having a healthy policy discussion on how to preserve entertainment industry jobs and retain productions in California.”

Calderon’s spokesman said he would have “no comment at this time.” His attorney, Mark Geragos, did not return a call for comment, but on Wednesday suggested to the Los Angeles Times that the allegations in the report were “fabricated and untrue.”

Proponents, including unions and studios, are preparing for a Sacramento legislative push that is expected to be an uphill climb. Among other things, their  lobbying effort is expected to be aimed at overcoming any perceptions that the credits are giveaways to celebrities or millionaire producers. In Iowa, a scandal over that state’s program resulted in the state ending its credit.

The difference in California, supporters say, is that the investigation is of Calderon, not California’s tax credit.

“There is no report of anyone questioning the integrity of the actual program,” said Ben Golombek, chief of staff to Assemblyman Raul Bocanegra, who recently held a hearing on runaway production at the SAG-AFTRA offices. “There’s no relationship between the program itself and the FBI investigation.” Bocanegra and Assemblyman Ian Calderon, Ron Calderon’s nephew, are working on their own incentive legislation that they plan to push early next year. Golombek noted that the younger Calderon “wasn’t even elected at the time of the investigation,” and that the revelation of the sting does not change anything about their plans. A spokesman for Ian Calderon did not return a request for comment.

“From what I have read, law enforcement posed as a member of the film industry, but it could have been any industry,” said Los Angeles City Councilman Felipe Fuentes, who authored legislation to extend the program in 2010 and 2012 when he was a member of the State Assembly. He noted that the program has been transparent and has not been beset with problems in other states.

“Corruption will infect itself in any issue area,” Fuentes said. “It is not an industry problem; it is a problem of character. I would hope that we could keep the conversation going of keeping California competitive, particularly in the film and television industry.”

Calderon championed the incentives back in 2009, when they were first adopted. But union members and studio reps say that the $100 million-per-year program is insufficient to cover the demand.

At one point, according to the affidavit, Calderon tried to interest the undercover FBI agent in a script that his daughter, Jessica, was trying to get made, a project that the lawmaker referred to as “American Gigolo 2.” The agent told Calderon that “it might be worth investing in the film if the threshold for the tax credit legislation was lowered to $500,000,” according to the affidavit. The agent agreed to take his daughter and pay her a retainer. In one conversation, Calderon is concerned that he is engaged in a quid pro quo. “I cannot take payment…or negotiate payment for Jessica in any way with the understanding that I’m going to do this for you, and it’s gonna be deliberate …because I would not do that for you whether this was involved or not because I have been trying to figure out a way to have more minorities in film benefit from this tax credit.” But according to the affidavit, Jessica Calderon never did any work for the studio yet received $27,000 in payments.

The affidavit said that one of the agents posed as a producer from a film studio in downtown Los Angeles, and the Times reported that the FBI may have gone so far as to create an online persona for the agent, with the name of Rocky Patel. The studio he said he worked for, according to the Times, was United Pacific Studios, which has its own website and lists productions that have been released on homevideo.

Some in the industry who worked with Calderon recalled incidents that left them a bit unsettled. One industry executive described meeting with him and then getting an an email request to donate to his campaign just minutes after they said goodbye. Ed Gutentag, a cinematographer who has been lobbying for expanded incentives, recalled attending a California Film Commission meeting where Calderon had to ask an aide for specifics about the program he was championing.

“I hope it doesn’t hurt” the prospects for expanding the incentives, he said, predicting that it won’t in part because now “the right people are in place” to push for the program.

Steve Dayan, newly elected secretary-treasurer of Teamsters Local 399, said that the sting looked to him to be an “isolated incident.” “The bottom line is we are going to work and we are going to lobby every group that is for or against the incentives,” he said. “We think there is a good economic argument for why these incentives are cost effective for our state.”

Gatto’s legislation, which he is co-authoring legislation with State Sen. Kevin deLeon, would expand the incentives and also rewrite the scope of movies and TV shows that are eligible. But Gatto said that he was not aware of any proposals to lower the incentive threshold. Rather, a focus has been on expanding eligibility to movies with budgets over $75 million, the current cap, as a way of capturing more tentpole production.

Gatto recalled a sting operation in the 1980s in which agents posed as shrimp salesmen. “I don’t think it hurt the fishing industry as a whole,” he said.

“Generally, when any news story likes this breaks, it does make things more tense,” he said. “But the message would be for people who care about these jobs in California to keep doing what they are doing. There is nothing shameful about fighting for retaining jobs in California.”

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