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Age : 60
Public asset : 3,306 USD
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Biography : Mr. David K. Koch is Chief Operating Officer at Boomerang Systems, Inc.

Group Backed by Koch Brothers Takes Aim at Tax Credits for Films

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03/25/2016 | 08:48pm CET
By Erich Schwartzel and Cameron McWhirter 

More than a year before Friday's "Batman v Superman: Dawn of Justice" was scheduled to hit theaters, a Michigan lobbyist backed by the billionaire Koch Brothers was already giving the superhero epic a bad review.

The main objection of Annie Patnaude, deputy state director for the Michigan office of Americans for Prosperity, was the $35 million in tax credits given to the movie for filming in the state. "It's Batman versus Superman, versus road repairs, income-tax relief or any number of other priorities for Michigan families and businesses," said Ms. Patnaude. About four months later, state legislators killed the tax-credit program.

It was another victory for Americans for Prosperity, the free-market political-advocacy group backed by conservative billionaire brothers Charles and David Koch. The industrialists' network of Americans for Prosperity staff and supporters across the country are keeping busy, taking aim at the film tax credits that have revamped how Hollywood does business. A spokesman for the Koch brothers referred questions to Americans for Prosperity.

Americans for Prosperity is also targeting what it considers unfair tax breaks for other industries and has launched campaigns against Medicaid expansion, among other causes.

Over the past several years, Americans for Prosperity has successfully organized campaigns to eliminate or reduce tax breaks for entertainment productions in several states despite years of bipartisan support in some cases and billions spent by governments and private industry on soundstage infrastructure and work-training programs. The group has found a natural adversary in what it decries as "Hollywood handouts," calling out legislators who accepted on-camera cameos and targeting politicians up for re-election with ads lampooning their association with A-list stars.

Americans for Prosperity President Tim Phillips said the "core principle for us is ending government cronyism." He added: "This is an insidious example of government picking winners and losers with taxpayer dollars."

The Americans for Prosperity campaigns, along with shifting state economics, have helped dial back several years of film tax-credit fever across the country, one that created several thriving miniproduction hubs in states far from California.

Thirty-five states have film tax programs, and nearly every major-studio movie budget includes a line for subsidies. But just as that has become the norm, Americans for Prosperity has launched a nationwide campaign against the incentives, an opening salvo in its fight against corporate tax breaks. After initial success in several states, the group is targeting filmmaking hubs like Georgia and anywhere they feel they can make headway. Even the specter of political controversy can send productions scurrying to other states.

Hollywood's moves across the country have forced it to weigh in on other state debates. On Wednesday, several Hollywood production companies said they would stop shooting in Georgia unless Republican Gov. Nathan Deal vetoed legislation called the Free Exercise Protection Act, which was passed this month by the GOP-dominated Legislature. The act permits faith-based organizations to fire employees if their "religious beliefs and practices are not in accord" with the organization's. It also allows faith-based groups to decline services for the same reason. Gay-rights groups argue such wording would allow churches to discriminate against gay or transgender people.

Walt Disney Co. and AMC Networks were among the companies saying they would leave the state. Disney's Marvel Studios has filmed several blockbusters in the state, including the upcoming "Captain America: Civil War," and AMC's "The Walking Dead" has been an economic boon to the Georgia town where the zombie thriller films. Many nonentertainment businesses also have condemned the legislation. Mr. Deal has spoken out against the bill but has said he hasn't made up his mind whether he will veto it. He has until May 3 to decide.

As critics attack the film credits in the U.S., foreign countries, including Canada, the U.K. and Australia, are ramping up their attempts to lure filmmakers.

Americans for Prosperity's animosity toward film tax credits is playing out at the state level, but it is backed by two billionaires who likely will have significant influence in the 2016 presidential election and state races nationwide.

Ten states have eliminated film-incentive programs since 2009, which doesn't include some of the reductions made in program funding in other states, according to Entertainment Partners, a production-incentive consulting firm in Burbank, Calif. Some states have dropped or reduced the programs in response to larger budget problems, some driven by the steep drop in oil prices.

In Florida, Koch-backed radio ads told lawmakers to stop supporting "Hollywood tycoons" by funding movies shot in their state, highlighting salacious fare like the male-stripper drama "Magic Mike." The organization's state director in New Jersey testified in November that legislators should shun "glitz and glamour" and instead focus on striking down a tax increase on gas. Even Montana's tiny program was eliminated after Joe Balyeat, a former Montana state senator then working as the director of American for Prosperity's state office, became the first person ever to testify against the subsidy.

"It was a surprise attack," said Deny Staggs, Montana's film commissioner. Legislators, some of whom were already skeptical of the subsidy, eliminated the program. The current state director for Americans for Prosperity, David Herbst, said it didn't matter to his group how small the Montana film-incentive program was. "We're not just there for the big fights," he said.

The group has found common cause with liberal policy groups in Kentucky, Florida and Louisiana that oppose the credits. "I would be delighted if the folks at AFP, who we have not always seen eye-to-eye with, would be at the table arguing for limits to this program," said Jan Moller, director of the Louisiana Budget Project, a liberal policy group.

Americans for Prosperity's playbook was on full display in North Carolina, where the film industry in 2013 awarded $61 million in incentives and was having its biggest year when the group took aim. The state's generous tax-credit program, built over the past decade with general political support, offered a 25% refundable tax credit, as much as $20 million per production. Refundable credits reimburse a company for its investments, even if it doesn't owe state taxes.

The subsidies had attracted major films like "The Hunger Games" and "Iron Man 3." But then mailers produced by Americans for Prosperity started arriving in mailboxes, splashed with photos of Tom Cruise and asking if voters really wanted their tax dollars going to millionaire celebrities.

"We needed about three sentences to explain our position," said Aaron Syrett, then North Carolina's film commissioner. "They needed two words: Tom Cruise."

Soon after, the 2014 elections went overwhelmingly to Republicans and an Americans for Prosperity board member, Art Pope, became state budget director. Proponents brought industry vendors to the state capitol to meet with lawmakers in an effort to gin up support. But the film tax credit was drastically reduced to a $10 million grant program that was only recently raised to $30 million.

Union officials say productions have headed elsewhere. Georgia wooed away the "Hunger Games" sequels as well as some television productions.

"We were outspent and outgunned the whole time," said Jason Rosin, business agent for a film workers' union that spans North Carolina, South Carolina and Georgia. Following the legislative change, the proportion of his members living in North Carolina plummeted, he said.

Americans for Prosperity, co-founded and supported by the owners of the closely held Koch Industries, is known as a pro-free-market, pro-business organization that supports limited government involvement in the marketplace. It has no qualms criticizing Republicans who support incentives, especially in GOP-dominated states where the subsidies have been popular but where tea-party activism is high. "Despite their rhetoric about limited government and limiting government expenditures...Republicans definitely bear more responsibility," said Mr. Phillips.

The Motion Picture Association of America, representing the six major Hollywood studios, has been the leading lobbying force for film tax programs as the subsidies have grown more important for its members. When a tax credit comes up for debate, the MPAA lobbies lawmakers with economic-impact studies and dispatches a representative or studio executive to testify and lobby in its favor--appearing over the past year in Florida, Louisiana, North Carolina and Michigan, among others.

In recent years, Americans for Prosperity officials failed to get anywhere in Georgia, now one of the most popular destinations for Hollywood.

But this legislative session, the group has started lobbying to convince politicians that the state's credits--some of the most generous in the U.S.--should be rolled back. The group plans to build legislative and grass-roots support this year, then back specific legislation next year, said Michael Harden, the group's lobbyist in Atlanta.

Support for film credits in Georgia, once widespread, "has hit its high-water mark," he said. Mr. Deal has spoken out in support of the credits in recent weeks--endorsements that have led some political observers in his state to wonder if he is girding for a fight.

(MORE TO FOLLOW) Dow Jones Newswires

03-25-16 1547ET

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