NEW ORLEANS (AP) – A documentary about the Mardi Gras season appears to have improperly received about $935,000 in state motion picture tax credits, the legislative auditor’s office said Monday. The tax credits were handed out for “Blaine Kern’s Mardi Gras: Building of the Greatest Free Show on Earth.” The two companies involved in the film, Blaine Kern Artists Inc. and Louisiana Entertainment and Production LLC, said they followed the tax credit rules. The issue is whether expenses incurred by a live entertainment event can be counted as film production expenses. In this case, the entertainment was the 2007 Mardi Gras season, and the question is whether expenses that would have been incurred without filming the event can be counted as production expenses eligible for tax credits. The auditor said $3.2 million, or 95 percent, of the film production expenses submitted to the state were not eligible for production tax credits. The amount of eligible expenses – about $172,000 – was so low that the film was ineligible for tax credits, the report said. The threshold for qualifying for tax credits is $300,000 in eligible production expenses. The film had a budget of about $3.4 million, the auditor said. The Department of Economic Development said it would seek to recover the amount of any wrongfully issued tax credits. Blaine Kern Artists Inc. and LEAP later sold $935,114 in credits for $821,343 to 23 individuals, the audit report said. The auditor recommended the state attempt to recover the credits. LEAP is a company that finances and brokers tax credits, according to the auditor. The tax credit program is designed to promote Louisiana’s film industry. The credits, which can be bought and sold, are used by the owner to lower the owner’s overall state tax bill on a dollar-to-dollar basis. The state has issued about $845 million in movie industry tax credits since the program was set up in 2002. Legislative Auditor Daryl Pupera said $2.9 million of the claimed expenses were for normal operations of Blaine Kern Artists, such as building floats, while $209,848 went to LEAP for producer fees “with little documentation of actual services rendered.” The film was certified by the state economic development agency as eligible to receive credits in December 2006 during the administration of Gov. Kathleen Blanco. The production was filmed in 2007 and LEAP hired a producer, director and other personnel to film and edit the documentary, the auditor said. According to a letter from state economic development agency Secretary Stephen Moret, the tax credit program is supposed to cover actual film production costs and not general operating expenses of a live entertainment event that is being filmed. In response, Blaine Kern Artists said the state film office in 2006 and 2007 certified the entire costs of putting on the New Orleans Jazz & Heritage Festival, VooDoo Fest and the Essence Music Festival in producing films about those events. Blaine Kern Artists said the economic development agency had never proposed a rule banning normal business expenditures of live entertainment events from being counted toward tax credits – and did not do so until January 2012. “In the absence of any written rules in 2006, producers of live entertainment events such as Kern Artists could only seek and rely on guidance from officials” in the state film production office, the Kern response by the law firm of Chaffe McCall said. According to Chaffe McCall, the state certified $44.7 million in live entertainment expenses for six films of entertainment events – Jazz Fests of 2005, 2006 and 2007, Voo Doo Fests of 2006 and 2007 and the 2007 Essence Fest – for tax credits totaling just under $10.9 million. It couldn’t be determined Monday if those films were completed and what aired, if anything. Todd Ragusa, a spokesman for Blaine Kern Artists, said the film questioned by the auditor was finished but was not picked up by any studio. Chris Stelly, director of the state film office, did not return a request for comment. McCall said Blaine Kern acted in good faith on advice of the state film office and denied an allegation by Moret that “material misrepresentations may have been made in the audit and attestations submitted by Kern, by including standard business operation expenses of float building as production expenses.” “It is reckless for the (auditor) to suggest the production ‘may have’ violated the program statute and it’s defamatory for the (auditor) to suggest wrongful or intentional conduct on the part of Kern Artists or its principals,” the response said. LEAP’s response, written by attorney Robert Wollfarth, denied any misrepresentations and said the film office had no rule banning normal live entertainment expenses at the time the Kern film was certified. According to the legislative auditor, LEAP is headed by Michael Arata. His office referred calls for comment to spokesman Jeffry Orr, who said he didn’t know how many films the company had been involved with. “I can tell you they are involved in the film industry,” Orr said. Records of the secretary of state’s corporations’ database list Arata in connection with about two dozen companies, many with names indicating film industry involvement. In a statement, LEAP said public records “show that between 2004 and 2008, the state consistently approved all expenses related other events and festivals” that were filmed. LEAP said the state was provided “exhaustive details” about the Blaine Kern production, which was independently audited. “Simply put, the Kern production followed the rules,” the statement said. In a statement by Ragusa, Blaine Kern said it had followed all rules. “Now, the legislative auditor is attempting to retroactively enforce a change in an unwritten, unpublished policy,” the statement said.
 
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