Film Industry Tax Incentives Money Pit

(Boston Globe) More than three years into a state program that awards lucrative tax incentives to lure filmmakers to Massachusetts, a new report by Governor Deval Patrick’s administration concludes that taxpayers are not getting their money’s worth.

The report, which the state Department of Revenue released yesterday, says that Massachusetts is getting only 16 cents for every dollar the state spends on the incentives, and that much of the benefits from the program are going to out-of-state companies and workers.

Enacted in 2005, the program effectively underwrites a quarter of filmmakers’ production costs, in hopes that the movie industry will in turn hire Massachusetts workers and generate economic activity in the state. But the report indicates that many of the jobs are temporary, and that the state isn’t getting anywhere near its money back on its investment.

The state handed out about $166 million worth of tax credits to 267 projects from 2006 through 2008, according to the report. The state is set to spend nearly $100 million more on 30 projects in the works, the report says.

The tax program has fueled a debate - and one with serious political implications - within Patrick’s administration over whether the tax credits are wasting taxpayer money or planting the seeds for future economic growth.

Critics say the incentives give huge tax breaks to wealthy Hollywood moguls and movie stars who hardly need the help. But the program has support from powerful Beacon Hill lawmakers, including Senate President Therese Murray and House assistant majority leader Ronald Mariano, both of whom are hoping to bring large, permanent soundstages to their districts. The projects together would cost close to $600 million, but their construction hinges on the continuation of the film tax credit program, Murray and Mariano say.

“This is like the seeding,’’ Murray said. “You have to look at the bigger picture.’’

But critics, citing other states’ experiences, have seized on the report, saying it confirms their fears that Massachusetts is giving away money at a time of fiscal crisis, when vital services are being cut.

Peter D. Enrich, a Northeastern University law professor who specializes in tax incentives, said Massachusetts has joined a self-defeating national competition among other states.

“We are essentially becoming co-producers with the Hollywood moguls,’’ said Enrich, a former top official in the Dukakis administration.

What direction Patrick will take is not clear.

His top fiscal adviser, Leslie Kirwan, the secretary of administration and finance, who oversees the Revenue Department, is pointing to the agency’s findings to raise questions about the benefits of the tax credits, according to administration officials.

But Patrick’s economic development staff counter that the incentives have helped generate hundreds of millions of dollars in economic activity, and will help create a vibrant, permanent film industry.

The debate among Patrick’s aides has created unease among those hoping to see a film industry gain a foothold in the Massachusetts economy.

“We’re getting a mixed message from the administration,’’ said Mariano, a Quincy Democrat who is trying to persuade investors to build studio facilities at the former South Weymouth naval air station. “The fiscal folks are telling the governor one thing, and the development people are talking very differently.’’

Last month, Mariano and other lawmakers prevailed upon Patrick to back off his push to cap, at $2 million, the amount of salary that qualifies for the tax credit. Hanging in the balance, according to lawmakers, was production of a Tom Cruise-Cameron Diaz movie, “Wichita,’’ which is set to starting filming here. The movie is poised to be the biggest film ever shot in Massachusetts.

For the governor, the debate carries political implications, in part because of the interest that Mariano and Murray have in the construction of film studios in their districts.

Patrick’s relationship with Murray, which has been fragile at best, was recently strained further when the administration last month rejected a request by Plymouth Rock Studios for a $50 million bonding subsidy for road, water, and sewer construction. The Plymouth studio is looking to build a $400-million complex and says it will eventually create as many as 4,000 jobs.

Murray has voiced support for the investors in her hometown. Her top political adviser, Kevin O’Reilly, this year took a job as Plymouth Rock’s vice president for government affairs. For the past year, he had been a consultant to both her campaign committee and the investors.

The controversy over the tax breaks reflects what is happening around the country. States are in a fierce competition to lure movie producers; some are enhancing their credits in efforts to outbid one another.

“It’s an absurd race to the bottom, and one which we can’t win,’’ said Representative Steven J. D’Amico, a Democrat from Seekonk. “They are a Trojan horse that backs us into a permanent entitlement for a highly profitable industry.’’

Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded watchdog group, added, “The Hollywood stars and famous directors come to town and the normal critical eye given most credits goes by the boards.’’

 “It’s wrong to ask whether it’s worth it based only on short-term results,’’ said Gregory Bialecki, the secretary of economic affairs. “The right question is, is it a better long-term investment?’’

Source: Frank Phillips, Boston Globe

Scott Drake interviews Northeastern University law professor Peter Enrich in this video:

Len Dykstra Bankruptcy Attorney Walter Hackett

(Reuters) Lenny Dykstra, the former star center fielder for the New York Mets and Philadelphia Phillies Major League Baseball teams, has filed for Chapter 11 bankruptcy protection.

The 46-year-old has no more than $50,000 of assets and between $10 million and $50 million of liabilities, according to a petition filed Tuesday with the U.S. Bankruptcy Court in the Central District of California.

Dykstra's filing comes in the wake of more than 20 lawsuits he faces tied to his activities as a financial entrepreneur, including The Players Club, a glossy magazine for athletes he had helped launch in 2008.

According to an April article on ESPN.com, Dykstra put his net worth at $60 million, and also owned a black Rolls Royce Phantom and Gulfstream II jet.

Known as "Nails" and "The Dude," Dykstra played for 12 years with the Mets and the Phillies before retiring in 1996 with a lifetime .285 batting average, 81 home runs, 404 runs batted in, and 285 stolen bases.

He helped the Mets win the World Series in 1986, and as a Phillie was the National League runner-up to Barry Bonds in the Most Valuable Player voting in 1993. The Phillies lost the World Series that year.

Walter Hackett, a lawyer for Dykstra, said the event triggering the bankruptcy filing was a planned foreclosure sale of a southern California residence that Dykstra bought from hockey legend Wayne Gretzky for $17.5 million in 2007.

Dykstra is "in good spirits," Hackett said in an interview. "He understands now that bankruptcy is truly a protective act. I do expect that Lenny is going to emerge from Chapter 11, and make those people whole who have legitimate claims."

According to the bankruptcy petition, Dykstra's largest unsecured creditors include units of JPMorgan Chase & Co, owed $12.9 million, and Bank of America Corp, owed a combined $4.2 million.

Hackett said Washington Mutual, now part of JPMorgan, was the main lender on the 2007 home purchase, and that the bank misled Dykstra about his ability to afford the property. The lawyer said the bank deserves nothing on its claim.

JPMorgan spokesman Tom Kelly said: "We don't comment on individual cases, but we expect our customers to repay their legal obligations under their mortgages when possible."

The bankruptcy case is In re Lenny Kyle Dykstra, U.S. Bankruptcy Court for the Central District of California (San Fernando Valley), No. 09-18409.

Harvard Business School Responsible for Financial Crisis?

Philip Delves Broughton is a former journalist at the Daily Telegraph of London. In his book "Ahead of the Curve" he chronicles his love-hate relationship with the Harvard Business School, where he spent two years getting his M.B.A. He says HBS must share accountability for the financial crisis.

From The Washington Post

Reviewed by Bryan Burrough

In 2004, the 31-year-old Paris bureau chief of London's Daily Telegraph newspaper, Philip Delves Broughton, gave up the rigors of daily journalism. Too many long nights in dismal airport lounges and too many silly French press conferences had taken their toll. Casting about for a change in careers, he applied to business schools and, to his surprise, was accepted at Harvard.

Broughton tells what happened next in Ahead of the Curve, a useful primer for anyone considering a similar path, or just curious as to how Harvard churns out all those gleaming little masters of the universe. This book should really be called "Harvard B-School for Dummies," or maybe "I went to Harvard B-School and all I got was this stupid T-shirt," because it assumes the reader, like Broughton, knows precisely nil about the corporate world, and because the author somehow managed to graduate from the world's premier MBA factory without, well, an actual job.

The book doesn't work especially well as a conventional narrative. There's no suspense; Broughton writes that it's almost impossible to flunk out. Rather, Ahead of the Curve offers a good sense of Harvard Business School's day-to-day workings, everything from what the other students are like to the merits of each lecturer to impressions of business titans such as Warren Buffett and Stephen Schwarzman, who revolve through the doors offering pointers on how to get filthy rich.

Broughton makes a delightfully clueless guide. His math skills are crude, and he can't operate Microsoft Excel. When the other students flock off to Wall Street for summer jobs, he can't get one and is forced to spend three hot months in a Harvard library writing a novel that, thankfully, he tells us little about. In fact, from the outset, he is entirely ambivalent about entering Corporate America. He doesn't really want to work that hard, he admits. He wants to spend time with his family.

How on earth, you ask, did such a slacker end up at Harvard? Great story. Broughton, a fan of the finer things, was interviewing a Latin American business magnate and took to admiring the hushed surroundings, the paneled walls, the spiffy MBAs hovering over laptops in conference rooms. "I felt I had been given a glimpse of a better world," he writes. "If this was business, I could get used to it."

And that, it appears, was the sum total of his experience when he arrived in Cambridge. There are no jaw-dropping surprises once classes begin: long hours surrounded by haughty young hedge-fund hotshots on leave from Wall Street, a frat-house social whirl marked by streams of vodka sucked off blocks of ice and an oh-so-gradual grasping of basic business principles. Broughton tells it all with solid, disciplined prose. He wastes no words and gives us just enough personal information to allow us to understand who he is. About the only places the book bogs down are passages in which he feels the need to actually explain some of the things he was trying to learn: the fundamentals of accounting, manufacturing, marketing, etc.

He is especially good at conjuring up the intangible benefits of a Harvard MBA: the network of Fortune 500 CEOs available with a single phone call; the sense that, just by entering the school, he has somehow become a card-carrying member of the Davos set. At one point, he and a buddy, intoxicated by a class on entrepreneurship, scribble out a business plan for an Audible-like Internet site, and -- voila! -- with nothing more than an idea and a few Powerpoint slides, he finds himself taking meetings with the country's top venture capitalists. Eddie Murphy once did a "Saturday Night Live" skit in which, donning the guise of a white businessman, he finds everyone jostling to give him free money and gifts. That was a joke; this is Ivy League reality.

As his two years draw to a close, Broughton wrestles with his next move. His classmates are all taking new jobs at McKinsey and Bain and Yahoo, but despite myriad interviews, he has yet to field an offer. Part of the problem is what he wants, as he writes in a "Help Wanted Ad I Sought But Never Found" : "Absurdly profitable company seeks journalist with ten years' experience and a Harvard MBA for extremely highly paid, low-stress job in which he can wear nice suits and loaf around in air-conditioned splendor making the very occasional executive decision. Requirements: acute discomfort in the presence of spreadsheets, inability to play golf, poorly concealed loathing of corporate life, knowledge of ancient Greek." Broughton eventually draws interest from Google, but after 14 separate interviews, including an eight-hour marathon in a tiny conference room, he backs out, unable to reconcile his ambitions with life in a Dilbert cubicle.

Luckily, Broughton makes a better writer than corporate drone. If you're thinking of following in his footsteps, I'd invest in this book first.

Scott Drake interview Phili Delves Broughton in this video.

Medical Malpractice and Health Care

( NY Times) Hoping to enlist support for his campaign for health care reform, President Obama told the American Medical Association this week that he would work with doctors to limit their vulnerability to malpractice lawsuits. That was a reasonable offer — provided any malpractice reform is done carefully.

The current medical liability system, based heavily on litigation, has a spotty record. It fails to compensate most victims of malpractice because most never file suit. When cases reach the courts, some juries do a decent job of sorting out whether there was negligence or preventable error; others are swayed to grant large damage awards based more on the severity of a patient’s injuries than on clear evidence of negligence.

Mr. Obama did not specify which malpractice reforms he favors, but he wisely rejected placing caps on malpractice awards, the preferred solution of Republican tort reformers. Such caps would be unfair to people grievously harmed by physician errors who need substantial compensation to live with their injuries.

There is a variety of ideas worth exploring. Some analysts have called for setting up tribunals of neutral experts to hear malpractice claims. Others suggest requiring mediation, or granting doctors presumptive protection in malpractice lawsuits if they have followed recommended clinical practice guidelines, or encouraging doctors to confess error promptly, apologize to patients forthrightly, and offer them fair compensation for their injuries.

Whether malpractice reform would save much money is unclear. Malpractice claims do drive up insurance premiums paid by doctors in some high-risk specialties, such as obstetrics and neurosurgery. Those costs are presumably passed on to patients. There is also concern that doctors may overprescribe costly tests and treatments to avoid possible lawsuits. But the evidence is inconclusive, according to the Congressional Budget Office, that doctors engage in enough “defensive medicine” to have a significant impact on costs.

The office estimates that caps on damages would ultimately reduce malpractice premiums for medical providers but would have a “relatively small” impact on total health spending, reducing it by less than half a percent. Even that could save billions of dollars a year, which is not trivial. But malpractice claims are probably not a major cost driver.

Still, most doctors are convinced that malpractice suits are unfair and burdensome, so it is worth exploring the issue, if only to gain their help in reforming the health care system. Whatever the alternative — tribunals, mediation — patients must retain the right to go to court and seek higher damages than they have been offered. That is the only way to deter negligence by doctors, hospitals and other health care providers.

Scott Drake interviews medical malpractice expert Barry MacBan in this video

Unequal Rights for Those Injured by the US Government

Matt Bracy, host of the Factoring Channel writes in his blog this week "The US Department of Justice decided several years ago that it does not like structured settlement factoring, and will not “allow” structured settlements it owns to be factored. Exactly who made that decision, and why, has been hidden behind the “executive privilege”. In resisting attempts to factor payments, the Department of Justice invokes the ancient concept of “sovereign immunity” – the sovereign, or in our case, the US government, cannot be sued unless it has consented to be sued."

Scott Drake interviews Settlement Capital Corporation's chief counsel Matt Bracy.