Auditor: Blaine Kern got $1M in tax credits it shouldn't have

Auditor: Blaine Kern got $1M in tax credits it shouldn't have

Blaine Kern Artists—New Orleans' best-known Mardi Gras float builder—and a New Orleans movie production company it was partnered with took nearly $1 million in movie tax credits for which they were ineligible. So says a report released this morning by the Louisiana Legislative Auditor.

According to the report, the Louisiana Department of Economic Development appears to have issued more than $935,000 in tax credits to BKA and Louisiana Entertainment and Production (LEAP) between 2006 and 2009 for the production of Blaine Kern's Mardi Gras: Building of the Greatest Free Show on Earth, a documentary that was supposed to cost more than $3.4 million to make.

According to the audit, however, $3.25 million of those expenses were ineligible for the tax credit program for a variety of reasons, and the remaining $172,953 that did qualify as an eligible expense fell short of the $300,000 threshold required by state law to receive motion picture tax credits.

"This indicates that members of LEAP and or BKA may have violated state laws by misrepresenting the nature of these expenditures to LED and, as a result, deprived the state of tax revenues totaling $935,114," the report states.

LEAP and BKA later sold the tax credits for $821,343. The documentary was made, but was never distributed or aired.

The report is one of the more interesting to come from the Legislative Auditor's office, not least because it singles out a single movie production rather than a series of problems with processes inside the LED's Office of Entertainment Industries Development, which oversees the movie tax credit programs. In their written response, attorneys for BKA and LEAP suggest their clients are being singled out.

But the report is voluminous and clearly has been in the works for some time. According to the report, which was launched after the auditor's office received a tip alleging improprieties, Barry Kern—the son of Blaine Kern and the company's current CEO—on behalf of BKA signed a letter of intent with LEAP to produce a documentary about the history, design, building and production of New Orleans' carnival and Mardi Gras.

The state certified the production in 2007, and in 2009 LEAP submitted two independently audited cost reports requesting tax credit incentives for production expenses totaling $3.42 million. The state awarded the credits—which are based on a maximum of 30% of expenditures—for $935,114. LEAP later sold the tax credits to 23 individuals for $821,343.

Records reviewed by the auditor however, suggest many of the expenditures were not valid. According to the audit, for instance, LEAP claimed production expenses for the documentaries early as April 2006, more than five months before BKA had even contracted with LEAP to produce the movie.

The audit also notes that LED certified and issued nearly $210,000 to LEAP's principals in tax credits for "producer fees," which were not substantiated for services rendered and "is found to be substantially greater than" reasonable producer fees.

Most of the questions raised by the report, however, center on whether the costs that LEAP and BKA tried to earn the tax credits on—building Mardi Gras floats—were legitimate movie production expenses or normal operating costs at BKA. The report indicates state officials questioned the expenses more than once, and were assured the float-building costs were specific to making the documentary.

In a written response attached the report, LED Secretary Stephen Moret says his office has worked hard over the past four years to clean up some of the well-documented problems and loopholes that existed within the movie tax credit program in the mid-2000s. He also notes, however, that his staff "repeatedly questioned Kern and required written statements to verify that the expenditures submitted were eligible direct production costs, rather than standard business operation costs such as float building."

Moret goes on to suggest that "it now appears that material misrepresentations may have been made in the audit" which would raise the possibility of criminal wrongdoing.

You can check out the entire 89-page report here.

Editor's note: This story has been changed since its original publication.

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