FOLLOW-UP LETTER TO GOVERNOR CRIST ON ELECTRONIC ARTS

September 25, 2007

Governor Charlie Crist

Executive Office Of The Governor

The Capitol

Tallahassee, FL 32399

Dear Governor Crist:

On March 12th of this year you will recall that I wrote you concerning your commitment to allocate as much as $75 million towards the funding of the Florida Entertainment Industry Incentive Program for Florida's film and Television industries.

In my letter and accompanying report, I provided what I felt were notable and verifiable examples of how this program failed to live up to its purported goals of developing, long-term, high wage jobs for Floridians – revealing the fact that over 2400 of the 4000 jobs created last year had been jobs as movie extras, which ended up costing the State of Florida $1390,60  for a job that paid anywhere between $75.00 and $200.00,  and for the most part lasted for only one or two days.

In addition, I went on to detail a number of misuses and abuses of this program, providing ample detail to support the claim that this program was little more than a tax “gift” program that used public dollars as a form corporate welfare.

You chose to ignore my warnings, and in so doing, sent a clear message to some that they had nothing to fear from your administration if they chose to exhibit greed, chicanery and ingratitude when it came to cashing in on this program.

I began my March letter with the following observation: There's nothing like throwing public money at a market-driven capitalist enterprise to turn it into a subsidized welfare operation.

I now provide you with information of what happens when a multi-billion dollar company realizes that in Florida, subsidized welfare is another way of saying politicians are patsies when it comes to giving away taxpayer money.

ELECTRONIC ARTS HITS THE TRIFECTA  

Electronic Arts is one of the largest video game development companies in the world.  A Redwood, California company, they had revenues of $2.95 BILLION and income of $236 MILLION in 2006.   They maintain a design studio in Maitland, just north of Orlando where they produce the Madden NFL, Tiger Woods PGA Tour and NCAA Football video games.

In 2004, the State of Florida, Orange County, The City of Orlando, the City of Maitland, the University of Central Florida, Enterprise Florida, the Orlando Economic Development Council and Workforce Florida came together to create the Florida Interactive Entertainment Academy in downtown Orlando at the site of the city's downtown Expo Center.

According to published reports, the public dollar costs of this academy's development were as follows:

Orlando Redevelopment Agency:   $4.4 million

University of Central Florida:     $1.9 million

State of Florida:  $4.2 million

In addition, the City of Orlando provided the Expo Center for a $1 annual lease, which comes out to a rounded figure of $10,500,001.00.

All of this was done, as an article in the Orlando Business Journal proclaimed at the time because, “UCF originally petitioned the city for space because, in part, it is partnering with Electronic Arts' Tiburon division in Maitland and will most likely produce new Electronic Arts Employees.”

Steven Chiang, Vice President and Studio General Manager of Electronic Arts Maitland facility was also ecstatic. “We applaud Metro Orlando EDC's hard work and perseverance, for they have helped create an environment in which we can continue to hire outstanding local talent who can help us make great games.”

Everyone was happy.  Public money was being used to meet the challenges of a changing workforce by creating new vocational opportunities.  The Orlando community was benefiting from the potential development of a new technology and entertainment economic hub, and Electronic Arts was benefiting from the public financing of an educational program which would provide them, as the Metro Orlando EDC press release proclaimed, with “skilled, knowledgeable and talented graduates for EA's award-winning Tiburon Studios.”

What a coup for Electronic Arts. What more could they ask for?

How about more tax money!

It now appears that for Electronic Arts, the experience of watching state, county, city and university officials crawl over each other to come up with the money and facilities to create a SPECIALIZED educational facility with a CUSTOMIZED CURRICULUM in order to provide THEM with a trained workforce, only whetted their appetite for more public money.

On December 8, 2004, George Rodon, the Director of the Orange County Office of Economic, Trade and Tourist Development, wrote to Richard T. Crotty, Chairman of the Orange County Commission to say that:

“A request has been received from Electronic Arts, Inc. (EA),

for Orange County to commit a total of $325,000  over four years

beginning in FY 2006-07 as half of the 20% in local matching

funds needed to obtain a $3,250,000.00   incentive under Florida's

Qualified Target Industry (QTI) Tax Refund Program.  The County's

commitment would be contingent upon a similar commitment by

the City of Maitland.  If this project is approved, the state would

provide $2,600,000, or 80% of the incentive.” (1)

The request was based on a claim by Electronic Arts that they planned to expand their operation and increase their work force by 650 new jobs - some of which would obviously be filed by employees trained at the Florida Interactive Entertainment Academy.  The average salary of those jobs was expected to be at least $67,000, and closer to $78,000 - "twice the prevailing wage in Orange County."  

On December 13, 2004, the City of Maitland passed an ordinance approving their 10% in matching funds, followed the next day by the Orange County Commission. It just goes to prove that public officials do know get legislation passed in a hurry, especially at Christmas time.

Electronic Arts had much to celebrate that Christmas.  First they'd gotten the state and various other public entities to pony up over $10 million dollars of public money to finance a school to educate their potential employees, and then they got the State of Florida, Orange County and the City of Maitland to pony up another $3.250,000.00   in incentive money to be paid out over a 4 year period to offset the costs of hiring these now trained employees.  

One question that begs asking of Mr.'s Rodon and Crotty, and all of the members of the Orange County Commission and the City Commission of Maitland, as well as the Governor's Office of Tourism, Trade and Economic Development which managed the QTI program is, that if Electronic Arts was in such a desperate need of “skilled, knowledgeable and talented” employees, and that over $10 million in public money had been spent on creating a specialized educational program to turn out these potential employees, then why did Electronic Arts require any kind of  tax incentive to hire these individuals, especially when the wages involved were "twice the prevailing wage in Orange County?"  

CUSTOMIZING LEGISLATION FOR ELECTRONIC ARTS

Starting in 2005, when the Florida legislature funded the first Entertainment Industry Incentive Program, the legislature purposely excluded the production of video games from cashing in on that pot of money.

I'll spare you the insider details of how that exclusion was finally removed from the legislation, but suffice to say, on May 3, 2007, you signed into law the Don Davis Entertainment Industry Economic Development Act, which included, for the first time a 10% financial tax incentive for the Digital Media Industry.

When the application process opened for the 2007-08 Entertainment Industry Incentive Program,  Electronic Arts was ready with not one, not two, but three applications for the Madden NFL, Tiger Woods PGA Tour and NCAA Football video games, and received approval for a total of $1,963,573.00  in potential tax incentive benefits.

The breakdown for tax incentives for these three video games is as follows:

Madden NFL 2009     $681.109.00

Tiger PGA Tour 2009     $700,753.00

NCAA Football 2009     $581,711.00

Since Electronic Arts applied for tax incentives for the 2009 editions of these games, it can be expected that if there is additional money allocated for this fund during the next Legislative Session, then we can expect that Electronic Arts will return for more tax incentives next year.

So, for a public company that generated almost 3 BILLION in revenues and $236 MILLION in income last year, Florida's taxpayers are now going to give this company an estimated $1,963,573.00   as a 10% kickback on the salary of many of the very same people we paid to educate, and are paying to hire.

The total taxpayer moneys that have been committed to educate, hire and now provide a tax rebate on the salary of Electronic Arts employees as a result of these schemes is approximately $15,713,573.00.

If there was ever a classic example of a major American corporation exploiting the goodness of taxpayers, Electronic Arts certainly qualifies as a contender.

But, it isn't Electronic Arts fault that they're greedy for taxpayer money.  It's YOUR fault, and the fault of the Florida Legislature who were bamboozled by all the high technology rhetoric that was largely misleading in portraying the scope of Digital Media to represent a lot more of a viable industry sector worthy of incentives than a greedy major video game manufacturer waiting at the front door to file their applications at 8:44 AM on the first morning that the application process was opened.

I believe that my March 21st letter to you detailed why the Entertainment Industry Incentive Program is for the most part a boondoggle, and I believe that this latest – though far from last – example, supports a serious revaluation of using taxpayer dollars to underwrite the production of a lot of mostly crappy movies, television series and now video games so that major American corporations can laugh all the way to the bank with Florida taxpayer dollars at this time of financial crisis, which could be far better spent funding critical state services on the verge of being reduced or eliminated because of this crazy property tax imbroglio we find ourselves in.

Yours truly,

Al Crespo

Cc:       Members of the Florida Legislature

     Members of the news media

     The Crespo-Gram Network

QUALIFIED TARGET INDUSTRY TAX REFUND

The Qualified Target Industry (QTI) Tax Refund is a tool available to Florida communities to encourage quality job growth in targeted high value-added businesses.

Pre-approved applicants who create jobs in Florida receive tax refunds of $3,000 per net new full-time equivalent Florida job created; $6,000 in an Enterprise Zone or Rural County. For

businesses paying 150 percent of the average annual wage, add $1,000 per job; for businesses paying 200 percent of the average annual salary, add $2,000 per job. New or expanding businesses in selected targeted industries or corporate headquarters are eligible.

If approved, the applicant may receive refunds on the taxes it pays. This includes corporate income, sales, ad valorem, intangible personal property, insurance premium, and certain other taxes. There is a cap of $5 million per single qualified applicant in all years, and no more than 25 percent of the total refund approved may be taken in any single fiscal year.

ELIGIBILITY

In order to participate, a company must apply to Enterprise Florida (EFI) prior to making a decision to locate or expand in Florida.1 In order to qualify for consideration under the program, an applicant

must:

·     be in a target industry (see attached Target Industries List);

·     submit an application before making a decision to locate or expand in Florida, and demonstrate that the tax refund will make a material difference in the company's decision to locate or expand in the community;

·      create at least 10 net new full-time equivalent Florida jobs and; if an expansion project, increase employment by at least 10 percent (whichever is greater). For a project located in a rural community or an enterprise zone, the net increase in employment may be waived in special circumstances;

·     pay an average annual wage that is at least 115 percent of the state, metropolitan statistical area (MSA), or the local average wages. For a project located in a rural county, rural community, a designated brownfield area or an enterprise zone, the wage requirement may be waived in special circumstances;

·      show that the jobs make a significant economic contribution to the area economy; and

·     provide a resolution from the city or county commission recommending the applicant for the incentive and committing the community to provide a local match equaling 20 percent of the tax refund. If located in a Rural County or designated brownfield area, the business may elect to be exempt from the local match and accept a refund equal to 80 percent of the refund for which they would otherwise qualify.

All final decisions on applications are based upon all available information at that time. Any business decisions, such as

announcements, leasing of space or hiring of employees, made prior to submission of a complete, effective QTI application will

be grounds for disapproval. Projects that clearly do not require inducement will not be approved.