Somewhere in Hollywood:

House of Cards Screenwriter 1: Let’s have an episode where a business getting tax breaks puts on the lobbying pressure to get even more, only to cross the wrong legislator and nearly lose everything.

House of Cards Screenwriter 2: That’s too unrealistic – it could never happen.

Apparently the Maryland legislature disagrees. Media Rights Capital, the studio producing House of Cards, threatened to move filming to another state if the Maryland legislature would not increase the amount of film tax credits available to support filming the series’ third season. In response Bill Frick of the Maryland House of Delegates submitted an amendment to Senate Bill 172, the Budget Reconciliation and Financing Act of 2014, allowing the state to use the power of eminent domain to acquire a film production company’s real, tangible and intangible private property for just compensation if such production company claimed over $10 million in credits (i.e., Media Rights Capital) and ceased film production is the state. The bill as amended passed the House of Delegates but died in conference with the Senate, as the final minutes to the end of the General Assembly session ticked by. With the film credit budget now set at $15 million – not the $18.5 million desired but more than the $7.5 million originally budgeted – it remains to be seen whether Media Rights Capital will walk.

This is the type of legislative risk that we touched on in our recent article published in State Tax Notes, “Locking In Economic Development Incentives To Minimize Risks.” At the end of the day, a state is a sovereign body that, depending on how an incentives package is structured, may have substantial leeway to change the deal if the relationship with the business sours. And even if a state is constrained in adjusting the package in some respects – Delegate Frick’s amendment may have raised a takings clause issue – there often is nothing stopping a state from exacting separate punitive measures in retribution.

But Media Rights Capital was not the only one facing risk. The Old Line State is putting its reputation at stake. The sheer fact that such punitive legislation was proposed and passed the House of Delegates may chill future filming or other incentive agreements in Maryland.

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