Benefits, Drawbacks to Nonprofit Newspaper Bill & Government Help

I look at Maryland Sen. Ben Cardin’s “Newspaper Revitalization Act,” to allow newspapers to operate as tax-exempt nonprofits, as the first pitch in a long season. The dissents are already coming in from those who see the proposal, introduced Tuesday, as well-intentioned but flawed. There also are likely to be additional or alternative legislative ideas for helping newspapers through their current financial plight.
Here are some thoughts on how bringing government into what Cardin calls “newspaper preservation” will play out:
  • I have already heard, privately and publicly, comments from smart people who are not so sure these desperate times call for the desperate measure of turning to government for help. What government gives, government can and will threaten to take away, they say. Fair point; I can remember not so many years ago a Republican administration bringing some heat to the Corporation for Public Broadcasting to serve up a mix of documentaries that were more, let’s say, “fair and balanced.”
  • I would not expect a rush of conversions to nonprofit organizations even if Cardin’s bill passes quickly. It could, however, help individuals or groups who want to acquire and revive a waning newspaper in their city. Contributions would be tax-deductible, whereas investments in a for-profit — such as those made by Brian Tierney’s group in Philadelphia — were not. There will not be such a group in every city, but I wouldn’t underestimate the civic pride that could be mobilized as metros vie for the dubious distinction of being the first without a newspaper.
  • Groups that are serious about acquiring papers and converting them to nonprofits will face a series of practical challenges. How do you reach a reasonable price in this climate? What are the tax consequences and the impact on labor agreements in such a sale? Are you ready to run at a loss for a while and underwrite exploration of new media and new revenue options?
  • Other approaches to helping newspapers will emerge. Marcus Owens, a tax attorney with the Washington law firm of Caplin & Drysdale, is an advocate of the limited liability, low-profit structure known as an L3C for newspapers. Currently, this is authorized in just three states (Vermont, Wyoming and Montana), but Owens and others would like to see a federal equivalent.
  • Easing antitrust regulations would be a third approach, whether by allowing Joint Operating Agreements in extended metro areas, such as the San Francisco Bay Area, or other industry-wide business ventures. Newspapers are no longer potent monopolies in their hometowns, nor is the industry especially consolidated compared to radio or non-media businesses.
  • Don’t look for any move that could be tagged as a bailout. Direct subsidies such as French President Nicolas Sarkozy’s free subscriptions to young readers would be a non-starter here. Widespread use of Cardin’s options could take taxable income out of IRS reach — but that’s spare change compared to the billions going to financial institutions and the auto industry.
While there are significant counterarguments and practical difficulties to what Cardin proposes, I’m not from the preemptive “don’t-even-go-there” school. This is a time for exploring lots of options — and nonprofits are an option that could help.
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