Replanting Newspapers into Communities

By Steven Waldman

More than half of daily newspaper circulation in America is now owned by private equity firms or hedge funds. Many of these newspapers still do essential work; the editors and reporters at these newspapers strive to provide great journalism to their communities.

But the reality is that these companies usually dramatically cut back on local reporting. Many become “ghost newspapers” — offering little to no local reporting — en route to shutting down. At the same time, there are family-owned chains — including Black and Hispanic-owned papers — that are now considering selling their papers to hedge funds but would rather leave a legacy to their community.

The solution: the Federal government should adopt tax and regulatory changes that would encourage the transfer of many chain-owned newspapers to community-ownership.   These benefits could be available either to nonprofit organizations or for-profit Public Benefit Corporations or cooperatives whose primary mission is providing civically important local news.   Such a strategy could include provisions to help sellers, buyers and communities

Support for Community Buyers

Community-grounded organizations should get special benefits to help them  acquire and successfully operate a local news operation.

Provide payroll tax credit for hiring or retaining staff.  The acquiring organization would get a refundable tax credit of $50,000 per employee per year for five years following the transaction.  This could also be done via grants.

Eligible entities would be community-based nonprofits organizations whose mission is providing local news; national or state nonprofits that facilitate the replanting of newspapers;  and certain for-profit entities (Public Benefit Corporations, Co-ops, L3Cs with local news missions, or for-profits with reporting positions supported by nonprofits.)

Pension relief.  The pension obligations of the news organizations would be taken over by the Pension Benefit Guaranty Corporation.

Loan guarantees. A Small Business Administration or Commerce Department loan program to provide loan guaranties to entities providing loans to eligible organizations acquiring a newspaper.

Clarify IRS rules for nonprofit news organizations. Have the IRS allow public service journalism to be a valid purpose to earn tax exempt status. Remove the limit on taxable Unrelated Business Income that a nonprofit local news organization could receive to support its mission.

Incentives for Sellers

These tax incentives would make it more likely that owners would sell or donate newspapers into local organizations committed to civically-oriented news.

Make the sale of a newspaper to a local nonprofit organization (or eligible national nonprofit) a tax-free transaction (eliminating any capital gains taxes).

Allow chains tax benefits if they donate, or sell at a discount, a newspaper to a non-profit organization committed to local news.   

  • Allow them to take a charitable donation that uses the “tax cost basis” (i.e., the cost at which they acquired the newspaper) rather than the current market value.  
  • Allow the sellers of newspapers to carry over the value of unused charitable deductions for 10 years or indefinitely (until the full value of the carryover is utilized).  
  • Increase the annual percentage limitations on deductibility of charitable tax deductions for both corporations and individuals donating a newspaper.

Make the conversion of a for-profit newspaper to nonprofit status a tax-free transaction.   

Provide tax benefits for the sale of a newspaper to a Public Benefit Corporation that is committed to local news. Allow an income tax credit equal to the amount that would otherwise be deductible as a charitable contribution.

Limits on Consolidation

Incentives should be coupled with policies that discourage consolidation that undermines community journalism.

Slow newspaper closures to give communities time to organize. The Worker Adjustment and Retraining Notification Act (WARN Act), better known as the “plant closing law,” should be amended to say that in the case of newspaper chains, such notification would be needed not only in the case of job loss but a newspaper is going to be closed. The law should provide at least three months’ notice so that communities could have time to prepare an acquisition plan and offer. This would help not only in cases when the logical acquirer is a nonprofit organization but also for local ownership groups that might want to run it as a civic-minded commercial enterprise. Or, Congress could require employees (or local nonprofits) a right of first refusal on a sale.

Limits on newspaper mergers that hurt communities. The Department of Justice could, under current law, amend their merger guidelines to explicitly state that harms to localism — including the quality or quantity of locally-produced news — can be strong grounds for blocking a merger. ( Federal communications law already requires the Federal Communications Commission to consider “localism” in its decision-making on matters ranging from mergers to licensing – with an emphasis on encouraging news that is created locally and for the primary benefit of local residents.)

Change bankruptcy law to allow a greater community voice. Although current bankruptcy law favors the rights of creditors, it does allow for different voices to be heard and considered. For instance, the Bankruptcy Act of 1978 allowed that when it comes to the disposition of railroads, courts had to “take into account the ‘public interest’ in the preservation of the debtor’s rail service.” Courts could also allow the communities impacted by newspaper mergers or closures to make the case that they have a significant stake in the outcome. And it could allow judges to consider their arguments when making the ultimate decisions.

This is a draft, produced in March 2021. The proposal is evolving and we welcome suggestions.