Testimony Submitted to the California Senate Judiciary Committee on Local Journalism in the Digital Age

Adjust the “bargaining code” model to better reward local reporting, support small news outlets

As currently crafted, AB 886 would largely benefit out-of-state national media organizations. It would be especially unfair to local ethnic news organizations, rural news outlets, nonprofit newsrooms and small news organizations.

We were pleased to hear that the new agreement between Google and the government of Canada took the decisive step of allocating resources on the basis of headcount rather than impressions, traffic or links. That is a huge improvement.

One approach for improving AB 886 would be to include a Guaranteed Minimum Local Payment for publishers that focus on serving Californians. Here’s how it might work:

• Each eligible local outlet would get $25,000 from the pool of available funds for each
  eligible “news journalist” FTE up to a maximum of $150,000.
• If the amount that the local outlet would get under the regular arbitration process would be more than $150,000, then the local news outlet would receive the larger amount.
• A qualified local entity would be one that meets the criteria in AB 886 and has at least
  33% of its audience in California. (Because this is based on audience concentration not on local ownership it should safely avoid triggering the Dormant Commerce Clause)
• Amounts spent on part-time employees or freelance writers functioning as “news
  journalists” would be counted toward an FTE; $35,000 in aggregate freelance editorial
  spending would equal one eligible FTE.
• The sequence: 1) the amount of available funds would be determined – either by formula or by agreement with Google and Meta 2) the guaranteed minimum payments would be allotted 3) the remainder would be distributed to the rest of the pool via arbitration

A Local News Employment Credit

Using the payroll tax refund system, a subsidy would be provided to California newsrooms based on the number of full-time local editorial personnel they employ. The benefit would be equivalent to 50% of wages (up to a $50,000 salary), for a maximum subsidy of $25,000 per eligible employee. For instance, a newsroom with five editorial staffers each earning at least $50,000 in salary would get a total of $125,000 annually. This is based on a federal bill that passed the U.S. House of Representatives as part of Build Back Better. Canada has passed and implemented a labor subsidy for local reporters that has been shown to be effective in supporting local newsrooms.

Optional retention incentive: Federal legislation drops the reimbursement percentage to 30% of up to $50,000 after the first year of the program. A more progressive twist on the legislation could keep the benefit at 50% for newsrooms that have maintained or increased their editorial staff size in the previous 12 months. If the staff size has shrunk, the subsidy would drop. All local media would benefit, but more would go to newsrooms protecting and adding local jobs.

Eligibility

• For full-time, local editorial personnel, primarily covering a community, local region or the state (using definitions in the Local Journalism Sustainability Act).
• Eligible local media include newspapers, digital outlets, television and radio (both public and commercial).
• Owner-operators at small publications would be eligible to receive the subsidy as long as they contribute to the editorial product.
• To keep the bill from violating the First Amendment, conditions for qualifying for the
  subsidy should be based on content-neutral metrics, such as financial independence,
  transparency, presence of a local employee that covers the community, etc. Conditions
  should not be based on perceived biases of content.
• There should also be protections to prevent counterfeit “pink slime” sites from benefiting. The bill would exclude organizations that get the majority of their funds from Section 527 organizations (PACs), require that outlets disclose their ownership and carry media liability insurance alongside other safeguards
• Optional: Newsrooms could be limited to 50 tax credits per newsroom (to prevent a high percent of funds going to two or three large newsrooms).

Cost
In the first year, the subsidy would likely be collected on between 2,500 and 3,000 local reporters at just over 450 qualified local newsrooms in California. Based on the model used by the Joint Tax Committee when it was considering a similar program at the federal level, we estimate it would cost roughly $60 million per year. But a new estimate would be needed to reflect the California-specific criteria.

Pros:

• The policy is simple and newsrooms could see benefits within on quarter
• It’s based on tax rules, not discretionary spending limitations, meaning the policy would likely produce the highest and most direct financial help for local newsrooms
• Smaller newsrooms would not need to add additional expertise, like a grant writer, to
  benefit
• Startups and new newsroom models can easily qualify, making the bill future friendly
• The incentive structure benefits local employers. For example, if a hedge fund-owned
  newsroom cuts staff, it cuts their subsidy; if a newsroom increases staff, it increases its subsidy.
• Philanthropy could likely create matching efforts to maximize the benefits to newsrooms
• News organizations could borrow against future credits (as happens in other tax credit programs)
• For-profits and nonprofits, alike, would stand to benefit
• The proposal enjoys the broadest support of any proposal within the local news field
• Scales a successful model in Canada

Cons:

• Some funds would go to news organizations owned by hedge funds
• The proposal is not targeted to news deserts or under-served areas (though foundations could supersize subsidies in vulnerable communities)
• It’s difficult to construct this in a way that covers freelancers without opening it up to
  bad-faith actors, like “pink slime” outlets, since one of the hallmarks of politically-motivated websites is a web of contractors that don’t live in the communities they cover.

More information: Here is the language from the federal version of the refundable payroll tax credit (which passed the US House of Representatives as part of Build Back Better). Here is a version proposed in New York State.

Spend more government advertising dollars with community media

The state of California already spends hundreds of millions of dollars on public message
advertising. But proportionally not enough goes to community journalism outlets. AB 1511, which was introduced by Asm. Miquel Santiago, would require 45% of California department advertising dollars go to ethnic and community news outlets – and that the government disclose where and in what amounts advertising funds are allocated.

Pros:

• The state would take on little or no additional costs. This is money the government is
  committed to spending already.
• The proposal is strongly favored by many smaller publications and many members of the ethnic press. This has worked well in New York City, through the AdBoost Initiative, supported by the City University of New York Craig Newmark Journalism School.

Cons:

• Some small outlets don’t have adequate performance metrics or ad serving technology.
• If not properly set up, this approach risks government manipulation of the press.
• Government departments must still achieve their marketing goals, so advertising would not necessarily be distributed equally among news outlets.

Give tax credits (or grants) to small businesses who advertise in local news

This proposal provides a subsidy equal to 50% of the advertising spend (up to a $5,000 subsidy per year) for advertisements placed with eligible local news outlets. This policy is currently paired with the payroll tax credit in the bipartisan Community News & Small Business Support Act and has been endorsed by the National Restaurant Association, as well as some local small business groups.

Pros:

• The bill would help small businesses as well as local news.
• Government officials are not deciding which newsrooms get support, since the tax benefit goes to local small business. The business, then, gets to decide which local news outlet meets its advertising needs.
• The policy could generate economic activity, such as increased sales tax revenue driven by new customers from advertising, that could help offset some of the costs of the program.

Cons:

• The costs of the bill are hard to estimate since there is no standard precedent to help gauge which small businesses would use the credit.
• There is no guarantee the benefit would be dispersed equally among local news outlets.

Offer grants to community foundations to serve news deserts

The state could capitalize on an existing network of community philanthropists to provide formula-based grants to community foundations that would distribute grants and loans for local projects, especially those focused on filling news gaps in underserved communities.

Pros:

• The approach could better target funds to areas where the local news needs are highest.
• Community foundations are set up to distribute funds and are knowledgeable about the local news ecosystem in their areas.

Cons:

• Some underserved communities have not been helped sufficiently by community
  foundations in the past.

Help Keep Local Newspapers in Local Hands

California could provide more options to family-owned, legacy news outlets that want to preserve local ownership while preventing hedge funds from acquiring more newspapers. First, it could require a 120 day waiting period after announcement that a newspaper is being sold to a chain. This would give other potential buyers, particularly local buyers, an opportunity to organize a counter offer. And it could provide tax incentives or grants for nonprofits or public benefit corporations that are acquiring a newspaper in order to keep its ownership local. The benefit could be allocated via the payroll tax credit system or use other means, such as loans-to-grants via an economic development agency.

Pros:

• Both proposals would help slow the high degree of consolidation within the local news industry, which is particularly concentrated among hedge fund-owned-or-controlled chains.

Cons:

• Neither of these proposals would help startup newsrooms

Fellowships for reporters in local newsrooms

The California Local News Fellowship has already allotted $25 million to a fellowship program to place some 40 journalists into local newsrooms. This model, pioneered by Report for America, is also being implemented in New Mexico and Washington. The state funds are distributed by the Graduate School of Journalism at University of California, Berkeley. The state could prioritize continued or even permanent allocations to the program to ensure California has a sustainable pipeline of local journalists.

Pro:

• Offers reporting assistance directly to needy newsrooms.
• The benefits are awarded by non-governmental journalism experts through a diverse,
  independent board, not directly by lawmakers

Cons:

• The program has not yet built strong measures to build economic sustainability for the positions in the newsroom.

Paying for These Ideas

If there is a need for a specific “pay-for,” we recommend levying a tax on the largest technology platforms.

The rationale: The digital revolution has brought countless benefits but has also contributed to the collapse of local news. The big winners of this revolution are the largest tech companies, so it’s fair that they chip in a small amount to help remedy the problems that were caused, sometimes as a result of their actions. Two viable approaches:

Advertising sales tax – A miniscule advertising sales tax on companies with more than $25 billion in revenue would generate enough to cover the entire program. Versions of this have been tried in several countries and one state (Maryland) and must be constructed carefully to pass Constitutional muster, but we believe it is doable. The rationale is that it was the loss of local advertising – usually to the tech platforms – that has devastated local news business models, so taxing this windfall is fair and appropriate. Maryland passed a tax of between 2.5% and 10% on revenue produced by “digital advertising services” on platforms with very significant revenue (a.k.a. Meta and Alphabet). Supporters estimated it would generate $250 million per year in Maryland, akin to $1.6 billion per year in California. Versions have been suggested in other states, the EU, and other countries, as well as groups like Free Press. Those approaches have tended to leave out Amazon, which now has a major advertising business.

User fee – Public Knowledge proposed a $1 per user fee on the tech platforms that would generate $6.8 billion nationally. A bill in Indiana takes a similar approach. Some have argued that the two-thirds vote requirement to pass a tax might not be triggered if this were constructed as a user fee on California technology companies. Under this proposal, the proceeds would explicitly go to strengthening local news. The argument for this approach is that a fee directly addresses a malady caused by the platforms (like a Superfund fee)