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SRG will launch agile capital fund to aid public radio expansion

Originally published in Current, July 5, 1999
By Steve Behrens

Station Resource Group plans to create a quick-moving Public Radio Capital Fund by next summer to give stations quicker access to money for expansion projects, including sudden station purchase opportunities like the WDCU case in 1997.

SRG's report on the project, released in June, says that such a fund could have made a competitive bid for the Washington, D.C., station that was suddenly put on the market by the financially distressed University of the District of Columbia.

Even with a $13 million debt to pay off — the price that C-SPAN eventually paid for WDCU — the station could have been financially viable if it were operated as a second channel by an existing Washington station, the SRG report said.

The Public Radio Capital Fund would be based on the Trust for Public Land, a San Francisco nonprofit that moves quickly to acquire suddenly available or imperiled land for park and conservation uses and then resell them to government agencies. It can often buy the land at below-market prices and give the seller a tax deduction.

Opportunities to buy stations also occur unpredictably, but public broadcasters, like parks agencies, seldom have enough ready cash to bid for them. A few opportunities have slipped by without national attention, and about a dozen stations are now "in play" in various parts of the country, SRG Co-director Tom Thomas told Current. Some will be bought by pubcasters and others won't.

A number of stations have arranged their own financing for expansion. Boston's WBUR acquired two AM stations last year to develop service in Rhode Island. In Chicago, WBEZ used tax-exempt bonds to build a new facility on Navy Pier.

If the new capital fund had been in operation when WDCU went up for sale, it could have provided a loan for another local public radio station to buy it, or could have bought WDCU itself and then resold it to another station, or contracted with another station to manage it, the report said.

WDCU could be generating enough revenues to pay off a purchase price of $13 million if it were operated as a second service of an existing station, the report concludes. SRG estimated its revenues might come to $3 million a year — half of WETA-FM's — while its operating costs as a second service would be less than $1 million. Under one scenario, the buying station would pay interest only while raising funds or saving up to pay off an eventual "balloon payment" after 20 years.

For the "bridge loan" that enables quick action, the capital fund initially would work with a line of credit from a bank, said Thomas, but it will eventually build up its own reserves.

After the bridge loan, permanent financing would come from tax-exempt state or local government bonds, where the interest rate is under 5 percent, or other kinds of borrowing with low interest rates made possible by letters of credit from banks or by loan guarantees from foundations. The borrower would have to show a business plan indicating that it could pay off the debt.

Public radio today suffers the same poor access to capital that plagued most commercial radio stations before the 1970s and 1980s, according to the report. Lenders wouldn't accept their licenses as collateral, so they had a hard time getting money for expansion. But now lenders and investors are willing to buy stock and bonds of radio companies like Infinity, based on their strong financial performance.

"We believe that, as an industry, public radio has matured to the point of generating the net revenues that are needed to service debt," the SRG report concluded.

SRG, a group of 47 public radio licensees that collaborate on strategic analysis and planning projects, has been working for four years on various projects to expand public radio's delivery capacity. Over the next year, it plans to design the new organization, recruit a board, arrange initial capital and win system support for the project.


. To Current's home page
. Earlier news: In Washington, WDCU's frequency was almost snapped up by a commercial religious broadcaster, 1997.
. Later news: In Detroit, there were several suitors for WDTR's frequency, 2000.
. Later news: Capital fund finances its first station purchase, in Denver.
. Outside link: Ways for public radio to expand its delivery capacity -- a discussion on the SRG web site.

Web page revised Nov. 2, 2000
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