CPB’s TV Future Fund was illegal, GAO finds

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A long-anticipated report on public television by the General Accounting
Office, released May 21, advises Congress that CPB illegally diverted
money intended for stations into the now-defunct Television Future Fund.

The report, “Issues Related to Federal Funding of Public Television by the
Corporation for Public Broadcasting,” says CPB operated outside its authority
when it took money from the part of its appropriation that Congress designated
for station grants and used it for Television Future Fund projects.

Between 1996 and this year, the Future Fund made grants for R&D projects
to improve public TV operations and fundraising. But GAO said CPB can’t legally
make selective grants from funds allocated for station grants.

CPB President Bob Coonrod rebutted that conclusion in a statement printed
as an appendix in the report. He said the corporation believed it stayed within
the law when it established and administered the Future Fund.

CPB nevertheless has been moving to make the Future Fund a moot point. It
announced in January that it will discontinue the fund after this year and
said in April it will return half of the unspent Future Fund monies to the
CSG pool. But the four House members who called for the GAO study are pressing
the corporation to move all of the fund’s remaining money into the station
grant pool.

GAO didn’t discuss the Radio Future Fund, which CPB created and funded in
the same manner as its TV counterpart. It has had fewer critics and is continuing
to operate (story).

In another section critical of CPB, the report found CPB lagged in distributing
some of the special appropriation for public TV’s move toward digital transmission.
The delays prevented many stations from meeting FCC digital construction deadlines.
GAO also recommended that CPB broaden the scope of its digital grants program
beyond its emphasis on transmission equipment to include support for digital
content and production equipment.

The 137-page document is available online at www.gao.gov.
PBS and APTS received copies of the GAO’s report on Friday but declined to
comment immediately.

The four House Republicans who requested the GAO study and released it late
Friday said in a letter to Coonrod that they are troubled by some of the GAO’s

Reps. Joe L. Barton (R-Texas), Richard Burr (R-N.C.), Ralph Regula (R-Ohio)
and Fred Upton (R-Mich.) are dissatisfied with CPB’s plans for what’s left
of the Television Future Fund. CPB announced April 29 that it would return
$3 million of the money to the CSG pool. “It is our opinion that the
entire $6 million balance should be returned to licensees,” the congressmen
wrote. With the exception of Regula, all co-signers are members of the House
Energy and Commerce Committee, which oversees media regulation and CPB. Barton
is chairman of the committee.

Poaching in CSG pool?

CPB created the Television Future Fund in 1995 to help public TV find new
ways to operate more efficiently and expand its revenues. To aggregate money
for the new grants program, the corporation took about half the money from
its System Support Fund and half from the Community Service Grant pool, which
is the primary source of federal funds distributed to local stations.

At the time, many station leaders questioned the legality of diverting money
from the CSG pool, but CPB pushed ahead. Federal aid to the field had come
under attack on Capitol Hill, and CPB saw an urgent need to fund projects
that would help public TV streamline and develop new revenue sources.

Between 1996 and 2004, the Television Future Fund used $30.5 million from
the System Support Fund and $28.5 million from the CSG pool, according to
GAO. CPB consulted advisory panels of station leaders in awarding 204 grants
from the fund. It invested in a broad range of projects in the areas of public
TV fundraising, digital technology, new service models, management information
and operational consolidation. But some ambitious projects foundered, including
OnCourse, a digital video service for classroom teachers, and Infinite OutSource,
a service bureau planned to take routine fundraising tasks off the backs of
station staffers.

In 2002, CPB suspended grantmaking from the Future Fund to review its effectiveness
and an advisory panel developed new criteria to guide future grant decisions.
Review of the Future Fund coincided with a CPB-commissioned financial analysis
of public TV, and last fall CPB moved to concentrate Future Fund money on
three major projects responding to recommendations by McKinsey & Co. consultants.
One of these, the Major Giving Initiative led by former PBS development chief
Robert Altman, has already been established to help stations attract financial
support from major donors.

With those changes to the Future Fund, CPB did not address what GAO describes
as the “legal deficiencies” of the Fund–namely that it receives
money from the CSG pool.
“Although we often defer to an agency’s interpretation of a statute it
is charged to administer, we cannot do that here because the corporation’s
interpretation of its authority is neither consistent with statutory language
nor Congress’ policy choice favoring local, not corporation, control of the
expenditures” of federal funds, GAO reported.

In a letter March 12, CPB’s Coonrod responded to a draft of the GAO report,
explaining that the corporation consulted with public TV leaders and outside
law firms before establishing the fund. He said its officials believed they
were acting within the law in doing so. CPB’s outside counsel at the firm
of Covington & Burling noted that the Future Fund operated for eight years
“under the watchful eyes of CPB’s congressional oversight and appropriations
committees,” and Congress continued to appropriate money to CPB without
limiting its ability to administer the fund.

Delays of DTV aid

In its analysis of CPB’s aid for public TV’s digital transition, GAO said
delays in distributing grants from its Digital Distribution Fund and Digital
Universal Service Fund prevented many stations from meeting the FCC’s digital
construction deadlines.

Roughly $24 million in digital grant money remained in the fund’s accounts
at the end of 2003, the report said. By then most stations needed support
for digital production equipment and content, but these purchases weren’t
covered by CPB’s grant program.

CPB generally agrees with the GAO’s recommendations regarding digital transition
funding. CPB officials developed new guidelines for the Digital Distribution
Fund, and last month the CPB Board set aside $4 million of CPB’s $34.7 million
DTV spending this year for creation of digital programming and other content.

In a GAO survey, public TV stations cited digital master control, digital
content and production equipment as their three highest priorities for funding.
Under CPB’s new guidelines, the digital fund will support station purchases
of master control equipment, as well as translators and repeaters.

The GAO report was not thoroughly critical of pubcasting’s leadership. The
agency’s survey of public TV station execs found three-fifths are satisfied
with the present allocation of federal funds within public TV. Of the CPB
funds devoted to public TV, 75 percent goes to stations and 25 percent to
national program production. Not surprisingly, those who favored a change
proposed a bigger share for stations.
Nearly three-quarters of survey respondents agreed CPB should continue funding
PBS’s National Program Service. Station leaders almost universally agreed
that PBS’s children’s and primetime programs help their stations meet their
mission to a great or moderate extent.

But GAO noted that 58 percent of respondents say PBS’s program selection
process should be changed. Station leaders suggested that the network solicit
more input from them in program decision-making.

Seventy-nine percent of respondents said their local programming is not sufficient
to meet the needs of their communities, and slightly more than half of those
surveyed agreed that CPB should have the authority to award grants for local

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