The IRS has not made clear whether a certain amount of a nonprofit news organization’s advertising revenue might be considered “unrelated business income” subject to tax or even might be regarded as an impediment to continued nonprofit status. And, while its regulations stipulate that a 501(c)(3) nonprofit “may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates,” it is not clear whether that restricts political editorial opinion apart from the endorsement of candidates.
Congress should add news organizations substantially devoted to public affairs reporting to the list of specifically eligible nonprofits under section 501(c)(3), regardless of the amount of their advertising income. Or the IRS itself should rule that such news organizations are categorically eligible under the criteria already established by Congress. The IRS also should explicitly allow news nonprofits to express editorial opinions about legislation and politics without endorsing candidates or lobbying. The Obama administration, in which the president and some officials have expressed their openness to ways to help preserve public interest news reporting, should weigh in on these policy decisions.
A possible alternative for news organizations is a Low-profit Limited Liability Corporation, known as an L3C, a hybrid legal entity with both for-profit and nonprofit investments to carry out socially useful purposes. Both private investors and foundations could invest in an L3C, with private investors able to realize a limited profit. A small but growing number of states, beginning with Vermont in 2008, have passed laws enabling the creation of L3Cs to make it more economically feasible to set up businesses for charitable or education purposes that might have difficulty attracting sufficient capital as either commercial firms or nonprofits. Illinois, Michigan, Wyoming, and North Dakota also have recently enacted L3C laws.
Each of the state laws was written to enable foundations to make “program-related investments” in the new hybrid organizations. The IRS created the concept of program-related investments in the 1960s to enable foundations to make socially useful grants to for-profit ventures. But foundations have been hesitant to make such grants because they are not certain which ones the IRS would allow. Congress or the IRS should provide a process by which a qualifying journalistic organization seeking a program-related investment from a foundation could be assured that it would qualify.
Nonprofit news organizations should, as some already have, individually and collectively through collaboration, develop professional fundraising capabilities like those of advertising departments for commercial news organizations. They also should develop other sources of revenue, including advertising, partnerships, and innovative marketing of their reporting to other news media and news consumers.
Philanthropists, foundations, and community foundations should substantially increase their support for news organizations that have demonstrated a substantial commitment to public affairs and accountability reporting.
Philanthropically supported institutions are central to American society. Philanthropy has been essential for educational, research, cultural, and religious institutions, health and social services, parks and the preservation of nature, and much more. With the exception of public radio and television, philanthropy has played a very small role in supporting news reporting, because most of it had been subsidized by advertising.
The FCC supports the public circulation of information in places the market has failed to serve. Local news reporting… is in need of similar support.
Led by the Knight Foundation and individual donors like Buzz Woolley and Herbert and Marion Sandler, foundations and philanthropists have begun to respond to the breakdown of that economic model by funding the launch of nonprofit news startups and individual reporting projects, as discussed earlier. But foundations are not yet providing much money to sustain those startups or to underwrite all of their journalism rather than only their reporting on subjects of special interest to each foundation or donor.
Foundations should consider news reporting of public affairs to be a continuous public good rather than a series of specific projects under their control or a way of generating interest and action around causes and issues of special interest to them. They should ensure that there is an impermeable wall between each foundation’s interests and the news reporting it supports, and they should make their support of accountability journalism a much higher priority than it has been for all but a few like the Knight Foundation.
These steps would represent major shifts in the missions of most national foundations. Their model of grant-making has relied on documenting specific “outcomes,” explained Eric Newton of the Knight Foundation, and it is not easy to measure the impact of news reporting. “News is not like electricity,” Newton said. “When there’s a news blackout, you don’t know what you’re not getting.” But what communities are now missing in news reporting is becoming increasingly apparent as newspaper and television station newsrooms empty out.