A combination of direct government funding and tax breaks for nonprofit news organizations could help support public interest journalism while also keeping citizens engaged and officials accountable, according to a new report.
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"Local news media outlets use different strategies and organizational arrangements to adapt to the digital transformation," said the report. "For example, local news organizations are seeking to diversify their revenue sources, such as by offering membership or receiving donations. Also, some news organizations are converting from private firms to cooperatives or community-based organizations, or to nonprofit organizations, to take advantage of existing tax incentives."
The nonprofit model, financed by a combination of federal funding and philanthropy, could prove to be a viable strategy for targeting low-income communities that find paid access to news restrictive, according to some of the participants.
However, there are some caveats, and news outlets should be wary of government funding as a possible threat to their independence. "According to literature and participants, direct government funding and tax incentives supporting nonprofit news organizations can be useful in addressing market failure if there are sufficient safeguards to ensure independence," said the report. "On the other hand, indirect government funding, such as tax credits and government advertising, can provide support but is broader in scope and does not specifically target public interest journalism."
Participants in the workshop pointed out that some local news organizations have evolved from private ownership models to other types of models. Private for-profit ownership models for news outlets include family ownership and ownership by private equity firms and hedge funds. Some organizations have also set up alternative organizational arrangements, including a mix of for-profit and nonprofit models, to diversify their sources of revenue and take advantage of tax incentives.
Some news organizations have changed their organizational structure in recent years, the report noted, switching from for-profit entities to tax-exempt nonprofit news organizations. For example, the Salt Lake City Tribune, which had been held by a privately owned for-profit company, became a nonprofit organization in 2019, enabling it to receive tax-deductible donations directly from individuals. Nonprofit news organizations that obtain Section 501(c)(3) status are generally exempt from federal income tax. They can then accept tax-deductible donations from civic-minded individuals as well as grants from philanthropic foundations to, for example, develop coverage on important public interest issues.
"However, any activities that generate unrelated business taxable income, such as advertising revenue, would result in the nonprofit news organization paying unrelated business income tax on such income at the corporate tax rate (currently 21%)," said the report. "Any such activities must be limited to an insubstantial part of the organization's overall activities. In addition, nonprofit news organizations cannot be involved in political campaign intervention, so they cannot, for example, endorse a particular candidate for public office."
One piece of legislation introduced in Congress in 2021, the Saving Local News Act, would add a new tax-exempt purpose to the Tax Code: the publication of written news articles, including electronic publication. Currently, most nonprofit newspapers are tax-exempt as educational or religious organizations.
Some media organizations have set up structures that blend nonprofit status, with its social goals and tax benefits, with for-profit revenue models that can help avoid advertising and political restrictions. In one such model, a for-profit news organization is owned or supported by a nonprofit, such as the nonprofit Lenfest Institute, which owns the Philadelphia Inquirer. In another example, the Poynter Institute owns the Times Publishing Company, which publishes the Tampa Bay Times. Another model is a public media station that has merged with a nonprofit organization. Last year, for example, the Chicago public radio station WBEZ merged with the nonprofit Chicago Sun-Times newspaper.
