Since the start of 2008, 26,000 jobs have been eliminated at metro newspapers in the U.S. Papers in Denver, Seattle and elsewhere have ceased operations.
What this means for you, the reader, is that millions of stories won't be written this year. So as state and local officials struggle to make tough budget choices, for instance, there are fewer full-time journalists working the government beat and ferreting out questionable proposals for spending your public tax dollars.
Over the years, journalists at daily newspapers have held our officials accountable by going to meetings, poring through documents, and developing sources. The resulting tales of corruption, waste, and abuse of power have influenced the course of public policy and affected which politicians held office.
Papers are struggling today because, among other reasons, they have lost a good chunk of their advertising revenue to the Internet. At a time of dwindling revenue, newspapers simply do not have a profit incentive to engage in significant watchdog or accountability journalism.
One possible solution to rescuing the watchdog function of the press is to allow newspapers to operate as nonprofits. If a newspaper were run as a nonprofit, this would allow people who valued the impact of its stories to donate and receive a tax deduction.
The list of media outlets that have nonprofit tax status is growing and includes magazines such as Harper's, Mother Jones, and The American Spectator and newly formed web outlets that cover local news. As some newspapers try to emerge from or avoid bankruptcy, the option of running as a nonprofit would provide an additional revenue stream to support reporting.
Media and nonprofit leaders who recently met at Duke identified several steps the federal government could take to make it easier for struggling daily newspapers to transition to nonprofits. For example, the Internal Revenue Service currently has the power to issue tax guidelines that would make clear that metro daily newspapers could be run as nonprofits.
Additionally, Congress could speed the development of new forms of media organization, such as the low-profit limited liability (L3C) corporation. L3Cs are companies with low profits but high positive spillovers on their communities.
A newspaper run as a L3C could draw many different types of investors. Foundations interested in accountability coverage could make a program-related investment in the L3C and state up front they did not expect a high rate of return. Socially conscious investors who care about local news could also invest in the L3C and accept only a modest rate of return. With these two sets of investors accepting lower rates, a third set of investors in search of a market rate of return also could be willing to invest in a newspaper.
If a metro newspaper were run as a L3C, the presence of investors who focused on the quality of public affairs coverage would help managers make the case for watchdog stories. And if the L3C ended up doing well and doing good at the same time, the taxes on any profits would be paid as they were distributed among the investors.
To date, no newspaper has transformed into a L3C, in part because of uncertainties over how foundation investments in them might be treated. Last year Congress considered legislation that would have required the IRS to rule quickly on foundation requests for approval of program-related investments. The legislation also would have made clear that foundation investments in L3Cs were appropriate. If Congress passed the appropriate legislation, this could hasten experimentation with these new forms of media hybrids.
Newspapers have always been skittish about taking money from certain sources. They obviously don't want to have the appearance of a conflict of interest in their coverage, especially if the reporting was about an investor. Similarly, asking the government to fund coverage of government would be very risky.
But having the government make it easier for newspapers to run as nonprofits would allow those who valued journalism to support it more easily. If the IRS and Congress pave the road for media hybrids, it will then be up to readers and foundations to provide the resources to power these nonprofit watchdogs.