Unpacking the New California Subsidy for News

Welcome to Second Rough Draft, a newsletter about journalism in our time, how it (often its business) is evolving, and the challenges it faces.

Last week, outgoing California Gov. Gavin Newsom signed a bill establishing an estimated $40 million annual public subsidy of newsrooms in the state. The bill does this by offering tax credits for the employment of journalists, but even newsrooms that don’t owe or pay taxes will receive the subsidy. It’s funded by a new tax provision that aligns California with an existing federal statute eliminating the deductibility of corporate executive pay in excess of a million dollars a year.

The new law is the largest public subsidy of journalism in the country today, and was the result of significant advocacy by many groups, individuals and companies. Prominent among these was Rebuild Local News, which was founded in 2020 and is led by Steven Waldman. I asked to talk with Steve for this column, and he generously agreed.

Waldman earlier co-founded and from 2017 until January 2023 was president of Report for America. In 2011, he was the principal author of the landmark FCC report on the Information Needs of Communities. Earlier in his career, Steve founded beliefnet and was a reporter at Newsweek, US News and Washington Monthly.

Our conversation occurred earlier this week, and has been edited for length and clarity.

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RT: Steve, thanks for doing this. Can you explain how newsrooms are eligible for the tax credit and the amounts involved?

SW: An eligible newsroom is going to be one that has at least one local journalist, and the law defines “eligible newsroom” and “local journalist.” The newsrooms need to meet a set of criteria that are pretty straightforward: They need to have media liability insurance, to have a corrections policy and to have at least one local reporter. So you can’t just be a completely AI-driven local news machine. The credit is tied to the number of local journalists that you have.

RT: By local we mean California, so they could be based all over California, correct?

SW: Yes. It’s $20,000 per journalist for the first five journalists on staff, and then $15,000 for those after that. In addition to that, if you have a new hire, there’s another $15,000 that’s stackable on top of the first $20,000. There’s also a credit for part-time journalists of $7,500 each. [See this explainer from Rebuild Local News]

Of caps and pay-fors

RT: There are two particularly interesting aspects to the law. One is that the amount of state funding has no cap. Governor Newsom, in a signing message, said he hoped the legislature would impose such a cap next year. Can you talk about that issue?

SW: One of my favorite things about the law is that it doesn’t have a cap, and that’s not just because that might lead to more money. It enables newsroom leaders or donors to make their investment with certainty that if they put in money to help grow a newsroom, the state will partly match it. If you have a cap, then you run through the program, and some people get it and some people don’t, and it’s very hard for a newsroom to plan growth around that kind of uncertainty.

From a fiscal point of view, you can understand why someone in the government would want a cap; it limits potential exposure. We have examples in national government of entitlement programs where suddenly the cost went through the roof. But in this case, they have set aside what appears to be plenty of money to pay for the program. I think that the lack of cap is one of the things that makes the California law a real breakthrough.

RT: The bill also included a new tax, what legislators call a “pay-for.” How important was that to passing the bill?

SW: I think it was quite important. When you go into a situation like this and you’re doing it out of general revenue, which is what happened in New York and Illinois, there’s just a higher bar for proving it is worth spending the money, as opposed to on other things. When you have a pay-for, it’s not negatively impacting the budget, so that takes that whole argument off the table, and puts the focus on the merits of whether or not this is an important issue.

The importance of content neutrality

RT: One thing I know you and I agree on is that government aid to newsrooms should be what is called “content neutral.” How would you explain that concept and why it’s important?

SW: You can perhaps look at our current FCC, where the chair has decided to make decisions about licensing based on what he calls the public interest, and he’s going to be the one making the judgments about whether or not a local TV station is meeting his definition— and that’s the problem. When you get terms like that, that are very subjective, you end up with politicians or government officials making decisions about news organizations and who to reward or punish. That creates really serious First Amendment and censorship risks, or risks of manipulation and capture.

 

When you have criteria based on non-content factors, you’re reducing the risk of that kind of political pressure, and potential for First Amendment violation.

RT: Governor Newsom, again in signing the bill, said he personally opposed the part of it that will fund hedge fund-owned newspapers, and said he hopes that that will also be changed next year. There’s no way to do that without eliminating content neutrality, right?

SW: It’s a little bit of a different issue, but also a tricky one. You could conceivably have an ownership-type rule that also was content neutral. You could say, for instance, this is only for nonprofit organizations. You could, in theory, have other lines in the sand, for instance, not a company that’s traded on the stock market. But as a practical matter, when you actually start to do it, it gets very difficult. When you draw the government into fine-tuning decisions like that, the risk of mischief and manipulation is higher. The risk of infringing on the First Amendment is higher

RT: Can you readily imagine how you could legislatively distinguish between the privately held for-profit Hearst Corporation and a privately held for-profit hedge fund owner?

SW: That’s a great example of why it’s hard. We actually looked at this once and tried to look at how are people defining hedge funds and private equity. Even that is actually a disputed concept, of exactly what is a hedge fund and what is a private equity firm.

I get the concern. The idea that taxpayer dollars would go to some company that doesn’t really need it when someone else needs it more is a perfectly legitimate concern, and especially when some of the companies do things damaging to the local news ecosystem.

An 18th Century ideal

For me, the gold standard of public policy and news is the Postal Act of 1792 that President Washington signed, that goes back to literally the first Congress, and they gave cheap postal rates to carry newspapers on horses across the country.

What was interesting about that was they felt that helping to create a newspaper industry was really important to the new republic, but the way they did it was not based on content. They didn’t say, “Oh, we’ll only have newspapers that aren’t scurrilous.” They tied the benefit to distance traveled, a quantifiable fact, and that meant that Jefferson had to put up with a subsidy going to Federalist newspapers, and the Federalists had to put up with a subsidy going to Jeffersonian newspapers. The benefit was this content neutrality reduced the chances of using the postal subsidy to reward and punish favored news outlets.

RT: The passage of this new bill, and the promise of $325,000 in annual aid from the state wasn’t enough to prevent 18 recent McClatchy layoffs in California. Doesn’t that mean that this will just slow the erosion of legacy newsrooms?

SW: Well, first of all, if it does that, that’s a worthy goal in itself, slowing the erosion of newsrooms.

One of the things we will have to see is whether the law changes behavior in a positive way. I suspect that in some cases it’ll just slow things down. When we say legacy newsroom, I think in your mind you were probably thinking of places like McClatchy, big corporate chains owned by hedge funds. And I think the bigger you get, the less clear it is what the impact would be, but if you’re a family-owned legacy newsroom, this could enable you to actually cover more communities or more topics than you were before.

A political taint?

RT: A lot of California newsrooms, including many nonprofits, advocated publicly and privately for this bill. Doesn’t that leave them with a debt to Newsom, who may run for president, and to the legislators who got it passed?

SW: I think we all still have to maintain and cherish the same firewalls that we’ve always had. When the publisher goes and pitches the local hospital to advertise with the newspaper, the editorial staff has to still be vigilant about covering the hospital rigorously, and that would be true here. From what I know about the personality types of journalists in general, I think it’s highly unlikely that journalists will pull their punches against local government or Newsom, for that matter.

I do worry about the perception of it more than the reality. Just framed exactly the way you just said, if people think, “they’re getting money from the government, they’ll suck up to the government or pull their punches,” that is a concern. I’m less concerned about it actually leading journalists to pull their punches.

RT: But with a hospital, the hospital gets the advertising in exchange for the money. I understand what you said about the minds of journalists, but in the minds of politicians, when they grant public funds to people, isn’t it your experience that they also think they’re engaging in a transaction?

SW: Well, the transaction in this case is that they’re getting more coverage of communities in California. I can’t put myself in any of their minds, but my impression from the legislators who worked to pass this was they seemed focused on the same social goals that we were.

Where do we go from here?

RT: This is clearly a big step. If you extended it across the country in proportion to California’s population, it would amount to almost $350 million a year. What’s the outlook right now for efforts in other states?

SW: There are versions of this in New York, New Mexico, and Illinois, smaller versions. There’s the possibility of expanding those, and we are getting a lot of interest from other states. The problem is, as you might expect, that it costs money, and when you’re asking for benefits or a program that has a price tag to it, you are up against other really important needs that the legislature may be considering.

 

That’s why we have a menu of different policy options, and depending on what the fiscal health of a state is, they may opt for something like the government advertising set-aside, which says that some portion of government advertising should go to community media instead of Google or Facebook, and which doesn’t cost additional money.

We do think the employment credit is the most direct and effective way of helping local news. There’s probably 25 different states that we’ve been talking to, and have expressed interest in taking some significant step through public policy to help community news, and that is a real sea change. And it’s because, first, things have just gotten so bad out there, and the consequences of the collapse of local news are so severe. that people are becoming increasingly aware of it. Second, is the education that there are ways of doing this that are First Amendment-friendly, because everyone has the same fear and caution about going into public policy helping local news.

The point is that there’s a lot of interest in doing this right now, and from blue, purple, and red states— and that’s important, by the way, because we really don’t want this to either be or be perceived as an issue that belongs to one political party.

RT: Steve, anything you want to add before we’re done?

SW: When you’re looking at public policy, I don’t think the government is necessarily good at making micro decisions about a worthy startup, or even organizations in general. What it is good at are large-scale operations that provide financial support according to fairly simple principles.

So, with the GI Bill, they didn’t say, “let’s have a government organization that looks at every veteran and works with them to try to figure out what they ought to major in, and where they ought to go to college.” They just said, let’s make it possible for veterans to go to college, and let’s have some faith that individuals will figure out the best path for themselves, and it will benefit society.

Journalists as the atomic unit

That’s the way we view an incentive for having more local journalists. There’s a tremendous amount of creativity out there right now. For all the bad news about the contraction of local news, we’ve also seen hundreds of startups and many people trying new models, and many young journalists wanting to go into journalism for the right reasons.

I think something like this that enables news organizations to get their nose above the waterline, and do the creative work that they’re wanting to do, will work because that creativity is out there. One of the things we like about this particular approach is that it focuses on the number of local journalists, and therefore it has an incentive structure that makes sense. You hire more local reporters, you get more money. If you lay off half your staff, you have less money.

We’re deep believers in the idea that yes, technology will make it easier for journalists to do more with less. But at the end of the day, we need actual human journalists in communities, living in communities, interacting with other residents of the community, and being held accountable by the rest of the community You have to pick what you think the atomic unit is, and what the most important thing to incentivize is, and this says the most important thing to incentivize is local journalists.

RT: Thank you, Steve. I really appreciate it.

Postscript: An Update on Our Own Support for Nonprofit News

As we announced in April, this newsletter will be contributing almost all the money received from paid subscribers to no more than four news nonprofits nominated by our readers at year’s end. To date, readers have suggested more than 60 such nonprofits. This is your last chance to add to those nominations in the comments below or on the earlier posts from April or July. I aim to narrow the nominations to 10 announced finalists in a few weeks, and to announce the recipients in early December. To date, money from more than 220 paid subscribers has yielded almost $9900 for this effort.

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