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Technical difficulties

The PBS scandal started with a revelation that one TV affiliate in Boston shared donor lists with Democrats. It grew when a chastened public broadcasting official told Congress he'd discovered the number of Democrat-friendly affiliates had grown to 30. Last week on Capitol Hill, influential lawmakers made it clear they will not refill the federal trough until they get some satisfactory answers. But a WORLD investigation reveals another question Congress might want to ask: Why did two top PBS affiliates fail to disclose their political contacts to the IRS?

Issue: "Panic at PBS?," Aug. 14, 1999

in Washington - With nearly half a billion dollars at stake, lawmakers on Capitol Hill are holding up the budget that helps keep 350 public television stations on the air. They're not objecting to the liberal tilt of PBS programming, for a change. Instead, they're investigating whether money given to support Barney and Big Bird actually ended up helping Barney Frank and Bill Clinton. At issue: hundreds of thousands of public television supporters whose names and addresses may have been sold, traded, or given to the Democratic National Committee and a variety of liberal interest groups. PBS stations insist the mailing list swaps were motivated by business, not ideology. Just a way to raise cash, say various spokespersons, not an attempt to advance a political agenda. But the picture gradually developing-despite the industry's best efforts to quash it-shows a distinct leftward bias in the roster of groups that benefited from the mailing lists. For television stations mandated to serve "the public interest," such a bias calls into question the whole rationale for public funding. And here's a brand-new development: Broadcasters may have more to fear from the IRS than they do from Congress. An investigation by WORLD into tax documents filed by two of the largest PBS stations in the country showed that neither revealed the existence or the extent of their mailing-list transactions with political organizations. If the stations had reported more fully on their annual tax-exempt organization filings with the IRS, the scandal may have come to light much earlier, and the exact list of liberal groups would be available to the public. Right now, the stations may have jeopardized their tax-exempt status: WORLD has obtained evidence that two major public broadcasting stations-WGBH and WETA-failed to reveal their list-sharing activities as required on federal tax forms. The unraveling of PBS started innocently enough. Back in May, Sam Black of Wellesley, Mass., received a fundraising letter from the Democratic National Committee-nothing particularly remarkable in that heavily Democratic state. But Sam is only 4 years old. He's not registered to vote, and he's never entered the Publisher's Clearinghouse Sweepstakes. Where, his mother wondered, could the DNC have gotten his name and address? Then she remembered a $40 donation she'd made to WGBH, Boston's public television station, in the name of her son, who's a big Barney fan. That struck a nerve in Mrs. Black, who is a non-practicing lawyer and a Republican. When she complained about the fundraising letter, the media began to investigate. WGBH initially claimed that a few donor names had been sold to the DNC by an inexperienced staffer who didn't know any better. Soon, the station had to admit that it had sold tens of thousands of names to the Democrats over a period of many years. Suddenly, Barney the Purple Dinosaur was red-faced. But it didn't stop there. Other public television stations admitted to similar practices, including giants such as WETA in Washington, WNET in New York, and WQED in San Francisco. Belatedly, officials of the Corporation for Public Broadcasting realized they had a full-scale scandal on their hands. On July 15, CPB finally issued a memo condemning the practice of giving or selling donor names to the Democrats. (One small station in New Hampshire reportedly rented its mailing list to a Republican organization, but some at the station insist that report is inaccurate.) The following week, CPB President Robert Coonrod appeared before Congress to admit that out of 75 stations surveyed, about 30 had been involved in the practice. Irate Republicans responded by freezing consideration of a new budget that would have increased CPB's federal funding from $250 million to $475 million over the next three years. "Santa Claus has left the building," said Ken Johnson, a spokesman for Rep. Billy Tauzin (R-La.), chief sponsor of the funding bill. Longtime opponents of CPB (and PBS, its programming arm) said the mailing-list scandal posed a unique threat to the powerful lobbying machine that has so far resisted any efforts to privatize the airwaves. "It represents for them an enormous threat," according to Tim Graham, director of media analysis at the Media Research Center. "They're much more comfortable fighting on the battleground of liberal content because the Republicans knuckle under on that issue." When it comes to finances, however, Mr. Graham believes that Republicans in Congress will be "more willing to mount the soapbox and say, 'This is an outrage.' "It goes to the heart of what's wrong with public broadcasting, and that's the veil of secrecy they draw around their financial arrangements. Their business practices are not open to public inspection.... They act very much like a for-profit corporation that's trying to maximize its revenue streams. The only difference is, a corporation is answerable to its shareholders; these people are answerable to no one." Except, perhaps, Congress and the IRS. Despite claims that CPB intended to immediately win back the public trust, stations visited by WORLD last week continued to hide information that might be construed as damaging. "We trade [mailing lists] with several hundred organizations a year," said a spokeswoman for WETA, adding that the records of those swaps filled several three-ring binders. Could a reporter examine those notebooks to see how WETA had been using its mailing lists? Despite persistent attempts, the answer was no (see sidebar). The spokeswoman hastened to add that most exchanges involved other arts organizations, such as the symphony and the ballet. But WETA, one of the largest stations in the public broadcasting universe, has already admitted that it also shared its mailing lists with some distinctly unartistic organizations, including Planned Parenthood and Handgun Control, Inc. CPB and individual stations have tried to portray the practice as business as usual, although they hasten to add that this particular business will stop immediately. But their problems are deeper than they have let on. The tax laws work like this: "Pure" charities (such as public television stations, churches, and private colleges) must maintain a careful distance between themselves and other exempt organizations (EOs) that are not -considered charitable. Political organizations fall into the latter category, as do advocacy groups like Planned Parenthood. Charitable EOs have one big advantage over noncharitable EOs: Donations to charities are tax-deductible for the giver. Thus, $5,000 given to a local church saves $1,400 for a taxpayer in the 28 percent tax bracket, while the same $5,000 given to the DNC yields no tax savings at all. In exchange for the privilege of offering tax deductions to donors, charities must agree to steer clear of politics, for the most part. A church, for instance, could not endorse a candidate for office. For years, some charities have tried to get around those restrictions through various creative means: for example, "loaning" employees to political campaigns to stuff envelopes and put up yard signs. Whenever the IRS gets wise to such schemes, it tries to close the loopholes. The restrictions are clearly spelled out (for the IRS) in a series of nine yes-no questions that appear on Form 990-basically the equivalent of the 1040 Form for individual taxpayers. Each year, charities are asked whether they engaged in a series of transactions with political organizations or noncharitable EOs: making loans, renting equipment, doing fundraising, and so on. Thus, in filling out their Form 990s each year, public television stations are asked specifically whether they engaged in "Sharing of facilities, equipment, mailing lists, other assets, or paid employees" with political organizations or pressure groups. If they answer yes, the IRS instructs them to list each transaction separately, along with its fair market value. In the Form 990s obtained by WORLD, WETA checked "No" on the mailing list question and failed to itemize a single such exchange. For its part, WGBH simply left that entire section of the form blank for three years running. "We don't feel we engaged in any of those activities," explained WGBH Controller John M. Madden. "We should have checked 'No.' We will in the future." Prompted about the line regarding the sharing of mailing lists, he replied: "We didn't share the mailing list ourselves. A list broker shared the mailing lists, so we never saw it." That justification elicits a prolonged chuckle from John Stophel, an expert in nonprofit tax law at the Chambliss, Bahner & Stophel firm in Chattanooga, Tenn. "You'll have to admit that's innovative. I'm surprised that they don't treat the mailing lists with a little more respect than they seem to do." The issue, according to Mr. Stophel, is known as inurement: The IRS wants to ensure that noncharitable organizations don't reap the same benefits as charitable organizations, which must conform to stricter rules on their conduct. "These other organizations like the DNC are exempt from taxation, but the contributions they receive are not deductible. So when they utilize the assets of an organization that has received the deduction, those charitable contributions are indirectly benefiting a noncharitable corporation." A nonprofit legal expert in Washington says the IRS might be most concerned about political ties between charitable and noncharitable organizations. "The IRS is particularly sensitive about accurate annual reporting where transfers to non-501(c)(3)s are involved," he says, "especially if there is a possibility that the charity's resources are being used to support political campaign activity. "If the stations did not receive full fair-market value for their lists, in cash or other benefits (such as a swapped list of equal value), then the question arises: Could the stations show that the transfers did not support the political campaign activities of the DNC?" For now, at least, the answer is no, not publicly. Despite repeated requests by WORLD-and despite a highly touted campaign to restore trust in public broadcasting-both stations refused to release records of whom they shared their lists with, how often, and how much such transactions were worth. So the questions and recriminations continue. CPB's new policy, in its first week of existence, has proved toothless and ineffective. Stations hide behind varying interpretations of the policy, while CPB officials refer tough questions back to the stations-saying, in effect, there's nothing that headquarters can do. With public broadcasting in disarray, Congress is more likely than ever to take matters into its own hands, trimming the powers of an ineffectual CPB and forcing some daylight into a closed and secretive system. Rep. Tauzin has already said that CPB's plan merely to withhold grants from recalcitrant stations is not enough. He promises criminal penalties for future violations and possible sanctions for stations for particularly egregious violations in the past. Furthermore, he says, if he's not satisfied with the report of CPB's inspector general, he'll refer the matter to the House's Government Oversight Subcommittee, raising the specter of subpoenas and public hearings. In the meantime, funding for CPB is going nowhere, and no one is saying when its budget request might move forward. Big Bird may not be able to fly, but his future on PBS is very much up in the air.

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