'Welfare' for nation's crumbling newspapers

President Obama indicated he would support federal aid to stop the death of newspapers – but critics warn a bill in Congress could mean strict regulation of political content and IRS scrutiny of newspapers that step out of line.

The president called himself a "news junkie" in a Sept. 18 Oval Office interview with editors from the Pittsburgh Post-Gazette and the Toledo Blade.

"Journalistic integrity, you know, fact-based reporting, serious investigative reporting, how to retain those ethics in all these different new media and how to make sure that it's paid for, is really a challenge," Obama told the reporters. "But it's something that I think is absolutely critical to the health of our democracy."

Newspapers are struggling to retain readership and advertising returns lost to Internet-based publications. Obama's statements come on the heels of an Associated Press report this month that Freedom Communications, publisher of the Orange County Register in California and dozens of other newspapers, is now seeking bankruptcy protection.

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Freedom is at least the 10th newspaper publisher to file for bankruptcy protection in the past year, according to the report. Other publishers still in bankruptcy proceedings include owners of the Los Angeles Times, Chicago Tribune, the Star Tribune of Minneapolis and the Philadelphia Inquirer. The Boston Globe may be up for sale, and the New York Times is facing shrinking staff and content.

Denver's Rocky Mountain News and the Seattle Post-Intelligencer have closed their print editions without even attempting bankruptcy. The Post-Intelligencer continues as Internet-based publication only. Triple Crown Media, operator of six dailies and one weekly newspaper in Georgia, also filed for bankruptcy protection last week.

The Columbia Journalism Review reported that newspaper industry ad revenue has now dipped to 1965 levels.

Newspaper advertising plummets (Illustration: Columbia Journalism Review)

In the midst of the newspaper decline, more Americans are looking to the Internet for their information. Obama said the trend worries him.

"I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding," he said.

He told reporters, "What I hope is that people start understanding if you're getting your newspaper over the Internet, that's not free and there's got to be a way to find a business model that supports that."

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Obama said he would be "happy to look at" bills before Congress that would give struggling newspapers tax breaks if they restructure as non-profit 501(c)(3) organizations similar to public broadcasting.

Rep. Carolyn Maloney, D-N.Y., introduced H.R. 3602, or the "Newspaper Revitalization Act of 2009," on Sept. 17. A companion bill, S. 673, was introduced in the Senate by Sen. Benjamin Cardin, D-Md., in March.

H.R. 3602 has been referred to the House Ways and Means Committee. Under the act, a newspaper shall be considered "qualified" for 501(c)(3) status if:

(1) the trade or business of such corporation or organization consists of publishing on a regular basis a newspaper for general circulation,

(2) the newspaper published by such corporation or organization contains local, national, or international news stories of interest to the general public and the distribution of such newspaper is necessary or valuable in achieving an educational purpose, and

(3) the preparation of the material contained in such newspaper follows methods generally accepted as educational in character.

"Unless something is done, and done fast, it's likely that many metropolitan areas may soon have no local daily newspapers – and that would damage our democracy," Rep. Maloney said in a statement. "Providing this option to structure their business would be a way for a community or local foundations to preserve their local paper."

Maloney said studies have shown that in areas where daily newspapers have gone out of business there has been a rise in corruption in government and plummeting civil engagement in politics.

However, critics contend that under the 501(c)(3) designation, newspapers may be indebted to the government or face regulation of content because of their non-profit status requirements.

Sen. Benjamin Cardin said that under the Newspaper Revitalization Act, "newspapers would not be allowed to make political endorsements, but would be allowed to freely report on all issues, including political campaigns. Advertising and subscription revenue would be tax exempt and contributions to support coverage or operations could be tax deductible."

Cardin said newspaper non-profit status would be "similar to public broadcasting," much like National Public Radio, NPR, or the Public Broadcasting Service, PBS.

In an editorial addressing the Newspaper Revitalization Act, the Delaware County Daily Times argued, "Any newspaper that would surrender its First Amendment right to collect, disseminate and comment on the news would, in reality, cease to be a newspaper at all."

Some argue newspapers would be required to refrain from supporting candidates or expressing political opinions that could cost them their non-profit status. Tax-exempt 501(c)(3) organizations are subject to limits or prohibitions on political activities. According to the Internal Revenue Service website:

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

The IRS states that it "actively monitors compliance by section 501(c)(3) organizations with the prohibition on political campaign intervention, and addresses prohibited activity that occurs."

The Daily Times warned that nonprofit status could mean IRS scrutiny of any newspaper that steps out of line.

"[I]t is also safe to say that newspapers whose coverage annoyed one political party or the other might find themselves threatened with government action and their tax-exempt status put in jeopardy," the editorial states.

As WND reported, a recent Zogby poll shows Americans across the political spectrum reject government intrusion into how they get their news and information.

Americans overwhelmingly agreed: no government control of the Internet, no "Fairness Doctrine" managing talk radio and if newspaper companies fail as a profitable means of disseminating news, then let them die, because Americans will not support government charity.

When asked about possible federal bailouts for the floundering newspaper industry, Americans rejected the idea by a ratio of 78.9 percent opposed to only 8.7 percent in favor.