IDEA
Develop programs that help commercial media outlets convert to employee or audience ownership, nonprofit or public benefit corporations, and other mission-driven models and provide state tax incentives for owners who donate community news assets and seed philanthropic trusts to meet local civic information needs.
PRECEDENTS: There are currently 151 newspapers operating in Colorado. At least 44 of these outlets have owners who are approaching retirement age and may be or will be looking to sell their papers and exit the business, according to a Colorado Press Association estimate. Combined, these “newspapers in transition” currently provide more than 460,000 Coloradans with local news, and many are important sources for independent local news in their communities. Helping these owners navigate this time of transition in a way that allows them to divest their assets while also ensuring that new owners and business models match their civic purpose could help strengthen local newsrooms’ community connection and reduce the pressure for profitability. Likewise, helping new and existing local media businesses attain B Corps
certification or nonprofit status could be ways to open up new revenue streams, if ongoing local community support is present.
There are almost 150 employee-owned businesses in Colorado, including the Colorado Sun, New Belgium Brewing Company, and Alpine Banks of Colorado.
Employee ownership gives workers a stake in the success of their own company, which numerous studies have shown can lead to greater productivity, higher profitability, and increased revenue. Many varied use cases exist for using Employee Stock Option Programs (ESOPs) to facilitate business transitions and succession planning; for news businesses with a bottom line still in the black, this could be a potentially viable pathway to transition to or remain in local ownership. Under this approach, owners could receive payment for assets that are converted to employee ownership, while employees could continue to operate the newspaper as its owners and share in any profits generated.
In addition to being owned and operated by journalists, the Colorado Sun has become a Certified B Corporation. More than 3,000 companies in 64 countries have attained this privately awarded certification for for-profit businesses that “are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.” The Sun’s recent annual report details more than a dozen examples of how the outlet has produced a public benefit in its first year of operation, which as a B Corp it is now required to do under Colorado law.
Taking it a step further, more than 230 U.S. newsrooms currently operate as nonprofit organizations, including six Colorado members of the Institute for Nonprofit News. These newsrooms reduce the taxes they pay, qualify for foundation grants and other charitable contributions, and solicit community support for their operations. Being structured as a public charity can create a sense of community ownership and reciprocal buy-in from residents and local businesses, who in turn can receive tax deductions for charitable donations to these newsrooms.
Recently, federal legislation has been introduced to make it easier for for-profit news producers to convert to nonprofit status. Entitled the Saving Local News Act of 2019 (HR 3126), this bill would make publication of news articles, including electronic publication, an eligible nonprofit function under 501c3 of the tax code, exempt advertising revenue from taxation for local news organizations, and require the Internal Revenue Service (IRS) to rule on applications for nonprofit status by local news organizations within 12 months. Meanwhile, the Salt Lake Tribune in Utah is awaiting a decision from the IRS on its application to become a nonprofit.
Donating media assets is another way owners can ensure the community continues to benefit from local news. In 2009, Randy Miller donated the Silverton Standard and Miner to the San Juan County Historical Society when he was unable to find a buyer. In order to keep the newspaper going, the historical society had to be sure it could raise the $3,500 per month including staff needed to operate the outlet.
This is similar to what the owners of Philadelphia’s Inquirer, Daily News, and Philly.com website did by donating the properties to the Lenfest Institute for Journalism, a nonprofit foundation under federal law, which is operating them. In addition to the assets, the owner donated funds to help cover their long-term operating costs. While the papers and website remain for-profit public benefit corporations, the institute is a nonprofit.
HOW IT COULD WORK IN COLORADO: Transitioning local newspapers to mission-driven models could increase community engagement and investment, inspire new leadership, and bolster sustainability. In October 2019, the Knight Foundation published a useful new guide for newspaper owners considering nonprofit conversions or other ways to engage with philanthropy, based on models emerging from Salt Lake, Philadelphia, and elsewhere. The report noted: “While these models all involve relatively large local news entities, there are examples of smaller local newspapers as well as national chains taking similar steps. Owners who explore these pathways will be helping to chart evolving territory with the IRS, which has shown favorable signs toward new kinds of proposals.”
In 2017, Colorado enacted legislation to help companies convert businesses to employee ownership by providing technical assistance and authorizing a revolving loan fund. OEDIT houses this program, which could be leveraged to help owners of local news outlets explore their options for converting to employee ownership.
Coloradans could encourage our congressional delegation to support passage of the federal Saving Local News Act of 2019, which would make it easier for news organizations to convert to nonprofit status and exempt their advertising revenue from taxation. However, the Colorado Media Project recommends that federal legislators require commercial outlets seeking nonprofit conversion to adopt governance structures that demonstrate community support and ensure continual public benefit. For example, businesses converting to nonprofit status could be required to appoint and maintain a local governing board that consists of at least 50% local community members.
The Colorado legislature could also create incentives for owners to donate their newspapers, brands, properties, or other local news assets to a community foundation or nonprofit entity that would operate it for a specified time, such as 10 or 15 years. This model is based on the conservation easement program used by Colorado and other states to encourage owners of environmentally valuable property to donate it to a land trust as a way of preserving it. Like the state’s Conservation Easement Program, the media sustainability program could provide tax incentives and technical assistance to help owners work through the requirements for their donation. OEDIT could provide technical assistance and oversee this process, much like it does under the ESOP law.
Another approach could have the state provide tax or other incentives for local owners who donate media assets to a community foundation or nonprofit entity set up to run the newsroom, using revenues generated to cover the cost of operations.
Meanwhile, OEDIT, the Rocky Mountain Employee Ownership Center (a nonprofit advocating for employee ownership), and other experts could reach out to local newspaper owners to explain the value of converting to employee ownership and describe the resources available to help them work through the process. They could provide a template or other resources to help owners understand the trade-offs and how to make the conversion.
In addition, OEDIT could work with the Colorado Media Project, Colorado Press Association, and university journalism schools to provide newspaper owners with information and training on modernizing operations. Focus areas could be diversification of revenue streams, adoption of digital best practices, and other innovative approaches to modernizing their businesses. These efforts are similar to economic development assistance that OEDIT and the state provide to firms in other industries.
CONSIDERATIONS: Changing ownership structure or tax status could help local commercial newsrooms reduce the pressure for profitability. But as the Knight Foundation guide notes, “a business plan is still essential in part because the size and scale of most local newspapers is large and complex, and also because of IRS rules do not allow nonprofit ownership to exist for the sole purpose of helping subsidize a money-losing, for-profit operation. Regardless of the structure, a local news company is still obligated to find long-term sustainable revenue streams.
It is important that any nonprofit created as a result of a for-profit conversion be overseen by a governing board composed of local people who represent all aspects of the community and are dedicated to ensuring that the newsroom effectively covers local issues.
The conversion of for-profit papers to nonprofits and the creation of a conservation easement type program for local news producers are complicated undertakings that involve both state and federal law. Successfully completing them would require working with Colorado’s federal officials as well as state and local leaders. While difficult, these approaches provide the potential for large long-term payoffs.
