[Congressional Record Volume 150, Number 73 (Friday, May 21, 2004)]
[Senate]
[Pages S6088-S6093]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LAUTENBERG (for himself, Mr. Kennedy, Mr. Corzine, Ms. 
        Stabenow, Mrs. Clinton, and Mr. Reed):
  S. 2473. A bill to require payment of appropriated funds that are 
illegally disbursed for political purposes by the Centers for Medicare 
and Medicaid Services; to the Committee on Finance.
  Mr. LAUTENBERG. Mr. president, yesterday, the Comptroller General of 
the United States ruled that the Bush administration illegally spent 
taxpayer dollars for political propaganda in violation of two laws.
  To make matters worse, these funds were taken from the Medicare Trust 
Fund.
  In other words, money reserved for our seniors' healthcare was 
illegally used for political activity. It is outrageous.
  The President has raised plenty of money for his campaign. Over 
200 million dollars. Why does he need to use Medicare funds?

  With taxpayer money, the Bush administration produced so-called 
``video news released'' --fake news stories that hailed the new 
Medicare law--and distributed them to TV stations across the country.
  This covert propaganda was never identified as being produced by the 
administration. As a result many news stations ran this story as real 
news and

[[Page S6089]]

viewers had no idea it was produced by the government.
  The phony news stories show scenes of the President receiving a 
standing ovation before signing the bill into law and even end with a 
sign off from a fake reporter.
  The GAO has said that these materials are illegal, but the money is 
already spent and that money will likely never be recovered unless we 
pass this legislation.
  My bill calls on the Bush-Cheney re-election campaign to repay this 
money to the Federal Government. It's the right thing to do.
  I have long said that this administration's so-called ``education'' 
campaign on the new Medicare law is fraught with questionable activity.
  And now we know that they have in fact acted illegally. I think 
somewhere along the way they confused the word ``education'' with 
``election.''
  This is just the most recent incident in a long line of advertising 
by the Bush administration that the non-partisan GAO has called 
misleading and political.
  If the Bush-Cheney campaign wants to spend funds dollars touting the 
new Medicare law, that's their prerogative--but they cannot use 
government agencies and taxpayer funds to do it.
  I am all for educating seniors, but I will always guard against any 
misuse of taxpayer dollars, especially those reserved for Medicare.
  I am here today to tell the President: Don't use the people's money 
to promote your bid for reelection. It's not only unethical, it's 
against the law. Taxpayer money should not be used for political 
purposes.
  I ask unanimous consent that the text of the bill and the GAO report 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2473

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Medicare Trust Fund 
     Reimbursement Act of 2004''.

     SEC. 2. REPAYMENT TO THE MEDICARE TRUST FUNDS OF AMOUNTS 
                   ILLEGALLY DISBURSED FOR POLITICAL PURPOSES.

       (a) In General.--Notwithstanding any other provision of 
     law, if the Comptroller General of the United States 
     determines that the Centers for Medicare & Medicaid Services 
     has violated the restriction on using appropriated funds for 
     publicity or propaganda purposes contained in section 626 of 
     division J of the Consolidated Appropriations Resolution, 
     2003 (Public Law 108-7; 117 Stat. 470) or any other provision 
     of law, the principal campaign committee (as defined in 
     section 301(5) of the Federal Election Campaign Act of 1971 
     (2 U.S.C. 431(5))) of the President of the United States 
     shall reimburse the Federal Government for the amount used in 
     committing such violation.
       (b) Reimbursement of Medicare Trust Funds.--To the extent 
     that the amount described in subsection (a) was initially 
     appropriated to the Federal Hospital Insurance Trust Fund 
     under section 1817 of the Social Security Act or the Federal 
     Supplementary Medical Insurance Trust Fund under section 1841 
     of such Act, the amount reimbursed under such subsection 
     shall be credited to the Trust Fund to which the amount was 
     initially appropriated.
         Comptroller General of the United States, United States 
           General Accounting Office,
                                                   Washington, DC.

                                Decision

     Matter of: Department of Health and Human Services, Centers 
         for Medicare & Medicaid Services--Video News Releases.

     File: B-302710.
     Date: May 19, 2004.


                                 DIGEST

       1. The Centers for Medicare & Medicaid Services's (CMS) use 
     of appropriated funds to pay for the production and 
     distribution of story packages that were not attributed to 
     CMS violated the restriction on using appropriated funds for 
     publicity or propaganda purposes in the Consolidated 
     Appropriations Resolution of 2003, Pub. L. No. 108-7, Div. J, 
     Tit. VI, Sec. 626, 117 Stat. 11, 470 (2003).
       2. CMS, in using appropriations in violation of the 
     publicity or propaganda prohibition, incurred obligations in 
     excess of appropriations available for that purpose. See B-
     300325, Dec. 13, 2002. Accordingly, CMS violated the 
     Antideficiency Act, 31 U.S.C. Sec. 1341, and must report the 
     violation to the Congress and President in accordance with 31 
     U.S.C. Sec. 1351 and Office of Management and Budget Circular 
     No. A-11.


                                DECISION

       In a March 10, 2004, opinion, we concluded that the 
     Department of Health and Human Services's (HHS) use of 
     appropriated funds to produce and distribute a flyer and 
     print and television advertisements, as part of a campaign to 
     inform Medicare beneficiaries about changes to Medicare under 
     the Medicare Prescription Drug, Improvement and Modernization 
     Act of 2003 (MMA), did not violate publicity or propaganda 
     prohibitions in the Consolidated Appropriations Act of 2004, 
     Pub. L. No. 108-199, Div. F, Tit. VI, Sec. 624, 118 Stat. 3, 
     356 (2004), and the Consolidated Appropriations Resolution of 
     2003, Pub. L. No. 108-7, Div. J, Tit. VI, Sec. 626, 117 Stat. 
     11, 470 (2003). B-302504, Mar. 10, 2004. During our 
     development of that opinion, we learned that the Centers for 
     Medicare & Medicaid Services (CMS), an agency in the 
     Department of Health and Human Services, had prepared as part 
     of this campaign video news releases or VNRs, including a 
     news story for television broadcast, to provide information 
     to the television medium. Letter from Dennis G. Smith, 
     Director, Center for Medicaid and State Operations, to Gary 
     L. Kepplinger, Deputy General Counsel, General Accounting 
     Office (GAO), April 2, 2004 (Smith Letter). The VNRs consist 
     of (1) video clips known as B-roll film, (2) introductory and 
     concluding slates with facts about MMA, and (3) prepackaged 
     news reports referred to as story packages with suggested 
     lead-in anchor scripts. Importantly, the prepackaged story 
     packages and anchor scripts did not include statements noting 
     that they had been prepared by CMS.
       Our March 10, 2004, opinion addressed only the flyer and 
     advertisements and did not address CMS's use of appropriated 
     funds to prepare and distribute the VNRs. This decision 
     addresses whether CMS's use of appropriated funds to produce 
     and distribute the VNRs violated the publicity or propaganda 
     prohibitions enacted in the Consolidated Appropriations 
     Resolution of 2003, cited above. CMS told us that it used 
     fiscal year 2003 CMS program management appropriations to 
     produce and distribute the VNRs. Smith Letter, Enclosure 1 at 
     8. As we explain below, we conclude that of the three parts 
     of the VNRs, one part--the story packages with suggested 
     scripts--violates the prohibition. In neither the story 
     packages nor the lead-in anchor scripts did HHS or CMS 
     identify itself to the television viewing audience as the 
     source of the news reports. Further, in each news report, the 
     content was attributed to an individual purporting to be a 
     reporter but actually hired by an HHS subcontractor.
       To perform our analysis, we requested information from CMS 
     regarding the production, filming and distribution of the VNR 
     materials. Letter from Gary L. Kepplinger, Deputy General 
     Counsel, GAO, to Dennis G. Smith, Acting Administrator, CMS, 
     March 17, 2004. CMS responded by letter dated April 2, 2004. 
     Smith Letter. We met with agency officials to clarify their 
     responses and to gain further factual information regarding 
     the production and distribution of the VNRs at issue. In 
     addition to the information CMS provided us, we also examined 
     available information regarding the use of VNRs generally by 
     the broadcast media and their current use as a public 
     relations tool.


                               BACKGROUND

     Use of VNRs
       VNRs have become a popular public relations tool to 
     disseminate desired information from private corporations, 
     nonprofit organizations and government entities, in part 
     because they provide a cheaper alternative to more 
     traditional broadcast advertising.\1\ While the practice is 
     widespread and widely known by those in the media industry, 
     the quality and content of materials considered to constitute 
     a VNR can vary greatly.\2\ Generally, a VNR package may 
     contain a prepackaged news story, referred to as a story 
     package, accompanied by a suggested script, video clips known 
     as B-roll film, and various other promotional materials.\3\ 
     These materials are produced in the same manner in which 
     television news organizations produce materials for their own 
     news segments.\4\ By eliminating the production effort and 
     costs of news organizations, producers of VNRs find news 
     organizations willing to broadcast a favorable news segment 
     on the desired topic.\5\
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     See footnotes at end of article.
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       Since 1990, there has been a notable rise in the 
     distribution of VNR materials.\6\ With growing use of VNRs, 
     journalism scholars began questioning the effect of this 
     third-party material upon the perception that news was 
     derived from a neutral source.\7\ In particular, scholars 
     raised concerns regarding the influence of third-party 
     sources.\8\
       Given these ethical concerns, there have been a number of 
     studies of the use of VNRs by the broadcast industry. Several 
     journalism scholars attribute the rise in the use of VNRs to 
     the economic circumstances of the industry.\9\ In smaller 
     broadcast markets during the early 1990s, news stations 
     suffered significant reductions in staff and budget, and had 
     difficulty obtaining footage of certain public interest 
     events.\10\ Footage from an outside source helped stations 
     fill airtime with programming that would otherwise not be 
     available and helped avoid depletion of already overextended 
     funds.\11\
       Studies also show, however, that most news organizations 
     using VNR materials often use only a portion or edited 
     versions of the materials provided.\12\ Still, parties 
     interested in obtaining the maximum audience for VNR 
     materials argue that, even if the story package or scripted 
     materials are not used in full, the production of a 
     professionally complete news story provides a framework for 
     the message conveyed in the

[[Page S6090]]

     final broadcast.\13\ This allows the story package producer 
     to assert some control over the message conveyed to the 
     target audience.
       Also, the use of VNRs may be attributed to the ease with 
     which the materials may be distributed. While some packages 
     are distributed directly from the source to the television 
     stations, satellite and electronic news services such as 
     provided by CNN Newsource facilitate distribution to a number 
     of news markets in a short period of time.\14\ Broadcast 
     stations subscribe to these services, which provide, in 
     addition to VNR materials, journalist reports and stories, 
     and advertising.\15\ While the news services label VNRs 
     differently than independent journalist news reports, there 
     apparently is no industry standard as to the labeling of 
     VNRs. In fact, when questioned about the use of the VNR 
     materials at issue here, some news organizations indicated 
     that they misread the label or they mistook the story 
     package as an independent journalist news story on CNN 
     Newsource.\16\
       Professional journalism societies have noted in their codes 
     of ethics that journalists should resist influence from 
     outside sources, including advertisers and special interest 
     groups.\17\ Because VNRs consist of information generated by 
     a group with a distinct perspective on an issue, the 
     unfettered use of VNRs may run afoul of these principles.\18\ 
     Moreover, professional organizations warn against using 
     materials that would deceive audiences.\19\ VNRs that 
     disclose the source of information to the target audience 
     alleviate these ethical concerns.
     CMS's Medicare VNRs
       The CMS VNRs consist of three videotapes with corresponding 
     scripts. CMS informed us that these videotapes represent what 
     a news organization would receive when obtaining the VNR 
     materials. Two of the videotapes are in English, and one is 
     in Spanish. The two English videotapes contain three items: 
     (1) video clips, referred to as B-roll, (2) slates 
     containing, among other things, title cards with facts on 
     MMA, and (3) a video segment called a ``story package.'' \20\ 
     The B-roll provides news organizations with footage for use 
     in developing their own news reports. The slate is a visual 
     feed from CMS to recipient news organizations that contains 
     some facts regarding MMA.\21\ The last slate in the VNR 
     materials directs the receiving news station to contact CMS 
     for information on the VNR materials. The story packages are 
     news reports prepared by CMS rather than a news organization.
       The B-roll clips on each videotape are exactly the same and 
     contain footage of President Bush, in the presence of Members 
     of Congress and others, signing MMA into law, and a series of 
     clips of seniors engaged in various leisure and health-
     related activities, including consulting with a pharmacist 
     and being screened for blood pressure. The English videotapes 
     also include clips of Tommy Thompson, the Secretary of the 
     Department of Health and Human Services (HHS), and Leslie 
     Norwalk, Acting Deputy Administrator of CMS, making 
     statements regarding changes to Medicare under MMA. The 
     Spanish videotape includes clips of Dr. Cristina Beato of CMS 
     offering statements about MMA's changes to Medicare, instead 
     of Thompson and Norwalk.
       The two English VNRs contain segments entitled ``story 
     packages'' that consist of self-contained news reports 
     regarding Medicare benefits under MMA. Although the English 
     story packages contain several of the same B-roll video clips 
     and the same narrator, identified as Karen Ryan, the contents 
     of the two story packages vary. With each story package, CMS 
     included a script for a news anchor of the recipient news 
     organization to read as a lead-in to the CMS produced news 
     report. One story package focuses on CMS's advertising 
     campaign regarding MMA (Story Package 1). The suggested 
     anchor lead-in states that ``the Federal Government is 
     launching a new, nationwide campaign to educate 41 million 
     people with Medicare about improvements to Medicare.'' The 
     lead-in ends with ``Karen Ryan explains.'' The video portion 
     of the story package begins with an excerpt of the television 
     advertisement with audio indicating ``it's the same Medicare 
     you've always counted on plus more benefits.'' Karen Ryan 
     explains, ``That's the main message Medicare's advertising 
     campaign drives home about the law.'' As more clips from the 
     advertisement appear, Karen Ryan continues her narration, 
     indicating that the campaign helps beneficiaries answer their 
     questions about the new law, the administration is 
     emphasizing that seniors can keep their Medicare the same, 
     and the campaign is part of a larger effort to educate people 
     with Medicare about the new law. The story package ends with 
     Karen Ryan stating: ``In Washington, I'm Karen Ryan 
     reporting.''
       The second English story package (Story Package 2) focuses 
     on various provisions of the new prescription drug benefit of 
     MMA and does not mention the advertising campaign of CMS. The 
     anchor lead-in states: ``In December, President Bush signed 
     into law the first ever prescription drug benefit for people 
     with Medicare.'' The anchor lead-in then notes, ``[t]here 
     have been a lot of questions about'' MMA and its changes to 
     Medicare and ``Karen Ryan helps sort through the details.'' 
     The video portion of the news report starts with footage of 
     President Bush signing MMA. Karen Ryan's voice narration 
     indicates that when MMA was ``signed into law last month, 
     millions of people who are covered by Medicare began asking 
     how it will help them.'' Next, the segment runs footage of 
     Tommy Thompson, in which he states that ``it will be the same 
     Medicare system but with new benefits. . . .'' Karen Ryan 
     continues her narration, stating ``most of the attention has 
     focused on the new prescription drug benefit . . . all people 
     with Medicare will be able to get coverage that will lower 
     their prescription drug spending . . . Medicare will offer 
     some immediate help through a discount card.'' She also tells 
     viewers that new preventive benefits will be available, low-
     income individuals may qualify for a $600 credit on available 
     drug discount cards, and ``Medicare officials emphasize that 
     no one will be forced to sign up for any of the new 
     benefits.'' Karen Ryan's narration leads into clips of 
     Secretary Thompson and Leslie Norwalk explaining other 
     beneficial provisions of MMA. Similar to Story Package 1, 
     Story Package 2 ends with ``In Washington, I'm Karen Ryan 
     reporting.''
       The Spanish-language materials contain the same three items 
     as the English language VNRs-a B-roll, slates and a story 
     package (Story Package 3). After the B-roll segments, the 
     story package segment appears. This segment is considerably 
     longer than its two English counterparts. Similar to Story 
     Package 2, Story Package 3 focuses on prescription drug 
     benefits available under MMA. It does not mention that CMS is 
     engaging in an advertising campaign. Here, the anchor lead-in 
     is similar to Story Package 2, except the anchor indicates 
     that Alberto Garcia ``helps sort through the details.'' The 
     video segment begins with the footage of President Bush 
     signing MMA into law as Alberto Garcia narrates that after 
     signing the law, millions of people who are covered by 
     Medicare began asking how the new law will help them. The 
     remainder of the story package contains identical footage of 
     Dr. Beato and of seniors engaged in various activities as in 
     the B-roll footage. During the video clips of seniors, 
     Alberto Garcia narrates that the focus of most of the 
     attention to MMA is on the prescription drug benefit 
     available in 2006. He also explains that prescription drug 
     discount cards will be available in June 2004 and that 
     ``[p]eople with Medicare may be able to choose from several 
     different drug discount cards, offering up to 25 percent 
     savings on certain medications.'' \22\ Alberto Garcia 
     concludes his report, stating: ``In Washington, I'm Alberto 
     Garcia reporting.''
       In response to our request for more factual information on 
     CMS's practice of using VNRs, CMS forwarded to us a fourth 
     videotape. This tape contains Story Package 2 and two VNRs, 
     each of which CMS described as a ``produced story segment,'' 
     that HHS produced and distributed in 1999 under then-
     Secretary Donna Shalala of the Clinton Administration. Smith 
     Letter at 2. These two story packages were designed to inform 
     beneficiaries of the Clinton Administration's position on 
     prescription drug benefits and preventive health benefits. 
     CMS pointed out similarities between the story packages in 
     current use and the earlier ones. Much like the story 
     packages at issue here, the earlier story packages contain 
     footage of seniors engaging in various activities, then-HHS 
     Secretary Donna Shalala appearing to answer questions 
     regarding the provisions of proposed legislation for a 
     prescription drug benefits and preventive health benefits, 
     and a report of the Administration's proposal. The earlier 
     story packages end with the phrase, ``Lovell Brigham, 
     reporting.''
     Distribution of Medicare VNRs
       CMS explained to us that HHS hired Ketchum, Inc., to 
     disseminate information regarding the changes to Medicare 
     under MMA. Specifically, HHS contracted with Ketchum to 
     assist HHS and its agencies with a ``full range of social 
     marketing activities to plan, develop, produce, and deliver 
     consumer-based communication programs, strategies, and 
     materials.'' Ketchum Contract at 2. Ketchum hired Home Front 
     Communications (HFC) to create the VNR materials. HFC is a 
     broadcast public relations firm specializing in producing 
     video products. Smith Letter, Enclosure 1 at 6-7. HFC wrote 
     the VNR scripts, which were reviewed, edited, and approved by 
     CMS and HHS. Id. at 7. HFC completed all production work, 
     including filming, audio work and editing. The final VNR 
     packages were reviewed and approved by CMS and HHS. Id.
       The VNR materials were then distributed to television 
     stations via satellite, electronic services provided by CNN 
     Newsource, and/or mail. Id. at 2. CMS and HFC staff members 
     contacted some news directors by telephone to inform the 
     stations that the materials were available. Id. Additionally, 
     CMS e-mailed and faxed news advisories to news stations 
     regarding the VNR availability. Id.; see also Smith Letter, 
     Enclosure 4. The advisory indicated the satellite coordinates 
     to obtain the materials, how to find the materials on CNN 
     Newsource, and bullet-point key facts regarding the new 
     benefits available. Smith Letter, Enclosure 4. The advisory 
     further explains what the visual elements of the VNR 
     consisted of, including interviews, a story package, and B-
     roll. Id. All stations could access satellite distribution. 
     Smith Letter, Enclosure 1 at 6. Computers of the subscribing 
     location stations' newsrooms could access CNN Newsource. Id. 
     The advisory directed news stations to contact Robin Lane, an 
     HFC employee, for more information on retrieving VNR 
     materials. CMS also mailed videotapes of VNR materials to 
     those television stations that requested the material. Smith 
     Letter, Enclosure 4. CMS provided us a list of television

[[Page S6091]]

     stations that aired at least some portion of the VNRs 
     between January 22, 2004, and February 12, 2004. This list 
     contained 40 stations in 33 different markets. Smith 
     Letter, Enclosure 3. CMS did not identify what parts of 
     the VNR each station broadcasted. One of the stations that 
     aired the story package was WBRZ, Baton Rouge, Louisiana. 
     According to transcripts published on the World Wide Web, 
     WBRZ broadcast Story Package 2 and used the suggested 
     anchor lead-in script on January 22, 2004, in its 
     entirety.\23\ At least two other television stations may 
     have aired either Story Package 1 or 2 in their entirety. 
     A review of excerpts of transcripts from Video Monitoring 
     Services of America show that two stations, WMBC-TV in New 
     Jersey (Story Package 1) and WAGA-TV in Atlanta (Story 
     Package 2), aired MMA news stories ending with Karen 
     Ryan's by-line.\24\


                               DISCUSSION

       This is the first occasion that we have had to review the 
     use of appropriated funds by government entities to engage in 
     the production of VNRs. At issue here is whether CMS's use of 
     appropriated funds to produce VNR materials constituted a 
     proper use of those funds. In its written response and during 
     our informal interview, CMS contended that the production of 
     the VNR materials constitutes a ``standard practice in the 
     news sector'' and a ``well-established and well-understood 
     use of a common news and public affairs practice.'' Smith 
     Letter at 2. While we recognize that the use of VNR 
     materials, with already prepared story packages, is a common 
     practice in the public relations industry and utilized not 
     only by government entities but also the private and non-
     profit sector as well, our analysis of the proper use of 
     appropriated funds is not based upon the norms in the public 
     relations and media industry.
       CMS told us that it used fiscal year 2003 CMS program 
     management appropriations to produce and distribute the VNR 
     package. Smith Letter, Enclosure 1 at 8. While CMS may have 
     authority to use appropriated funds to disseminate 
     information regarding the changes to Medicare pursuant to 
     MMA,\25\ this authority is subject to the publicity or 
     propaganda prohibition appearing in the annual appropriation 
     act.\26\ Specifically, this prohibition states: ``No part of 
     any appropriation contained in this or any other Act shall be 
     used for publicity or propaganda purposes within the United 
     States not heretofore authorized by the Congress.'' Pub. L. 
     No. 108-7, Div. J, Tit. VI, Sec. 626, 117 Stat. 11, 470 
     (2003).
       Our March 10, 2004, opinion noted that to date we have 
     applied the publicity or propaganda restriction to prohibit 
     the use of appropriated funds for materials that are self-
     aggrandizing, purely partisan in nature, or covert as to 
     source. See generally B-302504. Of these three types, the VNR 
     materials on MMA raise concerns as to whether they constitute 
     ``covert'' propaganda because they are misleading as to 
     source.\27\
       CMS asserts that, in keeping with the traditional practices 
     in the media industry, CMS or the service it used to 
     distribute the VNR materials clearly labeled the materials as 
     VNRs. See generally Smith Letter. Because they are so labeled 
     and easily identifiable among those in the media, CMS 
     contends that the story packages could not be considered 
     misleading as to source. CMS officials also assert that it 
     was not their intent to distribute the VNR materials to the 
     broadcast stations covertly and that the labeling of the 
     entire VNR package clearly attributes the source of the 
     information to HHS and CMS. Smith Letter, Enclosure 1 at 4.
       The ``critical element of covert propaganda is the 
     concealment of the agency's role in sponsoring the 
     materials.'' B-229257, June 10, 1988. In our case law, 
     findings of propaganda are predicated upon the fact that the 
     target audience could not ascertain the information source. 
     For example, we found government-prepared editorials to be 
     covert propaganda; although the newspapers who would have 
     printed the suggested editorials should have been aware of 
     the source, the reading public would not have been aware of 
     the source. B-223098, Oct. 10, 1986. In that case, we 
     examined materials concerning President Reagan's proposal to 
     transfer the Small Business Administration (SBA) to the 
     Department of Commerce. Id. In support of the 
     Administration's proposal, SBA prepared and distributed a 
     variety of materials, including suggested editorials. SBA 
     prepared these editorials and provided them to newspapers 
     around the country to run as the position of the recipient 
     newspapers without disclosing to the readers of those 
     editorials that SBA was the source of the information. 
     Because the SBA-prepared editorials did not identify SBA as 
     the source, SBA's use of appropriated funds to prepare and 
     distribute the editorials violated the publicity or 
     propaganda prohibition.\28\
       In a 1987 case, the Department of State's Office of Public 
     Diplomacy for Latin America violated the prohibition by 
     paying consultants to write op-ed pieces in support of the 
     Administration's policy on Central America for distribution 
     to newspapers. B-229069, Sept. 30, 1987. The State Department 
     did not advise the newspapers of its involvement in the 
     writing of the op-ed pieces. The newspapers published these 
     articles for distribution to an equally uninformed audience 
     of individual readers. These materials were ``propaganda'' 
     within the ``common understanding'' of the term, and they 
     constituted ``deceptive covert propaganda'' designed to 
     influence the media and public to support the 
     Administration's Latin American policies. Id.
       In defending its VNRs, CMS fails to distinguish among the 
     three separate parts of its VNRs and the intended audience 
     for each part. We do not dispute the fact that CMS labeled 
     the entire package of VNR materials so that the receiving 
     news organizations could identify HHS or CMS as the source of 
     the information, whether they were received directly from CMS 
     through the mail or retrieved by the news organizations from 
     CNN Newsource or other satellite services.\29\ However, in 
     both B-223098 and B-229069, the readers of the printed 
     editorials and op-ed pieces would not have been aware of the 
     government's influence. In analyzing whether the three 
     separate materials that make up the VNR package are covert 
     propaganda, we do not consider the VNR as a whole, because 
     each of the three items that comprise the VNR was prepared 
     for a different purpose and audience.
       In its written response and during our interviews, CMS 
     indicated that the 41 million Medicare beneficiaries, who may 
     comprise the news stations' viewing audience, and not just 
     the television stations themselves, were the intended 
     audience of the VNR materials. Some VNR materials, including 
     the B-roll and the slates, could not reasonably be targeted 
     directly to a television viewing audience. By their very 
     nature, the B-roll and slates were designed to be 
     incorporated in a news story of the receiving stations' own 
     creation. CMS clearly identified itself as the source of 
     these materials to the television stations receiving them. 
     CMS made efforts to notify the news stations of the 
     availability of these materials via e-mail, telephone, and 
     facsimile and the available distribution sources identified 
     the materials as a VNR. Smith Letter at 2, Enclosure 1 at 2. 
     Accordingly, the B-roll and slates do not violate the 
     publicity or propaganda prohibition.
       The story packages and lead-in scripts, however, were 
     clearly designed to be seen and heard directly by the 
     television viewing audience and not solely by the media 
     receiving the package. CMS and HHS officials told us that the 
     story packages were designed so that television stations 
     could include them in their news broadcasts exactly as CMS 
     had produced them, without any production effort by the 
     stations. The suggested anchor lead-in scripts facilitate the 
     unaltered use of the story package, announcing the package as 
     a news story by Karen Ryan or Alberto Garcia. Importantly, 
     CMS included no statement or other reference in either the 
     story package or the anchor lead-in script to ensure that the 
     viewing audience would be aware that CMS is the source of the 
     purported news story.
       The story packages, similar to the SBA editorials and the 
     State Department op-ed pieces, could be reproduced with no 
     alteration thereby allowing the targeted audience to believe 
     that the information came from a nongovernment source or 
     neutral party. The story packages of the VNRs consist of a 
     complete message that could be reproduced directly by the 
     news organizations to be viewed by the audience of the 
     newscasts. As such, the viewing audience does not know, for 
     example, that Karen Ryan and Alberto Garcia were paid with 
     HHS funds for their work.
       The receiving news organization's ability to edit the story 
     packages to produce an independent news story does not negate 
     the fact that CMS designed the segments to broadcast as CMS 
     had produced them. CMS's effort to identify itself to the 
     news organizations that received the VNRs did not alert 
     television viewers that CMS was the source of the story 
     package. CMS has acknowledged that the television viewer was 
     the targeted audience. Because CMS did not identify itself as 
     the source of the news report, the story packages, including 
     the lead-in script, violate the publicity or propaganda 
     prohibition.\30\
       In a modest but meaningful way, the publicity or propaganda 
     restriction helps to mark the boundary between an agency 
     making information available to the public and agencies 
     creating news reports unbeknownst to the receiving audience. 
     It is not the only marker Congress has placed in statute 
     between the government and the American press, however. 
     Consistent with the restrictions on publicity or propaganda 
     ``within the United States,'' \31\ Congress has prohibited 
     the U.S. Information Agency and its succeeding agency, Board 
     of Broadcasting Governors, created by Congress for the 
     purpose of producing pro-U.S. government news reports and 
     print materials for international audiences, 22 U.S.C. 
     Sec. 1461, from broadcasting to domestic audiences, 22 U.S.C. 
     Sec. Sec. 1461(b), 1461-1a.\32\ In limiting domestic 
     dissemination of the U.S. government-produced news reports, 
     Congress was reflecting concern that the availability of 
     government news broadcasts may infringe upon the traditional 
     freedom of the press and attempt to control public opinion. 
     See B-118654-O.M., Feb. 12, 1979. Congress also restricted 
     government-produced programming for domestic audiences in the 
     law creating the Public Broadcasting Corporation. 47 U.S.C. 
     Sec. 396. Although the mission of the Public Broadcasting 
     Corporation includes instructional, educational and cultural 
     purposes, the statute creating the Corporation prohibits the 
     Corporation from directly producing any news programming. 47 
     U.S.C. Sec. 396(g)(3)(A) & (B).\33\ While Congress authorized 
     HHS to conduct a wide-range of informational activities, CMS 
     was given no authority to produce and disseminate 
     unattributed news stories.

[[Page S6092]]

       CMS makes two other arguments in support of its use of 
     appropriated funds to produce and distribute the story 
     packages. Neither argument is persuasive. CMS argues that the 
     VNR materials cannot be covert propaganda because the VNR 
     materials were not produced as a ``purported editorial, 
     advocacy piece or commentary.'' Smith Letter, Enclosure 1 at 
     4. CMS asserts that the narration by Karen Ryan (and 
     presumably Alberto Garcia) does not take a position on the 
     MMA. Id. While we agree that the story packages may not be 
     characterized as editorials, explicit advocacy is not 
     necessary to find a violation of the prohibition.\34\ As with 
     the SBA-suggested editorials, the content of the story 
     packages themselves would not violate the publicity or 
     propaganda prohibition if identifying the source to the 
     target audience were not an issue. See B-302504, Mar. 10, 
     2004.
       Further, CMS refers to our recent opinion in B-301022, Mar. 
     10, 2004, regarding the Office of National Drug Control 
     Policy's (ONDCP) open letter to state-level prosecutors 
     opposing efforts to legalize marijuana and other controlled 
     substances.\35\ Smith Letter, Enclosure 1 at 3. The open 
     letter contained two attachments, one of which did not 
     identify ONDCP as the source of the information. B-301022, 
     Mar. 10, 2004. We found that the unidentified attachment was 
     not a violation of the publicity or propaganda prohibition 
     because the document was part of a package that clearly 
     identified ONDCP as the source and because there was no 
     attempt to portray the contents of the document as the 
     position of an individual outside the agency. Id.
       This reasoning cannot be applied to the story packages at 
     issue here. The target audience of the ONDCP letter and 
     attachments, the state prosecutors, had access to the entire 
     package. The television viewing audiences, however, could not 
     view the entire MMA VNR package. Evidence shows, and CMS 
     acknowledges, that the story package could be broadcast 
     without edit or alteration, and actually was broadcasted 
     unedited in some markets. Television audiences viewing the 
     story packages were not in a position to determine the source 
     from the other materials in the VNR packages. Unlike the 
     ONDCP materials, the content of the message expressed in the 
     story packages was attributed to alleged reporters, Karen 
     Ryan and Alberto Garcia, and not to HHS or CMS. Nothing in 
     the story packages permit the viewer to know that Karen Ryan 
     and Alberto Garcia were paid with federal funds through a 
     contractor to report the message in the story packages. The 
     entire story package was developed with appropriated funds 
     but appears to be an independent news story. The failure to 
     identify HHS or CMS as the source within the story package is 
     not remedied by the fact that the other materials in the VNR 
     package identify HHS and CMS as the source of the materials 
     or that the content of the story package did not attempt to 
     attribute the agency's position to an individual outside the 
     agency.\36\
       HHS's misuse of appropriated funds in violation of the 
     publicity or propaganda prohibition also constitutes a 
     violation of the Antideficiency Act, 31 U.S.C. Sec. 1341(a). 
     The Antideficiency Act prohibits making or authorizing an 
     expenditure or obligation that exceeds available budget 
     authority. See B-300325, Dec. 13, 2002. Because CMS has no 
     appropriation available for the production and distribution 
     of materials that violate the publicity or propaganda 
     prohibition, CMS has violated the Antideficiency Act, 31 
     U.S.C. Sec. 1341(a). See B-300325, Dec. 13, 2002. CMS must 
     report its Antideficiency Act violation to the President and 
     the Congress. 31 U.S.C. Sec. 1351.\37\ Office of Management 
     and Budget Circular No. A-11 provides guidance to executive 
     agencies on information to include in Antideficiency Act 
     reports.


                               CONCLUSION

       Although the VNR materials were labeled so that the 
     television news stations could identify CMS as the source of 
     the materials, part of the VNR materials--the story packages 
     and lead-in anchor scripts--were targeted not only to the 
     television news stations but also to the television viewing 
     audience. Neither the story packages nor scripts identified 
     HHS or CMS as the source to the targeted television audience, 
     and the content of the news reports was attributed to 
     individuals purporting to be reporters, but actually hired by 
     an HHS subcontractor. For these reasons, the use of 
     appropriated funds for production and distribution of the 
     story packages and suggested scripts violated the publicity 
     or propaganda prohibition of the Consolidated Appropriation 
     Resolution of 2003, Pub. L. No. 108-7, Div. J, Tit. VI, 
     Sec. 626, 117 Stat. 11, 470 (2003). Moreover, because CMS had 
     no appropriation available to produce and distribute 
     materials in violation of the publicity or propaganda 
     prohibition, CMS violated the Antideficiency Act, 31 U.S.C. 
     Sec. 1341. CMS must report the Antideficiency Act violation 
     to the Congress and the President. 31 U.S.C. Sec. 1351.
                                                Anthony H. Gamboa,
                                                  General Counsel.


                               footnotes

     \1\ Eugene Marlowe, Sophisticated ``News'' Videos Gain Wide 
     Acceptance, Pub. Rel. J. 17 (Aug./Sept. 1994).
     \2\ In 1991, it was reported that 78 percent of news 
     directors polled used edited VNRs at least once a week in 
     their broadcasts. Bob Sonenclar, The VNR Top Ten: How Much 
     Video PR Gets On the Evening News?, Col. J. Rev. 14 (Mar. 1, 
     1991). In 1992, another source reported that 100 percent of 
     polled stations admitted to using some VNR materials in their 
     newscasts. Anne R. Owen and James A. Karrh, Video News 
     Releases: Effects on Viewer Recall and Attitudes, 22 Pub. 
     Rel. Rev. 369 (Winter 1996). In 2001, it was reported that 
     approximately 800 television stations in the United States 
     use VNRs. Mark D. Harmon and Candace White, How Television 
     News Programs Use Video News Releases, 27 Pub. Rel. Rev. 213 
     (June 22, 2001).
     \3\ Marlowe, supra note 1, at 17.
     \4\ Id.
     \5\ Glen T. Cameron and David Blount, VNRs and Air Checks: A 
     Content Analysis of the Use of Video News Releases in 
     Television Newscasts, 73 Journalism and Mass Comm. Q. 890, 
     891 (Winter 1996) (summarizes the logistic and resource 
     constraints of the media industry attributed to the media's 
     decision to utilize VNR material).
     \6\ Sonenclar, supra note 2, noting the anticipated rise in 
     the use of VNRs. Harmon and White, supra note 2, noting the 
     new importance of using VNRs in the media industry in the 
     late 1980s and into the 1990s.
     \7\ See generally Harmon and White, supra note 2, summarizing 
     the various studies in the 1990s regarding the ethics of 
     using VNRs in the journalism industry.
     \8\ Id.; see also Owen and Karrh, note 2, examining the 
     credibility of news programming using messages derived from 
     VNRs.
     \9\ Marlowe, supra note 1, at 17. See also Cameron and 
     Blount, supra note 5, at 893.
     \10\ Owen and Karrh, supra note 2. Cameron and Blount, supra 
     note 5, at 893.
     \11\ Cameron and Blount, supra note 5, at 893.
     \12\ Id. This study showed that most news stations, 
     regardless of size of the market, did not use the prepackaged 
     news stories on a wide scale basis. The study noted that, 
     while most stations used part of the VNRs, very few stations 
     used the prepackaged story with no alteration.
     \13\ Id. at 901.
     \14\ Harmon and White, supra note 2.
     \15\ Zachary Roth, Fact Check, CNN: Spinning PR into News, 
     CJR Campaign Desk, Mar. 22, 2004, available at http://
www.campaigndesk.org/archives/000318.asp.
     \16\ Id. The article also notes that most news directors that 
     ran the VNRs at issue here expressed displeasure with the 
     Administration, and some thought the distribution of the VNR 
     took ``advantage of the smaller stations' well-known lack of 
     resources.''
     \17\ See Code of Ethics and Professional Conduct Radio--
     Television News Directors Association (RTNDA), available at 
     http://www.rtnda.org/ethics/coe.html; see also Society of 
     Professional Journalists (SPJ) Code of Ethics, available at 
     http://www.spi.org/ethics code-asp.
     \18\ SPJ Code of Ethics states: ``Deny favored treatment to 
     advertisers and special interests and resist their pressure 
     to influence news coverage.'' SPJ Code of Ethics, supra note 
     17. RTNDA Code of Ethics states: ``Gather and report news 
     without fear or favor, and vigorously resist undue influence 
     from any outside forces, including advertisers, sources, 
     story subjects, powerful individuals, and special interest 
     groups.'' Code of Ethics and Professional Conduct RTNDA, 
     supra note 17.
     \19\ RTNDA Code of Ethics states: ``Clearly disclose the 
     origin of information and label all material provided by 
     outsiders.'' (Emphasis added.) SPJ Code of Ethics states: 
     ``Identify sources whenever feasible. The public is entitled 
     to as much information as possible on sources' reliability.''
     \20\ In addition to these materials, one of the English-
     language videos contains footage of an advertisement that 
     appeared on national television. Our legal opinion of March 
     10, 2004, B-302504, reviewed this material, and found that 
     HHS's use of appropriated funds for the advertisement did not 
     violate the publicity or propaganda prohibition.
     \21\ In addition to the title cards, the slates contain the 
     visual feeds of the B-roll and the story packages. Each slate 
     may be separated and edited for individual use by the 
     receiving television station. For example, the receiving 
     station could separate the slate with the B-roll footage of 
     seniors engaged in health-related activities from the other 
     B-roll footage and the story packages. The station could then 
     use this slate separately from the remaining VNR materials.
     \22\ In Story Package 2, Leslie Norwalk, in one of her 
     ``interview'' video clips, not Karen Ryan, the reporter, made 
     this point.
     \23\ The transcript, available http://www.2theadvocate.com/
scripts/012304/noon.htm, was accessed on April 7, 2004.
     \24\ The partial transcripts indicate the time each news item 
     was broadcast, the topic discussed, some information on 
     visual clips, and the reporter on the assignment. For 
     example, the partial transcript for the WAGA-TV transcript 
     indicated that the story ran for 1 minute and 22 seconds, 
     contained video clips from the television campaign 
     advertisements and a pharmacy checkout, an interview with 
     Tommy Thompson, and Karen Ryan reporting from Washington. See 
     Video Monitoring Services of America, Good Day Atlanta, 
     February 4, 2004, available at www.nexis.com.
 \25\ See generally, MMA Sec. 101(a) (adding new sections to 
     the Social Security Act and expanding HHS's authority to 
     engage in information dissemination activities to inform 
     Medicare beneficiaries about their benefits).
     \26\ We need not speculate, and this decision does not 
     address, what type of authorization an agency must have, and 
     how specific that authority would have to be, to prepare and 
     distribute a ``news story'' absent a prohibition on publicity 
     or propaganda.
     \27\ We did not criticize the flyer and advertisements under 
     consideration in our March 10, 2004, opinion as covert 
     propaganda because all of the materials identified HHS or CMS 
     as the source to every audience viewing the material.
     \28\ We compared SBA's editorials to lobbying campaigns, 
     attempting to manipulate the perception that public support 
     for an issue was greater than it actually was. Id.; see also 
     B-129874, Sept. 11, 1978 (criticizing a plan to distribute 
     ``canned editorial materials'').
     \29\ Some news organizations reported that the use of such 
     information was a mistake due to their own misreading of the 
     label on the materials received or some confusion as to the 
     labeling by CNN Newsource. Later reports indicate that CNN 
     Newsource has changed its cataloguing and labeling of VNRs in 
     response to these reports. See Zachary Roth, Fact Check: CNN 
     Cracks Down--on CNN, CJR Campaign Desk, Mar. 31, 2004, 
     available at http://www.campaigndesk.org/archives/000358.asp.
     \30\ As we noted in the background section of this decision, 
     CMS forwarded to us a videotape including what CMS described 
     as two story packages that HHS had produced and distributed 
     during the Clinton Administration in October 1999. These two 
     story packages were not brought to our attention at that 
     time. Had we been aware of the use of story packages in this 
     or other contexts, the principles discussed here would have 
     been applicable. We note, however, that accounts of the 
     government are settled by operation of law three years after 
     the close of the fiscal year. 31 U.S.C. Sec. 3526(c).

[[Page S6093]]

     \31\ The prohibition restricts publicity or propaganda 
     ``within the United States.'' The Consolidated Appropriations 
     Resolution of 2003, Pub. L. No. 108-7, Div. J, Tit. VI, 
     Sec. 626, 117 Stat. 11, 470 (2003).
     \32\ There are some limited exceptions in which Broadcasting 
     Board of Governors and United States Information Agency 
     materials could be viewed by a domestic audience. 22 U.S.C. 
     Sec. 1461(b). None of these exceptions are relevant here.
     \33\ The Administration and Congress have significant control 
     over the Public Broadcasting Corporation (PBC). The President 
     appoints and the Senate confirms the nine members of the 
     Board of Directors. 47 U.S.C. Sec. 396(c)(2). PBC is required 
     to report annually to Congress regarding its operations, 
     activities, financial condition and accomplishments. 47 
     U.S.C. Sec. 396(i).
     \34\ Although the story package content may not contain 
     strong editorial positions on the benefits of MMA, they are 
     not strictly factual news stories as HHS contends. On 
     balance, the contents of the story packages consist of a 
     favorable report on effects on Medicare beneficiaries, 
     containing the same notable omissions and weaknesses as the 
     flyer and advertisements that we reviewed in our March 2004 
     opinion.
     \35\ The National District Attorneys Association sent the 
     open letter and attachments with its own cover letter to the 
     state-level prosecutors.
     \38\ CMS also argues that VNRs are similar to press releases 
     as ``[e]ach is designed to provide information to reporters 
     and is crafted for the use by the media to which it is 
     directed. Each provides quotes, facts and background that a 
     reporter can use to write or produce a story. Each is created 
     to provide context to the issue.'' Smith Letter at 1. There 
     may, indeed, be similarities between these two public 
     relations tools. We are familiar with the practice of 
     preparing press releases to include information useful to 
     reporters who then prepare and produce their own news stories 
     for publication. With the story packages, CMS prepared news 
     stories using alleged reporters rather than simply offering 
     information to reporters who would prepare their own stories.
     \37\ We were unable to identify the amount of HHS's 
     violation. HHS advised that the English language story 
     packages cost $33,250, and that the Spanish language VNR cost 
     $9,500. Smith Letter, Enclosure 1 at 8. Although requested, 
     HHS did not provide further documentation of these costs to 
     us. We did not audit these amounts.
                                 ______