    Telecommunications: Issues Related to Federal Funding for Public
    Television by the Corporation for Public Broadcasting (30-APR-04,
    GAO-04-284).

    For fiscal year 2002 (the most recent data), the Corporation for
    Public Broadcasting provided about 16 percent of public
    television's revenues of $1.63 billion. GAO agreed to review the
    statutory allocations for federal funding of public television,
    the Corporation's distribution of funds through its Community
    Service Grant and Television Future Fund programs, its
    distribution of funds for the Public Broadcasting Service's
    National Program Service and for local programming, and its grant
    programs for assisting public television's transition to digital
    technologies and services.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-284
        ACCNO:   A09873
      TITLE:     Telecommunications: Issues Related to Federal Funding for
    Public Television by the Corporation for Public Broadcasting
         DATE:   04/30/2004
      SUBJECT:   Allocation (Budget Act)
    	     Federal fund accounts
    	     Federal funds
    	     Federal grants
    	     Public television broadcasting
    	     Strategic planning
    	     Funds management
    	     Digital broadcasting
    	     CPB Community Service Grant Program
    	     CPB Television Future Fund
    	     PBS National Program Service

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    GAO-04-284

    United States General Accounting Office

                         GAO Report to Congressional Requesters

    April 2004

    TELECOMMUNICATIONS

     Issues Related to Federal Funding for Public Television by the Corporation for
                                  Public Broadcasting

                                           a

    GAO-04-284

    Highlights of GAO-04-284, a report to congressional requesters

    For fiscal year 2002 (the most recent data), the Corporation for Public
    Broadcasting provided about 16 percent of public television's revenues of
    $1.63 billion. GAO agreed to review the statutory allocations for federal
    funding of public television, the Corporation's distribution of funds
    through its Community Service Grant and Television Future Fund programs,
    its distribution of funds for the Public Broadcasting Service's National
    Program Service and for local programming, and its grant programs for
    assisting public television's transition to digital technologies and
    services.

    We recommend that the Corporation request specific statutory authority
    before making further Television Future Fund awards or expenditures if it
    intends to continue using funds that were designated for distribution
    among licensees. We also recommend that the Corporation broaden the scope
    of its digital grant programs to include support for digital production
    equipment and digital content. In response, the Corporation generally
    agreed with our recommendation on digital grants but disagreed with our
    recommendation on the Future Fund. We added a matter for congressional
    consideration that if the Congress supports using funds designated for
    distribution among licensees to finance the Future Fund, it should provide
    the necessary authority to do so.

    www.gao.gov/cgi-bin/getrpt?GAO-04-284.

    To view the full product, including the scope and methodology, click on
    the link above. For more information, contact Mark Goldstein at (202)
    512-2834 or goldsteinm@gao.gov.

    April 2004

    TELECOMMUNICATIONS

    Issues Related to Federal Funding for Public Television by the Corporation for
    Public Broadcasting

    By statute, 75 percent of the Corporation's annual federal funding for
    public television is to be distributed among licensees of public
    television stations, and 25 percent is to be available to the Corporation
    for the support of national public television programming. In our survey
    of all 176 licensees, of which 85 percent responded, more than
    three-fifths favored maintaining the current allocations. Of those
    favoring a change, most proposed an increase in the allocation for
    distribution among licensees.

    The Corporation uses Community Service Grants as the primary means of
    distributing funding to licensees. Most licensees were generally satisfied
    with the recent consultation process for reviewing the eligibility
    criteria for these grants. Another program, the Television Future Fund,
    awarded grants to projects designed to reduce licensees' operational costs
    and enhance revenues. Only about 40 percent of the licensees indicated
    that these projects had resulted in practical methods to help their
    stations, and only about 30 percent agreed with the Corporation's approach
    of using funds designated for distribution among licensees to partly
    support these projects. In our legal view, the use of such funds for this
    purpose is not consistent with the statutory authority under which the
    Corporation operates.

    The Corporation provides an annual grant to the Public Broadcasting
    Service to help fund a package of children's and prime-time programming
    that make up the National Program Service. Most licensees favored
    continuation of the Corporation's funding, noting that this national
    programming helps them meet their educational and cultural missions and
    build community support for their stations. Licensees also indicated that
    local programming is important in serving their communities. However, most
    responded that they do not produce enough local programs to meet their
    communities' needs, and many cited a lack of funds as the reason.

    About 85 percent of the licensees responding to our survey indicated that
    the congressionally mandated transition from analog to digital
    broadcasting will improve their ability to provide local services to their
    communities. The Corporation has received appropriations to help support
    this transition since fiscal year 2001. In consultation with licensees,
    the Corporation has used these funds to provide licensees with grants for
    acquiring digital transmission equipment. Some grantees, however, did not
    receive their awards in time to meet FCC deadlines for the construction of
    digital transmission facilities. In addition, the Corporation received
    only a few grant applications during the latter part of 2003. Our survey
    indicates that most licensees' priorities now involve other aspects of the
    transition, some of which (including digital production equipment and
    development of digital content) were not included in the scope of the
    grant programs. The Corporation is also seeking funds for digitally based
    infrastructure improvements for distributing public television programming
    to stations and is working with public television stakeholders to develop
    a strategic plan that includes the creation of digital content.

    Contents

      Letter

    Results in Brief
    Background
    A Majority of Licensees Favor the Current Statutory Allocations for

    Public Television Funding through the Corporation

    Most Licensees Were Generally Satisfied with the Process for Determining
    Community Service Grants, but Many Expressed Concerns about the Television
    Future Fund

    Most Licensees Favor Continued Federal Funding Support for the National
    Program Service, as Well as Additional Funding to Produce More Local
    Programming

    Corporation Has Funded Digital Transmission Equipment, but Other

    Digital Infrastructure and Content Needs Remain Conclusion Recommendations
    for Executive Action Agency Comments Matter for Congressional
    Consideration

    1 4 6

    14

    22

    37

    49 62 63 64 65

    Appendixes

    Appendix I:

    Appendix II:

    Appendix III:

    Appendix IV:

                                          Appendix V: Appendix VI: Appendix VII:

    Appendix VIII:

    Appendix IX:

    Scope and Methodology 66

    Components of the Corporation's Community Service
    Grants 70

    Legality of the Corporation for Public Broadcasting's
    Television Future Fund Program 74
    Background 74
    Issues 78
    Conclusion 85

    Digital Transition Regulatory Issues of Concern to Public
    Television 86

    Underwriting Acknowledgments on Public Television 90

    Survey of Public Television Licensees 98

    Comments from the Corporation for Public Broadcasting 111
    GAO Comments 127

    Comments from the Public Broadcasting Service 133
    GAO Comments 137

    Key Contacts and Staff Acknowledgments 138
    GAO Contacts 138

                                        Contents

                               Staff Acknowledgments 138

    Figures 	Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6:
    Figure 7:

    Figure 8: Figure 9:

    The Number of Noncommercial Educational Licensees
    and Stations by Type, as of February 2004
    Sources of Public Television Revenues, Fiscal Year 2002
    ($1.63 billion)
    Federal Appropriations for the Corporation for Public
    Broadcasting, Fiscal Years 1969-2006
    Federal Funding Allocations by the Corporation, as
    Required by the Communications Act
    Percentage of Licensees that Favor Either the Current
    Allocations or a Change in the Allocations
    Percentage of Licensees by Type that Favor Either the
    Current Allocations or a Change in Allocations
    Percentage of Licensees by Size (total revenue) that
    Favor Either the Current Allocations or a Change in
    Allocations
    Favorable Responses of Licensees on the Corporation's
    2001 Consultation Process
    Distribution of Television Future Fund Grants by Project
    Type

    Figure 10: Extent of Licensees' Knowledge of Findings and Outcomes of
    Television Future Fund Projects

    Figure 11: Licensees' Responses on Whether Television Future Fund Projects
    Provided Them with Practical Methods for Reducing Costs and Enhancing
    Revenues

    Figure 12: Licensees' Responses on Favored Approach for Funding the
    Television Future Fund

    Figure 13: The Corporation's Distribution of Funding in Support of
    National Programming

    Figure 14: Licensees' Views on the Corporation's Funding of the PBS
    National Program Service and the Service's Selection Process

    Figure 15: Licensees' Views on the Extent to Which the National Program
    Service's Children's and Prime-Time Programming Helps Them Meet Their
    Mission

    Figure 16: Licensees' Views on the Extent to Which the National Program
    Service's Children's and Prime-Time Programs Help Them Build Membership
    and Underwriting Support 7

    9 11 16 18 19

    20 25 29 30

    31 32 39

    42

    44

    45

    Contents

    Figure 17: Licensees' Views on Whether the Amount of Local
    Programming That They Produce is Sufficient to Meet the
    Needs of Their Communities 47

    Figure 18: Licensees' Views on the Need for the Corporation to Have
    Explicit Authority to Fund More Local Programming 48
    Figure 19: Public Television Licensees that Currently Provide or
    Plan to Provide Digital Services 50
    Figure 20: Time Line of Activities for the Corporation's Digital Grant
    Programs, August 2001 through November 2003 54

    Figure 21: Licensees' Highest and Lowest Priorities for Use of
    Additional Federal Funds to Support the Digital
    Transition 58

    Figure 22: Components of the Corporation's Community Service
    Grants 72
    Figure 23: Issues Cited by Licensees As Impeding Public Television's
    Digital Transition 88

    Figure 24: Licensees that Air, Plan to Air, and Do Not Air or Plan to
    Air Their Own 30-Second Underwriting
    Acknowledgments 94

    Figure 25: Reasons Identified by Licensees as the Highest Priority
    for Airing or Planning to Air Their Own 30-Second
    Underwriting Acknowledgments 95

    Figure 26: Views on the Need for a Federal Requirement Limiting the
    Length of Underwriting Acknowledgments 96

    Contents

    Abbreviations

    CEO chief executive officer
    CPB Corporation for Public Broadcasting
    CSG Community Service Grant
    DDF Digital Distribution Fund
    DUSF Digital Universal Service Fund
    FCC Federal Communications Commission
    NTIA National Telecommunications and Information Administration
    PBS Public Broadcasting Service
    RFP Request for Proposal

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States General Accounting Office

    Washington, D.C. 20548

    April 30, 2004

    The Honorable Joe Barton Chairman, Committee on Energy and Commerce House
    of Representatives

    The Honorable Fred Upton

    Chairman, Subcommittee on Telecommunications and the Internet Committee on
    Energy and Commerce House of Representatives

                               The Honorable Ralph Regula

    Chairman, Subcommittee on Labor, Health and Human Services, Education, and
    Related Agencies Committee on Appropriations House of Representatives

    The Honorable W.J. "Billy" Tauzin House of Representatives

    The Honorable Richard Burr House of Representatives

    Created to harness the technology of broadcast television for the delivery
    of educational, informational, and cultural programming, noncommercial
    educational television-generally known as "public television"1-has evolved
    over the past half-century into a complex and uniquely structured
    broadcasting system. Since the first station went on the air in 1953 until
    today, the nation's 356 public television stations were built and have
    continued to operate as nonprofit, community-based organizations, offering
    a mix of broadcast programming and other outreach activities to serve
    their local communities. While public television stations themselves
    produce programming for local broadcast, programming is also created for
    national audiences and distributed through national station-based
    membership organizations, such as the Public Broadcasting Service (PBS),

    1As used in this report, "public television" refers to noncommercial
    educational television. Specifically, this report focuses on entities that
    are licensed by the Federal Communications Commission to operate
    noncommercial educational television stations and receive grants from the
    Corporation for Public Broadcasting. This report does not address issues
    related to federal funding by the Corporation for public radio.

    distributor of noted series such as Sesame Street, Masterpiece Theatre,
    and Great Performances. The funding of public television, also unique in
    form, has historically come from a multitude of sources, including
    foundations, corporations, colleges and universities, state and local
    governments, and individual viewers. For the past 35 years, the federal
    government has also provided funding to advance the mission of public
    broadcasting, principally through the Corporation for Public
    Broadcasting.2 The Corporation was established in 1967 by an act of
    Congress as a nongovernmental, nonprofit corporation to facilitate-with
    federal funds-the availability and distribution of high quality
    educational and cultural programming to public broadcast stations. Since
    its founding, the Corporation has received an annual federal appropriation
    from the Congress and, more recently, additional funds have been made
    available to assist in public television's transition from analog to
    digital broadcast technology.

    Because the House Energy and Commerce Committee could consider
    reauthorizing the Corporation for Public Broadcasting as early as this
    year, you requested that we review various programs and funding mechanisms
    utilized by the Corporation to support public television. Specifically,
    you asked us to review the Corporation's activities and obtain the views
    of public television station officials regarding: (1) the statutory
    allocations for federal funding of public television; (2) the distribution
    of funds by the Corporation through its Community Service Grant and
    Television Future Fund programs, including a legal analysis of whether the
    funding of the Television Future Fund program is consistent with the
    Corporation's underlying statutory authority; (3) the distribution of
    funds by the Corporation for PBS's National Program Service and for local
    programming; and (4) Corporation funding to assist public television
    stations in their transition to digital technologies and services. You
    also asked us to review the statutory and regulatory requirements, system
    policies and guidance, and licensees' views on underwriting
    acknowledgments (see app. V).

    To respond to these objectives, we reviewed provisions of the
    Communications Act of 1934, as amended (Communications Act), and the
    processes of the Corporation for Public Broadcasting to allocate federal
    funding for public television and distribute grant funds to public
    television stations and for public television programming. We also
    interviewed

    2The Corporation for Public Broadcasting is referred to in this report
    either by its full name or as "the Corporation."

    officials of the Corporation and PBS, as well as the Association of Public
    Television Stations-a nonprofit organization that represents public
    television stations in legislative and policy matters and conducts
    planning and research activities on behalf its members. For the second
    objective, the distribution of funds among licensees, we reviewed the
    legal opinions of the Corporation's outside counsels as part of our legal
    analysis to determine whether the Corporation's approach to funding the
    Television Future Fund is consistent with the governing statute. For the
    third objective, national programming, we reviewed documents and
    interviewed officials of the Independent Television Service, a nonprofit
    corporation that receives federal funding support from the Corporation for
    distribution to independent producers of public television programming,3
    and from two other distributors of national public television
    programming-American Public Television and the National Educational
    Telecommunications Association. For the fourth objective, the digital
    transition, we interviewed officials of the National Telecommunications
    and Information Administration (NTIA) in the Department of Commerce, which
    makes grants to public television licensees for digital equipment.
    Officials of American Public Television, the National Educational
    Telecommunications Association, and the Federal Communications Commission
    (FCC) were also interviewed on issues related to underwriting
    acknowledgements on public television.

    To obtain views on each of these objectives from the officials who operate
    the nation's 356 public television stations, we conducted a Web-based
    survey of all 176 entities that are licensed by the FCC to operate these
    stations and receive grants from the Corporation. We received 149
    completed surveys-an overall response rate of 85 percent. (The number of
    responses to individual questions may be lower depending on the number of
    licensees who were eligible or chose to answer each question.) The survey
    consisted of objective questions and the option for licensees to add
    narrative comments in each section of the survey. The survey questions and
    aggregate responses appear in appendix VI. We also conducted interviews
    with officials of 16 public television station licensees to obtain general
    perspectives on the issues to be reviewed, and we conducted pretests with
    seven of these licensees to assist us in the development of the survey
    instrument.

    3Independent producers of public television programming are generally not
    affiliated with a studio, a television station, or a major production
    company.

    Our review was performed from April 2003 through February 2004 in
    accordance with generally accepted government auditing standards. For a
    more detailed discussion of our scope and methodology, see appendix I.

    Results in Brief 	The Corporation for Public Broadcasting allocates
    federal funding for public television under provisions specified in the
    Communications Act. Of the federal appropriation made annually to the
    Corporation, 75 percent of the funds allocated for public television are
    to be available for distribution among licensees of public television
    stations, and 25 percent are to be available for national public
    television programming. Based on our survey of licensees, more than
    three-fifths of the licensees indicated that these statutory allocations
    should stay the same, compared to about one-third who favored a change.
    Among the licensees favoring retention of the existing allocations, some
    stated that the current allocations have served the system well for many
    years and have provided the appropriate level of federal funding for both
    licensees and national programming. Of the licensees who favored a change,
    most proposed an increase in the allocation for licensees and a decrease
    for national programming. However, a couple of respondents expressed a
    preference for the reverse-a decrease in the allocation for licensees and
    an increase in the allocation for national programming.

    The principal mechanism by which the Corporation provides federal funding
    among licensees of public television stations is the Community Service
    Grant program. In accordance with the statute, the eligibility criteria
    established by the Corporation for distributing Community Service Grants
    are periodically reviewed by the Corporation in consultation with
    licensees. Based on our survey, over 75 percent of responding licensees
    expressed overall satisfaction with the most recent consultation process.
    The Corporation also administers the Television Future Fund, which in past
    years offered grant support to projects to help licensees achieve
    operational cost reductions and revenue enhancements. The manner in which
    the Corporation administered this program raised concerns among a
    substantial percentage of licensees. Based on our survey, only about 40
    percent of the respondents indicated that Television Future Fund projects
    had provided them with practical methods for reducing costs and/or
    enhancing revenues. Additionally, only 30 percent of the licensees agreed
    with the Corporation's approach of funding the program, in part, with
    funds that the Congress has made available for distribution to licensees
    of public television stations. Although the Corporation, as informed by
    outside counsel, contends that it has the authority to use these monies
    for the

    Television Future Fund, we disagree. Based on our own legal review of this
    issue, we conclude that the Corporation's funding and distribution of
    grants under the Television Future Fund program is not in accord with the
    statutory authority under which the Corporation operates. Fundamentally,
    in the context of the entire statutory scheme, funds that the Congress has
    designated for distribution to public television licensees are not
    available for project-specific grants intended to have a systemwide
    benefit. The Corporation recently revised the Television Future Fund
    program to focus on a number of improvement initiatives to be funded from
    the Television Future Fund's account balance, which stood at $18.3 million
    on December 31, 2003. However, this account still includes about $10
    million that the Congress made available for distribution to the licensees
    of public television stations, which the Corporation intends to use to
    fund additional Television Future Fund projects. Appendix III contains our
    legal opinion.

    Provisions of the Communications Act also govern the Corporation's support
    for national public television programming. As a result of a statutory
    provision, the Corporation developed and implemented a plan that includes
    the awarding of an annual grant to PBS for a package of children's and
    prime-time programs broadcast by most public television stations, known as
    the "National Program Service." Nearly three-fourths of licensees
    responding to our survey support the Corporation's continued annual grant
    support for the National Program Service and believe that this programming
    helps them meet their mission and build underwriting and membership
    support. However, most licensees also indicated that the amount of local
    programming they currently produce is not sufficient to meet their local
    communities' needs, and about half favored the enactment of explicit
    statutory authority to enable the Corporation to provide federal grants
    for the production of local, as well as national, programming.

    The Congress has mandated that television broadcasters transition from
    analog to digital transmission technology. The digital transition has the
    potential to expand the capabilities of public television and offer
    licensees' communities an array of new digital services that support
    educational, governmental, and cultural activities. In our survey of
    licensees, over 85 percent of the respondents indicated that successful
    completion of the digital transition will improve their ability to provide
    services to their local communities. However, licensees face funding
    challenges as they move to digital technology, with the total cost of the
    transition for public television estimated at $1.7 billion. For fiscal
    years 2001 through 2003, the Corporation was provided with appropriations
    totaling $93.4 million to assist public television licensees with the
    digital transition. However, the

    Corporation was not always timely in getting grant support to stations to
    help them meet FCC digital construction deadlines, and about $24 million
    remained unobligated at the end of calendar year 2003. Furthermore, we
    found that by then most licensees' priorities for federal funding involved
    aspects of the transition not covered by the Corporation's current digital
    grant program, such as digital production equipment and digital content.
    Regarding systemwide digital transition issues, the Corporation is seeking
    additional federal funds for modernizing public television's program
    distribution infrastructure.

    This report makes recommendations to the Corporation to (1) request
    specific statutory authority before making further Television Future Fund
    awards or expending any funds in the Television Future Fund account, if it
    intends to continue using funds that were designated for distribution
    among licensees, and (2) broaden the scope of its digital transition
    funding to include support for digital production equipment and digital
    content.

    We provided a draft of this report to the Corporation, to PBS, and to FCC
    for their comments. The Corporation responded that it generally agreed
    with our recommendation on the digital transition funding. However, the
    Corporation disagreed with our findings and recommendation on the
    Television Future Fund, maintaining that it has acted consistently with
    the provisions of the Communications Act in establishing and administering
    the fund. Nevertheless, it is our view that the Corporation does not have
    the authority to fund the Future Fund program, in part, with monies that
    the Congress has designated for distribution among public television
    licensees. Accordingly, we have added a Matter for Congressional
    Consideration stating that the Congress may wish to provide the
    Corporation with the authority to use these funds to finance the
    Television Future Fund if the Congress supports the use of such funds for
    this purpose. PBS provided additional information and perspectives on
    issues raised in our report and highlighted planned actions to improve
    input from member stations on PBS's programming decisions. FCC provided
    comments on technical points that were incorporated where appropriate.

    Background 	Public broadcasting dates back to the 1920s, when the first
    radio stations devoted to instructional and cultural programming went on
    the air. With the advent of television broadcasting in the 1940s and a
    1952 decision by the FCC to reserve channel allocations for noncommercial
    educational television, the first public television station-KUHT in
    Houston, Texas- began operations in 1953. Today, 356 public television
    stations are on the

    air, each operating under the terms of a license granted by the FCC. These
    stations are owned and operated by 176 entities that, under FCC rules,
    must either be: (1) a nonprofit educational institution, such as a
    university or a local school board (shown separately below as "university"
    and "local authority"); (2) a governmental entity other than a school,
    such as a state agency; or (3) another type of nonprofit educational
    entity, such as a "community" organization. Among these 176 licensees,
    some operate a single station, such as the Detroit Educational Television
    Foundation, which operates WTVS public television; others operate multiple
    stations, such as the Kentucky Authority for Educational Television, which
    has 16 stations on the air throughout the state. Figure 1 provides a
    breakdown of the number of licensees and stations they operate (by type of
    licensee).

    Figure 1: The Number of Noncommercial Educational Licensees and Stations by Type, as of February 2004

    Note: In May 2003, there were 89 community licensees operating 138
    stations, 59 university licensees operating 85 stations, 21 state
    licensees operating 126 stations, and 7 local authority licensees
    operating 7 stations. Neither the total number of licensees (176) nor the
    total number of stations (356) had changed at the conclusion of our review
    in February 2004.

    Licensees also differ by the size of their budgets, ranging from the
    smallest licensees, with total revenues below $3.5 million, to the
    largest, with total revenues exceeding $20 million.4 A few of the largest
    licensees are also among the most prominent producers of public television
    programming, such as WGBH in Boston, producer of Masterpiece Theatre,
    Arthur, and other notable series. Other licensees also produce programming
    for national distribution, such as KUHT in Houston, producer of The
    American Woodshop and the children's program Mary Lou's Flip Flop Shop.
    Programs intended for local and regional audiences are produced by many
    licensees, such as KDIN public television in Johnston, Iowa, producer of
    Iowa Press and Living in Iowa. Finally, public television licensees
    provide numerous services to their communities, such as
    programming-related outreach, formal educational services, literacy
    services, Amber Alerts5 for the abduction of children, and emergency
    weather information.

    Public television is characterized as a decentralized system, with all
    licensees owned and controlled at the local level. Stations exercise
    substantial discretion over programming decisions. This structure is due,
    in part, to the institutional and financial factors that motivated the
    founding of each individual public television station. Unlike commercial
    television stations, which typically involve business-related investment
    decisions, establishing a public television station entails a local-level
    commitment to the education and cultural enrichment of viewers. Further,
    whereas advertising revenues finance commercial television, public
    television has always been financed by both public and private sources.
    For fiscal year 2002 (the most recent data available), public television
    generated $1.63 billion in revenues, which came from a variety of sources:
    federal, state, and local government; private foundations; corporations;
    and subscribers

    4According to Corporation officials, the Corporation classifies licensees'
    size on the basis of total revenues-large licensees have total revenues of
    $20 million or more annually, medium-large licensees have total revenues
    between $9 million and $19.9 million, medium licensees have total revenues
    between $3.5 million and $8.9 million, and small licensees have total
    revenues below $3.5 million.

    5An Amber Alert is a broadcast announcement that interrupts regular
    programming to relay information to the public about an abducted child.
    Amber Alerts are part of the Emergency Alert System, which is also used to
    notify the public about severe weather and other national emergencies.

    (individual memberships) (see fig. 2). The Corporation's funding of $263
    million provided about 16 percent of this total.6

    Figure 2: Sources of Public Television Revenues, Fiscal Year 2002 ($1.63 billion)

    Note: These fiscal year 2002 data, the most recent data available, are
    derived from public television licensees' audited financial reports
    provided to the Corporation.

    The Educational Television Facilities Act of 1962 authorized the first
    form of federal funding support for public television, establishing a
    program in the former Department of Health, Education, and Welfare to
    provide grants to public broadcasting licensees for equipment and
    facilities. Soon thereafter, the Carnegie Commission on Educational
    Television, a national commission formed in 1965 with the sponsorship of
    the Carnegie Corporation, studied educational television's financial
    needs. Based on recommendations in the Carnegie Commission's 1967 report,
    President Lyndon Johnson proposed and the Congress enacted the Public
    Broadcasting Act of 1967, amending the Communications Act of 1934 to

    6The $263 million in public television revenues attributed above to the
    Corporation does not include funds provided to public television licensees
    from the $25 million in federal appropriations made to the Corporation for
    public television's digital transition.

    reauthorize funding for facilities and equipment grants and, among other
    provisions, to authorize funding for public television programming through
    a new entity-the Corporation for Public Broadcasting.7 The Corporation is
    organized under the act as a nongovernmental, nonprofit corporation to
    facilitate the growth and development of public television and radio
    broadcasting and the use of public television and radio broadcasting for
    instructional, educational, and cultural programming.8

    In passing the 1967 act, the 90th Congress did not intend that annual
    authorizations and appropriations for the Corporation would serve as a
    permanent process for funding support of public broadcasting.9 Rather,
    they were seen as temporary measures pending the development and adoption
    of a long-term financing plan for public broadcasting.10 Although various
    financing proposals for public broadcasting have since been suggested,11
    the Corporation continues to receive nearly all of its budget in the form
    of an annual federal appropriation. Figure 3 illustrates the history

    7Public Broadcasting Act of 1967, Pub. L. 90-129, 81 Stat. 365, codified
    as amended at 47 U.S.C. S:396.

    8The Corporation was established as a nongovernmental entity in part to
    safeguard the distribution of federal funding from government control.
    According to the Corporation, it began receiving an "advance"
    appropriation-provided 2 years in advance of a fiscal year- in the
    mid-1970s for the same reason.

    9The legislative history of the Public Broadcasting Act of 1967 indicates
    that the question of permanent financing for the Corporation would be
    reserved for consideration at a later time. S. Rept. No. 90-222, reprinted
    in 1967 U.S.C.C.A.N. 1772, 1779; H. Rept. No 90-572 reprinted in 1967
    U.S.C.C.A.N. 1779, 1810-1812. This legislative history was further
    explained in 1975.

    "The Congress did not intend for the Public Broadcasting Act of 1967 to
    impose annual authorizations and appropriations on the Corporation for
    Public Broadcasting as a permanent process. Rather, this was to be an
    interim procedure pending submission of a long-term financing plan by the
    Administrator to the Congress." S. Rept. No. 94-477 at 5, reprinted in
    1975 U.S.C.C.A.N. 2206, 2210.

    10The intention to develop a long-term plan for financing public
    broadcasting was announced by President Johnson upon signing the 1967 act.
    However, a plan was not produced prior to the end of his term of office in
    1969.

    11For example, a second commission formed by the Carnegie Corporation in
    1977, known as Carnegie II, proposed that half of the financing for public
    broadcasting should come from the federal government, derived from general
    tax revenues and a fee for the use of the radiofrequency spectrum.

    of annual federal appropriations made to the Corporation in current
    dollars.

    Figure 3: Federal Appropriations for the Corporation for Public Broadcasting, Fiscal Years 1969-2006

    Note: Although established in November 1967 by enactment of the Public
    Broadcasting Act, with an authorization of $9 million to enable the
    Corporation to come into being, the Corporation was not incorporated until
    March 1968. The first federal appropriation ($5 million) made to the
    Corporation was enacted in October 1968. Figure 3 includes advance
    appropriations for fiscal years 2005 and 2006.

    The Corporation is governed by a board of directors that is appointed by
    the President and confirmed by the Senate.12 The Corporation's most recent
    mission statement, adopted by the board in July 1999, states that the
    Corporation is to facilitate the development of, and ensure universal
    access to, noncommercial high-quality programming and telecommunications

    12By statute, the Corporation's board of directors is to consist of nine
    members. One director position was unfilled as of February 2004.

    services in conjunction with licensees.13 Reflecting the local and
    national characteristics of public television, the Corporation's current
    goals include: (1) strengthening the value and viability of local stations
    as essential community institutions by improving their operational
    effectiveness and fiscal stability and increasing their capacity to invest
    in and create services and content to advance their mission and (2)
    developing economically sustainable, high-quality noncommercial
    programming that inspires, enlightens, and entertains.

    The most important work the Corporation has underway, according to a July
    2003 memorandum to the board, is a systemwide planning study that
    addresses three facets of public television.14 First, to improve the
    financial sustainability of public television, the Corporation has
    determined that improvements in public television's net revenues can occur
    by attracting increased financial support for stations from major donors
    and by developing new practices to improve the efficiency of stations'
    operations. Second, through a strategic assessment of the local services
    provided by public broadcasting stations, the Corporation seeks to "help
    stations chart the course ahead" and aid in efforts to improve the
    financial sustainability of public television, provide direction for
    efficiencies in station operations, and inform decisions on national
    programming. Systemwide efforts related to national programming, the third
    area of focus, will address the "wide disconnect between audience
    research, national commissioning and scheduling decisions, and local
    service strategy." According to the

    13The mission statement also says that the Corporation has particular
    responsibility to encourage the development of programming that involves
    creative risks, and programming that addresses the needs of unserved and
    underserved audiences, particularly children and minorities.

    14July 22, 2003, memorandum from Robert Coonrod, President and Chief
    Executive Officer of the Corporation, to the board of directors. The
    fourth focus of the systemwide planning effort is challenges affecting
    public radio.

    Corporation, this will involve strategic analysis and reengineering of
    national programming.15

    Public television also faces the challenge of transitioning its broadcast
    operations from analog to digital technology. Unlike analog broadcasting,
    which converts moving pictures and sound into a "wave form" electrical
    signal, digital technology converts pictures and sound into a stream of
    digits consisting of zeros and ones that are transmitted over the air.
    Digital technology has the potential to significantly enhance the
    capabilities and services of all television broadcasters and is viewed as
    critical to the broadcast television industry's ability to enhance its
    provision of communications services. The Telecommunications Act of 1996
    established the framework for licensing digital television spectrum to
    existing broadcasters. Under FCC rules implementing this framework, public
    television licensees are required to

    o  complete the construction of digital station facilities by May 1, 2003;

    o  	broadcast in digital a minimum of 50 percent of the programming that
    they broadcast in analog-known as "simulcasting"-as of November 1, 2003,16
    simulcast 75 percent by April 2004, and simulcast 100 percent by April
    2005; and

    15The systemwide planning effort was informed by the Corporation's 2002 to
    2003 study, entitled "Developing a Sustainable Economic Model for Public
    Television," and facilitated under contract with McKinsey & Company. The
    study addressed the severity and length of financial pressures on the
    system, the most promising performance improvement opportunities available
    to the system, and implementation of initiatives to effect lasting change.
    As part of the key challenge identified by the study-that the core
    broadcasting service of public television is under "real threat" by
    economic pressures at both the local and national levels-the study found a
    decline, in real terms, in station membership revenues since 1990 and the
    likely continued decline in membership support due, in part, to declining
    viewership.

    16FCC granted a 6-month waiver of the simulcast requirement for
    noncommercial educational stations, extending the date for achieving 50
    percent simulcasting from May 1, 2003, to November 1, 2003. However, such
    stations were required to air a digital signal for an amount of time equal
    to at least 50 percent of the time they aired an analog signal as of May
    1, 2003, increasing to 75 percent as of April 1, 2004, and 100 percent by
    April 1, 2005.

    o  	by December 31, 2006, return their analog (or digital) spectrum to FCC
    for reallocation.17

    In response to the difficulties faced by public television licensees in
    financing expenses related to the digital transition, the regulatory
    deadline for the construction of digital public television stations was
    set for May 1, 2003, a year later than the deadline for commercial
    stations. Further, eligible licensees were allowed to request extensions
    of time to meet the construction requirement if they had good cause for
    failing to meet the requirement.

    A Majority of Licensees Favor the Current Statutory Allocations for Public
    Television Funding through the Corporation

    Provisions of the Communications Act, as amended, specify the allocation
    of federal funds appropriated to the Corporation for Public Broadcasting.
    Of the federal funds provided for public television, the Corporation is
    directed to distribute 75 percent of such funds among licensees of public
    television stations and 25 percent for support of national public
    television programming. Based on responses to our survey, more than
    three-fifths of licensees indicated that these statutory allocations for
    funding support of public television should stay the same, compared to
    about one-third that favored a change.

    The Communications Act Federal funds appropriated to the Corporation must
    be allocated in Specifies the Allocation of accordance with provisions of
    the Communications Act, as amended.18 As Federal Funds for Public shown in
    figure 4, the act directs the Corporation to allocate 6 percent of its
    Television Licensees and federal appropriation for various expenses
    incurred by public

    National Programming

    17When the Congress passed the Balanced Budget Act of 1997, it adopted the
    target transition date of December 31, 2006, for the digital transition
    but specified that broadcasters could keep their analog service beyond
    this date on a market-by-market basis under certain conditions. See, 47
    U.S.C. S:309(j)(14). To help broadcasters meet the 2006 transition date,
    FCC developed a schedule for the introduction of digital television. See
    U.S. General Accounting Office, Telecommunications: Many Broadcasters Will
    Not Meet May 2002 Digital Transition Deadline, GAO-02-466 (Washington,
    D.C.: Apr. 23, 2002); and U.S. General Accounting Office,
    Telecommunications: Additional Federal Efforts Could Help Advance Digital
    Television Transition, GAO-03-7 (Washington, D.C.: Nov. 8, 2002).

    1847 U.S.C. S:396(k). As originally enacted, these amendments to the
    Communications Act did not specify allocations for the distribution of
    federal funding among licensees and for national public television
    programming.

    broadcasting, an account the Corporation identifies as "System Support;"19
    not more than 5 percent is to be allocated for the Corporation's
    administrative expenses; and of the remaining funds (about 89 percent),
    the act specifies that 75 percent is to be allocated for public television
    and 25 percent for public radio. Of the funds allocated for public
    television, 75 percent is to be made available for distribution among
    licensees of stations and 25 percent for national public television
    programming.

    19System Support is largely used to pay royalty fees, interconnection
    operating costs, and other expenses and, if available funding levels
    permit, for projects and activities that will enhance public broadcasting.
    47 U.S.C. S:396(k)(3)(A)(i)(II).

    Figure 4: Federal Funding Allocations by the Corporation, as Required by the Communications Act

    For example, with a federal appropriation of $380 million for fiscal year
    2004, the Corporation made the following allocations to its budget: $24
    million (6 percent) for System Support; $17.8 million (5 percent) for
    administrative expenses; and of the remaining $338.2 million, $253.7
    million (75 percent) for public television. Of these funds, $190.2 million
    (75 percent) is allocated for distribution among station licensees, and
    $63.4 million (25 percent) is allocated for support of national public
    television programming.20

    A Majority of Licensees We asked public television licensees in our survey
    whether the statutory Favor the Current Statutory allocations for federal
    funding support of public television by the Allocations of Federal
    Corporation-the 75 percent allocation for distribution among licensees

    and the 25 percent allocation for national programming-should
    remainFunding for Public the same or be changed. Overall, 62 percent of
    licensees responded that Television these statutory allocations should
    stay the same, and 34 percent responded

    that the allocations should be changed (see fig. 5).

    20Dollar figures have been rounded. In addition to the $380 million
    appropriation, the Corporation's fiscal year 2004 budget includes an
    estimate of $5.5 million in interest. As directed by the statute, these
    funds are allocated between public television (75 percent, or $4.125
    million, specified for national programming) and public radio (25 percent,
    or $1.375 million). 47 U.S.C. S:396(k)(3)(A)(v). $49.7 million in federal
    funds was also provided to the Corporation for fiscal year 2004 to support
    public broadcasting's transition to digital.

    Figure 5: Percentage of Licensees that Favor Either the Current Allocations or a Change in the Allocations

    Note: N=148 licensees. Percentages have been rounded and do not equal 100
    percent.

    We further analyzed responses to this question factoring in the type
    (e.g., state, university, community, and local authority) and size (based
    on total revenues) of licensees, to determine whether the views of
    licensees on the statutory allocations vary on the basis of these
    characteristics. Our analysis indicates that the current allocations were
    favored by a majority of licensees of each type, with the exception of
    local authority licensees (see fig. 6) and by each size, based on total
    revenues (see fig. 7). Among the various types and sizes of licensees,
    those that most favored the current allocations were university licensees
    (71 percent of the 51 university licensees responding) and large licensees
    by total revenues (80 percent of the 20 large licensees responding).

    Figure 6: Percentage of Licensees by Type that Favor Either the Current Allocations or a Change in Allocations

    Note: N=51 "university" licensees; N=15 "state" licensees; N=7 "local
    authority" licensees; and N=75 "community" licensees. Percentages have
    been rounded and may not equal 100 percent due to respondents answering
    "don't know."

    Figure 7: Percentage of Licensees by Size (total revenue) that Favor Either the Current Allocations or a Change in Allocations

    Note: N=58 small licensees, 52 medium licensees, 18 medium-large
    licensees, and 20 large licensees. Percentages have been rounded and may
    not equal 100 percent due to respondents answering "don't know." As noted
    earlier, large licensees have total revenues of $20 million or more
    annually, mediumlarge licensees have total revenues between $9 million and
    $19.9 million, medium licensees have total revenues between $3.5 million
    and $8.9 million, and small licensees have total revenues below $3.5
    million.

    Among the licensees favoring retention of the existing allocations, some
    stated that the current allocations have served the system well for many
    years and provide the appropriate level of federal funding for both
    licensees and national programming. For example, one licensee noted that
    the allocations provide a balance between supporting station operations-
    referred to as "the crucial local infrastructure" of public
    broadcasting-and "high profile" national programming (i.e., programming
    that is generally recognizable to television viewers) created for
    distribution to, and for the benefit of, local stations. An official of
    another licensee, described as a small rural licensee that relies heavily
    on funds received through the 75

    percent allocation, commented that even though additional federal funding
    for station operations would be useful, quality national programming is
    also important to support the station's fundraising efforts.

    Of the respondents favoring a change in the allocations, most proposed
    that the allocation for support among licensees increase above the current
    level of 75 percent and the allocation for national programming decrease
    below 25 percent. In fact, several of these respondents suggested that all
    of the public television funds should be allocated among licensees, with
    no funds for national programming. Among the reasons cited for an increase
    in the allocation for licensees was the view that providing more of these
    funds to licensees, rather than to national programming entities, would
    advance the "local" quality of public television. Another reason given was
    that distributors of national programming would be more accountable and
    responsive to licensees' local needs if more funds were allocated to
    licensees. In addition, one licensee noted that by placing the funds in
    the hands of licensees, a greater degree of insulation from political
    influence over national programming would be likely.

    However, a couple of licensees suggested that the 25 percent allocation
    for national programming should be increased and the 75 percent allocation
    for licensees decreased. One licensee suggested, for example, that despite
    the need for national programming, licensees would likely not pool funding
    necessary to produce national programming if all funds were distributed to
    licensees. Another licensee noted that funding for costly, high-quality,
    national programming should occur at the national level, and that local
    stations should obtain most of their financial support from their local
    communities.

    Most Licensees Were Generally Satisfied with the Process for Determining
    Community Service Grants, but Many Expressed Concerns about the Television
    Future Fund

    Community Service Grants, the principal mechanism by which the Corporation
    provides federal funding among licensees of public television stations,
    are to be awarded in accordance with applicable statutory provisions.
    Among these provisions is a requirement that the Corporation periodically
    review, in consultation with licensees, the eligibility criteria
    established by the Corporation for distribution of funds among public
    television stations. More than three-fourths of the licensees responding
    to our survey expressed overall satisfaction with the most recent
    consultation process. Another grant program, the Television Future Fund,
    was created by the Corporation to support projects to help public
    television achieve greater economic self-sufficiency. However, over 40
    percent of licensees in our survey responded that the projects have not
    resulted in practical methods for reducing costs or enhancing revenues in
    their own operations. Moreover, our legal review of this program
    determined that the Corporation's approach of supporting these projects,
    in part, with funds designated for distribution among licensees is not
    consistent with the statutory authority under which the Corporation
    operates. In September 2002, the Corporation temporarily suspended the
    awarding of further Television Future Fund grants pending the outcome of a
    review. The program has recently been reactivated under different
    procedures but continues to be funded, in part, with funds that the
    Congress has made available for distribution among licensees of public
    television stations.

    Most Licensees Were Satisfied with the Review and Consultation Process for
    Determining Community Service Grants

    The Community Service Grant program is the principal mechanism by which
    the Corporation currently distributes federal funding among licensees of
    public television stations.21 Although not expressly established by the
    act, the Community Service Grant program is administered by the
    Corporation under the provisions of the act that provide for the
    allocation of funds for distribution among public television licensees.
    Statutory provisions requiring that the Corporation distribute funds
    directly among

    21The 75 percent allocation is generally referred to as the Community
    Service Grant (CSG) "fund" or "pool." In addition to the Community Service
    Grant program, the CSG pool also funds the Television Future Fund,
    discussed later in this report; the Collaboration Fund, a competitive
    grant program providing assistance for collaborative relations among
    stations, and between stations and other community-based organizations;
    and the Small Station Fund, providing grants to stations facing "extreme"
    financial hardship and those not able to raise the minimum level of
    nonfederal financial support to receive the base grant portion of a
    Community Service Grant.

    licensees were first enacted in 1975.22 Of the $190.2 million allocated
    for distribution among licensees in fiscal year 2004, the Corporation's
    budget for the Community Service Grant program is $181.2 million.23

    The Corporation currently administers the program by providing each
    licensee that operates an on-air public television station with a "basic"
    grant, as specifically required by the act. The $10,000 in funds awarded
    to each eligible licensee currently as the basic grant component of a
    Community Service Grant predates the establishment of the program and
    began soon after establishment of the Corporation. In addition to the
    basic grant, eligible licensees also receive two additional component
    grants in their Community Service Grant-a "base" grant and an "incentive"
    grant.24 Base grant funds are determined on the basis of the statutory
    allocations, the Corporation's total annual appropriation, the number of
    licensees eligible for grants, and a fixed grant funding level set by the
    Corporation's board of directors. Incentive grant funds depend largely on
    each individual licensee's share of the combined amount of revenues
    generated from nonfederal sources. (See app. II for detailed information
    on the grant components of Community Service Grants.)

    The act specifies that the funds distributed through the 75 percent
    allocation may be used at the discretion of the recipient for purposes
    related primarily to the production or acquisition of programming.25
    According to officials of the Corporation, this provision is generally

    22See Public Broadcasting Financing Act of 1975, Pub.L. 94-192, 89 Stat.
    1099. 47 U.S.C. S:S:396(k)(5), (6) and (7).

    23Of the fiscal year 2004 federal appropriation made to the Corporation,
    the 75 percent allocation for distribution among licensees of public
    television stations totaled $190.2 million. Of these funds, the
    Corporation budgeted $181.2 million for Community Service Grants; $1
    million for the Small Station Fund; $4 million for the Television Future
    Fund; $1 million for the Collaboration Fund; and $3 million for Local
    Service Grants. Funds sets aside for Local Service Grants assist licensees
    that generate less than $2 million in nonfederal financial support in
    order to strengthen local services provided by these licensees.

    24The act requires that after the basic grant is made, the balance of the
    funds reserved for television stations is to be distributed to licensees
    in accordance with eligibility criteria that "promote the public interest
    in public broadcasting" and on the basis of a formula designed to-(a)
    provide for the financial needs and requirements of stations in relation
    to the communities and audiences such stations undertake to serve and (b)
    maintain existing, and stimulate new, sources of nonfederal financial
    support for stations by providing incentives for increases in such
    support. 47 U.S.C. S:396(k)(6)(B).

    2547 U.S.C. S:396(k)(7).

    understood to provide licensees with discretion to use such funds for any
    expenses incurred.

    In tandem with the act's requirements setting forth the basis for
    distributing funds, the Corporation is required to review periodically the
    eligibility criteria for distributing these funds in consultation with
    licensees or their designated representatives. In practice, the
    Corporation has undertaken a review and consultation of the Community
    Service Grant program every 2 to 3 years. According to Corporation
    officials, a review and consultation consists of polling licensees and
    other public broadcasters to identify issues of concern regarding the
    distribution of funds and convening an advisory panel that broadly
    represents licensees to facilitate the review. Further, the Corporation
    develops and analyzes numerical models to assess likely impacts of
    recommended policy changes in the distribution of funds and disseminates
    information to licensees for further advice and consultation. Ultimately,
    the advisory panel's recommendations are presented first to licensees and
    the Corporation's management and then to the Corporation's board, with any
    exceptions or refinements proposed by management for its vote of approval.

    In our survey, we asked licensees several questions about the
    Corporation's most recent consultation on the eligibility criteria for
    distributing Community Service Grants, conducted in 2001. Over 80 percent
    of licensees responding said that they were aware of the 2001 consultation
    process. Slightly more than half of the respondents said the Corporation
    solicited input from them to a great or moderate extent. Half of the
    licensees said they provided input to the Corporation to a great or
    moderate extent. Overall, more than three-fourths of all licensees said
    they were either basically satisfied with the consultation process, or
    that only minor changes were needed (see fig. 8).

    Figure 8: Favorable Responses of Licensees on the Corporation's 2001 Consultation Process

    Note: N=148 licensees for "awareness of consultation"; N=126 licensees for
    "input solicited"; N=125 licensees for "input provided"; N=97 licensees
    for "input considered"; and N=125 licensees for "overall satisfaction."
    Favorable responses were those answering "yes" on our question regarding
    awareness of the consultation process; "to a great extent" or "to a
    moderate extent" on questions regarding input solicited, input provided,
    and input considered; and "basically satisfied" or "only minor changes
    needed" on our question about the process overall.

    In commenting on changes needed in the consultation process, some
    licensees noted the importance of the process and the Corporation's
    effectiveness in conducting reviews of the eligibility criteria for
    distributing Community Service Grants in consultation with licensees. For
    example, one licensee indicated that the review is important in light of
    changes occurring within the public television community and that a review
    by a panel of peers helps to ensure that public funds are appropriately
    administered. Another licensee said the consultations used by the
    Corporation have successfully solicited input from licensee officials and
    that despite the wide variety of views within the community, the process
    allows for deliberation and consensus building. However, other licensees
    were critical of the consultation process and offered suggestions for

    changes. For example, several licensees indicated their belief that the
    Corporation predetermines the desired outcome of modifications to the
    Community Service Grant eligibility criteria and is not responsive to
    licensees. With regard to the make-up of the review panel, suggestions
    were made to rotate panel members, involve licensee officials that have
    not previously served on a review panel, and make the review panel more
    representative of the licensee community. One perspective highlighted by a
    few licensees was that small stations do not have adequate representation
    on the Corporation's review panels. For example, one licensee said that
    small rural station licensees only have "token" representation on the
    Corporation's review panels, and another noted the difficulty for
    officials of small station licensees to participate in review panels given
    the costs and time commitments for participating in the panel meetings.

    In both our survey and in interviews we conducted with licensees and
    officials from the Corporation, PBS, and the Association of Public
    Television Stations, specific factors in the eligibility criteria for
    grant award determinations were noted as causing some licensees to
    perceive disparities in the distribution of funds through the
    Corporation's Community Service Grants. Among such factors were the policy
    which specifies that licensees operating stations in the same market
    (known as an "overlap" market) share a single base grant component of
    their Community Service Grants, the provision of supplemental funds in the
    incentive grant portion of the Community Service Grant for licensees that
    operate multiple public television stations, and an insufficient level of
    Community Service Grant funds provided to licensees to cover PBS
    membership assessment for access to PBS's national programming.26

    However, we were told that while modifying the eligibility criteria for
    establishing the base and incentive grant portions of Community Service
    Grants may result in an increase in the grant funds awarded to some
    licensees, it would also likely reduce the grant amounts awarded to
    others. Further, we were told that the Corporation makes every attempt to
    ensure that these grant funds are distributed fairly among public
    television licensees. For example, as a result of the 2001 review, the
    Corporation revised a policy previously adopted to increase the minimum
    level of

    26The basis for grant amounts provided to licensees through Community
    Service Grants does not include costs for membership in, or other costs
    related to the acquisition of programming from, PBS or other national
    programming distributors. However, the assessment paid by a licensee for
    PBS membership includes a factor based on the Community Service Grant
    funds awarded to the licensee by the Corporation.

    nonfederal financial support that licensees must raise to $1 million
    beginning in fiscal year 2003 in order to receive the incentive portion of
    the Community Service Grant. As revised, the minimum level was set at
    $800,000.

    Many Licensees Expressed Concerns About Aspects of the Television Future
    Fund

    Concerned in the mid-1990s over the prospect of declining revenues from
    public television funding sources, including federal funding, the
    Corporation created the Television Future Fund in 1995 as a means of
    helping public television licensees achieve greater economic
    selfsufficiency. The program provided grants to projects aimed at reducing
    stations' operating cost and enhancing their revenues. Prior to the end of
    fiscal year 2003, the Television Future Fund awarded grants to licensees,
    consortia of licensees, and non-licensee entities (e.g., consultants) on
    the basis of project-specific criteria. Grant proposals were to

    o  show clear evidence that the project would meet a demonstrated need;

    o  	actively involve a number of stations, have benefits beyond one
    individual station, offer economic returns that could be widely shared,
    and/or act as a model that could be widely replicated;

    o  	prove, through feasibility studies, that concepts could be widely
    implemented, thus demonstrating that the effort can lead to economies of
    scale;

    o  	be envisioned as long-term efforts, sustainable after the
    Corporation's funding for the project concluded; and

    o  	reflect a shared risk through funds provided by the applicant, thereby
    demonstrating an institutional commitment.

    In addition, all proposals were to demonstrate an awareness of systemwide
    efforts already under way and make use of existing resources, whether from
    public television or the private sector.27

    To provide funding for Television Future Fund projects, the Corporation
    annually pooled funds from two separate sources: funds from its System

    27See Request for Proposals, Television Future Fund and Television
    Transition Fund, Fiscal Year 2002, Corporation for Public Broadcasting.

    Support account and funds from the 75 percent allocation for distribution
    among licensees. Between 1996 and 2004, $30.5 million came from the System
    Support account and $28.5 million from the licensee allocation.28 Based on
    recommendations of advisory panels comprised of station and system
    representatives, the Corporation awarded 204 Television Future Fund grants
    through September 2002 for a broad range of projects, including

    o  	development projects aimed at improving fundraising through local,
    regional, and national underwriting efforts, strengthening pledge
    practices, and studying financial contributions given via the Internet;

    o  	technology projects designed to increase the public television
    community's knowledge of its digital capabilities, including developing
    interactive television programming;

    o  	new service and business models projects aimed at forging links
    between the public television community and other entities, such as
    licensee and university partnerships;

    o  	management information projects to improve efforts to manage and
    disseminate relevant data, such as a database used by licensees to compare
    their programming and fundraising activities with other licensees and a
    section of the Association of Public Television Stations' Web site that
    contains information for both licensees and the public about the digital
    transition;

    o  	collaboration and consolidation projects designed to support the
    development of back office operations that could be used by more than one
    station; and

    o  	research projects aimed at improving the public television community's
    understanding of viewers and the public television industry, such as
    updating the handbook for television programmers and a viewer panel study.

    Figure 9 illustrates the distribution of the types of Television Future
    Fund projects.

    28Since fiscal year 2001, $4 million annually from each source has been
    used to fund the Television Future Fund program.

    Figure 9: Distribution of Television Future Fund Grants by Project Type

    According to Corporation officials, some licensees raised issues regarding
    how the program is funded and what benefits are being derived from it. We
    heard similar concerns while interviewing several licensees. To evaluate
    these concerns, we asked licensees in our survey to indicate the extent to
    which they knew about the findings and outcomes of Television Future Fund
    projects, whether any such projects resulted in practical methods for
    enhancing revenues or reducing costs in licensees' own operations, and
    whether they supported the way in which the Television Future Fund is
    funded.

    The extent of the licensees' knowledge of Television Future Fund projects
    varied significantly. Of licensees responding to our survey, 58 percent
    stated that they knew about Television Future Fund projects to a great or
    moderate extent, but the other 42 percent indicated that they knew about
    the findings and outcomes of Television Future Fund projects to little or
    no extent (see fig. 10).

    Note: N=148 licensees. Percentages have been rounded.

    Several licensees noted that they did not know about the findings and
    outcomes of Television Future Fund projects because of inadequate efforts
    by the Corporation to distribute information about the projects. For
    example, the Corporation did not compile and distribute to licensees, or
    release publicly, a list of the findings and outcomes of Television Future
    Fund projects until November 2001, 5 years after the first grants were
    awarded. One licensee stated that although there has always been
    sufficient information about the awarding of Television Future Fund
    grants, there has been little information on the outcomes of the projects
    supported by those grants.

    We asked licensees in our survey to indicate whether Television Future
    Fund projects had provided their stations with practical methods for
    either reducing costs or enhancing revenues. A little over one-third of
    the responding licensees indicated that Television Future Fund projects
    had provided them with practical methods for reducing costs. About the
    same percentage of licensees indicated that projects had provided them
    with

    practical methods for enhancing revenues. In cross-tabulating these
    responses, we determined that, overall, only 41 percent of licensees
    responded that Television Future Fund projects had provided them with
    practical methods for reducing costs and/or enhancing revenues (see fig.
    11).

    Note: N=143 licensees. Percentages have been rounded and do not equal 100
    percent due to respondents answering "don't know."

    The Corporation's approach for funding Television Future Fund projects was
    another area of concern for licensees. Only 30 percent of the responding
    licensees in our survey indicated that they favored the current approach
    of funding the projects, in part, with funds from the 75 percent
    allocation for distribution among licensees (see fig. 12). Altogether,
    over 40 percent indicated their preference for funding the program only
    from system support funds or from other sources. In their survey comments,
    a number of licensees suggested that other sources of funding could come
    from an additional appropriation from the Congress or from funds provided

    by philanthropic foundations. Over one-fifth of our survey respondents,
    however, indicated that the Corporation should cease all funding for the
    Television Future Fund.

    Note: N=148 licensees. Percentages have been rounded and do not equal 100
    percent due to respondents answering "don't know."

    In September 2002, the Corporation suspended the award of further
    Television Future Fund grants pending a review of the program to (1)
    assess the consistency between the planning and execution of the program
    in relation to the Corporation's goals and (2) determine how the program
    could address concerns that the public broadcast mission and business
    models were no longer adequate in the digital era. In the course of its
    review, the Corporation's Future Fund Advisory Panel29 concluded that
    while a majority of the projects had yielded the results anticipated, some

    29The panel included representatives of public television stations, PBS,
    and the Association of Public Television Stations, as well as consultants.

    were not successful for reasons that included an inability to achieve
    appropriate scale or significant economic benefit, inadequately defined
    objectives and poor execution, and inadequate marketing of results to
    stations. The panel solicited comments from the public television
    community on how the Future Fund could best be used to help stations
    maximize their financial resources and invest these resources in new and
    strengthened service to their local communities. Based on input from
    public television stakeholders and its own deliberations, the panel
    developed four new criteria to guide the investment of funds.
    Specifically, Television Future Fund initiatives should have

    o  	the potential to change systemwide decision making and transform
    current approaches to achieving system and station goals,

    o  measurable and sustainable outcomes,

    o  strong and verifiable support of key advocates and participants, and

    o  consistency with the Corporation's legislative mandate.

    In addition, the panel recommended changes in how Television Future Fund
    initiatives are developed and supported. Rather than continuing to invite
    proposals on a broad array of themes, as had been done in the past, the
    panel recommended that the solicitations more directly define the
    initiatives' intended outcomes for participants, the station community,
    and the system overall. The panel also recommended that funding
    commitments be made over longer time frames at higher monetary levels in
    order to focus on fewer initiatives that have greater impact. The panel
    called for improved project management, with clearly defined expectations
    and performance measures and a clear definition of success. To evaluate
    and monitor the progress of the initiatives, the panel recommended that
    the membership of the Future Fund Advisory Panel include greater
    representation from across the station community.

    The Corporation's board adopted these recommendations in April 2003.
    During the remainder of the year, the panel continued work to translate
    its recommendations into practices and processes. This included reaching
    agreement on a clearly defined review process for making Television Future
    Fund investment decisions, a plan for determining the representation and
    terms of the members, and priorities for Future Fund investment. During
    the time that the Corporation was reviewing the Television Future Fund
    program, it was also engaged in the systemwide

    planning study discussed earlier. According to Corporation officials, it
    was anticipated that the Future Fund program would help support some of
    the new initiatives and projects stemming from the planning study.

    The Television Future Fund was reactivated in November 2003 with the
    advisory panel endorsing several funding grants. In a December 2003
    memorandum to station managers, the Corporation outlined the new
    Television Future Fund review and selection process and described three
    Future Fund projects that were in progress: (1) the Major Giving
    Initiative aimed at helping stations attract financial support from major
    donors-an area of opportunity identified in the Corporation's systemwide
    planning study; (2) the Education Leadership Academy, a pilot effort to
    identify opportunities for improved community partnership in elementary
    and secondary school education; and (3) an online knowledge base to
    improve public television's fundraising potential, strategies, and
    practices. Corporation officials noted that 90 of the 176 licensees have
    signed up to participate in the first Major Giving Initiative workshop,
    and they expect licensees to participate in another workshop to be held
    later this year. In addition, they noted that the Future Fund was used to
    cover the participation of about 110 station personnel in a 2-day
    concentrated track of sessions for the Education Leadership Academy.

    Corporation's Approach to Funding the Television Future Fund Is Not
    Consistent with Its Underlying Statute

    The advisory panel's recommendations on the Television Future Fund did
    not, however, include changes to the program's funding mechanism. As noted
    earlier, the Corporation has supported the program with funds taken
    annually from the Corporation's System Support funds and from funds
    designated for distribution among licensees. The Corporation's funding
    approach has been challenged by some station executives, who maintain that
    it is inconsistent with the Corporation's underlying statute. For example,
    in an August 2003 letter to the Corporation, four station executives
    expressed the view that the Corporation's use of funds designated for
    distribution to licensees for other purposes was not consistent with
    congressional intent. Both the licensees' letter and the Corporation's
    reply pointed to legal opinions from their respective outside

    counsels to support their differing positions on this issue.30 As part of
    our review, we examined the Corporation's statutory authority to use funds
    allocated for distribution among public television licensees to support
    the Television Future Fund. Although our legal review focused on the
    program as it was constituted prior to its recent revisions, the recent
    changes made do not appear to have solved the legal deficiencies that we
    identified. As reconstituted, the Future Fund program still is funded, in
    part, with funds designated by the Congress for distribution among public
    television licensees.

    According to the Corporation, its authority to establish "eligibility
    criteria," and the formula under which the funds are disbursed, is broad
    enough to allow the Corporation to take a portion of the funds allocated
    for distribution among licensees, pool them with System Support funds, and
    use this aggregated pool of money to make selective grants only to
    applicants submitting project proposals acceptable to the Corporation
    after being reviewed and recommended by a review panel.31 We disagree. The
    difference between our view and that of the Corporation rests on whether
    the eligibility criteria the Corporation may adopt include project-focused
    criteria that govern the selective award of funds for a particular project
    (as the Corporation maintains) or whether eligibility criteria the
    Corporation may adopt include only station-based criteria that distinguish
    among public television licensees on the basis of such factors as
    financial needs, audience satisfaction, or fundraising effectiveness. It
    is our view that the phrase "eligibility criteria" should be read in the
    context of the distribution mechanism to mean criteria focusing on the
    eligibility of the licensees,

    30Letter from four station executives to Mr. Robert T. Coonrod, President
    and Chief Executive Officer, Corporation for Public Broadcasting, dated
    August 8, 2003. The letter expressed concerns about the potential use of
    monies designated by the Congress for distribution to public television
    licensees to fund the initiative and projects stemming from the systemwide
    planning study and attached a legal opinion from outside counsel which
    concluded that the expenditure of these funds for any purpose other than
    distribution to public television stations was inconsistent with
    restrictions placed by the Congress on the use of these funds. The
    Corporation's August 21, 2003, response maintains that the Corporation has
    allocated and distributed all funds in a fashion fully consistent with
    statutory directives and has been so advised by outside legal counsel.
    This debate surfaced in 1995 when the program was established. At that
    time, the Corporation was advised by outside legal counsel that it had
    authority to create the fund and use funds allocated for distribution
    among public television licensees for Future Fund grants. In July 2003,
    the Corporation's current outside counsel reviewed this issue and reached
    the same conclusion.

    31The Corporation's views are consistent with the interpretations
    articulated by its outside counsel in 1995 and 2003.

    rather than the eligibility of the projects. Although we often defer to an
    agency's interpretation of a statute it is charged to administer, we
    cannot do that here because the Corporation's interpretation of its
    authority is neither consistent with the statutory language nor the
    Congress' policy choice favoring local, not Corporation, control of the
    expenditure of the funds allocated for licensees.

    Fundamentally, we believe that the Corporation's interpretation of the
    statutory language changes the basic nature and control over the
    expenditure of the funds allocated for licensees. First, the language of
    the distribution provision makes no reference to funding specific
    projects. By contrast, the Congress has provided the Corporation with
    specific authority to fund projects using system support funds. Second,
    the statute and its legislative history reflect a clear division of roles
    vis-`a-vis the Corporation and the licensees and permittees of public
    television stations. Under the statutory scheme, it is the Corporation
    that is responsible for distributing funds to the licensees, and it is the
    recipients of these funds that are granted the discretion over how they
    are to be used. Thus, in the context of the entire statutory scheme, these
    funds would not be available for project-specific systemwide grants.

    Moreover, as implemented by the Corporation, the Television Future Fund
    grants are available to nonstation entities. We believe this is
    inconsistent with the direction in the statute regarding the fact that the
    funds are to be distributed among licensees of public television stations.
    For example, an award was given to a consultant to conduct studies to
    identify skills that will be needed by chief executive officers of public
    television stations in the next decade. Another award was given to a
    consultant group to study the perception of public television by its
    current and potential financial supporters. In our view, the funds
    allocated by statute for distribution among licensees are not available to
    nonstation entities. Appendix III presents our legal opinion in detail.

    In January 2004, a month after the Corporation's announcement to the
    public television community of the changes being made to the Television
    Future Fund and ongoing and planned initiatives that were to be funded,
    there was a new development in the issue of how to fund the Television
    Future Fund. At its January meeting, the Corporation's board, expressing
    its recognition that system resources were scarce and local needs were
    great, directed the staff to develop a comprehensive plan for returning
    Television Future Fund dollars to stations. Corporation officials told us
    in February that what is under consideration is that beginning in fiscal
    year

    2005 monies designated for distribution among licensees would no longer be
    used to support the Future Fund. The officials said that they would be
    developing a proposal for the board's vote before the end of fiscal year
    2004.

    Meanwhile, the ongoing and planned projects will continue to be supported
    from the balance in the Television Future Fund account, which amounted to
    about $18.3 million as of December 31, 2003. According to the Corporation,
    $10.1 million of this balance came from funds designated for distribution
    among licensees from fiscal year 2004 and previous fiscal years; the
    remaining $8.2 million came from System Support funds. Approximately $8.4
    million of the $18.3 million in the account balance has been committed for
    ongoing projects, mostly for the Major Giving Initiative ($6.6 million).
    The remaining $9.9 million has been "earmarked" by the Future Fund
    Advisory Panel for several other major initiatives that are under
    development.32

    Most Licensees Favor Continued Federal Funding Support for the National
    Program Service, as Well as Additional Funding to Produce More Local
    Programming

    Provisions of the Communications Act govern the Corporation's support for
    the production and distribution of national programming. The Corporation
    provides PBS with an annual grant to help support its National Program
    Service, a package of children's and prime-time series that are broadcast
    by most public television stations. In response to our survey, most
    licensees expressed support for continuation of the Corporation's annual
    grant to PBS for the National Program Service and held the view that the
    Service's programming enables them to meet their mission and build
    underwriting and membership support. Many licensees also emphasized the
    importance of producing their own programs to meet the needs of their
    local communities, suggesting that federal funds should be made available
    for the production of local programming.

    32The Corporation refers to these committed funds as being "obligated," by
    which they mean that the Future Fund Advisory Panel has agreed to specific
    projects with a budget, that the Corporation has committed funds to the
    project, and that the contracting process is under way. By "earmarked,"
    they mean that the Future Fund Advisory Panel has designated that funds be
    directed toward major initiatives that are in development, but as yet have
    no specific project budget and workscope to which the funds may be
    specifically allocated. In February 2004, Corporation officials told us
    that there would be a request for proposals in March 2004 for conducting
    Major Giving Initiative workshops; they said that the request for
    proposals would be open to public television licensees and stations,
    consultants, and others.

    Most Licensees Favor Having the Corporation Continue Funding for the
    National Program Service

    Expressly prohibited from producing or distributing public television
    programming,33 the Corporation is authorized by provisions of the
    Communications Act to provide federal funding for national public
    television programming.34 Under the act, the Corporation is directed to
    distribute a substantial amount of available programming funds to
    independent producers and production entities, producers of national
    children's educational programming, and producers of programming
    addressing the needs and interests of minorities.35 In fulfillment of this
    mandate, the Corporation provides programming support through three
    mechanisms-the General Program Fund, the Program Challenge Fund, and an
    annual grant to PBS for the production and distribution of some of public
    television's best known or "signature" series, a package known as the
    "National Program Service" (see fig. 13). Some of the productions
    supported through the Program Challenge Fund and the General Program Fund
    are broadcast as part of the PBS National Program Service.36

    3347 U.S.C. S:396(g)(3).

    3447 U.S.C. S:396(k)(3)(A)(ii)(II).

    3547 U.S.C. S:396(k)(3)(B)(i). The Congress has also provided that it is
    in the public interest to encourage the development of programming that
    involves creative risks and addresses the needs of unserved and
    underserved audiences, particularly children and minorities. 47 U.S.C.
    S:396(a)(6).

    36According to Corporation officials, approximately $20 million of these
    additional national programming funds support productions that are
    included in PBS's National Program Service.

    aThe Independent Television Service was founded in 1988. See, 47 U.S.C.
    S:396(k)(3)(B)(iii).

    bThe Minority Consortia consist of the following organizations: National
    Black Programming Consortium, Native American Public Telecommunications,
    Latino Public Broadcasting, National Asian American Telecommunications
    Association, and Pacific Islanders in Communications.

    The $65 million in funds distributed by the Corporation in fiscal year
    2003 through these three mechanisms made up a relatively modest portion of
    the total revenues used for the production and distribution of national
    public television programming. According to the Corporation, its funding
    support

    amounted to only 14 percent of the $450 million in total funds used for
    such programming in fiscal year 2003.

    Many of the best-known programs associated with public television are part
    of PBS's National Program Service. The Service currently includes
    miniseries, specials, and children's and prime-time series-including
    Sesame Street, NOVA, The NewsHour with Jim Lehrer, and American
    Experience-providing PBS member-stations with approximately 2,100 hours of
    programming in 2003. The Corporation's annual grant of $22.5 million to
    PBS makes up only a small portion of the funds that finance the National
    Program Service; a large source of the Service's financing comes from
    public television station licensees that collectively paid $126 million in
    2003 membership assessments to PBS for programming and related broadcast
    rights to the Service's programs. In 2003, 171 of the 176 public
    television licensees were PBS members. The National Program Service is
    distributed to PBS member-stations for broadcast either at the time of
    their delivery or at a time of the licensees' choosing. Member-stations
    are free to choose which of the Service's programs to broadcast, although
    PBS officials stated that licensees receive no reduction or rebate in
    their assessment for programming that is not broadcast.

    Our survey asked a series of questions about the National Program Service.
    In response to our question on whether the Corporation should continue to
    provide direct funding for the Service at its current level, 72 percent of
    the responding licensees answered "yes." Some licensees stated that the
    quality of the programs included in the Service would suffer without
    continued funding from the Corporation. Of the 19 percent of the licensees
    who indicated that a change was needed, most suggested that the funding be
    reduced or eliminated and be given instead to the licensees.

    Concerns with the process that PBS uses to choose the programs selected
    for the National Program Service were also noted in some of our interviews
    with officials of public television licensees. The Corporation's annual
    grant to PBS for the National Program Service was instituted as a result
    of a statutory provision enacted in 1988 requiring that the Corporation
    study and submit a plan to the Congress for funding support of national
    public television programming.37 Prior to the establishment of the
    National

    3747 U.S.C. S:396(k)(6)(A). See Meeting the Mission in A Changing
    Environment: A Comprehensive CPB Plan for Public Television's National
    Program Financing in the 1990s, A Report to Congress from the Corporation
    for Public Broadcasting, January 1990.

    Program Service, grants were awarded by the Corporation directly to
    several of the producers of programming included on the PBS national
    schedule. Other programs were made part of the national schedule through a
    mechanism known as the "Station Program Cooperative." Through the
    Cooperative, officials from public television stations would vote on which
    individual programs to include on the national schedule and participate in
    a "group buy"-combining their funds for the purchase of programming for
    distribution by PBS. However, concerns arose that the Station Program
    Cooperative model was not effective in the establishment of programming
    priorities, the production of minority programming, or the ability of
    producers to effectively attract underwriters. In 1989, a National Program
    Funding Task Force-comprised of representatives from the Corporation,
    public television stations, PBS, independent producers, and other
    stakeholders-was formed to review the method of funding national
    programming. This review led to the replacement of the Station Program
    Cooperative with a new model for selecting PBS programming. Under this new
    model, PBS created the position of chief programming executive to make
    programming decisions. Currently, two chief programming executives located
    on the East and West coasts, respectively, select programs for the
    National Program Service with input from licensees, internal PBS
    programming staff, and PBS management. This approach was designed to
    facilitate the centralized development and purchasing of programming for
    the National Program Service and for other programming distributed
    nationally under the PBS logo-including children's, primetime, and
    syndicated programs.

    Our survey of licensees found that only a small percentage expressed a
    desire to reinstate the former Station Program Cooperative or a similar
    model to select programming for PBS's National Program Service. However, a
    majority of the survey respondents, 58 percent, indicated that changes
    were needed in the process for selecting programs for the Service.
    Specifically, respondents suggested that PBS solicit more input from
    licensees in making the selections. Some licensees we interviewed
    commented that the strong relationship between PBS and producers has
    created an entrenched system that limits the ability of new producers to
    get their programs on the National Program Service.

    Figure 14 highlights the licensees' views on the Corporation's funding of
    the PBS National Program Service and the process used to select the
    programs that are included in the Service.

    Note: N=144 licensees for "Corporation should continue funding the
    National Program Service" and N=143 licensees for "the National Program
    Service selection process should be changed." Percentages have been
    rounded.

    While our survey shows that over half of the licensees indicated that
    changes are needed in the selection process for the PBS National Program
    Service, most respondents nevertheless indicated satisfaction with the
    extent to which the Service's programming helps them meet the missions of
    their stations.

    Ninety-six percent of the licensees we surveyed said that the children's
    programs included as part of the National Program Service enable them to
    meet their mission to a great or moderate extent. As described by some
    respondents, the noncommercial, nonviolent, educational content of
    children's programming makes it the cornerstone of public television. A

    few licensees also noted that PBS provides a "safe harbor" of children's
    programs that are distinct from their commercial counterparts. Children's
    programming was viewed as more important to licensees' missions than to
    building underwriting and membership support because only 23 percent of
    the licensees responding to our survey indicated that they rely to a great
    extent on children's programming to build such support, and 39 percent
    said they rely on such programming to a moderate extent. Many licensees
    stated that they do not rely on children's programming for underwriting
    support because of content restrictions and because underwriters do not
    see a strong market in the viewers of such programs. However, a few
    licensees stated that some underwriters support children's programs
    because of their high quality and their educational and social value.
    Several licensees stated that they do not rely on children's programming
    to generate membership support because families with young children often
    do not have the economic means to contribute financially.

    Licensees also indicated that they value the prime-time programs on the
    National Program Service, with 96 percent of the respondents indicating
    that prime-time programs help them meet their mission to a great or
    moderate extent. As noted above, some licensees criticized the programs
    for having become less unique, less innovative, and less willing to
    explore controversial issues in recent years. However, most licensees
    stated that they rely on the prime-time programs included in the National
    Program Service to meet their mission of providing quality life-long
    educational content for adults of all ages. Many licensees added that the
    prime-time programs allow them to compete with commercial stations,
    attract new audiences, and retain existing viewers. Our survey also showed
    that 91 percent of the licensees believe that prime-time programs help
    them build local underwriting and membership support to a great or
    moderate extent. According to the licensees, some of the reasons that the
    prime-time programs are helpful in attracting local underwriters are that
    audience numbers are higher, the program titles are familiar, and the
    programs themselves are of high quality and are well promoted. Figures 15
    and 16 summarize the responses of licensees to questions regarding the
    National Program Service's children's and prime-time programming.

    Note: N=149 licensees for "children's programming" and N=144 licensees for
    "prime-time programming." Percentages have been rounded and may not equal
    100 percent due to respondents answering "don't know."

    Note: N=144 licensees for "children's programming" and N=144 licensees for
    "prime-time programming." Percentages have been rounded and may not equal
    100 percent due to respondents answering "don't know."

    Most Licensees Indicated that They Would Produce More Local Programming if
    Additional Funding Resources Were Available

    Although the Corporation does not currently provide or have explicit
    authority to make grants for the production of local programming,
    Corporation funding can indirectly support local programming productions
    through two sources: (1) Community Service Grants, which may be used at
    the discretion of licensees to produce their own programming, and (2)
    grants made by the Corporation to the Independent Television Service and
    the National Center for Outreach, both of which fund some local
    productions. Local stations produce their own programming to fill out
    their broadcast schedules by covering issues and events that are of
    special interest to their communities. However, cost is a major challenge
    facing licensees in the production of local programming. As a result, some
    producers of local programming have focused on productions that tie into a

    national program. This method allows individual licensees the possibility
    of extending the value of national promotions to such local programs. For
    example, local stations in several cities took advantage of the popularity
    of the PBS series Jazz: A Film by Ken Burns, broadcast in 2001, by
    producing local programs that featured local and regional jazz musicians
    and cultural influences.

    Previously, the Corporation funded regional organizations that provided
    licensees with specialized content for their areas. In 1961, the Eastern
    Educational Network began as a collaboration of public television stations
    in the northeastern United States that produced regional programs for its
    member stations. Other regional collaborations were formed to provide
    similar functions, such as the Southern Educational Communications
    Association, the Central Educational Network, and the Pacific Mountain
    Network. However, over the last decade, almost all of these regional
    organizations have changed their focus to provide quality national
    programming to members nationwide.38 In 1997, the Southern Educational
    Communications Association and the Pacific Mountain Network joined to form
    the National Educational Telecommunications Association, a membership
    organization that offers a library of national programs to licensees.
    Rather than paying for or obtaining the rights to programs, public
    television producers give to the National Educational Telecommunications
    Association the rights to distribute the programs; in return, the
    association provides producers with basic promotion of programming on its
    Web site and a forum for licensees to exchange products. In 1998, the
    Eastern Educational Network became American Public Television, which
    acquires finished programs and develops and coproduces original
    programming in a variety of genres, including documentaries, biographies,
    and instructional programs, among others.

    In our survey, some licensees indicated that public television stations
    are rapidly becoming the only locally owned and operated television
    broadcast medium. They stated that the consolidation of local media
    outlets and expanding national cable and satellite networks have resulted
    in less local programming on commercial television, creating a void in
    their communities. They believe that their locally produced programs set
    them apart from commercial television and allow them to provide their

    38The Central Educational Network continues to provide services to member
    stations in the midwestern and northeastern regions under their parent
    organization, the American Television Group.

    communities with a unique product that contributes to the civic and
    cultural lives of their viewers. However, 79 percent of the licensees
    responding to our survey indicated that the amount of local programming
    they currently produce is not sufficient to meet local community needs
    (see fig. 17). Moreover, of the 139 licensees that provided narrative
    comments regarding this issue, 85 stated that they do not have adequate
    funds for local programming or that they would produce more local
    programming if they could obtain additional sources of funding. Several
    licensees stated that they have had to ignore local issues and turn away
    programming opportunities because they lacked the financial resources to
    produce them.

    Note: N=148 licensees. Percentages have been rounded.

    Many licensees suggested that federal funds should be made available to
    support the production of local programming, with more than half
    responding that the Corporation should have explicit authority to award
    grants for the production of local programming (see fig. 18).
    Approximately 60 percent of those licensees favoring this authority also
    favored sacrificing some of the Corporation's funding support for national
    programming in order to establish direct funding support of local
    programming productions. Some of these licensees indicated that the
    Corporation's funds would be better spent on local programming because
    such programming has been and will continue to be a unique asset of public

    television and has more of a direct impact on the community. However,
    among the licensees who expressed a willingness to sacrifice funding for
    national programming to fund local productions, some warned that taking
    too much from national programming would be harmful to the entire system.

    Note: N=149 licensees for "The Corporation should have explicit authority
    to fund local programming" and N=79 licensees for "The Corporation should
    fund local programming even if it means less money for national
    programming." Percentages have been rounded.

    Corporation Has Funded Digital Transmission Equipment, but Other Digital
    Infrastructure and Content Needs Remain

    Digital technology offers public television licensees opportunities to
    provide innovative services to their communities. The Corporation received
    additional funding of $93.4 million for the digital transition for fiscal
    years 2001 through 2003. After consultation with representatives of the
    public television community, the Corporation directed these funds toward
    providing grants to licensees for acquiring digital transmission
    equipment. However, some licensees did not receive their grants in a
    timely manner and cited this as contributing to their failure to meet
    FCC's initial May 2003 deadline for constructing digital transmission
    facilities. At the systemwide level, the Corporation is seeking funding
    for infrastructure improvements to fully leverage the potential benefits
    of the digital transition. In addition, the Corporation, licensees, and
    other public television stakeholders have emphasized the importance of
    support for the production of digital content as part of the transition.
    Various mechanisms, including additional federal funding, have been
    suggested to address these needs.

    Licensees See the Digital Transition as an Opportunity to Provide
    Innovative Services

    The Corporation, licensees, and other public television stakeholders have
    emphasized that the future of public television depends on the successful
    rollout of digital services. Such services would, in the view of public
    television stakeholders, help public television realize the full potential
    of digital technology, solidify existing audiences, and reach new viewers
    in an era of increased competition from cable and satellite television
    providers.39 Nearly all of licenses in our survey reported that they
    either now have, or plan to have, key digital capabilities to produce
    sharper television pictures and CD-quality sound (high-definition), offer
    multiple channels for programming and data services ("multicasting"), and
    transmit text and other data in a digital format ("datacasting") (see fig.
    19).

    39In a report on broadcast television, FCC notes that between 1984 and
    2001, public television's prime-time viewing shares declined 30 percent.
    Federal Communications Commission, Broadcast Television: Survivor in a Sea
    of Competition (Washington, D.C., Sept. 2002).

    Note: N=148 licensees for "High definition television"; N=147 licensees
    for "multicasting"; and N=146 licensees for "datacasting." Percentages
    have been rounded and do not equal 100 percent due to respondents
    answering "don't know," "don't provide," or "don't plan to provide."

    About 85 percent of the licensees responding to our survey indicated that
    successful completion of the digital transition would improve their
    ability to serve their communities to a great or moderate extent. Many of
    the digital-based services mentioned by licensees involve supporting
    educational, governmental, and cultural activities. Educational services
    include the delivery of on-demand instructional content material to
    teachers and students in K-12 classrooms, higher education institutions,
    and libraries. Local and state governmental services include emergency
    response services and alerts, such as Amber Alerts for child abductions.
    In addition, licensees noted that multicasting would allow for an
    increased range of cultural content, such as programs that highlight local
    arts or serve minority populations.

    Many licensees also indicated their intention to use digital technology to
    provide "ancillary and supplementary" services.40 These are nonbroadcast
    services, such as subscription-based video services, paging services, and
    computer software distribution, offered by stations to generate revenue.
    Fifty-one percent of the licensees indicated they are offering or would
    offer these services to nonprofit entities, while slightly more than
    one-third of licensees indicated they would offer these services to
    for-profit entities.

    Corporation Has Assisted Licensees in Acquiring Digital Transmission
    Equipment, Though Its Support Has Not Always Been Timely

    The Corporation, licensees, and other public television stakeholders have
    identified the importance of federal and nonfederal support for the
    digital transition that enables public broadcasters to provide a full
    range of digital services to their communities.41 In 1997, the Corporation
    and other public television stakeholders estimated the costs of the
    digital transition for public television stations to be approximately $1.7
    billion, largely for transmission equipment.42 At that time, the
    Corporation, PBS, and other stakeholders proposed a plan under which the
    majority of this cost would be funded by nonfederal sources, such as state
    governments, foundations, and corporations, and about $771 million (45
    percent) would be funded through federal funds. In the plan, the
    Corporation also requested an increase of $100 million in its regular
    fiscal year 2000 appropriation for the acquisition, enrichment, and
    production of digital programming and services. For fiscal years 2000 and
    2001, the Clinton administration proposed a funding approach whereby the
    National Telecommunications

    40In a 2001 Order, FCC clarified the manner in which public television
    licensees could use excess digital television capacity for remunerative
    purposes. Under the Order, public television stations are required to use
    their entire digital capacity primarily for nonprofit, noncommercial
    educational broadcast services, but are allowed to use some of their
    capacity to offer ancillary and supplementary services and to advertise on
    those services when they did not constitute broadcasting. Ancillary or
    Supplementary Use of Digital Television Capacity by Noncommercial
    Licensees, 16 FCC Rcd 19042 (2001). The U.S. Court of Appeals, D.C.,
    denied a petition for review of this Order. Office of Communication, Inc.
    of the United Church of Christ v. FCC, 327 F.3d 1222, (D.C. Cir. 2003).

    41In addition to funding, public television stakeholders have expressed
    concerns about regulatory issues associated with the transition involving
    the carriage of public television stations' digital signals by cable and
    satellite providers. See appendix IV for a brief discussion of these
    issues.

    42The PBS Engineering Committee, in consultation with Andersen Consulting,
    developed and implemented a comprehensive survey of stations used by the
    Corporation and other public television stakeholders to refine their
    estimate of the digital transition costs. The $1.7 billion estimate
    includes $50 million for digital radio. The estimate was subsequently
    revised to $1.8 billion for increases related to digital radio and other
    expenses.

    and Information Administration's (NTIA) Public Telecommunications
    Facilities Program, a source of financial support for public television
    infrastructure, would provide federal funding for licensees to acquire
    digital equipment.43 The Corporation, for its part, would provide federal
    funding to support digital programming production, development, and
    distribution.

    Although this initial funding approach included federal funding for both
    digital equipment and digital programming, most of the federal funds that
    have been awarded through fiscal year 2003 have been for digital
    equipment.44 NTIA began awarding grants to public television licensees for
    digital transmission equipment in fiscal year 1998. Although specific
    appropriations for the digital transition were made for the Corporation in
    fiscal years 1999 and 2000-at $15 million and $10 million, respectively-
    both were contingent on the enactment of an authorization which did not
    occur. The Corporation received its first specific digital appropriation
    ($20 million) in August of fiscal year 2001 after the enactment of both an
    appropriation and an authorizing provision. A second digital appropriation
    ($25 million) was received in February 2002. The Corporation, relying on
    report language accompanying its fiscal year 2002 appropriation and
    considering the limited funds available to licensees from NTIA, determined
    that the highest priority for its digital funds was to assist as many
    licensees as possible in meeting FCC's May 2003 deadline for constructing
    digital transmission facilities.45 Accordingly, the Corporation developed
    two grant programs to help licensees acquire basic digital transmission
    equipment- the Digital Distribution Fund and the Digital Universal Service
    Fund.

    o    The Digital Distribution Fund, established in January 2002, offers
    grants to both individual stations and collaborations of multiple stations
    for

    43The Public Telecommunications Facilities Program is the successor to the
    equipment and facilities grants program originally authorized by the
    Educational Television Facilities Act of 1962. The program was transferred
    to NTIA in 1978. In addition to public broadcasting stations, the program
    also awards grants to state and local governments, Indian tribes, and
    nonprofit organizations. Between 1998 and 2003, NTIA's funding for the
    digital transition has totaled $125 million through the award of digital
    grants to 129 licensees.

    44A limited number of digital, interactive, and multimedia projects have
    received support through the Corporation's Program Challenge Fund, which
    is jointly funded by the Corporation, through its regular annual
    appropriation, and by PBS.

    45H. Conf. Rept. 107-342 (2001). The conference report directed that the
    funds be used for "equipment and facilities to enable public broadcasters
    to meet the statutory deadline for the digital conversion. . . ."

    digital transmission equipment; the Corporation provides 50 percent
    matching funds to the nonfederal funds raised by grantees.

    o    The Digital Universal Service Fund was established in June 2002 to
    take advantage of FCC's 2001 decision permitting licensees to satisfy the
    May 2003 construction deadline by initially constructing digital
    facilities that use power levels that are lower than what is needed to
    fully cover their service areas. Stations can then increase their power
    levels over time to full-power operation.46 This program is designed to
    provide grant recipients with a standard package of equipment for use in
    constructing a low-power digital facility. The Corporation funds up to 75
    percent of the cost of the equipment packages, with the remaining cost
    covered by grant recipients with nonfederal funds.

    Both Corporation and NTIA officials told us they coordinate their grant
    programs to ensure that there is no duplication in the types of
    transmission equipment purchased by licensees with funds from their
    respective programs. Figure 20 provides a time line of the Corporation's
    activities up to November 2003 for awarding funds through these two
    digital grant programs.

    46Review of the Commission's Rules and Policies Affecting the Conversion
    to Digital Television, 16 FCC Rcd 20594 (2001). Fewer viewers are served
    by a low-power broadcast signal than a full-power one. The construction of
    a low-power facility is less costly than a full-power one and, therefore,
    potentially less of an initial financial burden for licensees.

                Page 54 GAO-04-284 Corporation for Public Broadcasting

    The Corporation used its fiscal year 2001 and 2002 digital appropriations
    to award grants to 96 stations for digital transmission equipment prior to
    FCC's May 2003 construction deadline. However, the Corporation was not
    always timely in getting the awarded equipment packages or funds to the
    grantees. Specifically, 30 stations did not receive their equipment
    packages or funds by the deadline. Most of these stations were recipients
    of equipment package grants from the Digital Universal Service Fund.
    Public television stations that did not expect to meet the construction
    deadline had to apply to the FCC for a 6-month extension. In requests to
    FCC for extensions, 28 of the 30 stations cited the delay in receiving
    their digital grant from the Corporation as a contributing factor, among
    others, as to why they filed for an extension.47

    We identified two reasons for the Corporation's lack of timeliness in
    distributing its fiscal year 2001 and 2002 digital appropriations. First,
    the Corporation took several months after receiving its digital funds to
    (1) convene consultation panels comprised of licensees (or their
    designated representatives) to develop recommendations for the use of
    those funds and (2) obtain approval of the panels' recommendations by the
    Corporation's board.48 Second, the Corporation had to devise grant
    programs for the distribution of its digital appropriations. When the
    Corporation's board initially approved the use of the funds for
    transmission equipment in November 2001, the Corporation did not have any
    equipmentrelated grant programs in place. Due to its inexperience in this
    area, the Corporation contracted with PBS (which had staff with expertise
    in transmission technology) for assistance in developing and administering
    these programs.

    As a result, the first Digital Distribution Fund grants were not awarded
    until 9 months after the first digital appropriation was received by the
    Corporation in August 2001. With regard to the Digital Universal Service
    Fund, the administration contract between the Corporation and PBS and

    47Other contributing factors mentioned included weather-related problems
    that delayed construction and difficulties in obtaining the necessary
    level of nonfederal matching funds.

    48Specifically, the consultation process took 3 months for fiscal year
    2001 funds and 4 months for fiscal year 2002. The appropriations provision
    for both fiscal year 2002 and 2003 specified that the digital funds "be
    awarded as determined by the Corporation in consultation with public radio
    and television licensees or permittees, or their designated
    representatives." Pub. L. 107-116, 115 Stat. 477 (2002). Pub. L. 108-7,
    117 Stat. 11 (2003). A consultation requirement was not included in the
    2001 fiscal year appropriation. Pub. L. 106554, 114 Stat. 2763 (2000).

    the equipment contracts negotiated between PBS and 2 manufacturers for
    low-power transmission equipment were not finalized until 2 months before
    the May 2003 construction deadline. Only 15 of the 43 stations that were
    awarded a Digital Universal Service Fund grant received their equipment
    package by the May deadline.

    The Corporation also had difficulties distributing its fiscal year 2003
    digital appropriation of $48.4 million, of which $37.4 million was
    allocated for public television.49 Having received all of its 2003 funds
    by March 2003, the consultation panel process again took several months to
    develop recommendations for the use of these funds and obtain the approval
    of the Corporation's board. In July 2003, the panel recommended two phases
    of grant awards for these fiscal year 2003 funds, the first of which was
    to continue funding for licensees' digital transmission equipment. The
    application period for this first phase extended from August to October
    2003.

    Although 201 stations had filed for a 6-month extension to FCC's May 2003
    construction deadline, only 26 stations applied to the Corporation for a
    digital grant during this first phase. Of these 26 applicants, 23 stations
    received grants from the Corporation, totaling $7 million. None of the new
    grantees, however, received its funds or equipment package prior to the
    end of the 6-month extension period in November 2003. As of December 2003,
    $24 million of the Corporation's fiscal year 2003 digital
    appropriation-more than two-thirds of the total fiscal year 2003 amount
    for television-remained unobligated, with 126 stations operating under a
    second 6-month extension for meeting FCC's digital construction
    requirement.

    In a survey commissioned by the Corporation and PBS of licensees with
    stations that had not met the May 2003 deadline or previously applied for
    a Corporation grant, the most common response for why a station had not or
    was not planning to apply for this phase of funding was because they had
    been able to secure funding through other sources.50 Survey respondents
    suggested that they would consider applying for future grant rounds of the
    Digital Distribution Fund if it awarded funding for transmission equipment

    49The Corporation received an advance transfer of $7 million in December
    2002, and the remainder was received in March 2003. $11 million of the
    total $48.4 million for fiscal year 2003 was allocated for public radio.

    50The Corporation's survey universe was 140 stations, of which 95
    responded (68 percent).

    upgrades from low to full power, digital master control facilities that
    control broadcast management, and studio and production equipment to
    create digital content.

    Because many of these licensees were able to secure funding from other
    sources, funding priorities for these licensees and for those that met the
    May 2003 deadline had shifted from transmission equipment to other digital
    transition needs not included in the scope of the grant programs. In our
    survey, we, too, found that licensees' priorities for additional federal
    funding of the digital transition were in areas other than transmission
    equipment. Only 14 percent of the respondents indicated that digital
    transmission equipment was their top priority for additional federal
    funding and over half indicated that it was their lowest (see fig. 21).51
    Digital master control, digital content, digital production equipment, and
    digital operating costs were all named more frequently as the highest
    priority.

    51As of late January 2004, 233 PBS member stations were on the air with a
    digital signal. According to PBS, when the Corporation's digital grants
    that have been awarded are fully executed and the equipment is implemented
    and turned on, there will be more than 300 public television stations on
    the air in digital. As noted earlier, there is a total of about 350 public
    television stations.

    Note: N=140 licensees. Percentages have been rounded and do not equal 100
    percent.

    With $24 million of its fiscal year 2003 appropriation available for the
    second phase of grant awards, Corporation officials told us that they are
    developing new guidelines for Digital Distribution Fund grants. Although
    the Corporation intends to continue funding digital transmission equipment
    for the second phase of grant awards with its remaining fiscal year 2003
    digital funds, it will also fund digital master controls and digital
    translators

    and repeaters.52 At the time we concluded our audit work in February 2004,
    Corporation officials indicated that applications were due in March and
    that a digital review panel was scheduled to meet at the end of that month
    to review the applications. Corporation officials also indicated that the
    digital consultation panel would meet in early March to provide guidance
    on allocating the $49.7 million made available to the Corporation in
    fiscal year 2004 appropriations for the digital transition.

    System Infrastructure Improvements and Digital Content Identified as
    Important to Leveraging Benefits from the Digital Transition

    In addition to supporting licensees in constructing their digital
    transmission facilities, the Corporation and PBS have identified
    systemwide infrastructure improvements as important in maximizing the
    benefits of the digital transition. The development of digital content and
    production is also becoming more important as more public television
    stations become digital ready.

    Under the Communications Act, the Corporation is to assist in the
    establishment and development of an interconnection system to facilitate
    the distribution of public television service.53 The current
    interconnection system, which is managed by PBS under agreement with the
    Corporation, uses satellites to distribute PBS and other programming to
    stations and is scheduled for replacement by the time the current leases
    for satellite capacity expire in 2006. As proposed by the Corporation and
    PBS, a new system, called the "Next Generation Interconnection System,"
    would replace the current system with a digital one that distributes
    programming in real-time and nonreal time to licensees. Licensees can then
    store these programs for later broadcast, which in turn allows PBS to
    become more efficient by broadcasting these programs to licensees once
    instead of

    52This is consistent with a recommendation of the July 2003 consultation
    panel on the fiscal year 2003 appropriation. Similar to its analog
    counterpart, digital translators receive a signal on one channel, amplify
    the signal, and then transmit it on another channel. Translators are
    especially important to stations located in the western mountainous
    regions that need to transmit their signals over long distances in order
    to reach their viewers. Of the 4,900 translators in operation in the
    United States, 450 are assets of public broadcasting licensees. The cost
    of migrating these 450 translators from analog to digital is estimated at
    between $60 million and $70 million. FCC has initiated a proceeding on
    eligibility requirements to receive a digital translator license. See
    Amendment of Parts 73 and 74 of the Commission's Rules to Establish Rules
    for Digital Low Power Television, Television Translator, and Television
    Booster Stations, and To Amend Rules for Digital Class A Television
    Stations, 18 FCC Rcd 18365 (2003) (Notice of Proposed Rulemaking).

    5347 U.S.C. S:396(k)(10).

    multiple times. The Corporation and PBS have estimated that it will cost
    $177 million to replace the interconnection system. The Corporation has
    requested that the cost be covered by federal appropriations during fiscal
    years 2004 through 2006. The Corporation received an initial $10 million
    appropriation for fiscal year 2004 for this purpose.

    In addition, PBS is separately seeking funds from the Corporation for a
    project to provide enhancements to the new interconnection system. This
    effort, known as the Enhanced Interconnection Optimization Project, is
    designed to allow licensees and PBS to schedule and manage the digital
    broadcasting of public television programs through the use of automated
    channel operations and monitoring. According to PBS, this system will cost
    approximately $12 million to $15 million to implement at its facilities.
    PBS told us that approximately $8 million is still needed, half of which
    it is seeking from the Corporation. The individual stations will also need
    to implement the interconnection project at their ends. PBS has estimated
    that a typical station-side installation costs between $1 million and $1.2
    million. The Corporation's consultation panel for digital funds
    recommended in July 2003 that PBS receive $4.1 million for the project
    from the Corporation's fiscal year 2003 digital transition funds.

    While some licensees noted that this project has potential to bring about
    substantial savings and improved operations for licensees, others
    expressed concerns about increased maintenance costs, stranded investments
    in digital master control equipment bought before the project was
    announced, and a lack of detailed information to assess the costs and
    usefulness of the project. For example, in our survey, about 25 percent of
    the licensees responding said that they have already acquired some types
    of digital equipment (master control, production, or storage) that are not
    fully compatible with the project, which may limit the capabilities and
    usefulness of the project to them. New equipment may need to be acquired
    in order to obtain the full benefits of the project. In response to
    concerns about the potential incompatibility of some licensees' existing
    digital equipment with the project, the Corporation has conditioned the
    award of its $4.1 million grant to PBS on an independent review of the
    project.

    In addition to systemwide infrastructure improvements, the Corporation,
    licensees, and other public television stakeholders have also identified
    digital content as essential to ensure the success of public television's
    digital transition. The Corporation testified before the House Energy and
    Commerce Committee in July 2002 that digital content, along with digital
    equipment, is a primary element of the digital transition. Additionally, a

    working group-funded by the Corporation and comprised of Corporation and
    PBS officials, as well as public television licensees-highlighted this
    need in a 2003 report, which stated that the digital transition provides
    public television with an opportunity to reposition itself to carry out
    its mission if it is willing to create digital services that are "more
    responsive to the needs of our constituents and cheaper, simpler, smaller,
    and more convenient to use."54

    Noting that 2 years' advance time may be needed to plan, develop, and
    launch digital services, and that digital production costs are generally
    higher than the costs of creating analog programming, the Corporation has
    characterized the need for digital content and research as "even more
    pressing" due to the limited availability of past federal funding for the
    digital transition. Corporation officials told us that licensees and other
    national public television organizations, including the Corporation, are
    developing a systemwide strategic plan on the future of public television
    that includes the creation of digital content. As part of this planning,
    the Corporation is in discussions with PBS on the need to develop a new
    national programming plan to support digital content needs.

    Some Public Television Stakeholders Have Suggested Funding Alternatives
    for the Digital Transition

    Many public television stakeholders have indicated a need for additional
    federal funds to support the digital transition and fully utilize the
    potential of digital television. Several licensees in our survey, however,
    suggested changes to some of the Corporation's existing funding mechanisms
    to help manage such needs. Among the suggested changes were limiting the
    Corporation's digital grants to one licensee in a market served by
    multiple licensees; offering grants to support shared operations, such as
    digital master control equipment, among public television stations in the
    same market; and eliminating duplication of public television stations in
    markets served by multiple licensees. However, several licensees in
    markets with multiple stations believe that they provide valuable services
    and unique programming to their communities.

    In addition, some public television stakeholders have observed that
    Corporation funds should be repositioned in order to achieve the benefits

    54Digital Distribution Implementation Initiative, Sustaining the Mission:
    Television Strategic Investment Scenarios,
    http://technology360.org/DDII-Scenarios-Television-Fall03.htm (last
    accessed February 10, 2004).

    of the digital transition.55 According to these stakeholders, the
    Corporation should foster new collaborative services by supporting the
    provision of digital content favoring alternative distribution platforms
    such as the Internet over the traditional medium of over-air broadcasting.
    These services include interactive Web sites that provide audio and video
    content on subjects such as history, science, and literature. Unlike
    over-air broadcasting, interactive Web sites would allow people to access
    this content regardless of their location. Stakeholders have noted that
    such services would encourage collaboration of licensees without
    diminishing their local presence and that this approach may help public
    television strengthen its mission to provide high-quality noncommercial
    programming and services.

    Conclusion 	A long-standing issue for the pubic television community is
    how best to distribute the Corporation's funds among local station
    operations, national programming, and infrastructure support. Most
    licensees responding to our survey supported the existing statutory
    allocation of the Corporation's television funds between licensees and
    national programming and were generally satisfied with the Corporation's
    process for periodically reviewing the eligibility criteria for
    distributing funds through Community Service Grants. In addition, most
    licensees expressed their support for the Corporation's continued funding
    for PBS's National Program Service, which nearly all see as helping them
    meet their missions for providing quality children's and prime-time
    programming. As for local programming, most licensees indicated that the
    amount of local programming they produced was not sufficient to meet their
    communities' needs, largely due to their limited financial resources.

    The Corporation's approach for funding its Television Future Fund program
    is a concern for many licensees. As our survey shows, only 30 percent of
    respondents agreed with the Corporation's current approach of using funds
    designated for distribution among licensees to support Television Future
    Fund projects. The Corporation, as informed by counsel, contends that it
    has the authority to use these funds to support the Television Future Fund
    program. It is our view that the Corporation may not take a portion of the
    funds designated by the Congress for distribution

    55Digital Distribution Implementation Initiative, Sustaining the Mission:
    Television Strategic Investment Scenarios,
    http://technology360.org/DDII-Scenarios-Television-Fall03.htm (last
    accessed February 10, 2004).

    among public television licensees, pool them with System Support funds,
    and use them to make competitive grants only to applicants submitting
    project proposals acceptable to the Corporation after review and
    recommendation by an advisory panel. Although our legal analysis focused
    on the Television Future Fund program as it existed prior to the end of
    fiscal year 2003, we note that under the revised program, the Corporation
    is still aggregating the funds and using them for projects that benefit
    the entire system rather than giving the monies directly to the individual
    licensees. Moreover, it appears that the majority of the funds will be
    going to vendors rather than the stations. Accordingly, we continue to
    question whether the Corporation has the authority to utilize in this
    fashion the $10.1 million of the $18.3 million currently in the Television
    Future Fund account that came from funds designated for distribution among
    licensees.

    The Corporation's support for the digital transition is another area of
    concern. As shown by our survey, the priorities of most licensees in 2003
    shifted beyond the digital transmission equipment supported by Corporation
    grants. This contributed to a low application rate for the Corporation's
    digital grants in the latter half of that year and a carryover of $24
    million in digital transition funds into calendar year 2004. While the
    Corporation is broadening the scope of its digital transition grants in
    2004, the licensees' priorities for digital production equipment and
    digital content still are not included in the Corporation's digital
    transition funding.

    Recommendations for Executive Action

    We recommend that the Corporation for Public Broadcasting take the
    following two actions regarding the Television Future Fund and its digital
    transition funds:

    o  	Before making further Television Future Fund awards or expending any
    funds in the Television Future Fund account, the Corporation should
    request specific statutory authority to do so, if it intends to continue
    using funds that were designated for distribution among licensees. Should
    this specific authority not be obtained, the Corporation should return to
    the licensees such funds remaining in the Television Future Fund account
    that came from the funds designated for distribution among licensees.

    o  	The Corporation should broaden the scope of its digital transition
    funding support to include digital production equipment and digital
    content.

    Agency Comments 	We provided a draft of this report to the Corporation for
    Public Broadcasting and to the Public Broadcasting Service for their
    review and comments. The Corporation agreed with our recommendation to
    broaden the scope of its digital funding to include production equipment
    and content, consistent with congressional directives and station needs
    after consultation with licensees or their designated representatives. The
    Corporation stated that it recognizes that stations are at various stages
    in the conversion process and that all station needs are being given
    careful consideration in consultations on the distribution of fiscal year
    2004 digital transition funds. The Corporation did not agree with our
    recommendation that the Corporation should request specific statutory
    authority before making further Television Future Fund awards or expending
    any funds in the Television Future Fund account. The Corporation's
    comments include a legal memorandum from its outside counsel which
    concludes that the Television Future Fund is fully consistent with the
    Communications Act of 1934, as amended. For the most part, the legal
    memorandum raises the same arguments that we have addressed in our
    opinion. However, one argument raised for the first time involves the
    "doctrine of ratification." The Corporation cites to cases holding that
    when the Congress reenacts, without change, statutory terms that have been
    given a consistent judicial or administrative interpretation, the Congress
    has expressed an intention to adopt that interpretation. The Corporation
    uses this doctrine to support its contention that the Congress has
    consistently replenished funds designated for distribution among licensees
    knowing that a portion of these funds are being used for Future Fund
    projects. Thus, the Corporation contends that the Congress has, in
    essence, ratified by appropriation the Corporation's interpretation of the
    statute. However, as recognized by GAO opinions summarizing the test that
    courts have used to find ratification by appropriation, three factors
    generally must be present to conclude that the Congress, through the
    appropriations process, has ratified agency action. First, the agency
    takes the action pursuant to at least arguable authority; second, the
    Congress has specific knowledge of the facts; and third, the appropriation
    of funds clearly bestows the claimed authority. None of these factors is
    present here. The Corporation's comments and our response to points raised
    by its attached legal memorandum are included in appendix

    VII.

    The Public Broadcasting Service's comments are included in appendix VIII.
    Noting our finding that over half of the survey respondents indicated a
    need for changes in the process for selecting programs for the National
    Program Service, PBS stated that it will analyze its current mechanisms
    for

    generating program input from member stations and will seek counsel from
    the Content Policy Committee of its board on how best to improve its
    systems for securing member input. PBS also provided additional
    information to clarify the respective funding needs of the Enhanced
    Interconnection Optimization Project and the Next Generation
    Interconnection System.

    We also provided a draft of the report to FCC and have incorporated FCC's
    technical comments where appropriate.

    Matter for If the Congress supports the concept of using funds that were
    designated

    for distribution among licensees to finance the Television Future
    FundCongressional program, it should provide the Corporation with the
    authority to use the Consideration funds for this purpose.

    As agreed with your offices, unless you publicly announce the contents of
    this report earlier, we plan no further distribution of it until 30 days
    from the date of this letter. We will then send copies of this report to
    the appropriate congressional committees, the President and Chief
    Executive Officer of the Corporation for Public Broadcasting, the
    President and Chief Executive Officer of the Public Broadcasting Service,
    the Chairman of the Federal Communications Commission, and others who are
    interested. We also will make copies available to others who request them.
    In addition, the report will be available at no charge on the GAO Web site
    at http://www.gao.gov. If you or your staff have questions concerning this
    report, please contact me on (202) 512-2834 or at goldsteinm@gao.gov. Key
    contacts and major contributors to this report are listed in appendix IX.

    Mark L. Goldstein
    Director, Physical Infrastructure Issues

    Appendix I

    Scope and Methodology

    Our objectives were to review the Corporation's activities and obtain the
    views of public television station officials regarding: (1) the statutory
    allocations for federal funding of public television; (2) the distribution
    of funds by the Corporation through its Community Service Grant and
    Television Future Fund programs, including a legal analysis of whether the
    funding of the Television Future Fund program is consistent with the
    Corporation's underlying statutory authority; (3) the distribution of
    funds by the Corporation for PBS's National Program Service and for local
    programming; and (4) Corporation funding to assist public television
    stations in their transition to digital technologies and services. We also
    reviewed the statutory and regulatory requirements, system policies and
    guidance, and licensees' views on underwriting acknowledgments.

    To respond to these objectives, we gathered information from a variety of
    sources, including a survey of all public television licensees receiving
    funds from the Corporation for Public Broadcasting. To respond to the
    first and second objectives, we reviewed provisions of the Communications
    Act, as well as documents and records used by the Corporation to implement
    and administer programs supporting public television stations. We also
    interviewed officials of the Corporation, PBS, and the Association of
    Public Television Stations, a nonprofit organization whose members include
    nearly all of the licensees of public television stations.

    To respond to the third objective on Corporation funding for national
    programming, we reviewed provisions of the Communications Act and
    documentation on funding for national programming obtained from the
    Corporation, PBS, and the Independent Television Service, a nonprofit
    corporation that receives federal support from the Corporation for
    distribution to independent public television producers. We also
    interviewed officials from all of these organizations, the Association of
    Public Television Stations, and two additional distributors of national
    programming that do not receive funding from the Corporation-American
    Public Television and the National Educational Telecommunications
    Association.

    To respond to the fourth objective on assisting in the transition to
    digital technologies and services, we reviewed statutory provisions,
    documents, and records from the Corporation and PBS, which is under
    contract to the Corporation to administer the Corporation's digital grant
    programs. We also interviewed officials of the Corporation, PBS, the
    Association of Public Television Stations, and the National
    Telecommunications and Information Administration in the Department of
    Commerce that also

    Appendix I Scope and Methodology

    awards grant funds to public television stations for digital equipment
    costs. To further our understanding of public television's progress in the
    digital transition, we requested and received data from the FCC on its
    June 2003 survey of public television licensees that are PBS-affiliates in
    the top 100 television markets.

    For our objective on underwriting acknowledgments, we reviewed statutory
    and regulatory documents and interviewed officials of FCC, which enforces
    acknowledgment requirements, and obtained guidance provided by and
    interviewed officials of the primary national programming
    distributors-PBS, American Public Television, and the National Educational
    Telecommunications Association.

    We also reviewed the legal opinions of the Corporation's outside counsels
    as part of our legal analysis to determine whether the Corporation's
    approach to funding the Television Future Fund is consistent with the
    governing statute. Our legal review focused on the program as it existed
    prior to the end of fiscal year 2003.

    We responded to all of these objectives by conducting interviews with 16
    licensees of public television stations and deploying a Web-based survey
    of public television licensees. As the scope of our work was limited to an
    evaluation of the Corporation's activities, we only surveyed entities
    licensed by FCC to operate one or more public television stations that
    received funds from the Corporation as of mid-August 2003. We identified
    the population of public television licensees from the Public Broadcasting
    Directory published by the Corporation and verified this information with
    a database provided by the Association of Public Television Stations, as
    well as with FCC's database of public television licensees. This
    information included names, addresses, and other contact information of
    public television licensees, as well as licensee type and size. We
    acquired data on public television licensee market size and station
    revenues from an online Station Activities and Benchmarking Survey and
    Station Grant Making System, both developed by the Corporation and to
    which all recipients of Corporation grants contribute data. To assess the
    reliability of this licensee data, we reviewed these documents and
    discussed the data with knowledgeable agency officials. As a result, we
    determined that the data were sufficiently reliable for the purposes of
    this report. We surveyed 178 licensees and subsequently excluded the
    surveys of two licensees: (1) one licensee who did not meet the
    aforementioned criteria and (2) another licensee who holds two licenses,
    but who completed only one survey rather than two. Our resulting
    population consisted of 176 licensees.

    Appendix I Scope and Methodology

    To develop our survey, we interviewed officials at the Corporation, PBS,
    the Association of Public Television Stations, the Independent Television
    Service, American Public Television, the National Educational
    Telecommunications Association, and several licensees of public television
    stations. We also conducted an interview with an official of and obtained
    documents from Citizens for Independent Public Broadcasting, a national
    membership organization dedicated to addressing public broadcasting
    issues. We then conducted pretests with seven public television licensees
    to help further refine our questions, develop new questions, clarify any
    ambiguous portions of the survey, and identify any potentially biased
    questions. These pretests were conducted in person and by telephone with
    licensees of various types, sizes, and regional locations across the
    country.

    We began our Web-based survey on August 21, 2003, and included all useable
    responses received as of September 22, 2003. Log-in information to the Web
    survey was e-mailed to officials of public television licensees, which
    included general managers and presidents. We sent two follow-up e-mails,
    and after the survey was online for 3 weeks, we attempted to contact all
    those who had not logged into the survey. The Corporation and the
    Association of Public Television Stations coordinated with us to encourage
    station licensees to complete the survey. Of the population of 176 public
    television licenses, we received 149 complete surveys, for an overall
    response rate of 85 percent. However, the number of responses to
    individual questions may be fewer than 149, depending upon how many
    licensees were eligible to or chose to respond to a particular question.

    All completed surveys were reviewed, and we contacted respondents to
    obtain information where clarification was needed. Because the survey was
    made accessible to all public television licensees in the appropriate
    population, percentage estimates do not have sampling errors. The
    practical difficulties of conducting any survey may introduce other types
    of errors, commonly referred to as nonsampling errors. For example,
    differences in how a particular question is interpreted, the sources of
    information available to respondents, or the types of people who do not
    respond can introduce unwanted variability into the survey results. We
    included steps in both the data collection and data analysis stages for
    the purpose of minimizing such nonsampling errors. In addition to
    pretesting the questions with members of the population, we performed
    computer analyses to identify inconsistencies and other indications of
    error. We also conducted analyses on available licensee characteristics to
    evaluate the possibility that the respondents might differ from the
    nonrespondents. Although there is some evidence of differences, these are
    not large enough

    Appendix I Scope and Methodology

    to provide a basis for adjusting survey responses. Distributions by type
    of licensee (community, local authority, state, university) and numbers of
    stations operated by licensees were not significantly different. Licensees
    operating large stations were somewhat more likely to respond and those
    operating smaller stations were somewhat less likely to respond, but the
    differences were not significant.

    The following data is used only as background information in the report;
    therefore, the data was not verified for data reliability purposes: (1)
    the digital television cost estimate developed by the Corporation and PBS;
    (2) the sources and percentages of public television revenue provided by
    the Corporation; (3) the number of Television Future Fund and digital
    television grants awarded by category; (4) and the distribution of funds
    by the Corporation for programming.

    Our review was performed from April 2003 through February 2004 in
    accordance with generally accepted government auditing standards.

    Appendix II

    Components of the Corporation's Community Service Grants

    On the basis of statutory provisions and the receipt of an annual federal
    appropriation from the Congress, the Corporation for Public Broadcasting
    makes an annual Community Service Grant award to each eligible licensee of
    one or more noncommercial educational public television station(s). Figure
    22 summarizes the factors upon which funds are awarded through each of the
    three component grants of a Community Service Grant.

    Appendix II Components of the Corporation's Community Service Grants

                          [This page left blank intentionally]

    Appendix II Components of the Corporation's Community Service Grants

    Appendix II Components of the Corporation's Community Service Grants

    aNine other eligibility criteria for the base grant are specified by the
    Corporation, including licensees' compliance with regulations on equal
    opportunity employment, Internal Revenue Service requirements, provisions
    of the Communications Act, and regulations on the use and control of donor
    names and lists.

    Appendix III

    Legality of the Corporation for Public Broadcasting's Television Future
    Fund Program

    The Corporation for Public Broadcasting (the Corporation) established the
    Television Future Fund in 1995 for the purpose of investing in projects
    that would reduce costs, facilitate collaboration, and increase revenue
    across the public television system. The Television Future Fund is funded,
    in part, by monies designated by the Congress to be distributed among
    public television licensees. As part of our review of the Corporation, we
    were asked to determine the legality of this funding practice.
    Specifically, the issue is whether the Corporation may use funds
    designated by the Congress for distribution among public television
    licensees to support a competitive grant program, the Television Future
    Fund program. As explained more fully below, the Corporation's funding and
    distribution of grants under the Television Future Fund program are not in
    accord with the underlying statutory authority under which the Corporation
    operates.1

    Background   The Congress established the Corporation in 1967 as a
    nonprofit corporation to facilitate the development of public radio and
    television broadcasting. 47 U.S.C. S:396. To ensure insulation from
    government control or influence over the expenditure of federal funds, the
    Congress provides funds directly to the Corporation. Although not a
    federal agency, the Corporation receives an annual appropriation from the
    Congress, which is its primary source of funding and is deposited into the
    Public Broadcasting Fund. The 2004 fiscal year appropriation was $380
    million.2 In turn, the Corporation supports local television and radio
    stations, programming, and improvements to the public broadcasting system
    as a whole. According to the Corporation, its support represents
    approximately 15 percent of public broadcasting's revenues. Other support
    for the public broadcasting system comes from such sources as membership,
    businesses, college and universities, and state and local governments.

    1This opinion analyzes the Television Future Fund program as it operated
    prior to the end of fiscal year 2003. The Corporation has recently
    reactivated funding of the Television Future Fund under procedures
    different than those previously in effect. This opinion does not analyze
    the new procedures. The Corporation also has a Radio Future Fund program,
    as well as other competitive grant programs. The Corporation refers to the
    Television Future Fund program as a "selective" grant program. However, we
    use the more common terminology "competitive" grant program to refer to
    the Television Future Fund program.

    2Fiscal Year 2004 advance appropriation of $380 million was provided in
    Pub. L. No. 107-116, 115 Stat. 2177 (2002).

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    The Corporation funds more than 350 locally operated public television
    stations across the country.3 Prior to the establishment of the Television
    Future Fund, the Corporation distributed available monies among licensees
    of public television stations through the Community Service Grant
    mechanism.4 Community Service Grants (CSG) are unrestricted general
    operating grants provided by the Corporation directly to qualified public
    television stations according to a mathematical formula.5 As required by
    47 U.S.C. S:396(k)(6)(B), the Corporation established eligibility criteria
    and a formula for distributing these funds and has periodically reviewed
    them in consultation with the public television station community. All
    qualified licensees receive a CSG, although the amount varies. A
    full-power station operating under a noncommercial, educational Federal
    Communications Commission (FCC) license qualifies for a CSG if it meets
    minimum requirements including a minimum level of nonfederal financial
    support, a minimum broadcast schedule, and bookkeeping and programming
    standards.6

    3The Corporation provides grants to 176 licensees of public television
    stations. The licensees represent 356 stations.

    4Funds available under 47 U.S.C. S:396(k)(6)(B) are generally referred to
    as CSG funds.

    5The statute requires that funds from the CSG pool be distributed in two
    parts. 47 U.S.C. S:396(k)(6)(B). First, a basic grant must be provided to
    "each licensee and permittee of a public television station that is on the
    air." Id. Second, the remaining fund must be distributed in accordance
    with eligibility criteria and on the basis of a formula. Id. Since the
    late 1960s the Corporation has provided a $10,000 basic grant to each
    licensee. The Corporation then provides a base grant and an incentive
    grant to qualified licensees. The base grant is a percentage of the total
    appropriation and is set by the CSG Review Process. Three factors may
    alter the base grant portion a licensee may receive. Stations exceeding a
    certain revenue level will not receive base grants (only basic grants).
    Stations in overlap markets share a single base grant on a percentage of
    market basis. Waivers for special circumstances (such as mergers) may
    alter the base portion. For fiscal year 2003, the base grant totaled
    approximately $401,500 for each eligible licensee. The incentive grant is
    a match based on a percentage of the amount of nonfederal financial
    support that a station raised. (This is also subject to adjustment based
    on station revenues, overlap market policies (including program
    differentiation), and special circumstances). For fiscal year 2003, the
    incentive grant was calculated by multiplying the Grantee's fiscal year
    2001 nonfederal financial support by .078242.

    6For example, the Corporation requires stations to certify that they are
    in compliance with the statutory requirements involving: meetings which
    must be open to the public (47 U.S.C. S:396(k)(4)); financial information
    which must be made available to the public (47 U.S.C. S:396(k)(5)); and
    community advisory boards which must be established by certain stations
    (47 U.S.C. S:396(k)(8)). The statute also requires the station grant
    recipients to certify to the Corporation that they have complied with
    equal employment opportunity related requirements (47 U.S.C.
    S:396(k)(11)).

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    The Corporation established the Television Future Fund in 1995. At that
    time, the Corporation had growing concerns about declining federal
    support, as well as diminished revenues from other sources. The
    Corporation saw a need to establish and maintain a pool of money,
    aggregating funds from two different sources, to fund projects to address
    systemwide concerns. According to the 1995 Public Television Issues and
    Policies Task Force, the Future Fund was established to

    o    provide seed capital or short-term financing for projects that can
    significantly reduce costs, increase efficiency, provide economies of
    scale, or generate incremental gains in membership, underwriting, or other
    sources of income;

    o    fund station proposals to explore opportunities to achieve new
    operating efficiencies through collaborative efforts, partnerships, joint
    operating agreements, consolidations, and other arrangements resulting in
    significant annual savings; and

    o    fund extraordinary efforts and new initiatives to raise nonfederal
    income, in anticipation of reduced federal funding, with a goal of
    stimulating an increase in annual nonfederal revenue.

    According to Corporation officials, the Corporation had previously funded
    similar projects on a smaller scale through the use of system support
    funds.7 However, since, under the statutory allocation formula, these
    funds are relatively limited, the Corporation felt a larger pool of funds
    was

    7Specifically, under the statutory allocation formula:

    "6 percent of such amounts [appropriated to the Corporation and available
    for allocation for any fiscal year] shall be available for expenses
    incurred by the Corporation for capital costs relating to
    telecommunications satellites, the payment of programming royalties and
    other fees, the cost of interconnection facilities and operations . . .
    and grants which the Corporation may make for assistance to stations that
    broadcast programs in languages other than English or for assistance in
    the provision of affordable training programs for employees at public
    broadcast stations, and if the available funding level permits, for
    projects and activities that will enhance public broadcasting." 47 U.S.C.
    S:396(k)(3)(A)(i)(II). (Emphasis added.)

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    needed.8 Accordingly, the Corporation's board, after what it terms
    extensive consultation with the public television station community,
    approved the funding of the Television Future Fund using monies from the
    system support and the CSG pools.9

    The Corporation views Television Future Fund awards as a special category
    of grant that is neither exclusively a CSG grant nor a System Support
    expenditure. The Corporation notes that while CSGs typically are utilized
    only as determined by an individual station recipient for its own benefit,
    Television Future Fund grants can be used as determined or directed by
    more than one station for the benefit of multiple stations and,
    potentially, for the benefit of public television as a whole. Under
    procedures in place prior to the end of fiscal year 2003, the Corporation
    solicited interest in Future Fund grants by issuing a Request for Proposal
    (RFP) and would evaluate applicants for grants on the basis of RFP funding
    criteria.10 Not all applicants received funding.

    Since its creation and through May 2003, the Corporation has allocated a
    total of $51 million to the Television Future Fund. Of this amount, $24.5
    million is from CSG funds-in other words, from funds that are available
    for distribution among licensees of public television stations.
    Approximately $41.3 million has been awarded through the Television Future
    Fund program.11 Prior to the end of fiscal year 2003, the Corporation

    8The Future Fund grew out of a recommendation by the TV Issues & Policies
    Task Force. In explaining the need for the Fund, the task force stated:
    "We saw a clear need for a significant pool of money to invest in
    systemwide efforts to reduce costs and increase net revenues.
    Unfortunately, there was no way to create a pool of any significant size
    solely with CPB discretionary funds [system support funds]." Status Report
    from the Public Television Issues and Policies Task Force, September 12,
    1995.

    9According to the Corporation, supporters of the Television Future Fund
    greatly outnumbered opponents. The Corporation states that 30 to 40
    stations considered to be leaders in public broadcasting expressed strong
    support, and agreement existed throughout the station community at large.
    The Corporation contends that active opposition to the Television Future
    Fund was confined to fewer than a dozen station licensees.

    10The Corporation utilized a review panel, made up of representatives of
    diverse types of public television stations, to assist in reviewing and
    recommending which projects should be awarded Future Fund grants.

    11In September 2002, the Corporation temporarily suspended the awarding of
    any new Television Future Fund grants and set aside fiscal year 2003
    funding pending the outcome of a review. The Television Future Fund grant
    program was recently reactivated. Fiscal year 2004 funding was added to
    the Television Future Fund account.

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    has made 204 grant awards, of which 39 percent of the grants have gone to
    stations, 30 percent have gone to stations paired with consultants, and 31
    percent have gone to third-party awardees. The nature of the projects
    funded with Television Future Fund grants has varied greatly and included
    Web site experiments and marketing projects. The grant amounts have varied
    from a few thousand dollars to hundreds of thousands of dollars.

    Issues   From its inception, the Corporation always envisioned that monies
    from two sources-the System Support and CSG pools-would support the
    Television Future Fund program. We are not aware of any concerns that have
    been raised about the Corporation's use of System Support funds to support
    the Television Future Fund. Because the statute provides that System
    Support monies may be used, if available funding levels permit, for
    projects and activities that enhance public broadcasting, the Corporation
    is clearly permitted to so use such funds. 47 U.S.C.
    S:396(k)(3)(A)(i)(II). The primary question concerning the legality of the
    Television Future Fund program involves the use of CSG funds.12
    Specifically the issue is whether the Corporation may use CSG funds to
    support the Television Future Fund, a competitive grant program that
    awards grants on the basis of selective, project-specific criteria. As
    explained more fully below, we have determined that the statute does not
    authorize the Corporation to use these funds in this manner.

    The Statutory Framework   A statutory allocation formula governs how the
    Corporation distributes appropriated funds to support public television
    stations.13 47 U.S.C. S:396(k). Under this formula, after administrative
    costs and System Support funds are allocated (about 11 percent of the
    annual appropriation), the

    12We met on several occasions with Corporation officials to discuss these
    issues. The Corporation provided us with three memorandums responding to
    questions raised. Additionally, the Corporation provided us with
    supporting documentation, including a 1995 legal opinion prepared by its
    then outside counsel, as well as the views of its current outside counsel,
    to help us understand their perspective on this issue.

    13The Corporation receives a lump sum appropriation. See, e.g. P.L. 108-7,
    117 Stat. 11 (2003). Typically, the appropriation provides that the
    amounts available must be used "within limitations" specified by the
    Communications Act of 1934. The appropriation act may also specify some
    deviations from the formula. For example, Public Law 108-7 required: "That
    in addition to the funds provided under this heading in Public Law
    106-554, $183,000 shall be available for administrative costs for fiscal
    year 2003, notwithstanding section 396(k)(3)(A) of the Public Broadcasting
    Act."

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    remaining funds are divided between television and radio, with 75 percent
    earmarked for television, and 25 percent for radio. 47 U.S.C.
    S:396(k)(3)(A). Of the monies reserved for television, "75 percent of such
    amounts shall be available for distribution among the licensees and
    permittees of public television stations pursuant to paragraph (6)(B)." 47
    U.S.C. S:396(k)(3)(A)(ii)(I). For these "(3)(A)(ii)(I) funds," paragraph
    (6)(B) specifically provides that the Corporation "shall make a basic
    grant . . . to each licensee and permittee of a public television station
    that is on the air." 47 U.S.C. S:396(k)(6)(B). Paragraph (6)(B) then
    provides:

    "The balance of the portion reserved for television stations . . . shall
    be distributed to licensees and permittees of such stations in accordance
    with eligibility criteria (which the Corporation shall review periodically
    in consultation with public . . . television licensees or permittees, or
    their designated representatives) that promote the public interest in
    public broadcasting, and on the basis of a formula designed to-

    i. provide for the financial needs and requirements of stations in
    relation to the communities and audiences such stations undertake to
    serve; [and]

    ii. maintain existing, and stimulate new, sources of nonfederal financial
    support for stations by providing incentives for increases in such support
    . . . ." 47 U.S.C. S:396(k)(6)(B). (Emphasis added.)

    The next paragraph of the statute further provides that funds distributed
    through the above mechanism "may be used at the discretion of the
    recipient for purposes related primarily to the production or acquisition
    of programming." 47 U.S.C. S:396(k)(7) (Emphasis added.)

    Analysis   In our view, subsection 396(k)(6)(B) does not authorize the
    Corporation to establish a competitive grant program using project-focused
    criteria funded in part with CSG funds. Although we often defer to an
    agency's interpretation of a statute it is charged to administer,14 in
    this instance, the Corporation's interpretation of its authority under the
    statute is neither consistent with the statute's language nor the
    Congress's policy choice favoring local, not Corporation, control of the
    expenditure of CSG funds.

    14As a general proposition, an agency's interpretation of a statute it is
    charged to administer is entitled to deference. U.S. v. Mead Corp., 533
    U.S. 218 (2001); Chevron U.S.A., Inc. v. Natural Resources Defense
    Council, Inc., 467 U.S. 837, 842-843 (1984); Skidmore v. Swift & Co., 323
    U.S. 134 (1944). Deference is not without limits. Deference is not given
    to an agency interpretation that is inconsistent with the language and
    objectives of a statute. Chevron U.S.A., Inc. at 844.

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    Moreover, as implemented by the Corporation, some Television Future Fund
    grants have been awarded to nonstation entities. This is in direct
    contravention of paragraph (k)(6)(B) directions that these funds be
    distributed to eligible licensees and permittees of public television
    stations.

    The difference between our view and that of the Corporation focuses on
    whether the "eligibility criteria" the Corporation may adopt includes
    project-focused criteria that would govern the competitive award of funds
    for a particular project or whether the "eligibility criteria" the
    Corporation may adopt includes only station-based criteria that
    distinguishes among public television licensees on the basis of such
    factors as financial needs, audience satisfaction, or fundraising
    effectiveness. According to Corporation officials, the term "eligibility
    criteria" is broad enough to allow them, in consultation with the station
    community, to adopt not only station "qualification" criteria but also
    "selective" project criteria. We disagree. There are, in our view, several
    reasons why the Congress did not intend the Corporation's authority to
    establish "eligibility criteria," and the formula under which CSG funds
    are disbursed, to mean that the Corporation may take a portion of CSG
    funds, pool them with System Support funds, and use them to make
    competitive grants only to applicants submitting project proposals
    acceptable to the Corporation after review and recommendation by an
    advisory panel. First, the language of subsection 396(k)(6)(B) does not
    readily support such a reading. Second, the statutory construct governing
    the Corporation's distribution of funds indicates that the Congress
    specifically identified a limited source of funding for
    Corporation-approved project-specific grants, which by necessary
    implication is the exclusive source of funding for such grants. And third,
    the Television Future Fund program runs contrary to the Congress's
    expressed policy favoring local, not Corporation, control of the
    expenditure of these discretionary funds. These reasons for our
    conclusions are discussed more fully below.

    First, with respect to the statutory language, section 396(k) provides an
    allocation formula directing the Corporation, after deducting about 11
    percent of amounts appropriated to the Public Broadcasting Fund for
    administrative and System Support expenses, to distribute 75 percent of
    the remaining balance to public television stations. 47 U.S.C.
    S:396(k)(3)(A). The statute further provides that 75 percent of the 75
    percent reserved for public television stations "shall be available for
    distribution among the licensees and permittees of public television
    stations pursuant to paragraph (6)(B)." Paragraph (6)(B), in turn,
    provides two directions to the Corporation. It must first "make a basic
    grant . . . to each licensee and

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    permittee of a public television station that is on the air." 47 U.S.C.
    S:396(k)(6)(B). Second, paragraph (6)(B) directs the balance of the
    portion reserved for public television stations to "be distributed to
    licensees and permittees of [public television] stations in accordance
    with eligibility criteria . . . that promote the public interest in public
    broadcasting." Id. In addition, the distribution of such balance shall be
    "on the basis of a formula designed to" honor station-focused
    considerations such as their "financial needs and requirements . . . in
    relation to the communities and audiences they serve or the level of, and
    increases in, nonfederal financial support received by the stations. The
    point of paragraph (6)(B) is to direct the Corporation's distribution of
    CSG funds to the licensees and permittees of public television stations.
    While paragraph (6)(B) provides only that the "eligibility criteria" are
    to "promote the public interest in public broadcasting," the Congress
    nonetheless directed the distribution of such funds on the basis of a
    formula with a pronounced focus on station-based considerations. Hence, in
    the context of paragraph (6)(B)'s distribution mechanism, we believe the
    phrase "eligibility criteria . . . that promote the public interest in
    public broadcasting" can best be read to mean criteria focusing on the
    eligibility of licensees and permittees of public television stations, not
    project eligibility criteria.15

    An additional and perhaps more glaring defect in the Corporation's
    interpretation of "eligibility criteria" is that it changes the basic
    nature, and control over the expenditure of the grant funds. To read
    paragraph (6)(B), as the Corporation does-as authorizing competitive
    grants for specific projects-introduces an element into the CSG funds
    allocation that the Congress did not appear to intend. We have two reasons
    for this view. First, as pointed out above, the language of paragraph
    (6)(B) makes no reference to funding specific projects. By contrast, the
    Congress has provided the Corporation with express authority to fund
    projects using System Support funds. 47 U.S.C. S:396(k)(3)(A)(i)(II). In
    1988, the Congress amended the system support provision and specifically
    authorized the Corporation to use such funds "if the available funding
    level permits, for projects and

    15The legislative history supports this view. The House Report
    accompanying the legislation that added the distribution mechanism
    provided:

    "The balance of the amount reserved for television stations would be
    distributed among licensees . . . of such stations as are eligible to
    receive additional grants under criteria established by the Corporation in
    consultation with stations. These additional grants would be apportioned
    among eligible stations . . . . "H. Rep. No. 245, 94th Cong., 1st Sess.
    22, See, also, S. Rep. No. 447, 94th Cong., 1st Sess. 11-12 (1975),
    reprinted in 1975 U.S.C.C.A.N. 2006, 2217. (Emphasis added).

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    activities that will enhance public broadcasting." Public
    Telecommunications Act of 1988, Pub. L. No. 100-626, 102 Stat. 3207
    (1988). As stated above, by identifying a specific source of funds to be
    used for project-based grants, the legislative language suggests that
    other funds would not be used for the same purpose. The legislative
    history supports the view that the Congress anticipated that these funds
    would be used for systemwide projects that benefit the public broadcasting
    community.16

    Second, the statute and its legislative history reflect a clear division
    of roles vis-`a-vis the Corporation and licensees and permittees of public
    television stations. Under the statutory scheme, it is the Corporation
    that is responsible for distributing funds to the licensees and it is the
    recipients of these funds that decide how they are to be used. From the
    time that the Congress first established the Corporation, one of the
    Corporation's functions was to distribute funds to licensees of public
    television stations who, in their sole discretion, decide how to use
    them.17 In 1975, when the Congress established the subsection (6)(B)
    statutory distribution mechanism, the Congress, in another subsection,
    also specified that the discretion over how funds are to be used rests
    with the stations receiving the funds. Specifically, as amended, the
    statute provides that "[t]he funds distributed . . . may be used at the
    discretion of the recipient for purposes related primarily to the
    production or acquisition of programming." 47 U.S.C. S:396(k)(7). Not
    surprisingly, the legislative history of the distribution mechanism is
    replete with references to the funds flowing "directly" to the

    16When this language was added, the Senate Report explained that:

    "Funds remaining after payment of the costs set forth in the statute
    should be spent on services that public radio and television stations
    cannot efficiently perform themselves. CPB currently uses funds allocated
    to system support for professional development, training, research, and
    promotion of public radio and television programming among other things.
    The Committee supports these activities but also recognizes that CPB, in
    consultation with, the public broadcasting community, is in a position to
    determine which of these services public broadcasting needs. The Committee
    does not intend that the CPB must perform these activities itself, but
    should support activities within the public broadcasting community and
    their national organizations where that is an efficient way to proceed."
    S. Rep. No. 444, 100th Cong., 2nd Sess. 27 (1988).

    17The 1967 House Report provided that one of the purposes of the
    Corporation was "to make grants to local educational broadcasting entities
    so that they may in their sole discretion produce or otherwise acquire
    appropriate programs and obtain the personnel required to make their own
    production staffs adequate to fulfill local audience program needs. . . ."
    H. Rep. No. 572, 90th Cong., 1st Sess. 16, reprinted in 1967 U.S.C.C.A.N.
    1799, 1806 (1967).

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    licensees and the licensees having "discretion" over the use of the
    funds.18 The Corporation's creation of a competitive grant program where
    it decides not only who receives a grant but also more importantly the
    specific purposes for which the grant funds can be used alters the
    fundamental balance of discretion over the use of the funds.19 Under the
    Corporation's process, in effect prior to the end of fiscal year 2003, the
    Request for Proposal Submission Guidelines and Application (RFP)
    establishes the funding initiatives that guide awards for project
    support.20 However, the Corporation reserves the right to fund "otherwise
    outstanding proposals based on their individual merits, though they may
    not necessarily respond to these priorities but demonstrate a clear
    response to Fund objectives."

    18When the distribution mechanism was first added, the Senate Report
    explained that one of the purposes of the legislation was "[t]o assure
    that a portion of Federal funds is distributed directly to local
    noncommercial educational . . . television broadcast stations." Sen. Rep.
    No. 447, 94th Cong., 1st Sess. 1, reprinted in 1975 U.S.C.C.A.N. 2206. A
    1978 House Report noted, "A significant aspect of that support has been
    the funds CPB passes through to local stations for their discretionary use
    for local or national purposes." H. Rep. No. 1178, 95th Cong., 2nd Sess.
    8, reprinted in 1978 U.S.C.C.A.N. 5345, 5352. The Senate Report in
    explaining amendments to subsection (k) stated that "Section 396(k)
    otherwise continues the provisions of existing law regarding the
    distribution of discretionary funds (Community Service Grants) to public .
    . . television stations." S. Rep. No. 858, 95th Cong., 2nd Sess. 31
    (1978). A 1988 Senate Report stated that "In the early 1970's, the CPB
    began distributing a substantial percentage of its funds to stations in
    the form of grants (now called Community Service Grants (CSGs)) to be used
    as the stations deemed appropriate. In 1981, Congress codified the CPB's
    practice of giving stations unrestricted CSGs." S. Rep. No. 444, 100th
    Cong., 2nd Sess. 18 (1988). (Emphasis added).

    19Prior to 1995, all section (6)(B) funds were allocated to stations
    through the CSG mechanism, with one exception. For one year, in the early
    1990's, the Corporation used CSG funds to make education grants. When the
    Corporation allocated the education grant funds, there was a stipulation
    that the recipients use the funds for education projects. However, the
    recipient, and not the Corporation, selected the education project.

    20The Corporation did not issue an RFP for fiscal year 2003 because it was
    reviewing the Television Future Fund operations and it temporarily
    suspended accepting Television Future Fund proposals during that review.
    The Corporation recently reactivated the Future Fund grant program under
    different procedures. According to Corporation officials under the new
    process, the Corporation will be issuing more directed RFPs for more
    large-scale Television Future Fund projects, instead of open calls for
    proposals.

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    Fiscal Year 2002 RFP.21 By setting forth what recipients could spend funds
    on, the Corporation transferred discretionary authority from each
    individual licensee to itself.

    Faced with the statute's clear division of roles, the Corporation's
    outside counsel attempts to justify first, the Corporation's use of CSG
    funds to make project-specific grants and second, that the Television
    Future Funds grants are not primarily designated for programming.22 In our
    view, the outside counsel's conclusion that the Corporation, in
    consultation with the stations, "may" spend funds on projects that will be
    financially beneficial to the stations and that will stimulate nonfederal
    funding is based on two unsupported assumptions. First, the outside
    counsel reads paragraph (k)(6)(B) as providing the Corporation with
    authority to "spend" CSG funds. Second, the outside counsel contends that
    the goals of the formula design are in essence mandates on how the CSG
    funds are to be used. We see no support for either proposition. Paragraph
    (k)(6)(B) directs the Corporation on how CSG funds are to be distributed
    not on how they are to be spent. The goals of the formula design also
    provide guidance on what criteria the Corporation should consider in
    distributing funds, but does not constrain a recipient's use of CSG funds.
    Moreover, although the Corporation's outside counsel reads paragraph
    (k)(7) in terms of its permissive direction, this does not recognize that
    the subsection emphasizes the discretion of the recipient to use CSG funds
    for purposes related primarily to programming, i.e., for purposes chosen
    by the recipient. (Emphasis added).

    Finally, the Corporation has implemented the Television Future Fund to
    make it open to "all public television stations and station consortia, and
    to

    21The Corporation also reserved the discretion to not fund a project even
    if the proposal meets all of the funding criteria. According to the
    Corporation, it is possible that a complete and valid application
    proposing a project that is consistent with Future Fund eligibility
    criteria might not receive a grant. Specifically, the Corporation states:

    "In an effort to put limited funds to the best use, evaluators accord
    higher priority to projects that are replicable or otherwise likely to
    result in more widespread benefit to public broadcasting. In addition, a
    grant may be denied where a proposal consistent on its face with Future
    Fund goals involves an unacceptably high level of risk or produces
    benefits too insignificant to justify the cost involved." Memorandum from
    Donna Gregg, Vice President, General Counsel and Corporate Secretary to
    Mindi Weisenbloom, GAO Senior Attorney, July 11, 2003.

    22Letter from Stephen A. Weiswasser, Covington & Burling, to Donna Gregg,
    Vice President, General Counsel, and Corporate Secretary, dated July 9,
    2003.

    Appendix III Legality of the Corporation for Public Broadcasting's Television Future Fund Program

    any person, foundation, institution, partnership, corporation, or other
    business whose project is expressly intended to benefit public
    television." Fiscal Year 2002 RFP. Thus, some CSG funds have been awarded
    to entities other than licensees or permittees of public television
    stations.23 According to the Corporation, so long as the purpose of the
    grants is to benefit public television stations, the award of grants to
    consultants or other third-party entities is consistent with the statute.
    Since consultants and stations often work together to generate project
    proposals that are reviewed by a panel representing a diverse group of
    stations, the Corporation's outside counsel concludes that the statutory
    purposes are being fulfilled, regardless of whose name appears as payee on
    the Corporation check. Letter from Stephen A. Weiswasser, July 9, 2003.
    The difficulty with this approach is that paragraph (6)(B) directs the
    Corporation to distribute the balance of funds reserved for television
    stations, after deduction of the basic grant, "to licensees of such
    stations." 47 U.S.C. S:396(k)(3)(A)(ii)(I) (Seventy-five percent of 75
    percent remaining after deduction of administrative and system support
    funds "shall be available for distribution among the licensees and
    permittees of public television stations pursuant to paragraph (6)(B).")
    Accordingly, in our view, the Corporation may not distribute CSG funds to
    a nonstation entity (other than one acting as the agent for a station or
    group of stations).

    Conclusion   For the reasons noted above, we find that the Corporation's
    funding and distribution of the Television Future Fund program is not
    consistent with the underlying statutory authority under which the
    Corporation operates.

    23For example, in fiscal year 2001, a consultant group received a $259,500
    Television Future Fund grant to determine how the public television
    industry is perceived within a larger and ever more competitive
    environment and to understand the present and changing attitudes of
    current and potential individual financial supporters of PBS member
    stations. In another example, in fiscal year 2001, two consultants receive
    a $90,000 grant to create and implement a communications plan to
    disseminate Future Fund project information throughout the public
    television community. Memorandum from Robert Coonrod, Corporation's
    President and CEO to the Corporation's board of directors on Future Fund
    Project Report dated November 29, 2001.

    Appendix IV

    Digital Transition Regulatory Issues of Concern to Public Television

    Licensees and others in the public television community maintain that the
    ability of licensees to provide a full range of digital services depends,
    in part, on regulatory issues related to digital carriage by cable and
    satellite system providers. Many in the public television community
    believe that how mandatory carriage obligations are applied to their
    digital signal is at the heart of public television's future. Cable
    systems are required to carry local noncommercial educational television
    stations based upon a cable system's number of usable activated channels.1
    Satellite carriers are required to carry all nonduplicative noncommercial
    educational television stations in markets where they provide
    local-into-local service.2 These mandatory carriage requirements are often
    referred to as "must carry" obligations.

    There are two key issues on how to apply the mandatory carriage
    obligations in the digital arena that are of importance to the public
    television community. The first is whether the "must carry" requirements
    apply to both the digital and analog signal during the transition period.
    In other words, would a cable provider be required to carry both the
    analog and digital signal until the analog spectrum is returned. In a
    January 2001 Order concerning the carriage of digital television broadcast
    signals by cable operators, FCC tentatively concluded, based on the
    existing record evidence, that during the transition, a dual must-carry
    requirement would burden the cable operator's First Amendment interests
    more than is necessary to further the government's interests. In this
    regard, the record was found insufficient to demonstrate the degree of
    harm that broadcasters, including public television stations, would suffer
    without carriage of both signals.3 In order to ensure that it had
    sufficient evidence to fully evaluate this issue, FCC issued a Further
    Notice of Proposed Rulemaking.

    The second key issue involves the specific content of a digital television
    signal that is subject to mandatory carriage. Most analog broadcast
    stations have only one video broadcast product. However, digital
    television will

    1See, 47 U.S.C. S:535(b) and (e); 47 C.F.R. S:76.56(a).

    2See, 47 U.S.C. S:338 Implementation of the Satellite Home Viewer
    Improvement Act of 1999: Broadcast Signal Carriage Issues; Retransmission
    Consent Issues, 16 FCC Rcd 1918, 1954 (2000) ("DBS Broadcast Carriage
    Report & Order").

    3Carriage of Digital Television Broadcast Signals, First Report and Order
    and Further Notice of Proposed Rulemaking, 16 FCC Rcd 2598 (2001)
    ("Digital Must Carry Order and FNPR").

    Appendix IV
    Digital Transition Regulatory Issues of
    Concern to Public Television

    operate on a much more flexible basis that could allow for multiple
    streams, or "multicasting," of standard definition digital television
    programs. Under the statute, a cable operator is required to carry in its
    entirety the "primary video" of the commercial broadcast station.4
    According to FCC, largely parallel provisions are contained in the statute
    relating to carriage of noncommercial stations.5 Although FCC recognized
    that the term "primary video" was susceptible to different
    interpretations, FCC concluded that, based on the available record, the
    term "primary video" means a single programming stream and other
    program-related content. In its Further Notice of Proposed Rulemaking, FCC
    sought comment on the appropriate parameters for "program-related" in the
    digital context. FCC also raised questions concerning the applicability of
    the rules and policies it adopted in the above cited Order to satellite
    carriers. Public television stations and other broadcasters have asked FCC
    to reconsider its ruling, and a decision on this request is pending.

    As our own survey of licensees shows, there is a very strong consensus
    among licensees that the lack of dual carriage of analog and digital
    signals by cable companies, as well as a lack of cable carriage of the
    entire digital over the air stream such as multicast offerings are seen as
    factors impeding public television's digital transition. Additionally,
    there is a strong consensus that lack of carriage of local stations'
    digital signals by direct broadcast satellite (e.g., DISH Network,
    DIRECTV), would produce similarly negative results (see fig. 23).

    4The cable operator is also required to carry the "accompanying audio" and
    line 21 closed caption transmission for each station. Additionally, the
    operator must carry "to the extent technically feasible, program-related
    material carried in the vertical blanking interval or on subcarriers. 47
    U.S.C. S:534(b)(3).

    5See, 47 U.S.C. S:535(g)(1).

    Appendix IV
    Digital Transition Regulatory Issues of
    Concern to Public Television

    Note: Percentages reflect the licensees responding "yes" to our questions
    whether each issue would impede their transition to digital. N=147
    licensees for "Lack of dual cable carriage"; N=148 licensees for "Lack of
    multicast cable carriage;" and N=148 for "Lack of satellite carriage."

    However, opponents of these mandatory carriage obligations, including the
    cable television industry, have maintained that in the absence of dual
    cable carriage, broadcasters, including public television, will not be
    negatively affected. The cable television industry also pointed out that
    some cable television providers have managed the need for dual carriage by
    voluntarily entering into a number of agreements with local public
    television stations to carry their digital signals in addition to their
    analog signals during the transition period. Additionally, they have noted
    that adoption of mandatory carriage requirements for multicasting would
    impose unconstitutional

    Appendix IV
    Digital Transition Regulatory Issues of
    Concern to Public Television

    freedom of speech restrictions and a governmental limitation on cable
    television providers' right to decide what services they provide.6

    Absent changes to FCC's ruling on these issues, some in the public
    television community have taken the position that they "must convince"
    cable and satellite providers that the digital services offered by public
    television are valuable additions for their customers and, therefore,
    should be carried by them.

    6See for example Reply Comments of the National Cable and
    Telecommunications Association: In the Matter of Second Periodic Review of
    the Commission's Rules and Policies Affecting the Conversion to Digital
    Television, MB Docket No. 03-15, (Washington D.C.: May 21, 2003). See also
    National Cable and Telecommunications Association, Ex Parte Letter to the
    Federal Communications Commission Regarding CS Docket 98-120, (Washington
    D.C.: July 9, 2002).

    Appendix V

    Underwriting Acknowledgments on Public Television

    One of the distinguishing features of public television is, by definition,
    its noncommercial character. Unlike commercial television stations, public
    television stations are prohibited from airing advertisements. However,
    public television stations are permitted to acknowledge station support1
    and, without interrupting regular programming, may acknowledge
    underwriters on the air.2 Dating back to the initial decision to reserve
    spectrum for noncommercial educational broadcast television, FCC rejected
    proposals to allow noncommercial educational licensees the ability to
    generate revenues through advertising sales and frequency sharing with
    commercial broadcasters. In 1981, as part of a "major" reevaluation of the
    noncommercial educational broadcast service, FCC reaffirmed its rejection
    of advertising on public television, concluding that advertiser-supported
    programming of any kind could harm the service. FCC's 1981 policy
    statement on the nature of public broadcasting states that the
    Commission's interest in creating a noncommercial service in 1951 was to
    remove the programming decisions of public broadcasters from the normal
    kinds of market pressures faced by commercial broadcasters. FCC noted,
    however, that acknowledgments of funders are "proper" and possibly
    necessary to ensure continued funding from such sources.3

    In 1981, the Communications Act was amended to authorize licensees the
    ability to offer services, facilities, and products in exchange for
    remuneration, provided that nonfederal funds are used to subsidize such
    activities and that such activities would not interfere with the provision
    of public telecommunications services.4 In addition, the amendments
    included a provision establishing a "Temporary Commission on Alternative
    Financing for Public Telecommunications" to identify funding options for

    1Under separate requirements related to sponsorship identification,
    broadcasters must "fully and fairly disclose the true identity of all
    program sponsors" where specific program material is sponsored. The
    sponsorship identification requirement applies to all broadcasters who air
    specifically sponsored program material. In the case of noncommercial
    educational stations, that requirement may be satisfied through properly
    worded underwriting acknowledgments that identify the sponsor or sponsors.

    2As required by law and FCC rules, the scheduling of any announcements and
    acknowledgments may not interrupt regular programming. See, 47 U.S.C.
    S:399a(b), 47 C.F.R. S:73.621(e).

    3See Commission Policy Concerning the Noncommercial Nature of Educational
    Broadcasting, Second Report and Order, FCC 81-204, 86 FCC 2d 141, 141-43
    (1981).

    4The Public Broadcasting Amendments Act of 1981, Pub. L. No. 97-35,
    S:1221-34, 95 Stat. 725, 736 (1981).

    Appendix V Underwriting Acknowledgments on Public Television

    public broadcasting, and to conduct demonstrations of limited advertising
    for the purpose of "reduc[ing] the uncertainty about the advantages and
    disadvantages accompanying public broadcast station's use of limited
    commercial advertising or expanded underwriting credits." In its 1983
    Report to the Congress, the Temporary Commission concluded that potential
    revenues from advertising were limited in scope and that the avoidance of
    significant risks to public broadcasting could not be ensured. In
    addition, it recommended that the Congress continue to provide federal
    funding for public broadcasting until or unless adequate alternative
    financing becomes available.5

    Under current law, the Communications Act defines a "noncommercial
    educational broadcast station" and "public broadcast station" as a
    television or radio broadcast station that under the rules and regulations
    of the Commission in effect on November 2, 1978, is eligible to be
    licensed as a station that is "owned and operated by a public agency or
    nonprofit private foundation, corporation or association" or "is owned and
    operated by a municipality and which transmits only noncommercial programs
    for educational purposes."6 For our purposes here, the act defines
    "advertisements" as any message or other programming material that is
    broadcast or otherwise transmitted "in exchange for any remuneration" and
    is intended to "promote any service, facility, or product" of for-profit
    entities. As noted above, the act permits public broadcasting stations to
    provide facilities and services for remuneration so long as those uses do
    not interfere with stations' provision of public telecommunications
    services; the act also prohibits stations from making their facilities
    "available to any person for the broadcasting of any advertisement."7

    Under FCC rules and policies, noncommercial educational stations have the
    discretion to air announcements acknowledging station support.8 A
    station's financial contributors may receive on-air acknowledgements for

    5Temporary Commission on Alternative Financing for Public
    Telecommunications, Report to the Congress (October 1, 1983).

    647 U.S.C. S:397(6).

    747 U.S.C. S:399b(a) and (b).

    8As noted above, noncommercial broadcasters may satisfy the requirement
    that they disclose the true identity of all program sponsors where
    specific program material is sponsored through properly worded
    underwriting acknowledgments that identify the sponsor or sponsors.

    Appendix V Underwriting Acknowledgments on Public Television

    identification purposes only.9 Such acknowledgments may not promote the
    contributors' products, services, or business, and may not contain
    comparative or qualitative descriptions, price information, calls to
    action, or inducements to buy, sell, rent, or lease. No limitation,
    however, was adopted on the length of acknowledgments.10 Recognizing that
    it may be difficult to distinguish between language that "promotes" and
    language that merely "identifies" an underwriter, broadcasters must make
    "reasonable good faith judgments" to exclude language or visual elements
    in their acknowledgments that promote the contributors' products,
    services, or business. Consistent with the identification of underwriters,
    FCC has determined that acknowledgments may include, in addition to the
    underwriter's name, the following identifying information:

    o  logo-grams or slogans which identify and do not promote,

    o  location information and telephone numbers,

    o  value neutral descriptions of a product line or service, and/or

    o  brand and trade names and product or service listings.

    According to FCC, enforcement primarily occurs through self-policing by
    licensees of public television stations and also by the Commission's
    response to complaints. For the period from January 2000 through early
    February 2004, FCC had 43 complaint cases. Thirteen of the complaints were
    denied or dismissed, 17 complaints resulted in admonishments or cautions,
    and 2 resulted in notices of apparent liability. Eleven others were under
    investigation.

    The statutory and regulatory provisions on underwriting acknowledgments
    are supplemented by guidelines and policies developed by PBS, by other
    national distributors of public television programming, and by licensees
    themselves. For example, PBS guidelines govern how underwriters of PBS

    9See Commission Policy Concerning the Noncommercial Nature of Educational
    Broadcasting Stations, Public Notice (1986), republished 7 FCC Rcd 827
    (1992).

    10Although there is no limitation on the length of acknowledgments, the
    Commission has stated, the longer announcements are, the more likely they
    are to be promotional, and licensees should avoid placing them with such
    frequency so as to constitute "commercial clutter." See Board of Education
    of New York (WNYE-TV), 7 FCC Rcd 6864, 6865 (MMB 1992) and Commission
    Policy Concerning the Noncommercial Nature of Educational Broadcasting, 90
    FCC 2d 895, 902-03 (1982).

    Appendix V Underwriting Acknowledgments on Public Television

    distributed programs may be identified on air. The acceptance of program
    funding from third parties, the guidelines state, are intended to ensure
    that editorial control of programming remains in the hands of program
    producers, that funding arrangements will not create the perception that
    editorial control has been exercised by someone other than the producer,
    and that the noncommercial character of public broadcasting is protected
    and preserved. PBS guidelines also specify that the maximum duration for
    all underwriter acknowledgments may not exceed 60 seconds and generally
    that the maximum duration for a single underwriter not exceed 15 seconds.
    Other national distributors of public television programming, such as
    American Public Television and the National Educational Telecommunications
    Association, also have guidelines with similar acknowledgment length
    limitations. The PBS Board adopted an exception to its guidelines in
    February 2003. As modified, the maximum duration for one underwriter may
    not exceed 30 seconds within a 60-second maximum interval for all
    acknowledgments. This applies only to underwriters that contribute $2.5
    million or more per year for the production of PBS's prime time
    programming and the NewsHour with Jim Lehrer.

    In our survey of licensees, we asked several questions related to the
    airing of 30-second underwriting acknowledgments by licensees themselves
    and not those aired as part of PBS programming. The percentage of
    licensees that said they are currently airing 30-second acknowledgments
    (41 percent) was equal to the percentage of licensees that said that they
    neither air, nor plan to air, 30-second underwriting acknowledgments. An
    additional 9 percent of the licensees responded that they intend to air
    30-second acknowledgments in the future. Figure 24 illustrates the
    responses of licensees to this question.

    Appendix V Underwriting Acknowledgments on Public Television

    Note: N=149 licensees. Percentages have been rounded and do not equal 100
    percent.

    Of the respondents who told us that they are currently airing 30-second
    acknowledgments, the earliest date provided for the first airing of such
    acknowledgments was 1982.

    We also asked licensees who currently air or plan to air 30-second
    acknowledgments to prioritize the reasons for such decisions. For both
    groups of licensees, the highest priority identified was to attract new
    underwriters-56 percent of those that already air 30-second
    acknowledgments and 69 percent of those that plan to air 30-second
    acknowledgments. For both groups, maintaining revenues from existing
    underwriters was the second most frequently identified top priority. Only
    5 percent of those that currently air such acknowledgments and 8 percent
    of those that plan to air such acknowledgments identified increasing
    revenues from existing underwriters as their highest priority. These
    responses are illustrated in figure 25.

    Appendix V Underwriting Acknowledgments on Public Television

    Note: N=57 licensees that "Air" and N=136 licensees that "Plan to Air"
    30-second underwriting acknowledgments. Percentages have been rounded.

    In response to our question as to whether licensees would favor or oppose
    a federal requirement that limits the length of underwriting
    acknowledgments, 71 percent said they oppose a requirement, and 22 percent
    said they favor a federal requirement (see fig. 26).

    Appendix V Underwriting Acknowledgments on Public Television

    Note: N=147 licensees. Percentages have been rounded and do not equal 100
    percent.

    Licensees' commentary on underwriting acknowledgements addressed both the
    use of longer acknowledgments and views on a federal requirement limiting
    their length. A few of the comments provided to us were critical of the
    use of 30-second acknowledgments and supportive of a federal requirement.
    Specifically, some expressed concern that longer underwriting
    acknowledgments threaten the noncommercial nature of public television.
    One licensee noted, for example, that the length of acknowledgments and
    the images of underwriters' messages directly affect viewers' experience
    watching public television. Another licensee said longer acknowledgments
    undermine viewer perceptions of public television as a unique
    noncommercial service. However, many more comments were provided
    suggesting that the length of acknowledgments is a matter that should be
    left to the discretion of licensees, not the federal government, based on
    local judgments and response of local viewers. In particular, some
    licensees indicated that flexibility is needed with respect

    Appendix V Underwriting Acknowledgments on Public Television

    to the length of acknowledgments in order to attract underwriting support
    and to further the mission of public television.

    Appendix VI

                         Survey of Public Television Licensees

    Our survey of public television licensees consisted of objective questions
    and the option to include narrative comments in each section of the
    survey. The aggregate results of objective questions are presented below.
    We received completed surveys from 149 out of 176 licensees-an overall
    response rate of 85 percent. The number of respondents answering
    individual questions may be lower, however, depending on the number of
    licensees who were eligible to answer a particular question or who chose
    to do so. Each question indicates the number of licensees responding to
    it.

    Q1. Do you think the current 75% / 25% allocation of the federal funds
    supporting public television should remain the same or be changed?

    Allocation should    Allocation should be
    remain the same                     changed  Don't know            Number
                 (percent)               (percent)   (percent)    of respondents
                       61.5                    33.8          4.7              148

    Q2. Please provide the reasons for your answer and, if you think the
    allocation should be changed, describe what the allocation should be.

    Writing Number comment of (percent) respondents

    77.2 149

    Q3. Were you aware of the consultation process that was conducted in 2001
    to review the eligibility criteria for Community Service Grants?

    I was not associated with a station during the 2001 consultation

    Yes No process Don't know Number (percent) (percent) (percent) (percent) of respondents

    83.8 10.8 4.1 1.4 148

    Q4. During the 2001 consultation process, to what extent did CPB solicit
    input from your station(s) on the Community Service Grant eligibility
    criteria?

     To a great  To a moderate  To a little
         extent         extent    extent     Not at all  Don't know          Number
     (percent)     (percent)     (percent)   (percent)    (percent)  of respondents
            24.6           32.5         26.2         8.7         7.9             126

                                      Appendix VI
                         Survey of Public Television Licensees

    Q5. During the 2001 consultation process, to what extent did your
    station(s) provide CPB with input on the Community Service Grant
    eligibility criteria?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              20.0           30.4         27.2        12.8         9.6          125

    Q6. To what extent do you think CPB considered input from your station(s)
    on the Community Service Grant eligibility criteria?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              18.6           36.1         25.8         8.2        11.3           97

    Q7. Overall, are you basically satisfied with the process used by CPB to
    periodically review the eligibility criteria for Community Service Grants
    or do you think changes are needed?

         Basically
    satisfied, no  Only minor   Substantial
    changes are    changes are  changes are                   Number
              needed       needed       needed  Don't know           of
         (percent)      (percent)    (percent)   (percent)  respondents
                 48.0         28.8         20.8         2.4          125

    Q8. Please explain what changes you think are needed.

    Writing Number comment of (percent) respondents

    41.6 149

    Q9. To what extent do you know about the outcomes or findings of CPB
    Television Future Fund projects?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              16.9           40.5         37.2         5.4         0.0          148

                                      Appendix VI
                         Survey of Public Television Licensees

    Q10. How have you learned about the outcomes or findings of CPB Television
                                 Future Fund projects?

                                         Number

    Yes No Don't know of (percent) (percent) (percent) respondents

    a. From CPB (e.g. website,
    mailings, emails) 84.8 12.9 2.3 132

    b. From the Association of
    Public Television Stations 69.0 25.4 5.6 126

    c. From the Public
    Broadcasting Service 43.9 44.7 11.4 123

    d. From a public broadcasting
    publication (e.g. Current) 82.9 14.7 2.3 129

    e. From a public broadcasting
    meeting or conference 89.2 8.5 2.3 130

    f. From Future Fund project
    grantees (e.g. other stations,
    consultants) 71.5 24.4 4.1 123

    g. Other (please describe
    below) 47.5 45.0 7.5 40

    Q10a. Please describe other ways, if any, you have learned about outcomes
    or findings of CPB Television Future Fund projects.

    Writing Number comment of (percent) respondents

    27.5 149

    Q11. Have the outcomes or findings of any CPB Television Future Fund
    project provided your station(s) with practical methods for either
    reducing costs or enhancing revenues?

    Yes No Don't know Number (percent) (percent) (percent) of respondents

    a. Reducing Costs 36.4 50.3 13.3 143

    b. Enhancing
    Revenues 37.1 49.7 13.3 143

    Q11a. If you answered yes to either above, please provide examples or the
    name(s) of one or more project(s).

    Writing Number comment of (percent) respondents

    44.3 149

                                      Appendix VI
                         Survey of Public Television Licensees

    Q12. Do you agree with CPB's current approach of using the funds allocated
    for distribution among public television licensees to fund the Television
    Future Fund or would you prefer an alternate approach, such as using funds
    from a different source?

    I agree with CPB's current approach of using funds allocated for distribution among public television licensees to fund the Television Future Fund (in addition to System Support funds). (percent)

                                                              I prefer using only
                                                              the System Support
                                                                   account as an
                                                               alternate approach
                                                                   of funding the
                                                               Television Future
                                                                           Fund.
                                                                        (percent)

    I prefer using other sources of funds as an alternate approach of funding the Television Future Fund (please describe below). (percent)

    CPB should

    not fund the

    Television Number Future Fund. Don't know of (percent) (percent) respondents

    29.7 27.0 15.5 21.6 6.1 148

    Q13. Please provide the reasons for your answer to Question 12.

    Writing Number comment of (percent) respondents

    72.5 149

    Q14. To what extent do the children's programs offered by PBS's National
    Program Service help you to meet the mission of your station(s)?

                                     My station is

    To a great  To a moderate  To a little                          not a member       Number
        extent         extent    extent     Not at all  Don't know        of PBS           of
    (percent)     (percent)     (percent)   (percent)    (percent)     (percent)  respondents
           86.6            8.7          1.3         0.7         0.0           2.7          149

    Q15. Please provide the reasons for your answer to Question 14.

    Writing Number comment of (percent) respondents

    84.6 149

    Q16. To what extent do the prime-time programs offered by PBS's National
    Program Service help you to meet the mission of your station(s)?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              60.4           36.1          3.5         0.0         0.0          144

                                      Appendix VI
                         Survey of Public Television Licensees

    Q17. Please provide the reasons for your answer to Question 16.

    Writing Number comment of (percent) respondents

    83.2 149

    Q18. To what extent do the children's programs offered by PBS's National
    Program Service help you to build local underwriting and membership
    support?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              22.9           38.9         34.0         2.8         1.4          144

    Q19. Please provide the reasons for your answer to Question 18.

    Writing Number comment of (percent) respondents

    80.5 149

    Q20. To what extent do the prime-time programs offered by PBS's National
    Program Service help you to build local underwriting and membership
    support?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              47.9           43.1          9.0         0.0         0.0          144

    Q21. Please provide the reasons for your answer to Question 20.

    Writing Number comment of (percent) respondents

    79.2 149

    Q22. Do you believe that changes are needed to the processes involved in
    selecting programming for PBS's National Program Service?

                                              Number
          Yes            No  Don't know           of
    (percent)  (percent)   (percent)  respondents
          58.0          22.4        19.6          143

                                      Appendix VI
                         Survey of Public Television Licensees

    Q23. Please provide your comments on any program selection issues that are
    of concern to you.

    Writing Number comment of (percent) respondents

    74.5 149

    Q24. Should CPB continue to provide direct funding to support the PBS
    National Program Service (as it exists today)?

    Yes (percent)

    No (percent)

    Don't know (percent)

                                                                           Number
                                                                              of
                                                                      respondents

    72.2 18.8 9.0 144 Q25. Please provide the reasons for your answer to
    Question 24.

    Writing

    comment (percent)

                                                                           Number
                                                                              of
                                                                      respondents

    75.2 149 Q26. Is the amount of local programming that you produce
    sufficient to meet the needs of your community?

                      Yes, the amount of local No, the amount of local
    programming is sufficient to meet programming is not sufficient to                   Number
          the needs of our community. meet the needs of our community.  Don't know           of
                                                   (percent) (percent)   (percent)  respondents
                                                              18.2 79.1         2.7          148

    Q27. Please provide the reasons for your answer to Question 26.

    Writing Number comment of (percent) respondents

    93.3 149

    Q28. In addition to CPB's current statutory authority to support the
    production of national programming, should CPB have explicit statutory
    authority to award station grants for the production of local programming?

    Yes No Don't know Number (percent) (percent) (percent) of respondents

                                   53.0 39.6 7.4 149

    Q29. Assuming CPB's statutory authority to award station grants for local
    programming would require the use of funds that currently support national
    programming, would you still favor this authority?

    Yes No Don't know Number (percent) (percent) (percent) of respondents

                                   59.5 30.4 10.1 79

                                      Appendix VI
                         Survey of Public Television Licensees

    Q30. Please provide the reasons for your answer to Question 29.

    Writing Number comment of (percent) respondents

    56.4 149

    Q31. In addition to or in conjunction with television broadcasting, do you
    currently provide each of the following local services to your community?

                                         Number

    Yes No Don't know of (percent) (percent) (percent) respondents

    a. Services to support pre-school through 12th grade
    education 94.6 5.4 0.0 149

    b. Services to support higher education 88.6 11.4 0.0 149

    c. Services to support workforce training, professional
    development, and/or continuing education 84.5 15.5 0.0 148

    d. Television program-related outreach (e.g., additional
    program-related material on station's own website,
    sponsoring workshops and discussion groups about
    programs, community partnerships, PBS toolkits) 97.3 2.7 0.0 149

    e. Services to support local, state, and/or federal
    government agencies (e.g. National Weather Service,
    Homeland Security) 77.0 22.3 0.7 148

    f. Sponsorship of local community events 93.9 6.1 0.0 147

    g. Other (please describe below) 80.3 15.2 4.5 66

    Q31a. Please describe other services, if any, you provide to your
    community in addition to or in conjunction with television broadcasting.

    Writing Number comment of (percent) respondents

    52.3 149

    Q32. What types of services does (at least one of) your station(s)
    currently provide, or plan to provide after transitioning to digital?

                                     Don't provide

    Currently Plan to and don't plan Number provide provide to provide Don't know of (percent) (percent) (percent) (percent) respondents

    a. A high-definition channel 51.4 39.2 3.4 6.1 148

    b. A standard definition channel 60.1 37.1 1.4 1.4 143

    c. Multiple channels (i.e. "multicasting") 34.7 61.9 2.0 1.4 147

    d. Data broadcasting (i.e. "datacasting") 10.3 82.9 1.4 5.5 146

    e. Other (please describe below) 10.9 40.0 0.0 49.1 55

                                      Appendix VI
                         Survey of Public Television Licensees

    Q32a. Please describe other services, if any, you plan to offer.

    Writing Number comment of (percent) respondents

    30.2 149

    Q33. Do you currently provide, or are you likely to provide after
    transitioning to digital, revenue-generating ancillary and supplementary
    non-broadcast services to nonprofit entities?

    Yes (percent)

    No (percent)

    Don't know (percent)

                                                                           Number
                                                                              of
                                                                      respondents

    50.7 10.8 38.5 148

    Q34. Do you currently provide, or are you likely to provide after
    transitioning to digital, revenue-generating ancillary and supplementary
    non-broadcast services to for-profit entities?

    Yes (percent)

    No (percent)

    Don't know (percent)

                                                                           Number
                                                                              of
                                                                      respondents

    38.3 16.1 45.6 149 Q35. Were you aware of the consultation process
    conducted by CPB on the allocation of fiscal year 2003 digital television
    funding?

    Yes (percent)

    No (percent)

    Don't know (percent)

                                                                           Number
                                                                              of
                                                                      respondents

    89.3 6.7 4.0 149 Q36. To what extent did CPB solicit input from your
    station(s) on the allocation of fiscal year 2003 digital television
    funding?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              28.8           28.8         28.8        10.1         3.6          139

    Q37. To what extent did your station(s) provide CPB with input on the allocation
                    of fiscal year 2003 digital television funding?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              16.3           30.4         31.1        16.3         5.9          135

                                      Appendix VI
                         Survey of Public Television Licensees

     Q38. To what extent do you think CPB considered input from your station(s) on
             the allocation of fiscal year 2003 digital television funding?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              26.2           30.8         20.6         8.4        14.0          107

    Q39. Overall, are you basically satisfied with the consultation process used by
              CPB to allocate fiscal year 2003 digital television funding?

    Basically satisfied,  Only minor   Substantial
          no changes are     changes are  changes are
                     needed       needed       needed  Don't know          Number
                  (percent)    (percent)    (percent)   (percent)  of respondents
                        61.9         13.4         11.9        12.7             134

    Q40. Please explain what changes you think are needed.

    Writing Number comment of (percent) respondents

    25.5 149

    Q41. How would you currently prioritize the use of any additional federal
    funding to support your station(s) during the digital transition?

                                         Number

    % Ranking 1 % Ranking 2 % Ranking 3 % Ranking 4 % Ranking 5 of (percent) (percent) (percent) (percent) (percent) respondents

    a. Digital content 22.1 24.3 22.1 20.7 10.7 140

    b. Digital transmission
    equipment 14.3 5.7 7.9 20.0 52.1 140

    c. Digital production
    equipment 19.3 27.9 25.7 21.4 5.7 140

    d. Digital operating costs
    (i.e. energy costs) 16.4 19.3 25.7 17.1 21.4 140

    e. Digital master
    control/content
    management automation 27.9 22.9 18.6 20.7 10.0 140

    Q42. Is your digital master control equipment fully compatible with the
    EIOP (for all of your stations)?

                No, not fully  No, not fully
                 compatible,   compatible,
                      but our        and our
                capabilities    capabilities    Don't have
                     won't be        will be  digital master
    Yes, fully     materially     materially         control                   Number
    compatible       affected       affected    equipment     Don't know           of
    (percent)       (percent)      (percent)       (percent)   (percent)  respondents
           18.2           22.3           13.5            28.4        17.6          148

                                      Appendix VI
                         Survey of Public Television Licensees

    Q43. Is your digital production equipment fully compatible with the EIOP
    (for all of your stations)?

                  No, not fully  No, not fully
                   compatible,    compatible,
                        but our        and our
                  capabilities   capabilities   Don't have
                       won't be        will be     digital
      Yes, fully     materially   materially    production                   Number
      compatible       affected       affected  equipment   Don't know           of
      (percent)       (percent)      (percent)  (percent)    (percent)  respondents
              9.6           16.4           10.3        43.2        20.5          146

    Q44. Is your digital storage equipment fully compatible with the EIOP (for
    all of your stations)?

                No, not fully  No, not fully
                 compatible,     compatible,
                      but our        and our
                capabilities    capabilities
                     won't be        will be    Don't have
    Yes, fully     materially     materially  digital storage                   Number
    compatible       affected       affected     equipment     Don't know           of
    (percent)       (percent)      (percent)        (percent)   (percent)  respondents
           14.9           23.0           17.6             24.3        20.3          148

    Q45. Please use the box below to describe any other comments on the Next
    Generation Interconnection System or the Enhanced Interconnection
    Optimization Project.

    Writing Number comment of (percent) respondents

    52.3 149

    Q46. To what extent will completion of the digital transition improve the
    ability of your station(s) to provide local services to your community?

    To a great  To a moderate  To a little                               Number
           extent         extent    extent     Not at all  Don't know           of
    (percent)     (percent)     (percent)   (percent)    (percent)  respondents
              58.4           26.8          7.4         2.7         4.7          149

    Q47. Please describe how the ability of your station(s) to provide local
    services will or will not improve with the digital transition.

    Writing Number comment of (percent) respondents

    87.2 149

                                      Appendix VI
                         Survey of Public Television Licensees

     Q48. Could any of the following digital carriage issues impede your station's
                 future if not resolved during the digital transition?

                                         Number

    Yes No Don't know of (percent) (percent) (percent) respondents

    a. Lack of dual cable carriage of
    analog and digital signals during the
    transition 91.2 8.2 0.7 147

    b. Lack of cable carriage of the
    entire digital over-the-air stream (i.e.
    HDTV and multicast offerings) 98.0 2.0 0.0 148

    c. Lack of cable carriage of multiple digital public television stations
    in a single market 60.4 35.4 4.2 144

    d. Lack of carriage of local stations'
    digital signals by direct broadcast
    satellite (e.g. Dish Network,
    DirecTV) 94.6 4.1 1.4 148

    e. Other (please specify below) 66.7 3.7 29.6 27

    Q48a. Please list other digital carriage issues, if any, that will impede
    your station's future if not resolved during the digital transition.

    Writing Number comment of (percent) respondents

    29.5 149

    Q49. Aside from acknowledgements included as part of PBS's National
    Program Service, do you currently run or plan to run 30-second underwriter
    acknowledgements on your station(s)?

                                 No, I do not run and

    Yes, I currently run  Yes, I plan to run  do not plan to run
               30-second           30-second           30-second
             underwriter         underwriter         underwriter                   Number
    acknowledgements      acknowledgements    acknowledgments     Don't know           of
               (percent)           (percent)           (percent)   (percent)  respondents
                     40.9                 9.4                40.9         8.7          149

    Q50. In what year did you begin to run 30-second underwriter
    acknowledgements? (Enter a 4 digit number only. Letters and symbols will
    be deleted.)

    Number of

                        Mean Median Minimum Maximum respondents

                                 1998 1999 1982 2003 60

    Appendix VI
    Survey of Public Television Licensees

         Q51. How did you prioritize your reasons for deciding to run 30-second
                             underwriter acknowledgements?

                                         Number

    % Ranking 1 % Ranking 2 % Ranking 3 of (percent) (percent) (percent) respondents

    a. To maintain
    revenues from
    existing
    underwriters 38.6 21.1 40.4 57

    b. To increase
    revenues from
    existing
    underwriters 5.3 54.4 40.4 57

    c. To attract
    new
    underwriters 56.1 24.6 19.3 57

    Q52. How would you prioritize your reasons for your plans to run 30-second
                             underwriter acknowledgements?

                                         Number

    % Ranking 1 % Ranking 2 % Ranking 3 of (percent) (percent) (percent) respondents

    a. To maintain
    revenues from
    existing
    underwriters 23.1 23.1 53.8 13

    b. To increase
    revenues from
    existing
    underwriters 7.7 46.2 46.2 13

    c. To attract new
    underwriters 69.2 30.8 0.0 13

     Q53. Would you favor or oppose a federal requirement that limits the length of
                             underwriter acknowledgements?

               Favor a federal    Oppose a federal
    requirement that limits    requirement that
                 the length of  limits the length of
                   underwriter           underwriter
              acknowledgements  acknowledgements      Don't know          Number
                     (percent)             (percent)  (percent)   of respondents
                           22.4                  70.7         6.8             147

    Q54. Please provide the reasons for your answer to Question 53.

    Writing Number comment of (percent) respondents

    87.2 149

                                      Appendix VI
                         Survey of Public Television Licensees

    Q55. If there are other issues that you would like to raise, or if you
    would like for GAO staff to be in contact with you to discuss in greater
    detail issues included in this survey, please use the space below to
    identify those issues and/or provide your contact information.

    Writing Number comment of (percent) respondents

    35.6 149

    Appendix VII

    Comments from the Corporation for Public Broadcasting

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 1.

    Appendix VII
    Comments from the Corporation for Public
    Bro asta idc ng

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 2.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 3.

    Appendix VII
    Comments from the Corporation for Public
    Bro asta idc ng

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 4.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 5.

                                     See comment 6.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 7.

                                     See comment 8.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                     See comment 9.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                    See comment 10.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                    See comment 11.

                                    See comment 12.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                            See comment 13. See comment 14.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

                                      Appendix VII
                        Comments from the Corporation for Public
                                      Broadcasting

    The following are GAO's comments on the Corporation for Public
    Broadcasting's letter dated March 12, 2004.

    GAO Comments 1.

    2.

    3.

    Our legal opinion on this issue remains unchanged. See our comments below
    on the attached legal memorandum from Covington and Burling. The
    Corporation notes that its ability to support projects designed to improve
    the system as a whole could decrease if it had to depend only on system
    support funds. We recognize the Corporation's concern. However, we
    continue to believe that this is a matter that should be addressed to the
    Congress.

    The point of the cited paragraph of our report is limited to historical
    background and is not a characterization of congressional commitment to
    public television. To restate, when the Public Broadcasting Act of 1967
    was passed, annual congressional appropriations were seen as a temporary
    measure pending the development and adoption of a longterm financing plan
    for public broadcasting. Absent the development of such a plan, the
    Congress has in fact continued to support public broadcasting with annual
    appropriations at the levels indicated in figure 3. We agree with the
    Corporation that when the Congress deferred the development of a long-term
    financing plan at the time the 1967 act was passed, it did not intend that
    federal funding for the Corporation would be discontinued. Congressional
    committee reports accompanying the 1967 legislation and subsequent
    reauthorization legislation suggest the need for ongoing federal funding
    to enable the Corporation to fulfill its mission.

    We do not agree with the Corporation that our report implies that its
    policy decisions should be made on the basis of our survey of licensees.
    Although we recognize that the views of licensees are, by statute and in
    practice, central to the making of policy decisions by the Corporation,
    the survey served as only one source of evidence for our review. We
    determined that it was important to ascertain the views of licensees
    because we believe they are integral to the discussion of the statutory
    framework for federal support of public television and the Corporation's
    funding programs and processes. The findings, conclusions, and
    recommendations in this report are based on several methodologies we
    employed to review the Corporation's activities in support of public
    television (as described in app. I) including, but not limited to, the
    survey of public television licensees.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    4. 	We are not taking a position on the desirability or efficacy of the
    goals of the Television Future Fund. Rather, our opinion rests on the
    Corporation's legal authority to use section 396(k)(6)(B) funds for this
    purpose. The Corporation misconstrues the plain meaning of section
    396(k)(6)(B). This provision does not authorize the Corporation to use
    funds designated for distribution to public television licensees. Rather,
    section 396(k)(6)(B) sets out a distribution mechanism under which the
    Corporation distributes funds to public television licensees. Moreover,
    section 396(k)(6)(B) does not set out two statutory purposes for the use
    of these funds. Rather, section 396(k)(6)(B) provides two goals for the
    design of the formula under which the funds are to be disbursed. The
    formula is to be designed to provide for the financial needs and
    requirements of stations and to maintain existing, and stimulate new,
    sources of nonfederal financial support. The Congress has provided
    directions on the use of section 396(k)(6)(B) funds. Specifically, section
    396(k)(7) provides that these funds "may be used at the discretion of the
    recipients for purposes related primarily to the production or acquisition
    of programming."

    5. 	While the Congress has been provided with some information on the
    Future Fund, the information does not clearly and consistently identify
    the funding sources for the Television Future Fund. For example, in
    testimony before the Committee on House Energy and Commerce, Subcommittee
    on Telecommunications and the Internet, the President and CEO of the
    Corporation made no reference to the Future Fund in his comments about
    grants to stations. However, the President and CEO did mention Future
    Funds when speaking about the System Support account (statement of Mr.
    Robert Coonrod, President and CEO of the Corporation for Public
    Broadcasting, July 10, 2002).1 During the course of our review, we pointed
    out to the Corporation that the 2002 annual report could be confusing
    because it defines TVRFF (Future Fund, Collaboration Fund and Small
    Station Fund Grants) as "Television and Radio Future Funds and System
    Support." We were advised that the Corporation agreed that the definition
    might lead to confusion and that they would consider modifying the
    definition for future annual reports. Letter from Donna Coleman Gregg,
    Vice

    1Specifically, Mr. Coonrod stated: "As advised by the stations, CPB
    established Future Funds for both television and radio. These are also
    funded through the System Support account, as the Future Fund programs are
    intended to improve the system of stations and its services overall."
    (Statement of Mr. Robert Coonrod, President and CEO of the Corporation for
    Public Broadcasting, July 10, 2002.)

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    President, General Counsel and Corporate Secretary of the Corporation for
    Public Broadcasting to Mindi Weisenbloom, Senior Attorney, General
    Accounting Office, dated August 11, 2003.

    6. 	Our review did not examine whether the make-up of the Television
    Future Fund advisory panels have adequately represented a crosssection of
    the public broadcasting community. We note that the Corporation intends to
    change the composition of the advisory panel to ensure a greater
    representation from across the station community. It also appears that the
    Corporation envisions that the panel will operate more as an investment
    board than as a consultation panel. Although the Corporation contends that
    the Future Fund plan has been regularly placed before the constituent
    elements of public broadcasting, our survey of public television licensees
    indicates a number of concerns about the program. For example, 42 percent
    of the respondents to our survey indicated that they had little or no
    knowledge about the findings and outcomes of Television Future Fund
    projects. Overall, only 41 percent of licensees responding to our survey
    indicated that the projects had provided them with practical methods for
    reducing costs and/or enhancing revenues. The Corporation's approach for
    funding the Television Future Fund program was another area identified in
    our survey as a concern for licensees. Only 30 percent of the responding
    licensees indicated that they favored the current funding approach, and
    one-fifth of our survey respondents indicated that the Corporation should
    cease all funding for the program.

    7. 	We agree that nothing in the statute suggests that the Corporation's
    role is passive. Section 396(k)(6)(B) provides the Corporation with
    discretion to establish eligibility criteria and a formula for the
    distribution of funds reserved by the Congress for public television to
    the licensees. However, this discretion must be exercised within the
    constraints of the provision. The Corporation must periodically review its
    eligibility criteria with the station community, and the formula must be
    designed to provide for the financial needs and requirements of stations
    and to maintain existing, and stimulate new, sources of nonfederal
    financial support. More importantly, the provision provides that the funds
    are to be distributed to licensees. Thus, under the plain meaning of the
    provision, these funds are not available for the Corporation's use or for
    the Corporation to decide how the licensees may use the funds. Nor are the
    funds available for distribution to entities other than the licensees
    themselves.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    8. 	The statute specifies that it is the recipients of the funds, in other
    words the public television licensees, who have discretion over the use of
    these funds. Specifically, section 396(k)(7) provides that these funds
    "may be used at the discretion of the recipient for purposes related
    primarily to the production or acquisition of programming."

    9. 	GAO is not suggesting that the Corporation "pick and choose" stations
    for grants. Rather, under the plain meaning of section 396(k)(6)(B), the
    Corporation is to distribute the funds reserved to television stations on
    the basis of eligibility criteria and a formula. And under the plain
    meaning of section 396(k)(7), it is the licensees who have the discretion
    over the use of these funds within the constraints of the statute. The
    Congress has directed that the 396(k)(6)(B) funds be used "for purposes
    related primarily to the production or acquisition of programming."

    10. We disagree that the Congress has ratified the Corporation's use of
    section 396(k)(6)(B) funds for the purposes of the Future Fund by
    continuing to make funds available for distribution under section
    396(k)(6)(B). "Ratification by appropriation" is the doctrine by which the
    Congress can, by the appropriation of funds, confer legitimacy on any
    agency action that was questionable when it was taken. However, this
    doctrine is not favored and will not be accepted where prior knowledge of
    the specific disputed action cannot be demonstrated clearly. GAO
    summarized the test courts have used to find ratification by appropriation
    in B-285725, September 29, 2000.

    "To conclude that Congress through the appropriations process has ratified
    agency action, three factors generally must be present. First, the agency
    takes the action pursuant to at least arguable authority; second, the
    Congress has specific knowledge of the facts; and third, the appropriation
    of funds clearly bestows the claimed authority."

    All three elements are missing here. The Corporation does not have the
    authority to use funds designated for distribution to public television
    licensees to support the Future Fund. The Congress has not clearly been
    informed that the Future Fund is supported in part with section
    396(k)(6)(B) funds. Finally, the Congress has not in any way indicated
    that the funds it has provided to the Corporation for public television
    licensees may be used to support the Television Future Fund. Accordingly,
    "ratification by appropriation" is not applicable in this instance.

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    11. As noted in the report, in 1988, the Congress specifically authorized
    the use of system support funds "if the available funding level permits,
    for projects and activities that will enhance public broadcasting." We are
    not reading this provision to "narrow" the scope of section 396(k)(6)(B).
    At the time that the amendment was enacted, the Future Fund did not exist,
    and the Corporation was not attempting to fund projects and activities
    through section 396(k)(6)(B) but was appropriately distributing funds
    under this section directly to the public television licensees. In our
    view, section 396(k)(6)(B) funds were not then and are not now available
    to be pooled with System Support funds and used to support the Television
    Future Fund program.

    12. The Corporation cites to a GAO decision for the proposition that
    multiple sources of funding to support a single program would be improper
    only if the Congress had intended one particular appropriation to be the
    exclusive source of funds. Matter of: Payment of SES Performance Awards,
    68 Comp. Gen. 337 (Mar. 20, 1989). That analysis is inapplicable here. As
    a general rule, an appropriation for a specific object is available for
    that object to the exclusion of a more general appropriation unless there
    is something in the general appropriation to make it available in addition
    to the specific appropriation. See, e.g., B-272191, Nov. 4, 1997. 68 Comp.
    Gen. 337 involved a case where an agency had two appropriations that were
    available for an expenditure. In those situations, an agency may charge
    either appropriation and must consistently follow that choice. Here, the
    Corporation is not faced with deciding between two of its accounts equally
    available for the purpose of the Television Future Fund. Rather, the
    Congress has specified that under certain circumstances, system support
    monies are available to the Corporation to fund projects and activities
    that will enhance public broadcasting, such as the Television Future Fund.
    As explained above, section 396(k)(6)(B) funds are not available for such
    purposes. Thus, the Corporation does not have the choice of selecting both
    accounts to pay for the Television Future Fund.

    13. As noted above, under the plain meaning of section 396(k)(6)(B), funds
    designated by the Congress for distribution to licensees are not available
    to the Corporation to fund projects and activities. This does not mean
    that the Corporation could not coordinate or orchestrate any collective or
    centralized focus on large-scale systemwide projects. Clearly, to the
    extent that funding levels permit, System Support funds are available for
    such projects. Additionally, individual licensees could

    Appendix VII
    Comments from the Corporation for Public
    Broadcasting

    exercise their discretion over the use of their funds to contribute to
    such efforts.

    14. As stated in the report, under the plain meaning of the statute,
    section 396(k)(6)(B) directs the Corporation to distribute the balance of
    funds reserved for television stations, after deduction of the basic
    grant, "to licensees of such stations." Thus, the Corporation does not
    have the discretion to distribute these funds to other than public
    television licensees even if the purpose of the grant is to ultimately
    benefit public television stations.

    Appendix VIII

    Comments from the Public Broadcasting Service

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    Appendix VIII
    Comments from the Public Broadcasting
    Service

    Appendix VIII
    Comments from the Public Broadcasting
    Service

                                     See comment 1.

    Appendix VIII
    Comments from the Public Broadcasting
    Service

                                     Appendix VIII
                         Comments from the Public Broadcasting
                                        Service

    The following are GAO's comments on the Public Boardcasting Service's
    letter dated March 15, 2004.

    GAO Comments	We have edited language in the report to clarify that the
    funds needed to complete the Enhanced Interconnection Optimization Project
    of $12 million to $15 million are separate from those to purchase the Next
    Generation Interconnection System.

    Appendix IX

                         Key Contacts and Staff Acknowledgments

    GAO Contacts	Mark L. Goldstein, (202) 512-2834 John Finedore, (202)
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    Staff 	In addition to those named above, Dennis Amari, Alan Belkin, Edda
    Emmanuelli-Perez, Colin Fallon, Michele Fejfar, Kevin Heinz, Logan

    Acknowledgments	Kleier, Randall Lennox, Omari Norman, Tina Sherman, Mindi
    Weisenbloom, and Alwynne Wilbur made key contributions to this report.

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