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 [email protected].

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 [email protected]. 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)
512-2834

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.

GAO's Mission	The General Accounting Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

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