Background

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).
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. 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 Alerts 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  (individual memberships) (see fig. 2). The Corporation’s funding of $263  million provided about 16 percent of this total.
Figure 2:  Sources of Public Television Revenues, Fiscal Year 2002 ($1.63 billion)
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  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. 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.
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. Rather,  they were seen as temporary measures pending the development and  adoption of a long-term financing plan for public broadcasting. Although  various financing proposals for public broadcasting have since been  suggested, the Corporation continues to receive nearly all of its budget in  the form of an annual federal appropriation. Figure 3 illustrates the history  of annual federal appropriations made to the Corporation in current  dollars.
The Corporation is governed by a board of directors that is appointed by  the President and confirmed by the Senate.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  services in conjunction with licensees. 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. 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  Corporation, this will involve strategic analysis and reengineering of  national programming.
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 complete the construction of digital station facilities by May 1, 2003; broadcast in digital a minimum of 50 percent of the programming that  they broadcast in analog—known as “simulcasting”—as of November 1,  2003,simulcast 75 percent by April 2004, and simulcast 100 percent by  April 2005; and by December 31, 2006, return their analog (or digital) spectrum to FCC  for reallocation.
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 Specifies the Allocation of Federal Funds for Public Television Licensees and National Programming

Federal funds appropriated to the Corporation must be allocated in  accordance with provisions of the Communications Act, as amended. As  shown in figure 4, the act directs the Corporation to allocate 6 percent of its  federal appropriation for various expenses incurred by public  broadcasting, an account the Corporation identifies as “System Support;”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.
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.

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

We asked public television licensees in our survey whether the statutory  allocations for federal funding support of public television by the  Corporation—the 75 percent allocation for distribution among licensees  and the 25 percent allocation for national programming—should remain the same or be changed. Overall, 62 percent of licensees responded that  these statutory allocations should stay the same, and 34 percent responded  that the allocations should be changed (see fig. 5).
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). 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. 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  licensees were first enacted in 1975. 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.
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.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.According to officials of the Corporation, this provision is generally  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). 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.
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  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 self­ sufficiency. 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 show clear evidence that the project would meet a demonstrated need; 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; prove, through feasibility studies, that concepts could be widely  implemented, thus demonstrating that the effort can lead to economies  of scale; be envisioned as long-term efforts, sustainable after the Corporation’s  funding for the project concluded; and 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.
To provide funding for Television Future Fund projects, the Corporation  annually pooled funds from two separate sources: funds from its System  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.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 development projects aimed at improving fundraising through local,  regional, and national underwriting efforts, strengthening pledge  practices, and studying financial contributions given via the Internet; technology projects designed to increase the public television  community’s knowledge of its digital capabilities, including developing  interactive television programming; new service and business models projects aimed at forging links  between the public television community and other entities, such as  licensee and university partnerships; 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; collaboration and consolidation projects designed to support the  development of back office operations that could be used by more than  one station; and 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.
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).
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. 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). by philanthropic foundations. Over one-fifth of our survey respondents,  however, indicated that the Corporation should cease all funding for the  Television Future Fund.
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 Panelconcluded that  while a majority of the projects had yielded the results anticipated, some  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 the potential to change systemwide decision making and transform  current approaches to achieving system and station goals, measurable and sustainable outcomes, strong and verifiable support of key advocates and participants, and 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. 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

counsels to support their differing positions on this issue. 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. 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,  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-à-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.
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.

	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.

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

Expressly prohibited from producing or distributing public television  programming, the Corporation is authorized by provisions of the  Communications Act to provide federal funding for national public  television programming. 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. 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.
The Independent Television Service was founded in 1988. See, 47 U.S.C. §396(k)(3)(B)(iii).
The 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. 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. Prior to the establishment of the National  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, prime­ time, 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.
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. 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.

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

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. 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  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. 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.

	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.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).
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. 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. 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.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  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. 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.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. 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.
The Digital Distribution Fund, established in January 2002, offers grants  to both individual stations and collaborations of multiple stations for  digital transmission equipment; the Corporation provides 50 percent  matching funds to the nonfederal funds raised by grantees.
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.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.
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.
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. 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 equipment­ related 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  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.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. Survey respondents  suggested that they would consider applying for future grant rounds of the  Digital Distribution Fund if it awarded funding for transmission equipment  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).Digital master control, digital content, digital production equipment, and  digital operating costs were all named more frequently as the highest  priority. and repeaters. 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. 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  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. 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.”
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  of the digital transition.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  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:
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.
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. 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 Congressional Consideration

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

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. 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.
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. 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.

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  Nine 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.

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.

	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. §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. 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.
The Corporation funds more than 350 locally operated public television  stations across the country. 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. Community Service Grants (CSG) are unrestricted  general operating grants provided by the Corporation directly to qualified  public television stations according to a mathematical formula. As  required by 47 U.S.C. §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.
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 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; 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 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. needed. 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.
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. Not all applicants received funding. 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. §396(k)(3)(A)(i)(II). The  primary question concerning the legality of the Television Future Fund  program involves the use of CSG funds. 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

“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;   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. §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. §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, 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.
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. permittee of a public television station that is on the air.” 47 U.S.C.  §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  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. 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. licensees and the licensees having “discretion” over the use of the funds.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. 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. 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.”
Fiscal Year 2002 RFP. 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. 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). 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. 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. §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.

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. Satellite carriers are  required to carry all nonduplicative noncommercial educational television  stations in markets where they provide local-into-local service. 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. In order to ensure that it had sufficient evidence  to fully evaluate this issue, FCC issued a Further Notice of Proposed  Rulemaking. 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.According to FCC, largely parallel provisions are contained in the statute  relating to carriage of noncommercial stations. 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). freedom of speech restrictions and a governmental limitation on cable  television providers’ right to decide what services they provide.
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.

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 supportand, without interrupting regular programming, may acknowledge  underwriters on the air. 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. public broadcasting, and to conduct demonstrations of limited advertising  for the purpose of “reduc 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.
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.” 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.” identification purposes only. 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. 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:  logo-grams or slogans which identify and do not promote,  location information and telephone numbers, value neutral descriptions of a product line or service, and/or 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. 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.
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.
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). to the length of acknowledgments in order to attract underwriting  support and to further the mission of public television.

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  changed remain the same  (percent) (percent)
Don't know  (percent)
Q2. Please provide the reasons for your answer and, if you think the allocation should be changed, describe what the allocation should be.
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  process  (percent)
Don't know  (percent)
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 little  extent  (percent)
Not at all  (percent)

	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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q6. To what extent do you think CPB considered input from your station(s) on the Community Service Grant eligibility criteria?
To a little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
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?
Substantial  changes are  needed  (percent)
Don't know  (percent)
Q8. Please explain what changes you think are needed.
Q9. To what extent do you know about the outcomes or findings of CPB Television Future Fund projects?
To a little  extent  (percent)
Not at all  (percent)
Don't know  (percent)

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

Yes  (percent)
No  (percent)
Don't know  (percent)
Q10a. Please describe other ways, if any, you have learned about outcomes or findings of CPB Television Future Fund projects.
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?
No  (percent)
Don't know  (percent)
Q11a. If you answered yes to either above, please provide examples or the name(s) of one or more project(s).

	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 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  Future Fund.  (percent)
Don't know  (percent)
Q13. Please provide the reasons for your answer to Question 12.
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)?
To a little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
My station is  not a member  of PBS  (percent)
Q15. Please provide the reasons for your answer to Question 14.
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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)

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

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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q19. Please provide the reasons for your answer to Question 18.
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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q21. Please provide the reasons for your answer to Question 20.
Q22. Do you believe that changes are needed to the processes involved in selecting programming for PBS's National Program Service?
Don't know  (percent)

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

Q24. Should CPB continue to provide direct funding to support the PBS National Program Service (as it exists today)?
Don't know  (percent)
Q25. Please provide the reasons for your answer to Question 24.
Q26. Is the amount of local programming that you produce sufficient to meet the needs of your community?
No, the amount of local  programming is sufficient to meet  programming is not sufficient to  the needs of our community.  meet the needs of our community.  (percent) (percent)
Don't know  (percent)
Q27. Please provide the reasons for your answer to Question 26.
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?
No  (percent)
Don't know  (percent)
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?
No  (percent)
Don't know  (percent)

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

Q31. In addition to or in conjunction with television broadcasting, do you currently provide each of the following local services to your  community?
Yes  (percent)
No  (percent)
Don't know  (percent) a. Services to support pre-school through 12th grade  education  c. Services to support workforce training, professional  development, and/or continuing education  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)  e. Services to support local, state, and/or federal  government agencies (e.g. National Weather Service,  Homeland Security)
Q31a. Please describe other services, if any, you provide to your community in addition to or in conjunction with television broadcasting.
Q32. What types of services does (at least one of) your station(s) currently provide, or plan to provide after transitioning to digital?
Currently  provide  (percent)
Don't provide  Plan to  and don't plan  to provide  (percent)  provide  (percent)
Don't know  (percent)

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

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?
Don't know  (percent)
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?
Don't know  (percent)
Q35. Were you aware of the consultation process conducted by CPB on the allocation of fiscal year 2003 digital television funding?
Don't know  (percent)
Q36. To what extent did CPB solicit input from your station(s) on the allocation of fiscal year 2003 digital television funding?
To a little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q37. To what extent did your station(s) provide CPB with input on the allocation of fiscal year 2003 digital television funding?
To a little  extent  (percent)
Not at all  (percent)
Don't know  (percent)

	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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q39. Overall, are you basically satisfied with the consultation process used by CPB to allocate fiscal year 2003 digital television funding?
Substantial  changes are  needed  (percent)
Q40. Please explain what changes you think are needed.
Q41. How would you currently prioritize the use of any additional federal funding to support your station(s) during the digital transition?  % Ranking 1  % Ranking 2  % Ranking 3  % Ranking 4  % Ranking 5  (percent) (percent) (percent) (percent) (percent)
Q42. Is your digital master control equipment fully compatible with the EIOP (for all of your stations)?
No, not fully  compatible,  and our  capabilities  materially  affected  (percent)
Don't have  will be  digital master  control  equipment  (percent)
Don't know  (percent)

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

No, not fully  compatible,  and our  capabilities  will be  materially  affected  (percent)
Don't have  digital  production  equipment  (percent)
Don't know  (percent)
Q44. Is your digital storage equipment fully compatible with the EIOP (for all of your stations)?
No, not fully  compatible,  and our  capabilities  will be  Don't have  materially  digital storage  equipment affected  (percent) (percent)
Don't know  (percent)
Q45. Please use the box below to describe any other comments on the Next Generation Interconnection System or the Enhanced  Interconnection Optimization Project.
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 little  extent  (percent)
Not at all  (percent)
Don't know  (percent)
Q47. Please describe how the ability of your station(s) to provide local services will or will not improve with the digital transition.

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

Yes  (percent)
No  (percent)
Don't know  (percent)
Q48a. Please list other digital carriage issues, if any, that will impede your station's future if not resolved during the digital transition.
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)?
Yes, I plan to run  30-second  underwriter  acknowledgements  acknowledgements  (percent) (percent)
No, I do not run and  do not plan to run  30-second  underwriter  acknowledgments  (percent)
Don't know  (percent)
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.)

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

% Ranking 1  % Ranking 2  % Ranking 3  (percent) (percent) (percent)
Q52. How would you prioritize your reasons for your plans to run 30-second underwriter acknowledgements?  % Ranking 1  % Ranking 2  % Ranking 3  (percent) (percent) (percent)
Q53. Would you favor or oppose a federal requirement that limits the length of underwriter acknowledgements?
Oppose a federal  requirement that  limits the length of  underwriter  acknowledgements  acknowledgements  (percent) (percent)
Don't know  (percent)
Q54. Please provide the reasons for your answer to Question 53.

	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.

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.
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.
2.
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 long­ term 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.
3.
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.
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 cross­ section 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.
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. 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.

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.

Key Contacts and Staff Acknowledgments

	GAO Contacts

	Staff Acknowledgments

In addition to those named above, Dennis Amari, Alan Belkin,  Edda Emmanuelli-Perez, Colin Fallon, Michele Fejfar, Kevin Heinz, Logan Kleier, Randall Lennox, Omari Norman, Tina Sherman, Mindi Weisenbloom,  and Alwynne Wilbur made key contributions to this report.

	GAO’s Mission

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Summary:
Why GAO Did This Study

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.

What GAO Found

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.