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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 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.) 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). 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. 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. 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. 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) 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) 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). 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) 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) 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) 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) 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) 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) 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. 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.) % 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. The following are GAO’s comments on the Corporation for Public Broadcasting’s letter dated March 12, 2004. 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. The following are GAO’s comments on the Public Boardcasting Service’s letter dated March 15, 2004. 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. 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. The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. 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Summary: 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. 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.