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CUTTING CORPORATE WELFARE

GIVEAWAYS

The U.S. federal government is quite probably the richest property owner on earth. The government owns vast tracts of land, including oil and mineral riches, forests, thousands of buildings and plants, the public airwaves and much more.

Giveaways of these assets are one of the purest forms of corporate welfare -- a something- for-nothing, or something-for-too-little, proposition. The level of public outrage would be high if the government wrote a $70 billion check to the broadcast industry -- but that is effectively what happened when the Federal Communications Commission, pursuant to the Telecommunications Act of 1996, handed over the digital television spectrum to existing broadcasters.

The government retains its property as the shared commonwealth of the people of the United States, and there should be a strong presumption against giving it away. Where a reasoned decision is made to distribute some of that wealth to private parties, the government should explore whether it can distribute the public assets in a non-exclusive, public-purpose way, or in a fashion that promotes competition. When public assets are going to be distributed to private parties, the government should generally receive a market-rate purchase or lease price; and where taxpayer assets are to be distributed to a narrow class of beneficiaries, below-market purchase or rental rates should be accepted only in the most compelling of circumstances. Finally, prior to transfer of government property to private parties, the government should consider whether there are non-monetary reciprocal obligations that should be demanded of recipients -- these may include everything from binding promises to adhere to higher environmental standards to contributing equipment to support noncommercial television.

DIGITAL SPECTRUM GIVEAWAY

In one of the single biggest giveaways in U.S. corporate welfare history, the Federal Communications Commission (FCC) on April 7, 1997 donated broadcast licenses for digital television to existing broadcasters.

Under the terms of the giveaway, the broadcasters will pay nothing for the exclusive right to use the public airwaves, even though the FCC itself estimated the value of the digital licenses to be worth $11 billion to $70 billion. [19]

The giveaway was mandated, in part, by the 1996 Telecommunications Act, which prohibited, under demands by the broadcaster lobby, the FCC from auctioning off the airwaves. The Telecommunications Act also required the FCC, if it decided to allocate the licenses, to give them only to incumbent broadcasters.

The licenses will permit the broadcasters to air programs through digital signals, which offer higher picture quality than currently used analog broadcasting. FCC rules will require broadcasters in the largest cities to air digital programs in the next few years. All of the broadcasters will continue to air analog versions of their programs, at least during a dozen- year transition period.

The new licenses are for the spectrum equivalent of five or six digital television channels. The broadcasters will be able to use the extra channels to air multiple simultaneous programs or, more likely, for other purposes, potentially including data transfer, subscription video, interactive materials, audio signals and other not-yet-developed innovations. In these enterprises, they will compete at advantage with non-corporate- welfare-receiving companies.

The original theory behind granting the broadcasters such wide spectrum space was to permit them to air high-definition television (HDTV). But many broadcasters may choose not to air HDTV, and instead will receive the extra spectrum channel space as a super- windfall --  yielding a revenue stream from non-broadcasting uses of the spectrum, in addition to revenues from airing of digital television broadcasts ... all without paying any license fees to the public owner of the airwaves, the federal government.

As former Senate Majority Leader Bob Dole has recognized, there is no conceivable reason why the incumbent broadcasters should have been given exclusive rights to use the airwaves. [20] Other possible television broadcasters should have been given the right to bid for portions of the digital spectrum, and so should have other potential users, such as data transmission companies.

However, these competing business interests' protestations were completely trumped by the power of the National Association of Broadcasters (NAB).

This is the quintessential perversion of democracy: the broadcasters pay nothing to the public for the right to air programming over the public airwaves; then they use the influence they gain over politicians from their use of these public resources to extort still greater subsidies; and all the while they do not allow this subject to be covered on their news programs.

Only a few weeks after consummating their tremendous [?], the broadcasters expressed sudden concern with the fate of viewers who would be forced, in 12 years time, to buy new televisions if the broadcasters forfeit their analog stations, as currently scheduled. This would indeed be an extraordinary consumer shakedown, but not one that the broadcasters are positioned to challenge in good faith. They are now lobbying to maintain their analog stations -- another public resource which they exploit free of charge. The FCC estimates the value of the analog spectrum at as high as $132 billion. [21]

Lost in the giveaway was the opportunity to set aside portions of the broadcast spectrum for public access, educational, and public interest programming.

There remains an opportunity to rectify at least this failure. The FCC licenses to the broadcasters impose an as-yet-unspecified public interest obligation. This could be defined to include public interest and public access programming. As part of their public interest obligations, the broadcasters should be required to allocate a substantial portion of their new spectrum space and time to public access programming, and to fund quality programming. Specially chartered, democratically governed citizen television networks could develop programming, or moderately funded programming opportunities could be allocated to qualifying civic organizations. Such a modest dose of media democracy can only be good for our nation's democracy. [22]

Others have suggested additional requirements that should be imposed on the broadcasters as public interest obligations. People for Better TV, a national coalition including the American Academy of Pediatrics, the Civil Rights Forum on Communications Policy, the Communications Workers of America, the Consumer Federation of America, the league of United Latin American Citizens, the NAACP, the National Council of Churches and the National Organization for Women, is calling for a debate over and analysis of serious proposals to ensure that broadcasters devote meaningful coverage to public affairs, that the broadcasters respect and nurture rather than exploit children, and that measures are taken to promote racial, ethnic, and gender diversity in television programming. [23]

However, as People for Better TV points out, the Gore Commission which was charged with considering how to define the broadcasters' public interest obligations -- remember, again, these obligations are the only payment the broadcasters will make for controlling now $200 billion in taxpayer airwaves assets -- failed to rise to the occasion. (The Los Angeles Times derided the report as a "national scandal." [24]) Moreover, although the print media devoted some attention to the issue, as People for Better TV notes, "Television stations, perhaps fearing regulation, kept the issue off the local and national news. The discussion about how TV stations will (or will not) serve their community is taking place in the same backroom, deal-making, back-slapping environment that always preoccupies official Washington.

"The spectrum giveaway and the secrecy surrounding this important debate are travesties of American democracy" the coalition rightly concludes.

THE 1872 MINING ACT

No discussion of government giveaways can fail to take note of the absurd Mining Act of 1872. [25] Whatever the merits of the Act at the time of passage, when it was intended to help settle the West, it has long been clear that the Act serves an unjustifiable giveaway to narrow corporate interests, including foreign corporations. As Carl Mayer and George Riley note in their history of the 1872 Mining Act, "Many of the deficiencies noted three or four years after the law's passage have been cited repeatedly by committees and legislators during the last century. The critics have focused on four problems: the failure of the law to return appropriate revenue to the treasury, the inability of the federal government to halt fraudulent acquisition of mineral land; the loss of government control of patented land which passes out of public ownership; and the elevation of mining to the highest use of the land." [26] But reform efforts regularly fail, thanks to mining lobby interests -- a lobby with power vastly disproportionate to its economic contributions, which are estimated at about one-tenth of one percent of the West's total income.

Many of the mines on federal or patented land are literally billion-dollar giveaways -- often to foreign companies. [27] In 1994, American Barrick Corporation, a Canadian company, patented nearly 2,000 acres of public land in Nevada that contained over $10 billion in recoverable gold reserves. Taxpayers received less than $10,000. In 1995, a Danish company patented land in Idaho containing more than $1 billion in minerals for a price of $275.

The Washington, D.C.-based Mineral Policy Center estimates that mining companies extract $2 billion to $3 billion in minerals from public lands every year -- royalty free. From 1872 to 1993, mining companies took more than $230 billion out of the federal lands, royalty free, according to the Mineral Policy Center. [28]

In 1994, Congress imposed a moratorium on patenting but already processed patents continue to be filed, and mining companies continue to work already claimed lands.

Third World countries routinely strike better deals with mining companies than does the most powerful government on the planet. A mere 8 percent royalty on existing mines would bring $200 million a year into the federal coffers. [29]

The subsidized mines interfere with other economic and non-economic uses and values of public lands. University of Montana Professor Thomas Power has developed cogent arguments that the destruction of the natural environment associated with mining on federal lands imposes real economic costs, absorbed both by the tourism industry and residents whose land values and basic decisions to live in the West are based in part on the high quality living environment of the region. [30] The Mineral Policy Center estimates direct cleanup costs for the more than a half million abandoned mines on federal lands in the $30 billion to $70 billion range. [31]

In March 1999, the Clinton Administration ruled that it would enforce environmental laws that limit the ability of mining companies to dump waste on public lands, and thereby limit the extent to which hardrock mining can be done. The mining industry has set fast to work to repeal this ruling, though so far it has failed. Maybe Members of Congress are beginning to realize that, for more than a century, they have been generous enough to the mining industry.

INTERNET GIVEAWAYS

An evolving giveaway of public assets involves the management of the U.S. government's internet assets. The federal government currently contracts with Network Solutions, Inc. (NSI), to manage certain domain name registrations (including .com, .net, and .org). After entering into the contract in 1993, NSI was later acquired by Science Applications International Corporation (SAIC) for $3.9 million, and subsequently was permitted to charge U.S. consumers wildly excessive fees for registering internet domain names. NSI's monopoly on the .com and other valuable domain names has turned a tiny initial investment into a firm with a market capitalization of $2.5 billion -- thanks to control of the power to sell the public the right to use their own domain names. At no time did the government seek any competitive bids to determine the prices that consumers and business should pay for domain name registrations. As public resentment over the high prices and poor service has grown, the federal government is now trying to find ways to introduce competition.

As the Administration seeks to replace the current NSI monopoly with something new, it is using its earlier mistakes as a rationale for a new government giveaway that could create an entirely new set of governance problems for the public. Currently the Administration is negotiating a transfer of the "A DNS root server" to ICANN, a private non-profit organization. The new nonprofit organization seeks the authority to impose fees on all internet domain names, to set international policy on trademarks and other issues, and to launch an undefined set of policy initiatives that it will fund from fees assessed on domain registrations. This new initiative raises a number of questions regarding its lack of accountability, and it is justified largely on the basis that the NSI monopoly needs to be "fixed." But it is hard to see how the creation of a new unaccountable body constitutes a "fix."

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