Testimony Submitted to the California Senate Committee on Revenue and Taxation

Testimony of Steven Waldman, president of Rebuild Local News:

My name is Steve Waldman, and I am President of Rebuild Local News and the Chair of the Rebuild Local News Coalition, an alliance of more than 35 national and state organizations that together represent more than 3,000 local newsrooms, including hundreds in California.  It’s a broad and bipartisan coalition – publishers and labor unions, ethnic media and conservative rural weeklies, for-profits and nonprofits.

We develop and advocate for public policies that help strengthen community news while preserving the editorial independence of the media.  

We strongly believe that the crisis facing local news in California is now so severe that First-Amendment-friendly government support of local community news is now essential.  We have seen 160 newspapers in California close since 2005 – and 68 percent drop in the number of journalists in California.  Communities are suffering as a result. 

We thank Sen. Glaser for his leadership in addressing the problem through the fellowship program and Assemblymember Wicks and Sen. Umberg – as well as the California News Publishers Association and the News / Media Alliance — for their work on the California Journalism Preservation Act. Their efforts have given great energy to the cause of helping to save local news.

I am here to describe a few of the other approaches you might consider as well.

Having studied a variety of different approaches, one idea clearly earned the broadest support from our already very broad coalition: the local news employment credit. A version of this passed the US House of Representatives in 2021. It has been endorsed by just about every major publisher group, the labor unions, and state press associations. A new version of the federal bill that includes this proposal has been endorsed by the National Restaurant Association, 21 Republican cosponsors and 21 Democratic cosponsors. 

In the federal version, the government uses the payroll tax refund system to provide a subsidy to local news organizations based on how many editorial employees they have working on local news.  The subsidy to the newsroom is equivalent to 50 percent of the local reporter’s wage up to a $50,000 salary. In other words, it can provide news organizations up to $25,000 per employee.

For example, here in Sacramento you’re lucky enough to have the Sacramento Observer, which does an outstanding job covering the Black community and the issues of most importance to it. They do great work but struggle to keep their noses above water. Since they have eight editorial staff, they would get around $190,000 in the first year. Larry Lee, the publisher of the Observer, tells me that this credit would be tremendously helpful, enabling them to hire more reporters and hold more in person events in the communities around key civic issues.

Note: In the federal version, the provision would sunset after five years, and the benefit drops during years two through five to a maximum of $15,000 instead of $25,000.  

We recommend a California twist on this: maintain the benefit at that level after the first year if newsrooms maintain or grow their staff.  This would create a powerful incentive for investing in local reporting jobs.

There’s a lot to like about this idea.

It is highly targeted at the core challenge facing local news outlets– the lack of reporting on communities. This approach rewards investment in local reporting rather than traffic.

It has good incentives. If a newsroom adds reporters, they get a larger benefit. If they cut staff, they get a smaller benefit 

It’s easily accessible by small media outlets. Newsrooms don’t have to hire a grant writer or a lobbyist. If the outlet qualifies, it files for it on its taxes and the next quarter gets a refund. We think this would be of enormous benefit to family owned outlets, ethnic media and nonprofits, as well as bigger players. 

It’s future friendly.  It doesn’t only help established players. As new models emerge, they could benefit too, as long as they meet the basic criteria.

It helps for profits and nonprofits. The payroll tax credit is the one tax that nonprofits pay.

Canada has already passed a similar policy – called the “labor subsidy” – and the early reports are encouraging. A study by the University of North Carolina Chapel Hill found that all of the small publishers they interviewed reported that the credit “has increased their ability to hire.”  

What would this cost? In the first year, we estimate that support would be provided to between 2,500 and 3,000 local reporters at just over 450 qualified local newsrooms in California. Extrapolating from the economic model created by the U.S. Joint Tax Committee, we roughly estimate that it would cost roughly $60 million per year for California. 

We are agnostic on how to pay for this. As a matter of scale, however, we would note that a tax of less than a 1% on advertising on Google, Meta and Amazon would cover the entire cost of a robust employment tax credit system in California.

Even without a “payfor,” or using one of the other tax vehicles outlined in the excellent staff paper, lawmakers should seriously consider this employment credit approach. Local news has all sorts of civic benefits that Matt Pearce may mention. I would just add one other point: local reporting routinely saves governments and consumers billions of dollars — whether its uncovering waste in government, highlighting scams against consumers or finding malfeasance that district attorneys use to collect fines from companies.  On a societal level, offering a tax credit for local news employment will likely pay for itself. 

This policy does not attempt to police the quality or ideology of newsrooms. Some tax benefits would therefore no doubt end up supporting local reporting by publications or TV stations that we might not personally like. We believe that such a broad-minded approach is necessary to preserve editorial independence.

And instead of newsrooms collapsing and closing, they would have a real shot at better covering their communities. From there, they still have to make the case to the residents in their area that they’re worthy of support. 

There are a few other tax-based ideas that could help save local news.   

Tax credits for small businesses that advertise in local news.  This is the other half of the Community News and Small Business Support Act (the first part being the employment credit). It provides a tax credit to restaurants, grocery stories or other small businesses that advertise in local news. Under the federal bill, the credit would be 50% of the value up to $10,000 advertising spend. So if a small business in Alameda purchased $5,000 with the Alameda Post, the business would get a $2500 corporate income tax rebate from the government. No government agency decides who gets the ads; the small businesses make that decision themselves based on which they think will be effective.  

Tax credit for subscriptions. The original Local Journalism Sustainability Act included a tax credit for individuals to subscribe to a newspaper or website or donate to a nonprofit.  In principle, we love this idea. It empowers consumers to support the local news that they choose.

The legislation had a few flaws, though. It would only be available for those who itemize their taxes and there was the possibility that most of the tax benefit would go to people who were already subscribing. To be honest, we have not been able to solve those glitches yet but we would be happy to explore this idea.  

Tax credits for “replanting newspapers.”  One could use the employment tax credit system as a way of creating incentives for newspapers to remain in local hands.  

Finally, I’d like to say that we believe that a revised version of the California Journalism Preservation Act could also help local news. We like the idea of rebalancing the power between publishers and tech companies. But we think that in a California bill the proceeds should be targeted toward publishes covering California rather than national publishers. This can be done in a way that does not violate the dormant commerce clause. Second, we recommend adopting Canada’s approach and have funds distributed on the basis of head count – the number of editorial employees – rather than on page views or traffic metrics. 

We offer several other ideas in our written testimony and they can be found at RebuildLocalNews.org.