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The Peoria plan for saving local dailies

Crosscut Focus: Red Ink by the Barrel.

With the fate of the Post-Intelligencer seemingly sealed at least as a newspaper, and the Seattle Times teetering on the financial edge, the Seattle City Council will wade into the crisis Wednesday at 2 pm. Nick Licata’s “Culture, Civil Rights, Health and Personnel” Committee plans to spend two hours with a panel of news professionals, exploring possible ways to save Seattle’s disappearing newspapers. (Disclosure here: Crosscut’s publisher, David Brewster, will be one of the panel members.)

Exactly what Licata’s committee can, or will, do to fix things isn’t clear. But the committee will hear one intriguing possibility now under consideration in Peoria, Ill. That Illinois city is wrestling with its own newspaper problems, with the Peoria Journal Star and its owner, Gatehouse Media, on the financial ropes. Peoria Newspaper Guild official Jennifer Towery will describe for Licata’s committee how a community coalition is pushing legislation to turn her city’s struggling privately owned paper into a “low profit” L3C community-owned operation.

That’s a tax term for a new hybrid business model that meets the IRS’s definition of a charity, but operates like a for-profit corporation. Vermont became the first state to authorize L3Cs last year, and Michigan and North Carolina are moving toward their own versions of the model. Vermont’s Secretary of State’s office offers this description: “The basic purpose of the L3C is to signal to foundations and donor-directed funds that entities formed under this provision intend to conduct their activities in a way that would qualify as program-related investments.”

In other words, donating to an L3C would enable private foundations to meet the IRS’s charitable-giving requirements. The Seattle area is awash with this sort of private foundation. An L3C could raise cash from such groups to repair a historic building that can’t generate enough profit from rent to pay for the renovations. Or, says newspaper industry consultant Lee Egerstrom, a newspaper “with stakeholders that include the community that depends on reliable media as well as the paper’s unions” could use its L3C status to tap non-profit donors. When Egerstrom pitched the L3C idea at a Newspaper Guild conference earlier this month in Maryland, union representatives from the Seattle Times Co.’s struggling Blethen Maine papers showed up to listen.

Here in Seattle, Licata seems enthusiastic about the L3C solution. Peoria, he noted in a press release, has put together support for L3C legislation that includes four state legislators, local businesses, and a handful of bank presidents. “Their goal,” Licata says, “is to get their paper back on track.”

But L3Cs are not the only non-profit solution being pitched for newspapers these days. Earlier this month, the Seattle Times offered an op-ed article by University of Pennsylvania law professor C. Edwin Baker, touting federal subsidies for newspaper reporters and editors. “A not-so-radical idea for preserving journalism’s society-building role,” the Times not-so-subtly headlined the piece. Others have suggested turning The Times itself into a non-profit, or making it an arm of a non-profit, along the lines of St. Petersburg Times, a profit-making paper that was willed to Florida’s non-profit Poynter Institute three decades ago by the paper’s owner, Nelson Poynter.

Somewhat overlooked in this latest crescendo of non-profit noise is a Columbia Journalism Review article which last March dismissed the Poynter/St. Pete Times model as impractical for other family-owned papers. Handing off the family newspaper to a non-profit is likely to create family friction and can be complicated, especially if some of the paper’s stock is held by outsiders, the article warns. Like, for instance, the Seattle Times, whose minority stake is held by California’s McClatchy Co., a publicly held corporation whose stockholders would almost certainly oppose such a giveaway.

Summing up CJR’s argument against the non-profit option was none other than Seattle’s Frank Blethen, whose family owns the majority of the Seattle Times Co. Blethen waved off Poynter’s experiment with operating the St. Pete Times, calling it “a pleasant campfire tale.” He noted that families like his aren’t likely to give away ownership of papers that can generate comfortable “eight, ten, twelve percent returns.” The key reason you won’t see a St. Pete Times situation again, said Blethen, “is that you have to give up most of the value in the organization, and it’s very rare for a family to do that.”

What a difference a year makes.

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