Are Vouchers to Support Local News a Boondoggle?

November 15, 2023

Local journalism serves an essential public service, providing people with information about the problems facing their communities and efforts to address them. It is also an essential check on corruption. Journalists have exposed a vast number of crimes in both the public and private sector.

Without effective journalism, it is a sure bet there would be far more corruption than is currently the case. We may not know about it, because no one would be reporting on it, but we would be paying for it in higher prices, lower quality and less safe products, and less safe working conditions and lower pay.

As it stands, local journalism is not profitable without government support. The problem is that the information reporters uncover can be transferred at essentially zero cost. This was always the case, but it became especially true in the Internet Age, where information can be passed along instantly over the web. (Government-granted copyright monopolies are one form of public subsidy, but this has diminished value when information can be quickly circulated over the web.)

While the public might benefit hugely from knowing that a politician is stealing their tax dollars, the market does not require them to pay the reporters who discover the theft. If no one pays the reporters who do the investigating, then we don’t get the investigations, and the theft continues unchecked.

Addressing the Funding Shortfall

There are at least two ongoing efforts to support local journalism through a system of individual vouchers. One of them is still in nascent form in Seattle and the other is a bill introduced in Washington, DC  by City Councilmember Janeese Lewis George. These proposals stem from work that has been done over recent decades on ways to support journalism as newspapers close and the survivors lay off journalists.

The proposals are still works in progress, but the basic idea is that a sum of money would be put aside for individuals to allocate to support the journalistic work of their choice. In the DC proposal, which is now available on the web, the work that is supported through this mechanism would be freely available to the public without paywalls. There are differences in how the mechanism works and what journalism qualifies for funding, but the basic principle is straightforward.

The logic of an individual voucher system is that it lets individuals decide which news outlets are worth their support. Rather than having the government determine which news outlets and journalists should be supported, this leaves the choice to individuals.

The closest analogy to this sort of system is the tax deduction for charitable contributions. Under this system, to qualify for tax-deductible contributions, an organization has to register with the I.R.S. and state what it does that qualifies for tax-exempt status. The I.R.S. simply verifies that the organization does what it claims. It makes no effort to determine whether the organization is a good museum, think tank, or church. It only determines that it is a museum, think tank, or church. It is up to the individuals donating the money to determine which ones merit their contributions.

The government would play a comparable role with local journalism vouchers. It would set rules as to what qualifies as local journalism and would ensure that news outlets meet these criteria. It is up to individuals to determine which outlets merit their vouchers.

Criticism of the Local Journalism Voucher Model

While this approach is just now gaining some public traction, there have already been some serious criticisms raised. Specifically, Brier Dudley, the Seattle Times Free Press editor, has raised a number of objections to the proposal being crafted in Seattle.

He has a serious perspective on this issue, and his points are worth addressing. He argues that vouchers have serious problems. He suggests as an alternative, the Journalism Competition and Preservation Act, a bill that has been introduced in Congress, which would allow smaller news outlets to collectively negotiate with Google, Meta, and other Internet platforms for a portion of their ad revenue.

The first and most important point in Dudley’s criticism is the potential problem of low participation. Dudley points out that participation rates for Seattle’s democracy voucher program is very low. This program is to some extent a model for the news voucher program. Under the democracy voucher program, voters in Seattle get public money in the form of vouchers that they can contribute to support the campaigns of candidates for local office. This program has been very expensive to administer and only around 10 percent of the vouchers have been used.

Dudley also points out that there have been some questionable uses of these vouchers, with one candidate apparently spending more money in winning democracy vouchers than in winning votes. This is a very serious concern.

There is a way around this problem, which the DC bill uses. The amount of the voucher is not fixed in advance, rather the total funding is fixed and the amount of the voucher adjusts to the number that are used. The entire system is on-line so this minimizes any costs associated with distributing and collecting physical vouchers.

This means, for example, if $10 million is designated for the program (a bit less than the $11 million actual sum in DC) and 100,000 people use the voucher, then each one is worth $100. If only 10,000 people decide to use the voucher, then each one is worth $1,000.

This approach has two important effects. First, it ensures that a substantial sum will be distributed to support local journalism from the program’s inception. Low participation will not translate into an underfunded program. This also means that news outlets will understand that there is money available to them, if they choose to seek it out.

The second is that the problem of low participation is likely to be self-correcting. If only 10,000 people participate, and each voucher ends up being worth $1,000, it is likely to get people angry. Their route to correct the problem is to use the vouchers themselves.

This parallels a story that Alan Greenspan tells in his autobiography. As Chair of the Federal Reserve Board, Greenspan sat on the board of the Resolution Trust Corporation (RTC), the agency set up to sell off the assets of the Savings and Loans that went bankrupt in the 1980s.

In the RTC’s first major auction, assets sold at ridiculously low prices. There were stories of perfectly fine middle-class homes selling for $5,000, which was absurdly low even then. These stories created a mini-scandal. However, they led to many more people taking part in later auctions, which led to much more reasonable prices.

According to Greenspan in his autobiography, the low prices and mini-scandal was by design. He knew that reports of great bargains would increase interest in the auctions. (I don’t believe him, I think they just failed to publicize the auctions adequately.)

Anyhow, there is a valid point here that the DC design of the news voucher system takes into account. If people see that they will have a large chunk of money to give to whatever news outlets they value, they will take advantage of the opportunity to use the money. If the first round has low participation, it is likely that the high value of each voucher will lead many more people to participate in subsequent rounds. 

Dudley is of course right that any sort of subsidy system does pose a risk of abuse. The most immediate check is that people ideally have some knowledge of the news outlet to whom they are contributing, and won’t give their money to an outlet that doesn’t perform useful work. But there are no guarantees.

We know that there are many cases where charities abuse their I.R.S. tax-exempt status, which effectively is a taxpayer subsidy of 40 cents on each dollar given. There are instances where the top people running charities line their pockets and actually use very little of their donations for the ostensible purpose of the organization. In spite of these abuses, there are relatively few voices calling for the elimination of the deduction for charitable contributions. (It is worth noting that Mr. Dudley’s employer, the Seattle Times, has opted to take advantage of this subsidy by setting up a non-profit to support investigative journalism.)

The Journalism Competition and Preservation Act as an Alternative

The main thrust of the Journalism Competition and Preservation Act (JCPA) is to effectively provide an anti-trust exception, so that smaller news outlets can collectively negotiate with the Internet giants. While this would likely be good policy (the Internet giants do have huge market power), it is not likely to be sufficient to reverse the loss of funding to local news outlets in recent decades.  

Extrapolating from the experience in Australia, where negotiations have yielded roughly $50 million in annual revenue, a comparable law in the U.S. would yield in the neighborhood of $600 to $800 million annually. That would clearly be a substantial help, but would not nearly make up for the drop in revenue to newspapers over the last three decades.

There are also two areas where the voucher approach has a huge advantage over the JCPA. First, the voucher approach would not just look to preserve the current structure in the news business. It is consciously intended to open the door to new voices and perspectives. This is a huge issue, since public trust in the media has fallen through the floor in recent decades.

It is understandable that the prospect of new competition might make some of the existing news outlets unhappy, but if we want news media that are truly responsive to the public’s needs, we should be trying to structure it in a way that opens as many doors as possible. The voucher system does this, whereas the JCPA simply gets more funding for existing outlets.

The other important advantage of the voucher system is that it will produce material that is available to the public at no cost. We want people to have as much access to information as possible. While it might be good for people to buy subscriptions to their local paper, most people don’t. Even if there are ways around paywalls and people can still share information, ideally we should want information to be spread as cheaply as possible.

Economists usually want items to sell at their marginal cost. This means the price should be what it cost to produce one more loaf of bread, one more shirt, or one more paper clip. The marginal cost of transferring a news article is zero. The voucher system allows for it to sell at that price, the current system does not. This makes it as cheap as possible to have a well-informed public since anyone with access to the web could have full access to all the material supported by the voucher system.

Local or National Measures

Dudley also argues that the problem of supporting local journalism is far better addressed at the national level, since it is a national problem. Also, the national government’s finances are far more robust than those of any city. Even in a downturn, the federal government is not restricted in its spending.

This point is well-taken, but it ignores the current political environment. We have one house of Congress controlled by a party that seems to think shutting down the government is an end in itself. Even the JCPA is likely an undoable lift with a Republican Party that seems unwilling to do anything that might impinge on corporate profits.

A major part of the rationale for creating voucher systems at the local level is to show that they are workable. If Seattle and Washington, DC take the lead in setting up these systems, and they prove popular, other cities are sure to follow. And, if there is a track record of success, it is likely there will be a push to have a public journalism voucher system implemented nationally.

There are many examples of policies advancing along these lines, notably unemployment insurance and the minimum wage. Congress is quite reasonably reluctant to take big steps in uncharted water, but when a system has been demonstrated to be effective at the state or local level, there is less risk in adopting it nationally. Congress also then has the benefit of seeing the plusses and minuses of a system that is actually in practice, rather than drawing it up from scratch.

In short, adopting a system like the journalism vouchers at the local level is not an alternative to doing it at the national level. It is a necessary step in that direction.  


Local Journalism Vouchers – Big Potential Gains, Little Downside Risk

The proposals being crafted in Seattle and Washington, DC draw on several decades of analysis and debate among academics and journalists. They surely are not perfect, but they offer a clear route for addressing a real problem.

Even if they are adopted and there ends up being less to show than their advocates (including me) expect, we will not walk away empty-handed. Some number of news outlets and serious reporters will be supported with this funding. There will be investigations that would not have otherwise been undertaken and news stories that would not have been written and read. Perhaps most importantly, the system will have supported a number of journalists for its duration, helping them to develop skills, which they can then use in other contexts, even if the voucher system does not survive.

For these reasons, there seems very little downside risk in trying the local journalism voucher route. And, there are enormous potential benefits.


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