11. OTHER FEDERAL POLICIES:
THE FEDERAL COMMUNICATIONS COMMISSION,
AND THE DEPARTMENTS OF TREASURY AND AGRICULTURE
In addition to the various classes of programs discussed above,
there are a number of other federal efforts that are noteworthy.
This Part discusses several such programs.
11.1 FCC Programs
11.1.1 Policies & Practices
In 1978, after convening a conference on minority ownership policies,
the FCC concluded that the perspectives of minorities and programming
directed specifically to minorities were inadequately represented
in the broadcast media, and that adequate representation of minority
viewpoints was necessary for both the minority and non-minority
communities. The agency determined that increased minority ownership
of broadcast enterprises was needed to ensure this diversity of
views and programming. (In Metro Broadcasting,
(101) the Supreme
Court later relied upon Congressional and Commission findings
that minority ownership increased the diversity of broadcast programming.)
The agency also determined that various other methods of encouraging
more programming diversity that pre-dated 1978, e.g., consideration
of minority status in comparative hearings, had not been fully
effective.
Since that time, the FCC has undertaken a number of initiatives.
Most prominently, since 1994, in response to Congressional directive,
the Commission has fashioned measures to ensure that smaller businesses,
including businesses owned by minorities and women have opportunities
to participate in the auctions of personal communications services
and other new spectrum-based technologies.
A summary of the principal FCC policies and practices regarding
minorities follows:
- Auctions for personal communications services: In 1993,
Congress authorized the FCC to conduct auctions to award licenses
for communications technologies which use the electromagnetic
spectrum. Since implementing this authority, the FCC has raised
over $9 billion in auction revenue for the U.S. Treasury. In authorizing
the use of auctions, Congress directed the FCC to "ensure
that ... businesses owned by members of minority groups and women
are given the opportunity to participate in the provision of spectrum-based
services, and, for such purposes, consider the use of tax certificates,
bidding credits, and other procedures."
(102) The FCC created
bidding credits, tax certificates, and installment payment plans for women
and minority-owned businesses in these auctions in order to overcome
the problem of general lack of capital access by these groups.
In the fourth auction, scheduled to be held in mid-1995, the FCC
created special measures for smaller entities, with enhanced measures
for small businesses owned by minorities and women. However, these
measures provided by the statute and FCC implementing rules were
constitutionally challenged, and the auction was initially stayed
by a federal court. That case was recently settled and the auction
will take place later this summer.
Fearing additional constitutional challenges to the fourth auction
in the wake of the Adarand decision, many minority- and
women-owned businesses urged the FCC to modify its rules by eliminating
race- and gender-conscious measures. The FCC has proposed to do
so, but the proposal would apply only to the fourth auction. The
FCC plans to continue to explore ways to preserve race- and gender-based
rules for subsequent spectrum auctions.
- Consideration of minority status in comparative broadcast
hearings:
The FCC considers minority ownership in administrative proceedings
to grant new broadcast licenses. Minority ownership is considered
a plus in so-called comparative hearings, and weighed together
with other relevant factors. These factors include diversification
of ownership, proposed service, past broadcast record, and efficient
use of frequency. This program was upheld by the U.S. Supreme
Court in Metro Broadcasting. For several years, the Commission's
appropriations statute has prohibited it from re-examining this
policy.
- Efforts targeted at women in comparative broadcast hearings:
In 1978, the FCC extended to women-owned businesses its policy
of awarding comparative credit in hearings to award new broadcast
licenses. However, in 1992, the D.C. Circuit -- in an opinion
by then-Judge Thomas over a dissent by then-Chief Judge Mikva
-- struck down the FCC preference favoring women applicants. In
Lamprecht v. FCC, (103)
the court found no correlation demonstrated
by the FCC between women ownership and diversified programming.
The FCC has not attempted to reinstate this gender-based preference.
- Distress sale policy: Under this policy, a broadcaster
whose license has been designated for revocation or whose renewal
has been denied can assign the license to an FCC-approved minority
enterprise, and thereby avoid the otherwise applicable transfer
restrictions. The purchase price by the minority entity must not
exceed 75% of the fair market value. This policy has had a minuscule
impact because very few stations are subject to distress sales,
and they tend to be smaller radio stations. For several years,
the Commission's appropriations statute has prohibited it from
re-examining this policy. This policy was also upheld by the U.S.
Supreme Court in Metro Broadcasting.
- Tax certificate policy (the "Viacom" issue):
Under FCC's tax certificate policy (carried out pursuant to §
1071 of the Internal Revenue Code)
(104) and the
Commission's
current appropriations statute, an owner of a radio or television station
can sell to a minority-owned enterprise (the minority buyer must
maintain both legal and actual control over business operations),
and thereby defer capital gains and/or reduce the basis of certain
depreciable property. This program often lowers the price of the
station for a minority buyer, thus overcoming the general problem
of lack of minority access to capital. This program was the one
most frequently used in the transfer of licenses to minorities.
In the fall of 1994, the FCC proposed reforms in the § 1071
program. Before the issues could be fully explored, Congress in
April 1995 repealed the authorization for this program, attaching
the repeal to an unrelated provision.
11.1.2 Performance & Effects
Until Congress authorized the use of auctions to award new personal
communication services licenses, the FCC had given away licenses
for free. The FCC believes that absent affirmative measures to
foster participation by small minority- and women-owned businesses,
the use of auctions to award licenses would have erected a formidable
new barrier to their participation in the telecommunications revolution,
affecting an industry which is owned almost exclusively by non-minority
white males.
We now have some data concerning participation by minority and
women owned businesses in auctions for licenses to provide communications
services, three of which have already occurred. In the first auction,
which attracted very high bids for a small number of nationwide
licenses, no women- or minority-owned businesses won. However,
in the next auction, which involved 594 local licenses for much
smaller bids, minority businesses won 23.6% of the licenses and
women-owned businesses won 38.2% of the licenses. In light of
the results of the first auction, the FCC made some changes in
its system of benefits for these groups, and in the third auction,
which involved 30 licenses for large regions, approximately 35%
of the licenses were won by women- and minority-owned businesses.
(105)
Although the FCC has been barred by Congress in recent years from
utilizing its funds to evaluate certain of its minority broadcast
ownership programs, existing data and anecdotal evidence demonstrate
that the FCC's efforts have encouraged a marked increase in the
percentage of minority-owned broadcast and cable television systems.
In 1978, 0.5 percent of all licenses were minority-owned; today,
2.9 percent are. The FCC has testified that most sales to minorities
occurring after 1978 would not have happened without its
§ 1071 tax certificate policy.
(106)
The vast majority of existing minority broadcast owners have utilized
tax certificates at some point during the past 15 years. In 42%
of these cases, licenses were later transferred, with an average
holding period of four years; the FCC says that this is not an
unusually short time for this industry. The data show that the
great majority of tax certificates have been used to acquire relatively
small radio and television stations.
(107) The FCC believes
that theprogram has not been abused, either through the use of sham
"minority-controlled"
companies or through the rapid flipping of licenses by new minority
owners.
11.1.3 Evaluations & Proposed Reforms
The licensing of new telecommunications technology raises policy
considerations distinct from the § 1071 program, because
there is no link between ownership and diversity of viewpoints
expressed. However, the FCC believes that the licensing of new
telecommunications technologies creates an unprecedented opportunity
to provide small minority- and women-owned businesses meaningful
opportunities to participate in this rapidly expanding sector.
In addition, obtaining a license in these auctions merely gives
the winner the ability to try to succeed in a highly competitive
field. Finally, FCC officials believe that its program to enable
women and minorities to bid more successfully in these auctions
has resulted thus far in increased revenue to the United States
Treasury through an increase in the number of bidders.
During recent Congressional consideration of tax legislation,
the FCC proposed a number of reforms of the tax certificate program
benefiting the sellers of broadcast licenses to minority-owned
and controlled entities. The FCC proposals would have limited
and targeted the tax benefits. The Administration indicated in
testimony and in negotiations on Capitol Hill that it favored
such reforms rather than total repeal of the provision. Nevertheless,
Congress has repealed the provision, and done so retroactively
in order to reach the multibillion dollar Viacom transaction.
This repeal is significant because the FCC believes that the §
1071 program was by far the best method to increase minority ownership
of broadcast, cable, and satellite stations, and thereby achieve
diversified programming. Because of a general lack of access to
capital and limited publicity regarding sales of existing stations,
minorities have failed to achieve increased station ownership
without the tax certificate program.
The question of minority and women ownership of broadcast, cable,
and satellite stations will be quite important in the near future
because the technology in this industry is rapidly changing, transforming
the meaning of "broadcast." Congress, the Administration,
and the FCC will have to address the issue of whether the current
station owners will simply be allowed to transfer their ownership
and control to the new technology, and thereby largely retain
the current ratios of ownership, or whether an entirely new system
should be adopted that would open the market to a broadening of
opportunity and participation. (Commission staff state that some
proposals for allocation of the new digital HDTV spectrum threaten
virtual elimination of low power television stations, which is
one of the areas in which there has been a higher percentage of
minority ownership.)
The Commission remains committed to diversifying ownership in
the telecommunications industry in both the broadcast sector,
where format diversity is critical, and in non-broadcast areas
of emerging technologies, where the Commission believes that entrepreneurial
opportunity in new industries is likely to be dominated by established
firms, to the longer run detriment of the industry and the economy
as a whole.
11.2 The Treasury: Minority Bank Deposits
11.2.1 Policies & Practices
Pursuant to Executive Order 11458, promulgated in 1969, the Treasury
Department administers a "minority-owned bank deposit"
program in which these banks receive special consideration to
act as depository institutions holding cash for federal agencies,
as long as no increased cost or risk for the government results.
This is a totally voluntary program through which the Treasury
Department encourages federal agencies and private entities to
use minority-owned financial institutions. The most important
element of the program is the deposits made by businesses for
federal tax payments.
11.2.2 Program Effects and Future
From 1991 through 1994, the amount of such deposits made in minority-owned
financial institutions ranged from a high of 2.8% of the total,
to a low of 2.1% (which was $21 billion in 1994). These deposits
were made in 117 minority-owned financial institutions in 1994,
approximately 1% of the total number of institutions receiving
such deposits. (The Treasury Department does not have data showing
what percentage of federal agency deposits are placed in minority-owned
banks under this program.)
This program had considerable potential for minority-owned institutions
because the Treasury Department, federal agencies, and private
entities have wide discretion in choosing which financial institution
to use. This potential was never realized as the prior two Administrations
largely ignored the program.
This program in the near future will have much less value because
technology will soon sharply increase direct electronic deposits
of taxes by businesses; this will eliminate the need for a financial
institution in the middle, and will save considerable money for
both businesses and the Government. Consequently, the massive
tax deposits currently being made in both minority-owned and other
banks will decline sharply. This technological advance will have
a particularly adverse impact on minority-owned financial institutions
because many of them had become partially dependent upon the federal
tax deposits. The program also has limited utility for federal
agency deposits because the Treasury Department, as a policy matter,
prefers not to have agency money deposited outside the Treasury.
11.3 Agriculture Programs
Pursuant to a statutory requirement, the Department of Agriculture
gives preferences to "socially disadvantaged" persons
in the sale of farm properties, and sets aside loan funds for
farmers in this group. These programs have not generated much
controversy recently, although a prior version of the farm sale
program was severely criticized by the U.S. Court of Appeals for
the Fifth Circuit in 1993, because it prohibited a non-minority
farmer from purchasing a particular farm.
(108)
In the Agricultural Credit Act of 1987, Congress required the
Secretary of Agriculture to establish "annual target participation
rates, on a county wide basis, that shall ensure that members
of socially disadvantaged groups will receive loans made or insured
[under the statutory scheme], and will have the opportunity to
purchase or lease inventory farmland."
(109) Congress further
provided
in 1992, that "socially disadvantaged group" means "a
group whose members have been subjected to racial, ethnic, or
gender prejudice because of their identity as a member of the
group without regard to their individual qualities."
(110) Thus,
"socially disadvantaged" now includes minorities and
women.
The Department of Agriculture obtains farm property when farmers
default on government loans. Once former owner preservation rights
are exhausted, the agency sells its farm property for a specific
assessed value. When the statutory scheme was created, the agency
set aside specific farms for sale only to socially disadvantaged
farmers, depending upon the number of minority farmers in a state.
This program did not work well in increasing or stabilizing minority
farm ownership because properties that were set aside for minorities
often were not in the right location for purchase by a willing
minority buyer.
Given this failure, the agency abolished the set-asides in 1992,
and substituted by regulation a preference system instead. Under
the current program, a farm is put up for sale at an appraised
value, and any of the preference groups described in the regulations
can apply to purchase. The sale is made to whichever prospective
buyer is in the highest preference group. These groups are, in
order: socially disadvantaged "beginning" farmers, all
other beginning farmers, socially disadvantaged family farmers,
all other family farmers. (Congress has been trying to boost the
number of new family farmers in recent years.) If there are no
qualified buyers from these preference groups, the agency attempts
to lease the farm to these same groups. If there are no interested
parties, the farm is sold to a non-preference buyer, which is
usually a large, corporate farm business.
There has been little criticism of the current preference program,
largely because there have been relatively few farms sold to socially
disadvantaged buyers. In 1992, only 2.7% (24 out of 889) of the
farms sold went to socially disadvantaged individuals. For 1993,
this figure was 2.6% (33 out of 1244); and for 1994, it was 4.7%
(53 out of 1120). The agency expects the sale figures to increase
in the future as women farmers are now considered socially disadvantaged.
There is some cost to this program because it would likely be
less expensive if the agency did not acquire property in the first
place.
This program also contains a loan component under which a percentage
of loan money for farms is set aside for women and minorities.
Although the amounts vary considerably from state to state, the
agency roughly estimates that about 10% percent of the funds available
nationally during the last several years has been set aside for
socially disadvantaged farmers. This aspect of the program has
led to resentment recently as the agency has exhausted its generally-available
farm loan funds, but had funds available for loans to socially
disadvantaged farmers.
USDA officials report that the justifications offered for these
programs over the years have been several. Many observers have
argued that government policies and practices in the past operated
in a discriminatory fashion and diminished the opportunities available
to minority farmers. Some observers stress broader problems of
discrimination in the rural economy -- access to credit, for example.
Still others simply observe the sharp declines in the numbers
of minorities engaged in farming, and argue that true integration
of rural and economic life will be improved if something can be
done about this underrepresentation.
11.4 Conclusions and Recommendations
Apart from the principal areas discussed in earlier chapters,
Congress has created a number of affirmative action measures scattered
across the government in order to respond to problems of unequal
opportunity and exclusion. Some of those sampled in this chapter
have recently ended, or are scheduled to end soon. As a general
matter, however, the President should direct agencies to:
- Establish a process to review the effectiveness and fairness
of affirmative action programs on a continuing basis, using the
principles described in this Report.
- Ensure that every affirmative action program is reviewed,
and proposals prepared to eliminate or reform any program that:
-- creates a quota;
-- creates preferences for unqualified individuals;
-- creates reverse discrimination; or
-- continues even after its equal opportunity purposes have been
achieved.
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