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.

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.