Why California Lawmakers Should Tax Ads to Fund Local Journalism

California state senators have a chance right now to advance legislation (SB 1327) that would commit about $500 million annually to support local news in the state. To put it bluntly, opportunities like this don’t come around very often. Given the dramatic decline in the production of local news and civic information, legislators in the state senate should pass this bill — for the sake of California’s communities, and for the sake of media workers facing an increasingly unstable economic landscape.

Here’s how SB 1327 would work: The legislation would impose a “data extraction mitigation fee” — a 7.25% tax on digital advertising — on major tech platforms to help support the production of local news. The revenue generated would provide outlets with an employment tax credit to cover a portion of employees’ wages and would support UC Berkeley’s California Local News Fellowship program, which places reporters in underserved communities. In short, the bill would spur the hiring and retention of journalists at a time when newsroom job losses have reached crisis levels.

This is what you should know about the bill:

Taxing advertising is a rational way to support local journalism

When the journalism industry was at its most financially stable, advertising was the core pillar of economic support for commercial outlets. Newspapers were a natural home for advertisers because they bundled information that a broad swath of community members needed. In other words, as the main sources of information in many communities, newspapers attracted a lot of eyeballs that advertisers valued. Since public-accountability journalism was packaged together with more ad-friendly content (sports, culture, etc.), the most civically valuable parts of local-news coverage were subsidized.

As the internet age kicked into gear, however — and as information became more decentralized — newspapers lost their stranglehold over local ad markets. As consumers swapped out their morning newspapers for social-media feeds and search engines, advertisers took their money and moved it to Amazon, Facebook, Google and other tech platforms.

This shift has exposed a stark reality: We can’t rely on the market alone to address community-information needs or support the kind of journalism that people need to feel connected and empowered. In fact, many legacy newsrooms never addressed the needs of low-income communities and communities of color in the first place.

As we face this deficit, it’s become abundantly clear that local news is a public good, and one that requires legislators’ support. There are many avenues for lawmakers to pursue — but taxing advertising to fund the production of civic information is a rational way to transform what was an implicit funding mechanism for local journalism into an explicit and reliable support system. That’s why Free Press Action has long supported the concept of a digital ad tax, and why we’re so excited to see this idea introduced for debate in California.

SB 1327 isn’t perfect — but its flaws can be addressed

As promising as it is, SB 1327 has its shortcomings. As we told lawmakers in a letter this spring, there are a few ways to improve the bill to unlock its full potential: Namely, placing a revenue cap on eligible outlets so that wealthy broadcasters and corporate media giants don’t receive a disproportionate share of the benefits. Lawmakers must also ensure that support for ethnic media outlets, nonprofits and community publishers is prioritized above all else.

More broadly, lawmakers should treat SB 1327 as a “bridge” policy — it could help immensely in the short and medium term, but more action will be needed to address the structural issues and long-standing inequities baked into our media system.

Free Press Action is deeply committed to working with lawmakers to address these issues, and there’s a clear path forward to improving the bill. But if the legislation dies on the vine in the Senate before it can advance to the Assembly, then the bill’s immense potential could fly out the window.

If that happens, the California Journalism Preservation Act (AB 886) — a deeply flawed bill backed by corporate media giants that could undermine core principles of the open internet — is poised to step into the vacuum. And if that approach takes root in California, it could spread to other states interested in addressing the decline of local news.

Making the economic case for investing in local journalism

Some, like the California Chamber of Commerce, have argued that the costs of a tax on tech platforms’ advertising revenues will be passed down to medium- and small-sized businesses. More rigorous study is needed, and these claims shouldn’t slow the bill’s momentum at this stage. One possible way to address this concern would be to enact a broader ad tax, which would be much lower (1%), and would apply to all types of advertising (with exemptions for news publishers and possibly smaller companies). This would help lessen the chances of costs being passed down and would ease the minds of small-business owners.

If we zoom out further, there’s ample evidence that investing upfront in robust public-interest journalism will pay big dividends in the long run. Research has shown, for instance, that “each dollar spent on [investigative] stories can generate hundreds of dollars in benefits to society,” and that “cities face higher long-term borrowing costs when watchdog reporters are laid off.”

And this is to say nothing of how a healthy journalism ecosystem can benefit democracy and society as a whole. When communities have strong sources of local news and civic information, residents become more civically engaged, more connected with one another and less polarized.

Google’s threats to pull funding only underscore the bill’s importance

Google is threatening to pull its philanthropic investment in California newsrooms if this bill becomes law — which just proves the need to create predictable and sustainable support mechanisms. The health of California’s community-news sources shouldn’t depend on the whims and desires of exorbitantly wealthy tech platforms, and SB 1327 shows that we can develop a better path forward. 

Any investment in good reporting is welcome, of course, and funding from efforts like the Google News Initiative have made a tangible difference in communities across the state and country. But the fate of U.S. journalism can’t rest in the hands of Silicon Valley alone, especially when tech platforms have shown a willingness to yank support back whenever they feel threatened. 

To tackle an issue as gargantuan as the collapse of local news and civic information, we need more public funding and more philanthropic funding. It doesn’t need to be a zero-sum game: Lawmakers and private entities can work together to invest in a local-media system that moves beyond the economic models of yesterday, using the information needs of communities as a north star. 

Are you a California resident? Sign this petition and urge your state senator to seize this opportunity to invest in local news.

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