A massive budget bill Congress unveiled Wednesday and expected to pass Thursday contains a provision exempting TV broadcast owners in scores of markets from new regulations barring joint sales agreements between stations in the same market. Broadcasters have used the agreements to get around federal limits on the number of stations one company can own in the same market.
The provision in the tax bill was included at the behest of several broadcast companies that have established scores of joint sales agreements with other station owners in their markets, including
Sinclair Broadcast Group(SBGI) - Get Report , Gray Television(GTN) - Get Report , Nexstar Broadcasting Group(NXST) - Get Report , LIN Media(LIN) - Get Report and Gannett(GCI) - Get Report . Under the partnerships, typically a stronger station in a market contracts to sell advertising time on a weaker station in its market.
The budget measure is intended to free the station partnerships from an obligation to unwind under rules passed by the Federal Communications Commission on March 31, 2014. Since 2008 the FCC has approved 85 such partnerships and perhaps hundreds more predate 2008. (The FCC has said it doesn't have the exact number of JSAs.) Media consolidation opponents argue that the arrangements give the senior partner undue influence over the brokered station's programming and operations.
That's harmful to the public interest, the critics say, because viewers lose an opportunity for greater diversity of viewpoints in their communities. Furthermore, there are fewer chances for minorities, women and other prospective owners to acquire stations.
If approved Thursday the exemption will likely diminish the importance of a lawsuit pending in federal appeals court filed by some station groups and the National Association of Broadcasters against the FCC rule change. The appeals court in Washington was scheduled to hear oral argument in the case Dec. 3 but opponents of JSAs led by Prometheus Radio Project successfully sought to have the case moved to the appeals court in Philadelphia where judges have historically been more supportive of efforts to keep media consolidation in check. Oral argument is now expected in Spring 2016.
Andrew Schwartzman, a public interest attorney who represented Prometheus, said he was frustrated that lawmakers, including some Democrats, supported the exemption. One of the supporters was Sen. Barbara Mikulski, D-Md. Sinclair is based in Maryland.
"It's really unfortunate that Sen. Mikulski was willing to help her Maryland business Sinclair rather than Maryland constituents," he said..
Separately, lawmakers late Tuesday reached an agreement to pass a related must-pass tax bill, which continued to include a provision prohibiting favorable tax-free treatment of real estate investment trust spinoffs. The provision would end a tactic employed by activist hedge funds in recent years to push restaurant chains, retailers and casinos to spin off their real estate into tax-free REITs. Insurgent investors have argued that the value of the real estate is not typically represented in the stock price of an operating company and that the tax advantages have made the spinoffs attractive to shareholders.
The move comes after the Internal Revenue Service issued a notice in September suggesting the agency will no longer be giving companies engaged in REIT spinoffs and other similar deals advanced tax-free approval for their deals. That move already put a chill on REIT spinoff activity and activist campaigns for the tactic.
Insurgent investors seeking some form of real estate monetization at targeted companies are expected to instead focus on sale-leasebacks, which are not impacted by the measure.
However, at the last minute, lawmakers softened the impact somewhat by removing a provision that would have retroactively taxed existing REITs if they made certain changes to the structure when they renewed leases after Dec. 31. Even REITs set up decades ago could have been affected.
Robert Willens, president of tax and accounting consulting firm Robert Willens, noted that because of the last-minute changes to the legislation he expects that REIT spinoffs launched by Caesars Entertainment(CZR) - Get Report and Hilton Worldwide Holdings(HLT) - Get Report will likely qualify as free of tax because they all sought IRS rulings on their deals prior to the bill's Dec. 7 deadline.
A provision sought by Republicans to raise the asset size threshold at which a bank automatically becomes designated as systemically important from $50 billion to $500 billion was not included in the package. Under the Dodd-Frank Act, which was written in the wake of the 2008 financial crisis, banks designated as systemically important financial institutions, or SIFIs, are subject to tougher capital and liquidity requirements as well as requirements to draft living wills explaining how they would unwind themselves in bankruptcy.
However, regulatory observers suggest that a bipartisan agreement could still be worked out in 2016 to raise the threshold to as much as $100 billion, a move that would give regulatory relief to mid-size regional banks including Zions Bancorp(ZION) - Get Report and Huntington Bancshares(HBAN) - Get Report .
Alternatively, the Federal Reservemay act on its own to exempt banks with between $50 billion and $100 billion in assets from a key stress tests they currently must undertake to determine if they have enough capital to withstand a future financial crisis. Jaret Seiberg, analyst at Guggenheim Partners, notes that such a move by the Fed would give exempted regional banks more control over their stock buyback and dividends "and could encourage more M&A."