October 24, 2005

October 24, 2005 | WebMemo on Regulation

Another Bridge to Nowhere? The Senate's $3 Billion Subsidy for Aged Television Sets

Q: Late last week, the Senate Commerce Committee, chaired by Sen. Ted Stevens (R-AK), voted to spend $3 billion on which of the following?

  1. Relief for victims of Hurricane Katrina;
  2. Improving homeland security; or
  3. Subsidies for people with old television sets.

A: Believe it or not, if you choose "c," you are correct. Even more startling, this massive new spending program is a part of the committee's contribution to the budget reconciliation bill-legislation that was intended to showcase Congress's new resolve on spending.

 

The subsidies are tied to ongoing efforts to complete the long-delayed transition from the existing analog television broadcast system to a more advanced, digital, system.[1] Currently, U.S. broadcasters transmit in both modes, using previously licensed frequencies for analog broadcasts and new spectrum given to them for digital broadcasts. When the transition is complete, the old frequencies are to be auctioned off and used for a host of new telecommunications services. Most importantly for congressional budgeteers, those auctions are expected to raise huge amounts of revenue-$10 billion according to the Congressional Budget Office and more than twice that amount according to some outside estimates.

 

Crucially, the legislation adopted by the committee yesterday set a firm date-April 7, 2009-when the old frequencies will be returned. For the vast majority of Americans, nothing will change on that date. Some 85 percent of U.S. households receive television signals through cable or satellite services, rather than broadcasts, and so the broadcast conversion will not directly affect them. However, those that do watch over-the-air broadcast signals will not have any TV reception after that date unless they own a digital television set or a set-top converter box for digital broadcasts.

 

The new subsidy is intended to address this issue. "We plan to provide a set-top box…to everyone who needs a box," said Sen. Stevens early last week. Specifically, the legislation provides for the federal government to pick up almost the complete cost of the set-top boxes, which it estimates to cost $50 to $60 apiece.  Consumers would be responsible for only a "co-pay" of $10.

 

The converter box subsidy is not a new idea. Proponents point to a similar, though more limited, program employed in Berlin when that city moved to digital television in 2003. Using subsidies to ease the transition in the U.S. has immense political appeal. Lawmakers fear the wrath of angry viewers suddenly unable to tune into their favorite shows.

 

Ultimately, however, subsidies are the wrong thing to do. There is no federal entitlement to analog television, nor should there be one. Viewers have been on notice of the transition for nearly a decade, and there is no reason for those who have prepared for it to subsidize those who have not.

 

Still, the real surprise last week was not the subsidy itself, but its size. Even many subsidy supporters imagined that it would cost perhaps a few hundred million dollars. A study by the Government Accountability Office (GAO) this February estimated that the subsidy would cost no more than $2 billion and as little as $463 million.[2]

 

The Senate committee's plan exceeds GAO's top-end estimate by a billion dollars, which is real money even in Washington. Instead of a limited, narrowly tailored program, the plan would provide set-top boxes to everyone, with few or no limits. Aid is not targeted to those in financial need-even the rich would receive subsidies for their old televisions. Equally problematic, the subsidy would not be limited to those dependent on over-the-air TV. Even households with cable and satellite subscriptions would be eligible to receive aid.

 

This is significant; while only a small fraction of households have only over-the-air reception, many more have extra TVs stashed away in the spare bedroom or basement that are not connected to cable or satellite service. Under the Senate plan, these TVs will get set-top boxes courtesy of the federal government-at a cost that probably exceeds the value of the TV sets themselves.

 

Defenders of the program argue that its costs will not fall on the taxpayer because the money needed will be offset from the $10 billion or more expected from the sale of the analog television frequencies. Nonsense-money is fungible and every dollar spent, from whatever source, means that one less dollar is available for deficit reduction, other programs, or tax cuts. It is simply not free money.

 

This week, the House Commerce Committee is expected to take up the issue. That committee's draft legislation, circulated last Friday, would create a much smaller program, costing some $990 million. The House plan calls for vouchers worth $40, leaving consumers responsible for the rest of the cost. It also limits households to two subsidized set-top boxes each. While an improvement over than the Senate plan, the House subsidy is still too broad. Among other things, it should require a showing of financial need by recipients and a showing that the recipient has no subscription television service and is dependent on over-the-air TV.

 

Or even better, the House could eliminate this unnecessary subsidy completely.

 

James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.



[1] See James L. Gattuso, "Handouts and Takings: Congress and Digital Television," Heritage Foundation WebMemo No. 884, October 14, 2005.

 

[2] Government Accountability Office, "The Digital Broadcast Television Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV Transition," February 17, 2005.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies