Board demands budget cuts from deficit-riddled Seattle station

Originally published in Current, Dec. 16, 2002
By Karen Everhart

After running in the red for six of the past seven years, Seattle's public TV station must come up with a balanced budget this year, its board finance committee has decided.

Cutbacks may result as KCTS struggles with a microcosm of public TV's fiscal illnesses. It's dealing with the same challenges as other local stations, although its situation has been exacerbated by the Northwest's chilly economic climate, said President Burnhill Clark. And it's suffering disappointments in corporate support for national productions that most midsize stations don't attempt.

Already KCTS has whittled away a third of its staff, from 265 employees in the pre-deficits year of 1995 to 165 this month.

Clark was upbeat about the station's prospects, but the Seattle Weekly published a sharply contrasting picture this month, and--halfway through this fiscal year--the finance committee has refused to clear Clark's proposed budget for the year. Chairman Jim Costello told Current the committee would not accept a budget that does not at least break even.

Clark said he is working closely with the committee to monitor the station's finances, and he supports its goal to balance the budget.

The station began deficit spending in 1996--when changes to KCTS's cable channel assignments in British Columbia prompted steep drops in donations from Canadian viewers, Clark said. Since then, for every fiscal year except 1999, KCTS ended its year in the red, he said.

The station also suffered reductions in state funding and corporate underwriting, Clark said. New CPB rules on community service grants in overlap markets recently reduced KCTS's federal support by more than $500,000.

KCTS had a surplus of $1.2 million in fiscal 1999 but returned to the red with deficits of $2.8 million in fiscal 2000 and $1.7 million the next year.

The fiscal 2001 deficit amounted to 8 percent of the station's $21.1 million in revenues.

The station would have been worse off if PBS had not permitted it to defer programming fees that totaled $2.8 million in June 2001. It's paying off the fees with payments scheduled through 2006. The PBS Board's Finance Committee authorizes deferred payments for "extraordinary circumstances," such as natural disasters or "serious financial reverses that are beyond the station's control," according to a PBS Board policy. A PBS spokesman said fewer than a dozen stations are paying dues on a deferred basis.

KCTS's total debts came to $6.2 million in June 2001, but it retired a $2.8 million bond issue the next month, according to audited financial statements.

CPB hasn't audited KCTS in the past eight years, according to Inspector General Kenneth Konz. He began reviewing the station's audited statements last week. "I want to look at patterns over a number of years," he said. He plans to consult with CPB management before deciding whether to launch an audit.

The KCTS Board's finance committee has directed management to produce a break-even budget for fiscal 2003, according to Costello, a retired PricewaterhouseCoopers accountant. "We cannot have another deficit this year--for whatever reason," he said. "Whatever it takes, we've got to turn the tide."

When KCTS management presented its 2003 budget in June, the committee questioned whether projections for national underwriting revenue were too optimistic, Costello said. The committee gave tentative approval for KCTS to operate on that budget but imposed some conditions.

"We want to see some near-term specifics on the soundness of the national underwriting estimates, and if those are not there, then we want to see cuts that will get us back to a break-even budget," Costello said. He anticipates that the committee and the board will act next month.

KCTS plans to close its two money-losing Channel 9 stores after the holiday shopping season but will continue to sell merchandise via telephone and online orders, Clark said.

Costello said the stores weren't the primary cause of the station's money woes. "The financial problem's focal point is in production, clearly, particularly in national productions. Getting the underwriting has been very difficult."

Six national programs are in production at KCTS, including a primetime comeback for Bill Nye, star of the discontinued PBS children's series Bill Nye the Science Guy. Producers completed the pilot for Eyes of Nye, a new concept targeted to young adults and families, but they are revamping the format before going into production of 13 episodes, according to Clark.

The Seattle Weekly also found problems with a venture capital firm that invested in the station's national productions. KCTS secured $3 million for its national production portfolio from a subsidiary of Omnicorp Financial Group, an offshore bank on the West Indies island of St. Vincent that came under regulatory scrutiny this year for risky investments, according to Marcus Wide, an executive accountant of PricewaterhouseCoopers, who was appointed its controller at the bank's request. Omnicorp Bank, which invested in KCTS productions through a subsidiary, is solvent, Wide said. The investment in KCTS productions was later transferred to Solara Ventures, a Vancouver-based investment group with ties to Omnicorp President Nelson Bayford.

The KCTS board authorized the station's relationship with Omnicorp after management determined that it was licensed and operated under offshore banking standards, said Clark, who now deals exclusively with executives of Solara. KCTS has a contract with the investors to share back-end revenues of its national programs.

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