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By Keith Mahar —— Bio and Archives June 13, 2008

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By Keith Mahar

What is this Canadian Television Fund (CTF)? Well, it is a prime example of crony capitalism, a public policy which was deliberately designed to be inefficient in order to unjustly enrich influential corporations.

 

For example, Rogers Communications Inc. has been enriched by hundreds of millions of dollars since the start of the original television program production fund policy without the corporation being required to do any work for the fortune. For those interested in crony capitalism, there is far more “money-for-nothing” involved in this case than in the former Liberal Sponsorship scandal. 

However, Prime Minister Stephen Harper does not appear overly concerned with this case. As documented on my website www.mediascam.com, Mr. Harper was notified of this issue during the last election and provided evidence of potentially unlawful activities by the CRTC and corporations. Remember the campaign where he got elected on a platform which promised to clean up the federal government? Right, weeks after he became Prime Minister, the CRTC destroyed documents related to the production fund scheme, which had been specifically identified for Mr. Harper.

  The Government of Canada established the CTF in partnership with the cable industry in September 1996, while the Hon. Sheila Copps was Heritage Minister. The Fund was marketed as a visionary initiative to increase the production and distribution of high-quality Canadian television and create employment. Since its inception, the Fund has distributed over $2.7 billion to private Canadian production companies, including a significant percentage of this amount in non-repayable grants; a subsidy which does not need to be repaid—free money for companies. 

Canadian programming is a guiding principle of the Broadcasting Act, but the application of the legislation has been chronically abused to benefit industry interests. In fact, nine months before the announcement of the Canadian Television Fund, Professors Globerman, Janisch and Stanbury asserted in New Economics and Regulation of Telecommunications that the majority of economists consider Canadian content regulations “as boiling down to yet another case of a small well organized group using the power of the state to redistribute income to themselves.”  And the CTF is a prime example of this type of income redistribution.

According to the CTF, it has played an important role in protecting Canadian culture by subsidizing more than more than 27,000 hours of domestic television programming and its cost has been “financed by contributions from the Government of Canada, the cable television and direct-to-home satellite industries and Telefilm Canada”. In reality, however, taxpayers and consumers have been forced to pay an estimated $3.4 to $3.7 billion to finance the $2.7 billion worth of non-repayable grants.

Why? Undisclosed to ratepayers, cable television companies have been permitted to pocket the extra $700 million to $1 billion without being required to do any work by the Canadian Radio-television and Telecommunications Commission (CRTC). Moreover, the corporations have not been required to account to the federal regulator where any of the extra money has been spent.

Not surprisingly, the cable industry proposed the original concept of a production fund.  In February 1993, cable companies offered to collectively contribute up to $100 million to finance a production fund if the CRTC adopted the industry’s proposed regulatory changes; changes to permit the monopolies to over-charge consumer and cross-subsidize other businesses.  Production companies quickly supported the proposal,  but wanted more than $100 million and lobbied for subsidies in the form of non-repayable grants, free money. Members of the public were effectively shut out of the process by the failure of the CRTC to notify them that the industry proposal was to be considered at a ‘public’ hearing , thereby denying Canadians their statutory right to represent their interests in the quasi-judicial process. Without the benefit of a due process, Cabinet appointees at the CRTC created the Cable Production Fund policy in June 1993, a regulatory anomaly in Western democracies.

The policy was designed to allow the monopolies to charge consumers an estimated $600 million over the first five years of its operation, without the corporations being required to do any work for the revenue. In addition, there was a built-in escalator to significantly increase the cost to consumers in the future. All the monopolies had to do was transfer 50% of the money collected each month under the scheme to the Cable Production Fund, established to distribute non-repayable grants to production companies.  The CRTC decision required consumers to pay their monopolies a 200% monthly return on the amount of money transferred voluntarily by the corporations to the Cable Production Fund, netting the statutory monopolies an absurd monthly return of 100% without being required to do any work.

To put the unjust enrichment into proper perspective, banks were only paying consumers 9% per year on their 5-year GICs at the time. CRTC bureaucrats had the gall to publicly depict the transfers by cable companies as “voluntary contributions”, creating the false impression that their motivation was philanthropic in nature. To add insult to injury, consumers were forced to pay goods and services tax and provincial sales tax on top of the cost of the corporate welfare policy since its cost was to be included in the monthly price of cable service. As a result, in order to finance $300 million in non-repayable grants to production companies over five years, consumers were to be required to pay close to $700 million. Imagine, a public policy where less than 43% of its cost actually went to its stated purpose.

The decision was outrageous to the point that a pro-Canadian programming group wrote a scathing submission to the CRTC against the policy, which was allegedly made to support Canadian programming. Friends of Canadian Broadcasting described the policy as “a breach of faith with seven million households” and warned the federal regulator that its decision would “threaten public support for broadcast regulation” if properly understood by Canadians.

But the CRTC bureaucrats had absolutely no intention of being held accountable for their regressive wealth redistribution program. Their strategy was to deliberately manufacture misunderstanding by ratepayers and introduce the policy by stealth, trickery and deception. And they succeeded. 

The monopolies started collecting fees from millions of consumers to finance the corporate welfare scheme on January 1, 1995. Citizens, however, did not object because the CRTC had timed the implementation of the policy fees to coincide with the expiry of temporary fees that had been charged to cable subscribers for other purposes. More importantly, the CRTC had sanctioned the monopolies to collect all monies for the Cable Production Fund policy under false pretence. The approximately 6 million consumers paying for the scheme had been notified in writing by their cable companies that the fees were for a completely different purpose, to partially offset eligible capital expenditures required to provide their cable service. The government-regulated fraud resulted in total public ignorance about the policy, its beneficiaries and its monthly cost. Herein lies the convenient deception which permitted the scheme to work, an anti-democratic practice which disempowered ratepayers.

Canadian Heritage subsequently entered into its current partnership with the corporations profiteering from the corruption the following year, amalgamating the Cable Production Fund and Telefilm’s Broadcast Fund to create the CTF. In the process, the outstanding case of crony capitalism was incorporated into the Fund. Sure, the CRTC subsequently altered the formula used to split the proceeds of the scheme between the cable and production industries, but consumers and taxpayers continue to pay for the non-repayable grants to production companies, and cable companies are still profiteering from the public policy. By the way, those benefiting from the CTF are still actively promoting that it is essential to Canadian culture, hiding its bogus mathematics behind patriotism.

A judicial review of the CTF is warranted to review how public officials abused their positions of authority to enrich corporations by several hundred million dollars without any work being required. Maybe Justice Gomery might offer his services at a discounted rate. After all, it simply just another case of crony capitalism enriching influential companies without any work being required. And he is up to speed on that type of case.



Guest Column Keith Mahar -- Bio and Archives | Comments

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