Jane A. Couch, a dynamic woman with 15 years' experience as a professional fundraiser, arrived at National Public Radio last September as the network's new vice president for development. NPR President Frank Mankiewicz had a dream of financial independence from federal funding, and it was Couch's job to make it come true.
Seven months later the dream had become a nightmare. While Couch said she was raising more money from private corporations and foundations than NPR had done before, it was still less than the network needed.
"The goals were always a little bit murky," Couch said in an interview. "A lot of pieces of the assumption I was never terribly clear about. In November I was able to pin some people down and I was told $5.3 million. That was a pretty hefty number . . .
"I spent most of the fall trying to understand the finances here . . . The projections were optimistic--overoptimistic . . . $5.3 million seemed a little high."
Couch said that in fiscal 1982, the year before she arrived, NPR had raised $2.5 million from private sources. Although the $5.3 million goal surprised her, Couch said, "I never say you can't do something. I said, 'We'll give it a try.' When you move from $2.5 million to over double that, you're talking about a pretty big jump."
The fiscal 1983 fund-raising projections, now thought by congressional investigators to have exceeded $7 million at one point, were "grotesquely optimistic" in the words of Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, which controls federal funding for public broadcasting. In the wake of NPR's financial collapse in March, a Hill inquiry is under way in preparation for hearings before a Dingell subcommittee this fall.
Mankiewicz's dream took shape late in 1981 when NPR, which provides news and cultural programs for 281 public radio stations, faced sharp cuts in federal funding under the Reagan administration. For more than a decade NPR had received most of its funds from the government through the Corporation for Public Broadcasting, created by Congress to dispense the funds while shielding NPR from political influence.
At a November news conference, Mankiewicz announced what would come to be known as "Operation Independence"--with the goal of making NPR "entirely funded by other than federal sources" by 1988. The new funding would come from the private sector, with corporations and foundations receiving on-air mentions in return for contributions; and from profit-making joint ventures NPR would undertake to utilize its satellite communications network with stations across the country.
The business effort took the form of a for-profit subsidiary, NPR Ventures, launched early this year. At the same time Couch was hired for fund raising, Richard Hodgetts, a hard-driving manager and salesman, was recruited from AT&T to run the subsidiary.
Hodgetts said in an interview that when he was hired last fall he was told that NPR was a "financially viable entity." (An outside audit for the preceding fiscal year showed a surplus of revenues over expenses, but also showed a working capital deficit of $1.5 million.) Hodgetts said he was also told that $3.6 million had been set aside for start-up costs for ventures and for Jane Couch's fund-raising operation. "It was anticipated when they interviewed me that it would take a two- or three-year period to make this activity profitable," he said.
A special audit of NPR Ventures ordered by the emergency management team that took over control of NPR in May concluded that the "original strategy was appropriate but implementation . . . must be improved . . . Certain management fundamentals were neglected; and NPR's expectations regarding the possible returns from venture efforts and the timing of those returns exceeded realistic expectations."
The auditors, Coopers & Lybrand, said Hodgetts had "a highly respectable business record" and was a good choice for the job. But the report noted that NPR's top management had chosen to enter "an inherently difficult field . . . A small proportion of ventures 'pay out.' Delays always occur. Rapid decisions are required in the face of great uncertainty . . . Negotiations are difficult and idiosyncratic. Capital needs are often underestimated."
The auditors said NPR "could bring no capital of its own to this task. In effect, NPR has been attempting to create, in an environment which is not entirely hospitable, a venture capital firm without capital."
In his 1981 news conference, Mankiewicz said that as NPR became independent it would not need CPB funds even if they were offered. Instead, he said, these funds could go directly to local public radio stations to augment their diminishing federal funds.
He also acknowledged that the whole independence idea was risky: "It's fairly thin ice out there."
In little more than a year, he was to find out how thin. NPR's proposed fiscal 1983 budget included $12.4 million in federal funds from CPB--$3.2 million less than the previous year. From 1982 to 1983, the amount NPR expected to raise from nongovernment sources increased from about $9 million to $14 million. The major portion of the nongovernment income was to come from member stations, which reimburse NPR for programming, satellite use and other services each year. But most of the $5 million increase was expected to come from Couch's fund-raising operation.
"Our fund-raising goals were . . . extremely ambitious, but at the time we were having active discussions with some major funders who could go a long way to making those goals realistic," said Tom Warnock, the second-in-command at NPR. But those funders, he said in an interview, "dragged on, or helped out at a lower level." After that, NPR's financial difficulties "all sort of snowballed."
Warnock said that, when contributions from private corporations and foundations lagged, he and Mankiewicz did not immediately turn their attention to vigorous cost-cutting because, "If you devote your time to cutting back and cutting staff, you can't devote your time to getting the increased revenue. It becomes a self-defeating spirit . . . We were concerned with making the income projections come true instead of concentrating on cutting expenses."
During this period, Mankiewicz and Warnock were vastly expanding NPR operations, adding programs and hiring 81 additional full- and part-time staff members. In a confidential memo dated Oct. 12, 1982, to Mankiewicz, Couch and other executives, Warnock noted that NPR was "dramatically increasing" its program offerings to stations.
At the same time, Warnock wrote: "Continuing decline of federal support will require NPR to raise even more money in the year ahead. As of Oct. 1, 1982, NPR lost more than $3 million in basic programming support from CPB and we expect to lose another $1.5 million to $2 million on Oct. 1, 1983. Therefore, we must set our sights much higher for the year ahead. I would suggest we announce a goal of $6 million for calendar 1983 (as compared to $4 million for calendar 1982.)" (Warnock's figures for fundraising differ from Couch's, apparently because of the fiscal versus calendar year calculations).
The tentative goals for later years, according to Couch, were even higher--"$7 million and $9 million and on up every year to meet the declining dollars on the government side. I told them the figures in the latter years were pretty rarefied and I'd take it year by year . . . We talked a good deal about how tough it would be. It was an experiment. There were obvious risks it might not happen."
Warnock broke the news to Mankiewicz in late February that NPR was roughly $3 million in debt and faced a financial crisis because the fund-raising operation was not yielding as much as expected and spending had continued at a high level, both said in interviews. This first revelation led Mankiewicz to order deep staff and programming cuts calculated to save $2.8 million, Mankiewicz said.
But it was too late. Just a few weeks later, according to Mankiewicz, Warnock told him he had discovered an additional $2.5 million shortfall. "While I am still considering how to deal internally with the fact that we can be misinformed . . . as to $3 million worth of potential deficit . . . I'm hit with another, oh, I don't know, about $2.5 million," Mankiewicz said. "It turns out, Tom says to me, that that $2.8 million in cuts ain't going to be enough."
The additional shortfall, Mankiewicz said, was due to loss of interest the network had earned in previous years on surplus funds that weren't available this year; the failure of an expensive new program, "NPR Plus," to sell to enough stations to meet its costs; mixed-up accounting that had counted the same grant income twice; and unexpectedly high start-up costs for NPR Ventures.
By the time the dust settled, Mankiewicz had resigned under pressure and 30 percent of NPR's staff had been fired. Programming was drastically cut as the network prepared to continue operations on a $17.65 million level in fiscal 1984, compared with more than $26 million for fiscal '83. The expected deficit turned out to be more than $9 million for the year, and only an emergency loan from CPB two weeks ago has enabled the network to avoid bankruptcy.
CPB President Edward J. Pfister said he was concerned about Operation Independence from the beginning. "I didn't think they could achieve their goals for additional funding," Pfister said in an interview. He said he mentioned his concerns early in 1982 to CPB's board of directors, suggesting that funds be reserved to help NPR in case the plan went awry.
"I had several private conversations with Frank Mankiewicz thereafter," Pfister said. "I urged him to go slow, take it easy. If it all happens, that's wonderful, but don't keep predicting with certainty that it's going to happen . . . I thought their expectations were just overreaching . . .
"I was very anxious about this great notion of going into all these new ventures . . . I saw them moving away from secured sources of funding that I thought they would need. We had no reason to guess they would go this far out of control. They had an inspirational dream and they couldn't let go of it."