The District of Columbia City Council with little fanfare has approved a resolution that would permit the giant RCA Corp. to seek a low-interest, taxpayer-subsidized $9.5 million loan for expansion of its television and radio stations in the city.
If approved, the loan would allow RCA to save as much as $10 million in expanding its broadcasting center on Nebraska Avenue NW, which includes WRC-TV (Channel 4), WRC Radio and WKYS-FM. The three stations are owned by the National Broadcast Co., a subsidiary of RCA.
Because the interest earned on such loans is exempt from federal and state taxes, the interest rate is generally about 30 percent below that charged by banks to their best commercial customers.
The RCA proposal was attacked yesterday by members of the House Ways and Means oversight subcommittee as it concluded three days of hearings on alleged abuses of so-called industrial revenue bonds, which have been used to finance such private ventures as discount stores, banks and golf courses.
"This is a perfect example of the abuse of [the bonds]," said Rep. Richard A. Gephardt (D-Mo.). "When a cash-fat corporation like RCA comes begging to the city fathers for tax-exempt financing, something is wrong with the whole system."
Another panel member, Rep. William M. Brodhead (D-Mich.), said: "The very fact that a wealthy, powerful corporation like RCA could be eligible for this kind of loan shows there are some serious problems with this program."
"Clearly we're going to have to do something in this area," said subcommittee chairman Charles B. Rangel (D-N.Y.), after hearing testimony on Thursday that such large corporations as K-Mart and McDonald's were getting millions of dollars worth of subsidized loans through the program. "Some of these bond issues have just been blatantly unfair from a competitive point of view," he said.
Though RCA is an $8 billion corporation that last year was able to buy its own finance company (C.I.T. Financial Corp.) for $1.35 billion, it decided to seek a taxpayer-subsidized loan "because under the law we are eligible to do so," said John Sturm, an NBC spokesman in Washington.
Before RCA can get the loan, Congress will have to give the District authority to grant industrial revenue bonds.City officials are now drafting such legislation, according to Barbara C. Washington, an assistant city administrator.
D.C. officials, while aware of the bond controversy, said they need the lending authority because the surrounding suburbs are aggressively using the bonds to lure businesses away from the city.
"We're really counting on it [congressional action amending the D.C. Charter]," said an official in the city's Office of Business and Economic Development who declined to be named. "We've lost a number of businesses to Prince George's and Fairfax. If a company is on the margin, it's going to go for the industrial revenue bond. We need the tool."
One of the arguments against the loans is that they create competitive disadvantages. If RCA gets its low-interest loan, it will get a much better deal than did ABC when it decided to expand its Washington operations. ABC is about to move into a new $20 million, 10-story broadcast center on DeSales St. NW. But unlike the proposed NBC expansion, the ABC move was unsubsidized.
The bonds have won favor among borrowers -- last year's issues totaled more than $8 billion nationally -- because they allowed businesses to obtain cheap loans in a period of record-high interest rates.
The only potential loser is the U.S. Treasury. According to a new study by the Congressional Budget Office, the bonds cost the Treasury about $1 billion in federal income taxes last year. The net loss (counting revenues from business that the bonds stimulate) could reach more than $2.5 billion by 1986, the study said.
But NBC spokesman Sturm said there was a clear distinction between RCA's proposed $9.5 million loan and some of the alleged abuses detailed during this week's Hill hearings.
"This is a little different matter," Sturm said. "NBC is licensed to serve the District of Columbia and the surrounding area. It obviously is providing a public service through its TV and radio programs. The expansion will also produce new jobs. And we are a high employer of minorities and women."