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In developing these projections, certain assumptions were made:

1) Inflation is assumed at a constant 6% per annum through Fiscal 1985. Variations in inflation would, of course, affect the numbers significantly; a change of only 1% in the annual rate of inflation would mean a difference of millions of dollars in these figures by mid-1980's.

2) Additional stations are expected to generate a 1% annual increase in total income for the system. Variations in the rate of adding new stations would change the income projections, but such changes would likely be minor.

3) The satellite interconnection system is assumed to begin for public TV in Fiscal 1979, for public radio in Fiscal 1980. Estimates of the impact of the satellite are included within each of the areas on which projections are calculated, rather than in an overall projection of the financial impact of the satellite. This impact of the satellite could be underestimated, particularly if the FCC approves significant non-broadcast use of the satellites in support of activities of public broadcasting licensees.*

4) The Fiscal 1973-1976 trends in the funding of public broadcasting from Non-Federal, Tax-based sources allow for projections of only limited growth. However, technical or other changes leading to a new willingness of state and local governments to commit resources to public broadcasting could produce dramatic increases in funding from these sources.

5) The ratio of the Federal match will change in Fiscal 1981 from the current 2.5:1 to 2.0:1.**

Figure III graphically presents these projections of public broadcasting's income through Fiscal 1985.

* Such FCC action would probably increase substantially the Non-Federal, Tax-based income of public broadcasting; it is in this and related non-broadcasting technologies that state and local government sources might well concentrate any new commitment to public broadcasting.

** This increase in Federal funding will likely produce an increased Non-Federal income in subsequent years. No sound basis exists for an accurate projection of just how much additional income would result, so the figures in Table 10 are uncorrected for this impact. The figures are thus probably somewhat

conservative.

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Based on recent trends, even with the changed Federal funding ratio, public broadcasting's income growth will be modest. Projected income growth works out to about 11% per annum in current dollars. Given this report's assumptions on inflation and system expansion, this is equivalent to an annual real growth rate of only 4%. Thus, barring an infusion of additional Federal support, public broadcasting will likely remain in a status of slow but steady growth for the next decade, and will still face problems with funding in the mid-1980's.

Also apparent from these projections of income is this: at its current rate, public broadcasting seems unlikely to reach the appropriations ceilings authorized in the Financing Act of 1975. Growth in income from Non-Tax-based sources has been promising, but the growth in Tax-based income from NonFederal sources has been disappointing.

Nevertheless, by the 1980's there is a chance that currently unpredictable situations, especially those having to do with special instructional uses of public telecommunications systems, might increase Non-Federal, Tax-based income above its projected level. Because of this, and as an additional incentive to public broadcasters to raise all sorts of Non-Federal funds, the proposed ceilings in the new Financing Act are set 3-5% above the level proportional to the income projected here.*

Allocations

Once income is projected, the next task is to project public broadcasting's future allocation of its resources.

In making these projections, current trends must be used. Such projections thus cannot define how public broadcasters will react to changes in priorities, or determine precisely the way resources will be allocated to implement new goals. However, these projections can indicate where current trends will take public broadcasting, and thus provide insight into the changes in allocation necessary to meet priorities not currently likely to be met.

For the purposes of projecting allocations, current public broadcasting allocations are divided into two general categories: "Base Costs" and "Discretionary" expenditures. Base costs are those necessary to sustain operations of the local stations and the national agencies: regular capital expenditures; necessary broadcasting and distribution costs; and administration, including related national training, research and expansion functions. "Discretionary" costs refer to program production and acquisition, promotion and fund raising.

*The proposed ceilings for the 2:1 match are: $210 million for FY 1981; $230 million for FY 1982; $250 million for FY 1983; $275 million for FY 1984; and $300 million for FY 1985.

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Obviously, public broadcasters cannot operate without programming, nor should they program without promotion. Programming expenses are thus not really discretionary. Nevertheless, public broadcasting organizations have sometimes reduced expenditures in the program area (e.g., by increasing repeats or acquiring instead of producing programs) in order to maintain operational viability. It is proportionately harder to cut back on 'base costs and continue to operate: capital must be expended when required, transmitters must be operated and basic staff paid, or there will be no basis for improved services later.

It is assumed that over the next decade public broadcasting can hold the increases in its base costs to under 7.1%. This is based upon increases at only the maintenance level (7% per annum, to account for inflation and expansion) for the normal "G&A" activities, and an increase of 8.75% per annum for those priority elements of better planning, improved training and recruitment of new personnel (particularly women and minorities), continuing efforts in technological research and development, and the expansion and improvement of the system's coverage in both radio and TV.

Figure IV shows public broadcasting's projected allocation of its resources through Fiscal 1985. Base costs should decline as a percentage of public broadcasting's total expenses in the next decade, and the share of funds available for discretionary uses should increase. In a system with almost $1.1 billion to spend in Fiscal 1985, the discretionary funds available for programming and related activities, such as promotion and development, should well exceed 60% of public broadcasting's total income. This should give public broadcasters a far better chance of solving some problems that exist now, when only about 50% of system resources are available for discretionary uses.

No formal predictions are made here in this table as to the exact share of discretionary funds which public broadcasters will assign to programming, or to any other item. Priorities, defined in the planning process and adjusted under evolving circumstances, will determine that. However, public broadcasting currently spends more than three out of four (over 78%) of its discretionary dollars on programming. The national planning, research, and personnel recruitment functions assigned here to the category of System Administration, Expansion and Improvement, will likely get infusions from additional funds. So should capital expenses, particularly as public broadcasting activities move into the new non-broadcast technologies. Even so, the present allocation of about seventy-five cents of every discretionary dollar to programming is probably a good estimate of what public broadcasters will continue to do.*

This assumption was reinforced by the reactions of the sample of managers interviewed in connection with this report.