Tax Breaks for Minorities

The problem with quotas and racial preferences in the United States is that they are so widespread, you will have trouble finding them all.

Particularly odious are the numerous tax breaks that promote and advantage minority business. Unlike minority set-asides in contracting, there are no competing businesses to get angry when they lose the contract to a higher bidder. Thus, there is no one to complain.

People seldom know about these. But then the Journal is doing its usual thorough job of reporting.

Yggdrasil-

Jan. 12, 1995 Wall Street Journal p B1

A Cable Empire That Was Built On a Tax Break

By MARK ROBICHAUX

Staff Reporter of THE WALL STREET JOURNAL

On Frank Washington's first trip to buy a cable system eight years ago, lightning struck the wing of the plane he took from California to Tyler, Texas. Thunderstorms rocked the tiny craft, shaking up Mr. Washington and his new partner, Leo Hindery, sweating beside him.

The duo arrived safely and pitched the seller with a new tax break if he sold the cable system to a minority buyer. Mr. Washington, an African-American, was turned down, and the system was sold to another minority buyer.

Undeterred, Mr. Washington went on to build a cable empire using the federal policy, known as the minority tax certificate. Now he and partners that include Mr. Hindery will try to swallow their biggest acquisition yet - the pending $2.2 billion purchase of cable systems owned by Viacom Inc. The deal would be the largest ever involving a minority tax certificate, and would put Mr. Washington in control of one of the country's 10 largest cable systems.

The deal is expected to be announced soon, perhaps as early as this Week. It would be part of a sweeping agreement that also settles an antitrust lawsuit filed by Viacom against Tele- Communications Inc. TCI, which is backing Mr. Washington's partnership, is also expected to agree to carry Viacom s MTV and Showtime in long-term commitments as part of the deal. Mr. Washington knows minority tax policy inside and out - he helped write its foundation while a consultant to former President Carter's White House staff in 1977. He later went to the Federal Communications Commission, where he helped implement the policy, which was created to increase minority ownership of radio, broadcast TV and cable properties.

"At the time, it was a catalyst," says Mr. Washington. "It focused minorities with aspirations to get into the business, and it focused the funding sources, the white establishment." Advocates say the policy is a practical solution to the dearth of minorities in telecommunications. But critics say it has been little more than a tax loophole for media giants like Viacom, which will be allowed to defer about $280 million in capital gains taxes, as long as it reinvests the money in replacement media properties within two years or meets other FCC criteria. They say it has helped only a handful of people, and Mr. Washington, who controls more cable systems than any minority in the industry, has been its primary beneficiary.

* * *

Mr. Washington worked his way into Yale Law School, where he met FCC Chairman Reed Hunt and became lifelong friends with Supreme Court Justice Clarence Thomas. The men were two of only 10 blacks in their class of about 170 students.

After graduation, Mr. Washington went first to a Washington, D.C., law firm and then into the political arena as a consultant to the White House office of telecommunications policy. It was here that he devised the minority tax certificate.

After five years at the FCC, he jumped into the cable business- -first at Times Mirror and later at McClatchy newspapers. He left McClatchy after three years to build his own cable company - using the minority tax certificate. But he bristles at the suggestion that the tax break is solely responsible for his success. "It took an enormous amount of risk and hard work to get where I am today," says Mr. Washington.

* * *

Critics of the tax certificate policy are hoping the program will be dismantled by the new Republican-dominated Congress. "It's utterly odious--the thought that every group has the right to a quota of representation, and any time it goes under par, we go out and fix it," says Bruce Fein, an assistant attorney general under former President Reagan and a lawyer who specializes in constitutional law.

The FCC maintains that successes under the tax certificate program far outnumber the abuses. Mr. Washington defends it as a meaningful way to increase minority ownership. "We're not talking about quotas here--this is a voluntary system," says Mr. Washington. "It really comes down to individual effort."


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