Arizona Eagletarian

Arizona Eagletarian

Monday, February 24, 2014

Print Newspapers' Smear of Kavanagh Reeks of Desperation

Guest post, originally published on Blog for Arizona, by Bob Lord


Let's hope this is one of the last gasps of a dying snake.

The pathetic print newspaper industry, in a desperate attempt to preserve a statutorily-mandated revenue stream that lost its justification decades ago, maliciously attacked Arizona House Rep. John Kavanagh in some of the most despicably self-serving and deceptive editorial pieces I've ever read.
Unfortunately, few members of the public likely understand what really is going on.

Let's be clear: Kavanagh and I are not exactly political chums, although I have nothing personal against him and do admire his willingness to comment here under his real name. But he's a right-wing conservative and I identify as Green. So I have no motive to shill for Rep. Kavanagh.

But I'm willing to give credit where credit is due, and John has introduced a piece of legislation, HB 2554, which is outstanding and long overdue. HB 2554 eliminates the requirement that newly formed corporations and limited liability companies publish their formation information in a print newspaper of general circulation.

The Arizona print newspaper industry collects millions in fees from business start-ups each year for printing these statutorily mandated notices. The notices appear in separate sections of numerous local newspapers. Nobody reads them. They go straight to the recycling bin or, worse yet, the landfill.
And it's been that way for decades.

It's what's referred to as a private tax, but technically is a fee.

A long time ago, when local print newspapers were the best way to disseminate this information and far, far fewer corporations were formed, most states had publication requirements.

No longer. All but four states (AZ, Nebraska, New York and Pennsylvania) have eliminated the publication requirement because it no longer serves any purpose. From the way the Arizona print newspaper lobby is squealing like a stuck pig, you would never guess this to be the case, but it is.

In the past weeks, a spate of wildly deceptive editorial pieces have appeared in Arizona newspapers, led of course by our Arizona Republic in What's this? John Kavanagh wants larger government?

At the heart of the deception is the conflation of (a) the legitimate and necessary practice of providing online access to information about corporations and limited liability companies to the public; and (b) the completely wasteful and valueless practice of publishing information about new corporate and limited liability company formations in print. Those two practices are not naturally connected. The newspaper lobby, however, justifies the continuation of the giant revenue stream it derives from wasteful print publication on the basis of the public's need for online access.

Practically each line from the Republic either is misleading or is an outright lie, starting out with the glaring omission of the fact that the list of states retaining the publication requirement is down to four, and shrinking.

First, some background. HB 2554 would eliminate the requirement that newly formed businesses publish their formation information in a print newspaper, thus saving each new corporation about $100 and each new limited liability company about $40. In 2013, there were 6,345 new corporations and 53,991 new limited liability companies formed in Arizona. Do the math. When you add in publications for name changes, mergers and other matters, we're talking $3 Million in publication fees annually.

HB 2554 also would allocate $65,000 to improve the online database of business entity information. The Corporation Commission already maintains a website where this information is available. It's actually very good. Those stats I cited about new business formations in 2013? Right off the ACC website. Time needed to retrieve that data? About a minute.

After the initial $65,000 expenditure, there likely would be ongoing maintenance costs, although the website maintenance costs already incurred by the ACC may not increase materially.

Bottom line: Businesses save $3 Million PER YEAR, in exchange for a one-time $65,000 website development expense. 

On to the Republic's hit piece. First, the Republic insinuates that Kavanagh is a hypocrite because he's promoting "big government":
So it’s amazing to see him sponsoring a bill that would take a role performed by Arizona businesses and give it to state government.
No, this is actually a role already performed by state government. It's a quintessentially governmental function. When a business forms a new limited liability or corporation, it files "articles" with the Corporation Commission containing vital information such as it's name, place of business, owners' names and so forth. The Corporation Commission already organizes this information in a database.

It's after this occurs that big government swings into action under current law, requiring each business to must publish some, but not all, of its vital information in a newspaper of general circulation. There are at least 20 such newspapers in Maricopa County. The newspaper then voluntary transmits that information to a website the newspaper trade association maintains, even though the trade association could systematically pull the same information from the ACC website. The trade association then places the information in a searchable database, along with information from other types of public notices. The effect is to duplicate the data available from the ACC database.

But the newspaper database is not as reliable (or comprehensive) as the ACC database. After all, it's entirely voluntary on the part of the newspapers to submit publication information to the database. And, by the way, a newspaper of general circulation is not required to join the trade association.

Rep. Kavanagh's bill seeks to eliminate the big government aspect of current law. The bill would not preclude the newspapers from maintaining their website. And all the information used by the newspapers would still be available to them, from the ACC. The only thing that wouldn't be available would be the unnecessary print publication of information for fees.

So, Kavanagh is not taking a role performed by business. He's eliminating an unnecessary regulatory requirement -- the print publication of information -- and saving businesses millions of dollars annually.

Next, this whopper:
Kavanagh wants the Arizona Corporation Commission to spend $65,000 in taxpayer money to create a website where minimal information about corporate and limited-liability company filings would be posted for 90 days. He says this would be a boon to the public and business.
Neither is true. [emphasis mine]
Actually, it would be a boon to business, in the form of a $3 Million annual cost savings. Or is it more? If a business engages a law firm or document preparation service to handle its formation, the effort of the law firm or document preparation service ultimately increases the cost to the business.

But that's not the whopper. The whopper is the "$65,000 in taxpayer money" part. The money would come from filing fees already paid by new corporations and limited liability companies. Are those filing fees taxes? Possibly, in the self-serving delusional minds of the Republic's editorial board. Could those fees increase marginally to fund the $65,000 website development? Kavanagh claims they would not, at least as a result of this change.

Then, the Republic distorts the purpose of the affidavit newspapers supply for businesses that publish with them:
Newspapers provide affidavits as legal proof of notice, something the Corporation Commission would not do.
The sole purpose of the affidavit is to allow a new corporation or limited liability company to prove it satisfied the publication requirement. Eliminate the publication requirement and the affidavits have no purpose. So, the choice for the business owner is "you either get an affidavit to prove you paid your private tax to the newspaper industry, or we eliminate the private tax and you don't get an affidavit." If you're a new business owner, which would you prefer?

Then there's this:
Business isn’t clamoring for a change.
Of course not, but what a crock. Each new business is getting hit for $40 or $100 in costs, perhaps a bit more if it operates through multiple entities. Do they want to pay this private tax to the print newspaper industry? No. Are they "clamoring" for change? No, there's not enough money involved. This is precisely how bad legislation gets passed and good legislation gets crushed. Each business getting ripped off for a few bucks doesn't have enough at stake here to "clamor" for change. But the corrupt, pathetic print newspaper industry has a huge amount at stake, namely, its place at the trough. So it's doing plenty of clamoring. When the interest of the public is dispersed, as it is here, and the special interest is concentrated, guess who almost always wins.

The Republic of course claims not to be acting in its self-interest:
Politicians don’t like a news media that pokes into their business. But this change would have no effect on The Arizona Republic, which doesn’t publish these filings. It would hurt niche and small-town newspapers, like the one that serves Kavanagh’s Fountain Hills.
Make that no DIRECT effect. There are other ripoffs in the form of public (governmental) notices that must be published in print under obsolete statutes from yesteryearcentury. The Republic is making bank on those notices. And its editorial board knows those notices too will get a closer look if Kavanagh's bill passes. Also, those little newspapers it purports to care about use a portion of their public notice revenue to help subsidize the same website that the Republic uses for its public notices. So, indirectly, our friends at the Republic have much at stake.

But it wasn't only the Republic. This was an organized effort. Here's the Payson Roundup in Government Takeover a Political Cheapshot:
So why would [Kavanagh] introduce HB2554, which would use $65,000 in taxpayer money to set up an obscure Website to post legal notices currently published in local newspapers and their Web sites throughout the state?
Could be he’s just mad at newspapers — especially small-town newspapers like the Roundup, his hometown Fountain Hills newspaper or maybe the well respected Capitol Times, a legislative watchdog weekly.
Excuse me, but what the hell is an "obscure" website? We have these things called search engines. They lead us to websites. What the tricksters at the Payson Roundup don't tell their readers is that no one newspaper is guaranteed to handle any one publication for a new business entity. If you wanted comprehensive information on this front, you'd have to gather all the newspapers in the relevant county, or visit all their websites. Or, you could just go to the Corporation Commission website.

And this:
Please note: Kavanagh has proposed a new fee — read that tax — to set up and operate the Web site. Now, maybe you believe his peculiar claim that you can set up a state Web site that will handle a flood of constantly changing legal notices for just $65,000. We’re skeptical ourselves, seeing as how the last time the Arizona Corporation Commission tried to update its much less comprehensive Web site Starpas, the cost ballooned to $250,000 although it never actually worked.
No, it's not new, it is a fee, not a tax, and the folks paying it would save a ton of money under Kavanagh's bill. And the "constantly changing legal notices" actually don't change. The information regarding Arizona business entities changes constantly, but you know who the keeper of that information is? The Corporation Commission. That website, Starpas, which the experts at the Roundup malign, is incredibly reliable. And it's absolutely positively not "less comprehensive" than the website contemplated in Kavanagh's legislation. It's far more comprehensive. In fact, Starpas provides not only the information, but copies of the actual filed documents. It provides annual reports of corporations. It provides statistics on filings.

Are the editorial board members of the Roundup completely clueless? Possibly, but the other possibility is that they intentionally distorted facts for profit. Bottom line, however, is that they likened Kavanagh to a Democrat, when his bill does something that's very Republican: Eliminating an unnecessary regulation. So, was it Kavanagh or the Payson Roundup who took the cheap shot? You make the call.

The public, unfortunately, is fairly clueless on this matter. I happened upon a letter to the editor of a local Fountain Hills paper, from a lady named Eunice, which gave this justification for continuing the publication requirement:
The Arizona Corporation Commission would only be required to post them online. The Times’ editorial stated that the Arizona Newspapers Association posts these things on their website in addition to setting them in print. So there is nothing of value to this HB2554.
No, Eunice, nothing of value other than $3 Million in cost savings annually to new businesses.
How many times a week do you browse online for corporate filings or even for ridiculous legislation that may not appear in print? Public notices in print represent revenue for newspapers and a better source of information for all citizens who enjoy their newspaper with a cup of coffee in the morning.
Sorry, Eunice, besides you, there are fewer than five people statewide who "browse the corporate filings" in print. After all, it would be no more interesting than reading the phonebook. Indeed, when I read Eunice's letter, I thought of the scene in Rainman, when Dustin Hoffman recalled a waitress' phone number because he'd read it in the phonebook.



Even if reading the print notices of business formations was a logical way to obtain information, it has no value under our current system, because you'd have to purchase and read over 20 newspapers in Maricopa County to obtain comprehensive information regarding the 150+ business entities formed daily here. And unless there's something specific you need to know, it's useless information. If there is something specific you need to know, you're only going to find it online, unless you like searching for needles in haystacks.

So, Eunice, is it really worth $3 Million per year so you and perhaps five other underemployed or over-aged dimwits can read absolutely useless information in print as you sip your morning coffee?

In closing, I'll relate my personal experience with this. I was one of six attorneys who drafted Arizona's limited liability company statute in 1992. We intentionally omitted a publication requirement, because, even back then, the requirement no longer served any legitimate purpose.

A year or so after the legislation was enacted, the newspaper lobby threw a fit. I testified. The newspapers of course won (they were far more powerful back then), but we did extract a compromise limiting the amount of information that had to be published. That concession has saved Arizona businesses millions over the past two decades. I'm proud of that.

Several legislators confided in me back then that they knew the publication requirement was a ripoff, but they couldn't get on the wrong side of the newspapers. That actually was understandable at the time, but no longer. Print newspapers no longer have the power to extract this tribute from the public, and legislators should have the courage to tell them so.

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Yesterday, the Prescott Daily Courier ran an editorial about HB2554 that is even more convoluted. That paper confused the issue of PUBLIC (governmental/municipal) notices with corporate notices. In some states, the two categories might be handled in the same statutory provisions, but in Arizona, they are separate. In the 2013 legislative session, HB2483 tried to address both, seeking to allow online publication of governmental and corporate notices but due to pressure from the newspaper lobby, died.

If that doesn't add to the cognitive dissonance about the role of newspaper publication, that's even more troubling. This goes to what Lord meant when he said that likely few people would understand the issue. Based on what the Payson and Prescott papers had to say about the bill, it seems likely THEY don't even understand the issue.

Add to this the firestorm of controversy that has arisen as a result of SB1062. Kavanagh's bold but misguided defense of the religious discrimination law detracts from the clarity with which he acted and advocated for eliminating the statutory requirement to publish corporate notices in print newspapers. At this time, HB2554 passed in the Technology and Infrastructure committee and has yet to be scheduled by Speaker Andy Tobin for floor debate.

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