March 9, 2011 -- NPR's embattled chief executive resigned today after the top fundraiser for NPR said offensive things about Republicans and the Tea Party during an undercover sting orchestrated by conservative activist James O'Keefe.

Vivian Schiller, the ousted CEO, had also come under fire in recent months for NPR's firing of conservative commentator Juan Williams last October.

But the controversial comments made by Ron Schiller, former president of the NPR Foundation, during what he thought was a lunch with potential donors from a Muslim-affiliated trust, cost Vivian Schiller her job.

Vivian and Ron Schiller are not related.

Another public broadcasting operation was targeted by the same sting. PBS today said that its senior vice president for development, Brian Reddington, responded to invitations by the same group but after an initial meeting, had "profound concerns" about the group.

"PBS's practice is to vet potential donors when there is an appearance of a conflict of interest and to ensure they meet requirements of transparency and openness," spokeswoman Anne Bentley said in a statement. "Attempts to confirm the credentials of the organization proved unsatisfactory and communication was halted by PBS."

PBS and NPR are not affiliated with each other, though both receive money from the Corporation for Public Broadcasting, which is funded by Congress.

NPR board chairman Dave Edwards today said it was the board's and Schiller's mutual decision that she resign, and that it was the "wisest" decision they could make.

"Vivian was very clear that she wanted to make sure the board had the flexibility to do what it felt was important. She offered to step aside if that was the board's will and the board ultimately decided it was in the best interest of the organization that that took place," he said. "The events that took place became such a distraction to the organization that in the board's mind, it hindered Vivian Schiller's ability to lead."

NPR's Senior Vice President of Legal Affairs, Joyce Slocum, will take over as interim CEO.

Schiller, who became CEO in January, 2009, told the New York Times today that she "had no prior knowledge" of comments made by the NPR executive and that she "disavowed them as soon as I learned of them all."

"But I'm the CEO, and the buck stops here," she added.

Ron Schiller, who had resigned from NPR to take up a job at The Aspen Institute, is also out of his new job.

"Ron Schiller has informed us that, in light of the controversy surrounding his recent statements, he does not feel that it's in the best interests of the Aspen Institute for him to come work here," the organization said in a statement.

Schiller's sting was a secretly recorded lunch at a popular Georgetown restaurant. In an edited video released by O'Keefe on his Project Veritas website, Schiller is seen calling the Tea Party the "xenophobic" and "seriously racist people" who are "fanatically involved in people's personal lives."

The controversy comes at a delicate time for public broadcasting, including PBS and the Corporation for Public Broadcasting, which got nearly $450 million in federal funding last year. President Obama proposed raising that amount to $451 million. But with the federal government facing severe budget deficits, and in light of the scandal, Tea Party groups and some Republicans on Capitol Hill are stepping calls to cut all federal funding to NPR.

Watch the video here.

"Besides calling the members of the Tea Party Movement 'uneducated' and 'racist,' he [Schiller] also admitted that NPR did not need taxpayer money. Let's take his advice and pass legislation to defund this biased news organization that is clearly out of touch with the American people," Sen. Jim DeMint, R-S.C., said today.

House Republicans voted last month to cut funding for the Corporation for Public Broadcasting, which partially supports NPR and the Public Broadcasting Service. That legislation is unlikely to pass the Senate.

Rep. Doug Lamborn, R-Colo., who led the charge to strip funding from CPB, says the video exposes "serious problems" at NPR.

"I do think it helps the cause for people to see, hey, there's some things that are going on here that are not necessarily something that the majority of Americans happen to agree with," Lamborn told ABC News.

The White House is standing by NPR, saying federal funding for public broadcasting are "worthwhile and important priorities."

"The budget makes clear the president's priorities, and among them are the funding at the level that we stipulate in the budget for National Public Radio and the Corporation for Public Broadcasting," White House Press Secretary Jay Carney said today.

Other supporters point to the fact that Ron Schiller was not in charge of the content that was broadcast on NPR.

"Obviously it doesn't help when somebody does idiotic things. But bear in mind the person who has been subsequently let go had nothing to do with the content of public broadcasting," Rep. Earl Blumenauer, D-Ore., told ABC News.

Ron Schiller, who was already scheduled to leave NPR in May, instead left Tuesday and apologized for his comments.

"While the meeting I participated in turned out to be a ruse, I made statements during the course of the meeting that are counter to NPR's values and also not reflective of my own beliefs," he said in a statement Tuesday. "I offer my sincere apology to those I offended."

NPR's Former Executive Caught on Tape by Conservative Group

The lunch was set up at the request of the "Muslim Education Action Center," a fictitious group set up by O'Keefe specifically to target NPR. An NPR spokesman said the group was anxious to donate $5 million to NPR, even offering to physically deliver the check, but the news organization turned out that offer.

NPR asked the group to provide a list of donors, a list of their members of the board, organizations to which they have donated to and tax forms establishing that they were a non-profit, but none of that information was provided.

The lunch was still set up and NPR said it's not an unusual move because it was designed to be an exploratory meeting to find out more about the organization.

"While it might have been ideal to have every i dotted and t crossed before this meeting, often times in the process of relationship building, which can take many years in the foundation world, you might have an initial lunch with someone to find out more about their interests," an NPR spokesperson said.

Ron Schiller was accompanied at the recorded lunch by Betsy Liley, NPR senior director of institutional giving, who is on administrative leave. The two members who met with Schiller and Liley established a purported connection with the Muslim Brotherhood early on in the lunch.

Schiller is seen in the video blasting Tea Party groups and lamenting the demise of intellectualism, particularly in the GOP.

NPR swiftly condemned Ron Schiller's comments on Tuesday.

"The comments contained in the video released today are contrary to everything we stand for, and we completely disavow the views expressed," NPR spokeswoman Dana Davis Rehm said in a statement. "NPR is fair and open minded about the people we cover. Our reporting reflects those values every single day -- in the civility of our programming, the range of opinions we reflect and the diversity of stories we tell."

The setup was the brainchild of O'Keefe, a conservative activist who has become famous for his hidden-camera videos, most recently targeted at the Census bureau.

Tea Party groups were quick to pounce.

"Mr. Schiller's latest comments provoke a larger question: How long will we as a nation be willing to tolerate the arrogance of the self-appointed ruling elite?" said Jenny Beth Martin, national coordinator for Tea Party Patriots. "His unedited comments are indicative of the mentality of ruling elites who are threatened by the power of the Tea Party Patriots."

Scandal Poses Funding Dilemma for NPR

Schiller is seen in the video saying that NPR would be better off without federal funding, and even if it were to be stripped, the organization and most of its member stations would survive.

But NPR countered that claim, saying that such a move would be significantly damaging.

"The funding is so absolutely critical to what we do as an industry and we have to articulate that in the best way possible," Edwards said today. "We have to be able to tell the story as to what we do is important, why that investment of federal dollars is important."

The House Republicans' budget would rescind any funding for CPB for the remainder of the year, and zero out millions in funds after that.

House GOP leaders have for years attempted to cut funding for what many of them see as a liberal-leaning broadcast operation. One of Newt Gingrich's first acts as speaker of the House in 1995 was to call for the elimination of federal funding for CPB, and for the privatization of public broadcasting. Neither attempt was successful.

More recently, House Republicans made a proposal in November to strip federal funding for NPR after the radio station fired controversial commentator Juan Williams for comments he made about Muslims.

Only about 2 percent of NPR's funding comes from federally funded organizations, while 40 percent of the revenue is generated through station programming fees and 26 percent through sponsorships.

Individual NPR stations, as opposed to the network, rely more heavily on federal and state grants. CPB funding makes up 10 percent of funding; federal, state and local government funding constitutes about 6 percent of a station's revenue source while 32 percent comes from individuals and 21 percent from businesses.

It's not just Republicans, though, who have singled out CPB when it comes to overall budget cuts. President Obama's bipartisan deficit commission in November also suggested eliminating funding for CPB, estimating that it would save the government $500 million in 2015.

While NPR has long been viewed by Republicans as liberal leaning, its audience base is diverse, polls show. Forty-five percent of its audience identify themselves as moderate, while 29 percent identify as liberal and 22 percent as Republicans, according to a Pew Research Center poll released in September.

But most of its audience may be more sympathetic toward Democrats than other broadcast outlets.

Sixty-five percent of those polled in the Pew survey who listen to NPR said they approved of the job Obama is doing, higher than the overall national average.

ABC News' Jake Tapper and John Parkinson contributed to this report.