Tobacco War
Inside the California Battles
Stanton A. Glantz and Edith D. Balbach
Moving to the Legislature
Proposition 99 raised over $600 million a year in new tobacco taxes, over $125 million of which was allocated by the voters to anti-tobacco education and research, creating the largest tobacco control program in the world. The public health groups turned to the initiative process to secure the tax increase because the tobacco lobby had successfully blocked at least thirty-six attempts to pass a tax increase in the Legislature since 1967.1 Unfortunately, after winning at the polls, the health advocates had to return to the same Legislature to pass implementing legislation to turn the promise of Proposition 99 into a reality.
Proposition 99 specifically assigned the money raised by the new tax to six accounts: Physician Services (35 percent), Health Education (20 percent of revenues), Hospital Services (10 percent), Research (5 percent), Public Resources (5 percent), and Unallocated (25 percent). Curt Mekemson wrote these allocations into the initiative to shield the prevention (Health Education and Research) programs from the Legislature and the powerful special-interest groups that dominated it. Protecting the integrity of the initiative in the Legislature would not be easy. As the Los Angeles Times editorialized on November 10, two days after the election, "Now comes the really hard part: negotiating the Legislature's special-interest steeplechase to make sure that the estimated $600 million to be raised annually by the tobacco tax increase is allocated as the sponsors intended and spent as they promised voters it would be spent."2
Proposition 99 went into effect on January 1, 1989. Since the state's fiscal year begins in July, the first state budget to appropriate Proposition 99 revenues would be the 1989-1990 budget. As a result, there would be eighteen months of revenues to spend in the first budget year--about $900 million--which began on July 1, 1989. Of this amount, $180 million was to go toward health education. This money attracted a lot of attention and many new "friends" for the Coalition for a Healthy California.
The Tobacco Industry's Pricing Strategy
The tobacco companies knew that smokers were sensitive to the price
of cigarettes. (Indeed, the fact that price increases reduce consumption
was one of the arguments that the ALA and others used to justify creating
Proposition 99 in the first place.) After losing the election, RJ Reynolds
decided to push its lower-priced brands, especially Doral and Magna,
because "we do plan to capitalize aggressively on business shifts that will
undoubtedly occur as a result of the California tax increase."3
The company's marketers told management, "We will be developing and
recommending programs on DORAL that include newspaper advertising, direct
mail, on-carton coupons, and pack purchase incentives. On MAGNA, we will be
looking at additional pack purchase incentives to help generate trail for
this brand."4 Philip Morris planned strategies to protect all of
its brands, including such premium-price brands as Marlboro, along with its
less expensive brands.5 Specific promotions consisted of
packaging lighters with Marlboro two-packs at the beginning of January,
coupons to reduce the effective price for cartons of Marlboros at the end
of December and for Benson & Hedges, Merit, and Virginia Slims, a
two-for-one promotion for Merit Ultra Lights at the end of December,
coupons to reduce the effective price of Cambridge cigarettes during
January, and the launch of Alpine cigarettes, a lower-priced brand, at the
beginning of January 1989.
In late November 1988, the tobacco distributors mounted an effort
to establish a low tax rate on non-cigarette tobacco products. The
initiative had established a tax of twenty-five cents on each pack of
cigarettes (.0125 cent per cigarette), but had left other tobacco products
to be taxed "equivalent to the combined rate of tax imposed on cigarettes"
at a rate established by the State Board of Equalization. Proposition 99
proponents wanted a high rate while the tobacco industry and tobacco
distributors wanted a low rate, based on weight rather than wholesale
price.
On November 30 the Coalition presented its case to the board, which
decided to establish a tax rate of 42 percent on the wholesale price of
tobacco products, calculated by dividing the per pack tax on cigarettes
(thirty-five cents) by the average wholesale price of cigarettes
(eighty-four cents). Tobacco distributors had lobbied for 19 percent, using
a complex formula that Assembly Member Lloyd Connelly (D-Sacramento) said
would "befuddle Albert Einstein."6 The Board of Equalization
agreed with the Coalition and established the higher rate.
The tobacco industry then took its case to the Legislature, and in
February 1989 Senator William Campbell (R-Industry) introduced a resolution
urging the Board of Equalization to adopt an alternative method of
computing the tax rate on tobacco products, one favorable to the tobacco
industry, whereby one cigarette "is the equivalent of one cigar,
one-twentieth of a can of snuff, or one bowl of pipe tobacco." The bill
died in the Senate Revenue and Taxation Committee, representing a victory
for the Coalition.
The tobacco industry sued to void Proposition 99 after it passed.
On January 17, 1989, Kennedy Wholesalers, Inc., a tobacco distributor,
filed a lawsuit claiming that Proposition 99 was unconstitutional. The
distributor claimed that Proposition 99 violated Proposition 13, needed
approval by a two-thirds vote of both houses of the legislature, restricted
the appropriations power of future legislatures, burdened one class of
persons with a tax that benefited the public generally where no rational
relationship exists, and violated the single subject rule that required
initiatives to cover only one subject. The arguments were identical to the
suit filed by the tobacco industry in July 1988 in their failed effort to
keep the initiative off the November ballot. The Coalition opposed the
industry in court and on March 17, 1989, Sacramento Superior Court Judge
Anthony DeCristoforo denied the motion to declare Proposition 99
unconstitutional.
The industry appealed, and the suit eventually went to the state
Supreme Court, which in 1991 upheld the lower court and unanimously
rejected the claim that Proposition 13 required any new tax, including one
passed by citizen initiative, to be approved by two-thirds of the
legislature. The court found that Proposition 13 was designed to limit the
power of the legislature but not the public's power. The court also
rejected claims that the initiative violated the single subject
rule.7 All the industry's legal maneuvering, although
unsuccessful, hurt the Coalition, which had to raise money to pay the legal
fees incurred in fighting the tobacco industry in court.8
Conflicting Views of Health Education
A broad outline for tobacco education was available. At the urging
of public health activists, in February 1988, prior to the Proposition 99
election, Senator Diane Watson (D-Los Angeles) had introduced Senate Bill
2133, the Tobacco Use Prevention Act, to begin planning the implementation
of Proposition 99 tobacco education programs. The bill required that the
Department of Health Services (DHS) develop a program to reduce tobacco use
in California through a multifaceted approach that, for the first time,
combined mass media advertising with community-based interventions on a
large scale. John Miller, Watson's primary staffer on the bill, was
particularly committed to an anti-smoking media campaign. Miller "wanted to
hire the same guys who sold cigarettes to unsell them."9
The voluntary health agencies and ANR supported the bill.
Proponents clearly did not understand the tobacco industry's well-developed
strategy of working through intermediaries. Miller even wrote Watson, "It
does not appear that the tobacco lobby will try to kill 2133."10
The tobacco industry maintained a low profile, preferring to let the
California Chamber of Commerce, California Manufacturers' Association, and
the California Taxpayers Association lead the formal opposition, although
the Tobacco Institute formally opposed the bill late in the legislative
process.
Although Governor George Deukmejian vetoed the bill after the
Legislature passed it, SB 2133 provided health groups with an early
opportunity to assert their vision of what the state's anti-tobacco
education program should look like if Proposition 99 passed. Had it been
signed into law, a program to implement Proposition 99 would have been in
place when the initiative passed, which might have avoided the problems
that arose when its proponents returned to the Legislature to seek
implementing legislation after they passed Proposition 99 at the polls. As
it was, several different organizations advanced competing plans for how to
spend this money after the election.
The ALA wanted to see the Health Education Account spent in
accordance with the basic elements of SB 2133 but with three changes: (1)
at least 50 percent of the Health Education Account should target students
eighteen or younger, (2) there should be no "sunset clause," which ended
the spending authority for the current provisions on July 1, 1999, and
required further legislative action, and (3) a provision should be added to
make anti-tobacco education a mandated program, meaning that the
Legislature would require local public agencies to participate and they
would receive money for doing so.12
The California Department of Education (CDE) wanted to broaden the
focus of the program beyond direct anti-tobacco education, arguing that
"the same pressures and reasons which cause young people to smoke are those
which cause them to use drugs and alcohol, become sexually active, consider
suicide or adopt obsessive eating habits. The skills needed to prevent drug
abuse, improve nutritional selections, abstain from sexual activities, and
engage in lifelong physical activity are the same skills needed to prevent
tobacco use."12 CDE's specific plan was to have the funds
administered by the new Office of Healthy Kids, Healthy California, which
had been set up to concentrate health education programs within CDE. CDE
wanted the money distributed in five ways: (1) award grants to all
districts on an entitlement basis to implement comprehensive health
education programs with a smoking prevention component, (2) make available
effective smoking prevention curricula and materials, (3) provide training
on implementing smoking prevention education in the context of a
comprehensive health education program, (4) design and implement a media
campaign for the classroom and public media, and (5) establish an Advisory
Committee.
DHS, on the other hand, proposed a program completely inside DHS,
with grants going to local agencies, including schools, to implement
programs for the target populations.
The California Association of School Health Educators (CASHE)
suggested aprogram that was prepared by Ric Loya, executive secretary of
CASHE, and Alan Henderson, board member of CASHE. The program had six major
components: (1) an independent commission to oversee program implementation
with its own staff and budget appointed by the governor, Legislature, and
CDE, (2) funding based on applications for school and agency programs run
by credentialed health educators, (3) training support, (4) demonstration
projects, (5) educational research, and (6) an incentive program to
encourage smoke-free schools.12
ACS, in conjunction with CASHE, proposed that $30 million of the
Health Education Account go toward funding mandatory health education. The
remaining money was to fund block grants to the County Offices of Education
to carry out education programs.
AHA recommended that at least half of the money go to mandating and
implementing comprehensive school health programs in public and private
schools. The remainder of the money was to go to other education outreach
programs. AHA made no recommendations about program
administration.13
Those outside the education establishment worried that money given
to schools might not be used for tobacco education, and the early proposals
advanced CDE and CASHE, the school health educators, did little to
alleviate this concern. When he was interviewed in 1995, Steve Thompson,
who was head of the Assembly Office of Research in 1989 and a key agent for
Speaker Willie Brown in the Proposition 99 negotiations, remembered that
"there was a great deal of skepticism, based on previous performance, that
putting money into the school systems was going to have much
impact."14 Miller and Najera were similarly disenchanted with
the CDE proposal, advanced by Robert Ryan, head of the Office of Healthy
Kids, Healthy California, and Bill White, his deputy, to put the money into
"healthy kids, healthy this, healthy everything." Miller recalled, "We kept
saying, 'How are you going to account for what the hell you're doing with
tobacco?' And that became a real sore subject and concern of those of us
who wanted to make sure that that money bought tobacco control programs in
school systems in California."15
By submitting different proposals on how to implement the Health
Education Account, the three voluntary health agencies were clearly not
cooperating on implementation of the initiative. Tensions between the three
agencies continued to build over the next several months and weakened their
political position in the coming legislative debates.
A Hostile Legislative Environment
Five realities about the California Legislature were particularly
relevant to Proposition 99.
First, the tobacco industry was a major political player in the
Legislature. There had been no tax increase on tobacco for over twenty
years, reflecting the power of the industry and the weakness of the
voluntary health groups. The tobacco industry had spent $21 million in its
unsuccessful bid to defeat Proposition 99 and was not likely to turn a
blind eye to its implementing legislation. The industry responded to
Proposition 99 by increasing its already substantial lobbying presence and
campaign contributions to members of the California Legislature. In the
1985-1986 election cycle, before Proposition 99 passed, the industry had
spent only $274,394 on campaign contributions and lobbying in California.
In 1987-1988, when ACA 14 (Proposition 99's legislative predecessor) was
being considered by the Legislature and when Proposition 99 passed,
expenditures for industry lobbying and campaign contributions increased to
$2,818,534 (excluding the $21 million the industry spent trying to defeat
Proposition 99 at the polls); in 1989-1990, when the Legislature was
considering the legislation to implement Proposition 99, they jumped to
$4,077,264.16
Second, no health organization with a California lobbying presence
was dedicated solely to tobacco issues, which meant that every organization
lobbying for Proposition 99 programs had to consider how its stance on
Proposition 99 might affect its relationship with the governor and the
Legislature on other matters. The primary organizations with an interest in
tobacco control (ALA, ACS, and AHA) had only a limited lobbying presence in
Sacramento, consisting of one or two full-time lobbyists, and these
organizations had not traditionally been willing to adopt strong positions
or risk making enemies.17,18
Third, the California Medical Association (CMA) and the California
Association of Hospitals and Health Systems (CAHHS) were powerful players
in Sacramento as a result of their large campaign contributions and
extensive information resources. While these organizations gave lip service
to anti-tobacco activities, these activities were of minor importance
compared to economic issues affecting their members. The dominance of
economic issues over public health issues was starkly illustrated by the
CMA's collaboration with the tobacco industry in 1987 to pass the Napkin
Deal, with the attendant "tokenizing" of support for Proposition 99.
Fourth, within the Legislature, led by Assembly Speaker Willie
Brown (D-San Francisco) and his longtime aide, Steve Thompson, there was a
core of liberal Democrats who were committed to funding health care for
children and who were likely to see new monies as a route to doing
this.19 As of 1988, the tobacco industry had given Willie Brown
$124,900 in campaign contributions, more than any member of a state
legislature in the United States and more than the tobacco industry had
given many members of Congress. Moreover, Brown's contributions from the
industry increased rapidly after Proposition 99 passed; by the time he left
the Legislature in 1996, Brown had accepted $635,472 in tobacco industry
campaign contributions.16,20 There was a natural confluence of
interests between Brown, Thompson, the CMA (another major source of
campaign contributions to Brown), and the tobacco industry in shifting
anti-tobacco education money into paying for medical services for poor
children. This axis was continued after Thompson left Brown's staff in 1985
to become the head of the Assembly Office of Research. According to
Thompson, in 1989 he "basically was representing the position of the
Speaker's office. . . . I did most of the health advising for their office.
So I was basically speaking for them on this issue [Proposition
99]."14The ties between Brown, Thompson, and the CMA became even
stronger in 1992, when Thompson left the Legislature to become vice
president and chief lobbyist for the CMA.19,21
Joining the CMA, CAHHS, and Brown in their interest in health care
for children was the highly regarded lobbyist Peter Schilla, of the liberal
advocacy group Western Center for Law and Poverty, whose priority was to
increase health care for poor people. Although the Western Center was not
involved in the initiative campaign, Schilla was very influential with
liberal members of the Legislature, particularly on issues related to
health care for the poor. John Miller, chief of staff for Senator Diane
Watson (D-Los Angeles), and Mary Adams, the AHA's lobbyist, shared the
opinion that Schilla was one of the major forces behind Proposition 99's
implementing legislation. Miller later recalled that Schilla "never cared
much about health education, but he did care about funding the other
programs. And he was putting it all together and knew we needed to be
placated and so he did some of that." Adams agreed, saying, "I recall
personal conversations that I had with John Vasconcellos [D-San Jose, a
prominent liberal member of the Assembly] about the overarching Prop 99
accounts. I was really surprised at the information that he had and asked
him where he got it. And he said from Peter Schilla . . . it was already
very clearly thought out, not just that but then one step
more."15
Fifth, the Legislature was hostile toward Proposition 99 because it
earmarked money; it represented voters' restrictions on legislative
decisions concerning the funds and thus limited the Legislature's fiscal
prerogatives. As John Miller commented, "They despise it. And it is a
built-in antagonism. A serious one."22
Within this hostile environment, the answers to three key questions
would determine the fate of Proposition 99 in the Legislature.23
First, would Proposition 99 advocates be able to maintain the source of
their power--public opinion? Second, would they be able to advocate sound
proposals for spending the tax revenues and to keep the issue framed as
"following the will of the voter"? Third, would program advocates find a
leader for their cause, an "entrepreneur" who could recognize opportunities
to act and who had a commitment to challenge the status quo? Without an
entrepreneur to identify opportunities to act, to guide legislation, and to
be confrontational within the process, Proposition 99 was likely to have
difficulties surviving in the Legislature.24
California's Fiscal Problems
Proposition 99 brought in new money whose expenditure was not
restricted by the Gann Limit, and there was nothing requiring that the
money be used only for the programs that the Coalition wanted. The CMA,
CHHS, and the Western Center wanted more money for medical services for
poor people. The Service Employers International Union (SEIU), a labor
union representing county employees, particularly in the health care field,
and the County Supervisors Association of California (CSAC), an
organization representing California county governments, saw Proposition 99
as a new source of jobs and money for their constituents. Governor
Deukmejian, acting through his administration's Health and Welfare Agency,
had many cash-starved programs. So did the CDE, which reported to the State
Superintendent of Public Instruction, not the governor. The Research
Account initially attracted the attention of California's research
universities, especially the University of Southern California, Stanford
University, and the University of California, which saw it as a new source
of money. None of these new players had any particular commitment to
tobacco control.
Down the Legislative Path
The voluntary health agencies recognized their vulnerability. When
he was asked about the effort to implement Proposition 99, ALA lobbyist
Tony Najera commented, "We were vulnerable for two reasons. We didn't know
what the heck was needed. . . . and second, we had so much money. We had
accumulated so much money before any action plan was even looked
at."15 Thompson also recognized the vulnerability of the new
program: "There were some [existing] programs being defunded or not fully
funded competing against things that didn't exist. So, in a traditional
budgetary context, it's not as difficult to take money from something that
hasn't happened and give it to something that's being
reduced."14 The existing health care programs with established
constituencies also provided a clear mechanism by which the money could be
spent. According to the Senate Health Committee's John Miller, "The
hospitals and the doctors and the others who got big lump sums of money
from this tax had a system in place to just plug it in and spend it. I
mean, it was gone within minutes of arriving, because their distribution
network was already there. We didn't have that."15 The voluntary
health agencies were thus arguing for a new program for which there was no
existing bureaucracy, no proven approaches, and no constituency to defend
it against established programs with well-developed financial and political
infrastructures.
The CMA, after extracting as much money as possible from
Proposition 99, had walked away from anything but token participation in
the initiative, even before it qualified for the ballot. After Proposition
99 passed, the CMA struck out on its own almost immediately. At a Coalition
meeting on December 28, 1988, the CMA told the other members present of its
intent to go after the entire Unallocated Account to fund health insurance
for workers who lacked health insurance.
The interest of the voluntary health agencies in continuing a
relationship with the CMA, in spite of CMA's increasingly adversarial
actions against prevention programs, would prove to be characteristic of
their behavior throughout the Proposition 99 funding discussions. ANR
co-director Julia Carol observed: "I think [the voluntaries] view the CMA
as somebody they have to have. All three agencies work with the CMA on
issues other than tobacco. Their boards are made up of doctors who are also
members of the CMA. The CMA has tremendous clout in the Legislature and
they see them as allies that they cannot have a permanent rift with. . . .
they see the CMA as indispensable to who they are and how they have to
work."26 Despite the CMA's failure to deliver its promised
support for the initiative (creating debate over removing it from the
Coalition before the initiative passed) and the CMA's repeated raids on the
Health Education Account and then the Research Account, the voluntary
health agencies would cling to the CMA.
The Coalition's Disintegration
The Coalition said no. Instead of maintaining a budget and staff
for the Coalition, the Executive Committee decided that "each member agency
could rely upon its own staff and resources from this point on, and that a
core staff from key agencies (especially related to legislative activity)
could provide a focus."28 The Coalition would be a mechanism for
cooperation among the individual agencies. Money for an ongoing effort was
an obstacle for the voluntary health agencies. According to Carolyn Martin,
a volunteer with ALA who was active in the campaign to pass Proposition 99,
"Money was a big problem. The non-profit agencies, ACS and ALA, had spent
an astronomical amount of money on the Proposition 99 campaign. Obviously,
CMA and CAHHS would not contribute to this effort."29 The
Coalition met to discuss issues during the legislative session, and it was
listed as a supporting organization for several bills. But it ceased to
function as an effective body. Each organization pursued its own strategy
and lobbied for its own bills with its principal legislators.
On January 5, 1989, the now-resourceless Coalition hosted a press
conference to present its Program for a Healthy California, which outlined
its plans for implementing the various accounts of Proposition 99. The
program recommended that at least 70 percent of the Health Education
Account go toward school-based programs, with grantees to include not only
school districts but also clinics, community-based organizations, local
health departments, colleges and universities, voluntary health agencies,
and hospitals. The remainder of the account was to be used for an Oversight
Committee, which would be responsible for program planning, implementation,
and evaluation and for the media campaign, which would be designed to
reinforce the school-based program. The Research Account was to be
administered using the federal National Institutes of Health model and was
to include biomedical, behavioral, social, and epidemiologic research. The
Unallocated Account was to be used to fund a fire prevention program and
other funding categories.30
The CMA was already moving to gain control of as much of the money
as possible. The day before the Coalition's press conference, CMA executive
vice president Robert H. Elsner sent a letter to Coalition chair Jim
Nethery asking the Coalition to refrain from making statements about the
Unallocated Account. He specifically urged that the press conference and
the supporting materials "not include any specific recommendations or
proposals for use of the unallocated funds. In the press conferences it
should be made clear the Coalition has not adopted any policy on specific
proposals for implementing Proposition 99. . . . However, if after the
various proposals have been discussed by the Coalition and a consensus
cannot be reached, various organizations ultimately may have to go their
own way."31 Nethery and the Coalition ignored him. The press
conference was the last major coordinated effort of the Coalition for a
Healthy California as it was constituted during the election.
The decision not to stay together formally with a paid staff meant
that there would be no changes in the existing institutional patterns that
might disrupt the existing legislative patterns related to tobacco policy
making. In particular, it meant that there would be no lobbying presence in
Sacramento dedicated solely to the tobacco debate or to maintaining the
integrity of the Proposition 99 programs. Ken Kizer, the director of DHS
and a strong supporter of the Proposition 99 program, described the problem
created by the lack of a unified coalition:
Nicholl was not the only person who felt the need for a continuing
organizational presence focused on implementing Proposition 99. In 1989 the
federal Centers for Disease Control and Prevention in Atlanta offered to
give the Coalition $9,000 to help with public relations activities, and the
money was eventually given to the Western Consortium for Public Health
through Lester Breslow. (The Western Consortium was a nonprofit
organization that allowed the schools of public health in California to
cooperate on grants and contracts.) Breslow, a professor at UCLA, was a
former director of health services and the former dean of the UCLA School
of Public Health.
The Western Consortium wanted to use the money to hire Betsy Hite,
who had recently left ACS, apparently at Nethery's request.33
According to Nethery, who continued to chair the Coalition, "I got a little
heavy-handed. I didn't have a staff, and they put me in a position which I
shouldn't have agreed to in the first place of operating the Coalition
without a staff. And so at one point in time the public health people came
along and offered me this money, and I was going to use it to hire Betsy.
And I made a really dumb statement. I said, 'Now I have my lobbyist' . . .
I could have thought that and it would have been okay. But you know, keep
your stupid mouth shut."34 Other members of the Coalition did
not trust Hite because they felt she put her personal views ahead of the
consensus position. ALA opposed the decision to hire Hite;35 ALA
executive director Williams wrote a strong letter to Nethery, saying,
"Surely you understand that Betsy is thought controversial by some members
of the Coalition. To bring her back into the fray at this date without
careful preparation was I think insensitive. . . . why does the Western
Consortium want to hire her and then expect the coalition to take her on as
a partner. The three lobbyists for the voluntaries are working well; what
would the addition of Betsy contribute?"36 In the end, Hite was
not hired to work with the Coalition. Instead, the Western Consortium
prepared a case study of the effort to implement Proposition
99.37
Nethery was in the minority in believing that a campaign-style
effort would be necessary to see that the Legislature properly implemented
Proposition 99. For most of those who were involved in passing Proposition
99, the degree to which the political fight would continue in the
Legislature came as a surprise. David Langness, who worked for CAHHS but
represented the American Heart Association on the Coalition, commented,
"The 99 Commission was a little fractious at times before the election. But
after the election, we didn't anticipate the necessity for long-term
post-election work. And that was one of the big lessons that I learned
during that campaign. And it's one of the lessons that I'm trying to
transmit to the other people I'm consulting with, like the Arizona [Heart]
Association. [Arizona passed a Proposition 99 clone in 1994.] And that is:
The campaign doesn't stop on election day."38 When asked if she
was surprised at how fast the Coalition split apart, Jennie Cook, a
longtime ACS volunteer and, in 1989, immediate past chair of the board of
ACS California, replied, "As soon as it was passed, we figured, 'Okay, we
walk away and do something else.' What a joke! . . . We all figured that
there was no more to do, it was done. It was a law. What more could we do?
. . . We had spent months coming up with how we wanted the money designated
and we figured that that was in the initiative, so that would make it
law."39 The voluntary health agencies assumed that because the
voters passed Proposition 99, the Legislature would simply implement it
as the voters wanted.
They were wrong.
The Governor's Budget
The controversial part of the governor's budget lay in his proposal
to use Proposition 99's Hospital Services and Physician Services Accounts
to pay for county medical services. His budget called for a $358 million
reduction in state revenues to fund county programs to treat the medically
indigent (a General Fund obligation) and then allocated $331.3 million of
Proposition 99's tobacco tax revenues back to the counties for a supposedly
new program, the California Health Indigent Program. Several individuals
saw the governor's plan as supplanting already existing levels of service,
a violation of the "maintenance of effort" requirement in the initiative.
The governor also proposed using Proposition 99 funds to finance
$54 million in unavoidable state obligations, such as health care costs
associated with caseload increases, $14 million for various state prison
programs, $18 million for capital outlay improvements in state mental
hospitals, and $7 million for caseload increases in several categorical
health programs. He also proposed expanding community mental health and
drug treatment programs for female drug addicts. Some of these
expenditures, such as those for prisons and for capital improvements in the
state mental hospitals, were not consistent with Proposition 99, which
required increases in medical services.
The governor's budget drew an immediate negative response from the
press, the Coalition members, the Legislative Analyst's Office, and members
of the Legislature. The CMA described the governor's proposal as a "shell
game."41 A Los Angeles Times editorial labeled the
Governor's action as "The Big Raid," stating, "This is not a pie for the
health-care sponsors of that successful proposition to carve up for the
benefit of each and every health-care provider. It must be used to address
the priorities for which it was intended, to supplement and not to replace
the existing resources. To do otherwise would betray the trust of the
voters and violate the rule of law" (emphasis added).42
CMA president Laurens P. White loudly protested the fact that the
governor was not using Proposition 99's medical service accounts to create
new programs, as the initiative specified, expanding the pool of funds
available for medical services. He emphasized the CMA's commitment to
seeing that the politicians honored the will of the voters: "We are fearful
that the administration's budget planners are using the proceeds from the
cigarette tax increase approved last November to offset cuts made in the
state's health programs. The CMA will work with members of the Prop. 99
Coalition to make sure that does not happen. When they approved the tax,
voters believed they were increasing the amount of money available. We must
keep faith with them" (emphasis added).41 Although the
governor had honored the terms of the initiative by fully funding the
Health Education and Research Accounts (the top-priority activities for the
voluntary health agencies), the agencies were willing to expend political
capital over the supplanting issue--a priority for the CMA--because of the
importance of protecting the integrity of the initiative. Nethery, chair of
the Coalition, announced, "The voters will be very disappointed that the
bureaucrats are trying to raid the revenues from Proposition 99. In
approving Proposition 99, the voters clearly sent a message to Sacramento
that they wanted new money for new programs to mitigate the effects of
tobacco and teach children about the dangers of smoking. The Coalition
will work to educate the Governor and the Legislature to make sure that the
funds are spent consistent with the voter mandate to protect public health
and the environment" (emphasis added).40 Nethery threatened
legal action if the governor persisted in violating Proposition 99's
stricture against supplanting existing programs because the "proposed
budget did not comply with the letter or the spirit of Proposition 99" and
the budget would "use the new revenues created by Proposition 99 to replace
existing county health services funding eliminated in another portion of
the budget."40
Assembly Member Lloyd Connelly (D-Sacramento), who had played a
major role in creating Proposition 99, immediately requested a formal
opinion from the Legislative Counsel (the Legislature's legal expert). He
asked, "May revenues derived from taxes imposed pursuant to Proposition 99
be used to fund existing levels of service for these purposes authorized by
Proposition 99 with a four-fifths vote of the Legislature?" The Legislative
Counsel's February 24 opinion concluded that the Legislature could not
legally fund existing services and said that only the voters could change
Proposition 99: "Unless an initiative statute grants the Legislature the
power to amend or repeal the statute, the Legislature may amend or repeal
the statute only by another statute that becomes effective when approved by
the electors."43 Unified opposition forced the governor to back
down.
In the end, the governor's initial proposal may not have been a
significant threat to the program because Deukmejian, unlike his successor,
fellow Republican Pete Wilson, felt bound to implement laws passed by the
voters, even if he did not personally agree with them. According to Steve
Scott, political editor of the California Journal, a widely
respected nonpartisan monthly on California politics, "Deukmejian had an
interesting attitude about initiatives. He got involved a lot in initiative
campaigns. In fact, his staff would sort of get on him for getting involved
. . . but by and large, his attitude was if the voters passed it, then the
obligation of his administration was to implement it to the best extent
possible. And so basically what I've been told recently is that Deukmejian
pretty much let Kizer [director of DHS] do it his way."44
The first challenge to the integrity of Proposition 99 was
thwarted, protecting an important principle for the CMA and other medical
service providers. Unfortunately, the CMA would not reciprocate and work
with equal vigor to protect the Health Education and Research Accounts.
The Tobacco Industry's Legislative Strategies
The "major trouble spots" of the governor's budget were the
anti-smoking health education program of $175.5 million and the University
of California research grants of $43.9 million.4545 The Health Education Account was a greater
concern: "Our efforts will have to be very concentrated in this area. The
defensive lobbying program will concentrate on the defeat of the dozens of
bills that have been or will be introduced to reallocate the Proposition 99
monies to areas unacceptable to our interests."45
The long-term strategy was to gut Proposition 99 entirely by
putting the revenue into the General Fund and eliminating Proposition 99's
requirements that money be spent on anti-tobacco activities. This strategy
would be implemented by participation in the Gann Coalition, which was
forming to consider modifying some of the state spending rules:
The second purpose was to develop possible goals to mitigate the
impact of Proposition 99 on the industry and to strengthen the industry
against future excise tax increases.
Our consultant [Nielsen, Merksamer] believes it is possible to
fashion a strategy and an implementation plan designed to abolish
Proposition 99 earmarking by placing the monies in the general fund instead
of the six special funds. . . .
In order for the tobacco industry to be part of this process, which
is essential if we are to capitalize on this opportunity, we must be able
to offer to the other leaders of the coalition our resources, namely
leadership, strategy, and money.
In turn we would want from the coalition a change in the law to
abolish earmarking of excise taxes and to direct all revenues into the
general fund.
We would also strive to change the law making it more difficult to
raise excise taxes by the initiative process and/or a commitment from
our coalition partners (doctors and hospitals) not to sponsor or
support any further increase in excise taxes.
Major players in the coalition are the health care industry, the
California Chamber of Commerce, the California Taxpayers Association,
public employee groups, and Paul Gann. . . .
The coalition will help strengthen our ties with many groups
including the health care industry, and it will also remove tobacco from
the major target role. . . .
This second strategy of developing a permanent coalition will be
much more visible than the first strategy which is aimed at abolishing
Proposition 99 earmarking and sending the tobacco tax revenue from
Proposition 99 to the general fund. The first strategy clearly has to
remain an invisible one.45 [emphasis different from
original]
The report analyzed the governor's budget to determine what were
"acceptable" and "unacceptable" uses of the Proposition 99 revenues:
Nielsen, Merksamer had already begun to study "appropriate" budget
items for the Proposition 99 funds to supplement. The firm's recommendation
was for all the Health Education money to go to the California Department
of Education to be put into the "Program elements" category, which includes
bilingual programs, adult education, and vocational programs, among others.
Nielsen, Merksamer warned, "There may be some pressure to allocate some of
the educational money to the Department of Health Services."47
If DHS was to receive the money, Nielsen, Merksamer recommended that the
money be put into either Maternal and Child Health Care or the Child Health
and Disability Prevention (CHDP) program. Both schools and CHDP would
eventually receive Health Education money in 1989; by 1994, Maternal and
Child Health would also be added to the mix. For the Research Account,
Nielsen, Merksamer recommended a requirement that research be performed at
all nine University of California campuses, presumably to dilute the effect
of the program. Nielsen, Merksamer made no recommendations and expressed no
concerns about the Hospital, Physicians, or Public Resources Accounts. The
law firm recommended spending the monies in the Unallocated Account on
hospitals and physicians.47
Conclusion
In contrast, the tobacco industry had already developed a strategic
plan to undo Proposition 99, with specific plans to divert funds into
"acceptable" medical services for children and pregnant women. The industry
had started to enlist other powerful players interested in changing the way
California government was financed, including the CMA, the Western Center
for Law and Poverty, and other medical interests that the voluntary health
agencies hoped would work with them.
Notes to Chapter 5
1. Waters G. Petition for Review. Sacramento: Supreme Court of the State of
California, January 23, 1997.
2. Stein MA. Those who backed cigarette tax face tougher job: Seeing that
it's spent right. Los Angeles Times 1988 November 10.
3. Winebrenner JT. Memo to P. J. Hoult re: California tax increase.
November 21, 1988. Bates No. 50677 9941/.
4. Herson MB. Memo to Mr. Ralph Angiuoli re: California marketing program.
January 12, 1989. Bates No. 507740 3093/3094.
5. Degener P. Memo to Distribution re: California retail promotion
12/88-1/89. November 18, 1988. Bates No. 2044195177/5180.
6. Connelly LG. Letter to Ernest J. Dronenburg, Jr. November 15, 1988.
7. Hager P. Justices declare tobacco tax constitutional. Los Angeles
Times 1991 April 2;A3.
8. Kuzins M. Letter to Corey Brown. February 10, 1989.
9. Miller J. Interview with Stanton A. Glantz. July 12, 1998.
10. Miller J. Memo to Senator [Watson]. September 1988.
11. American Lung Association of California. Proposition 99
implementation recommendations: Policy statement. Sacramento, December
3, 1988.
12. Najera T. Memo to ALAC, Prop 99 oversight. December 13, 1988.
13. American Heart Association. Recommendations for implementation of
Proposition 99: Policy statement. December 22, 1988.
14. Thompson S. Interview with Michael Traynor. June 30, 1995.
15. Miller J, Najera T, Adams M. Interview with Michael Traynor. June 20,
1995.
16. Begay ME, Glantz SA. Political expenditures by the tobacco industry
in California state politics from 1976 to 1991. San Francisco:
Institute for Health Policy Studies, School of Medicine, University of
California at San Francisco, 1991 September.
17. Jacobson PD, Wasserman J, Raube K. The politics of anti-smoking
legislation. J Health Policy, Politics, and Law
1993;18(4):787-819.
18. Kluger R. Ashes to ashes: America's hundred-year cigarette war, the
public health, and the unabashed triumph of Philip Morris. New York:
Vintage Books, 1996.
19. Richardson J. Willie Brown. Berkeley: University of California
Press, 1996.
20. Monardi FM, Balbach ED, Aquinaga S, Glantz SA. Shifting allegiances:
Tobacco industry political expenditures in California January 1995-March
1996. San Francisco: Institute for Health Policy Studies, School of
Medicine, University of California San Francisco, 1996 April.
(http://www.library.ucsf.edu/tobacco/sa/)
21. CMA's new chief lobbying calls MDs to action. California
Physician 1992 April;22.
22. Najera T, Miller J. Interview with Michael Begay. July 22, 1994.
23. Oliver TR, Paul-Shaheen P. Translating ideas into actions:
Entrepreneurial leadership in state health care reforms. J Health
Policy, Politics, and Law 1997;22(3):721-788.
24. Kingdon JW. Agendas, alternatives, and public policies. 2d ed.
New York: Harper Collins, 1995.
25. State of California, Legislative Analyst's Office. Analysis of the
1989-1990 budget bill. Sacramento, 1989 February.
26. Carol J. Interview with Edith Balbach. August 8 and September 5, 1996.
27. Nicholl J. Memorandum to Executive Committee. December 8, 1988.
28. American Cancer Society. Proposition 99 Follow-up meeting--meeting
notes. Oakland, December 15, 1988.
29. Martin C. Comments on manuscript. 1998 October.
30. Coalition for a Healthy California. Tobacco tax coalition unveils
"Program for a Healthy California." Press release, January 5, 1989.
31. Elsner RH. Letter to W. James Nethery. January 4, 1989.
32. Kizer K. Interview with Michael Traynor. June 15, 1995.
33. Hafey JM. Letter to James Nethery. May 4, 1989.
34. Nethery WJ. Interview with Michael Traynor. May 11, 1994.
35. Coalition for a Healthy California. Minutes. May 15, 1989.
36. Williams G. Letter to W. James Netherly [sic]. May 15, 1989.
37. Marr M. Proposition 99: The California tobacco tax initiative: A
case study. Berkeley, CA: Western Consortium for Public Health, 1990
April.
38. Langness D. Interview with Michael Traynor. January 19, 1993.
39. Cook J. Interview with Edith Balbach. March 19, 1998.
40. Hite B, Brown C. Tobacco tax initiative sponsors criticize governor's
budget. Press release, January 10, 1989.
41. California Medical Association. News. Press release, January 10, 1989.
42. The Big Raid [editorial]. Los Angeles Times 1989 January 24; p.
II.2.
43. Gregory B. Letter to Lloyd G. Connelly. February 24, 1989.
44. Scott S. Interview with Edith Balbach. September 18, 1996.
45. RJ Reynolds Tobacco. California short and long-range plans. 1989. Bates
No. 50760 3756/3760.
46. Tobacco Institute, State Activities Division. Project California
proposal. Washington, DC, February 21, 1989. Bates No.
2025848159/48192.
47. Nielsen, Merksamer. Memorandum to Executive Committee re: California
state budget. December 15, 1988. Bates No. 50763 7136/7160.
Passage of [Proposition 99] really came about because everybody
worked together. It was one of the few instances where the health
constituencies actually got together on the same team and worked in a
coordinated way. But that Coalition seemed to unravel relatively quickly,
being superseded by self-interest. . . . In the absence of a concerted
pressure driving it in one direction, then it reverted back to the
Legislature to arbitrate the disparate views of the folks who wanted to get
more for themselves. . . . Everybody in the Legislature knows how easy
it is to fracture the health community and how they are largely their own
worst enemy and how they can capitalize on that.32 [emphasis
added]
The long term strategy was developed by our political
consultants for two purposes. One purpose was to make the industry
"players" in a coalition created to restructure the method of state
government finances through an initiative. The discussion motivating such a
coalition involves possible repeal or modification of the Gann spending
limit, the constraints on the budget process imposed by Proposition 98
[which required that a specified fraction of state revenues be spent on
education], and other constraints such as entitlement programs and
automatic cost of living adjustments.
The Anti-Smoking Health Education program ($176 million) is an
"unacceptable" program to receive funds. As currently structured, these
funds could be distributed to state anti-tobacco groups for their use in
anti-smoking advertising and other campaigns. This budget item was recently
amended by the Department of Health to award contracts to private firms to
conduct smoking prevention education programs (Attachment C). We must do
everything possible to prevent these revenues from being used in a vigorous
anti-smoking public relations or media campaign.46 [emphasis
different from original]