3. Proposition 99 Emerges

In November 1988, in spite of a massive statewide campaign by the tobacco industry, California voters enacted Proposition 99. The proposition, which increased the tobacco excise tax by twenty-five cents per pack of cigarettes and comparable amounts on other tobacco products, financed the largest, most ambitious tobacco control program in the world. Using the Proposition 99 tax revenues, the state spent as much as $100 million annually fighting tobacco, which dwarfed the federal government's activities. At its most effective, in the early 1990s, the Proposition 99 anti-tobacco education program tripled the rate of decline in tobacco consumption. It spawned an unprecedented effort at passing local ordinances and led to smoke-free public places and workplaces, followed by smoke-free restaurants and bars. Yet the idea for Proposition 99 did not come from the nonsmokers' rights activists who had defeated the tobacco companies in San Francisco's Proposition P campaign, the

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voluntary health agencies, or the medical establishment. It came from an environmentalist.

The leaders of Americans for Nonsmokers' Rights (ANR), in the aftermath of Propositions 5, 10, and P, decided to concentrate on passing local ordinances because they understood that cities and counties presented a forum in which the grassroots organizations' power was amplified and the tobacco industry's power was muted. They had no interest in another bruising election, much less a state-level campaign. The voluntary health agencies—the American Lung Association (ALA), American Cancer Society (ACS), and American Heart Association (AHA)—were slow to embrace policy interventions to protect public health, sticking to the medical model of pursuing health one patient at a time. The medical establishment was preoccupied with increasing the amount of money available to pay for the delivery of medical services and with making it harder to sue doctors.

The Idea

Early in 1986 Gerald Meral, executive director of the Planning and Conservation League (PCL), a statewide California environmental group based in Sacramento, approached his friend Curt Mekemson, who worked for the ALA, to discuss his idea of increasing the tobacco tax by five cents and using the proceeds for environmental programs. Such a tax would raise the price of cigarettes and reduce smoking, a goal of Mekemson's, while raising money for environmental programs, one of Meral's goals. Meral knew that Mekemson, in his previous job as executive director of the Alaska Lung Association, had spearheaded the successful effort to double Alaska's cigarette tax from eight cents to sixteen cents.

Mekemson put Meral off: “I told Gerry, no, I wasn't interested. I was going backpacking for six months, but I might talk to him afterwards. So I went off and did my backpacking trip.”^[1]

Meral did not take no for an answer. In September 1986, when Mekemson returned from backpacking to work as the legislative director of ALA's Sacramento Emigrant Trails affiliate, Meral cornered him again with the same question.^[1] This time Mekemson said yes.

Mekemson and Meral recruited two other legislative advocates: Tony Najera, director of government relations at ALA, and Betsy Hite, director of public issues at ACS. The four began conducting research and planning strategy. Although Meral had originally proposed an increase of only five cents per pack, Mekemson felt that the increase should be larger and that revenues should also support tobacco prevention and education programs. In an October memorandum to Najera, Mekemson stated that “the majority of the funds should go toward supporting health related programs, [and] that within health related programs our greatest focus should be on prevention [with] a portion of the funds directly related to the smoking issue.”^[2]

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The Coalition for a Healthy California

Several events in September and October 1986 gave the tax effort additional momentum and legitimacy. Mekemson persuaded Assembly Member Lloyd Connelly (D-Sacramento) to join the effort. Connelly, a highly respected figure in the Assembly, brought a significant leadership presence to the tobacco tax effort, both organizationally and politically. He was drafted into the effort over a breakfast. According to Mekemson,

Lloyd was along. Connelly was a longtime friend and acquaintance of mine and he called me up and said he wanted me to tell him Alaskan bear stories because he's into all this wilderness stuff. …So we had breakfast at the Fox and the Goose and I told Lloyd all the bear stories. And he wanted to know what I was doing. And I said, “Well Lloyd, I think I want to take on this tobacco tax issue.”…What caught Lloyd's attention…was the impact that increasing the tobacco tax would have on reducing tobacco use among kids. Bringing Lloyd on brought in a lot of credibility to the effort, and his own incredible energy and ability to organize things. …And he committed one of his staff people to working with us.^[1]

Over breakfast, Connelly said it was hopeless to get a tobacco tax increase through the Legislature. He was willing to be involved only if the groups were willing to press ahead with an initiative.^[3] Proposition 99 was born.

Meral used his political skills to broaden the range of groups interested in increasing the tobacco tax. He convinced the Senate Office of Research to hold an informal meeting on October 14, 1986, with representatives from the PCL, ALA, ACS, ANR, California Teachers Association, Senate Revenue and Taxation Committee, California Medical Association (CMA), Connelly's office, and the Senate Office of Research itself. This informal meeting served several purposes: it increased the tax effort's legitimacy, defined the potential participants of a coalition, and provided a forum in which to discuss strategies and goals early in the process.

Most of the research and organization, however, was still done by the ALA, ACS, PCL, and Connelly's office. Mekemson and Najera set the agenda for the meeting by preparing a draft paper that identified the specific issues and requirements for passing a tobacco tax increase.^[4] Their paper raised the following questions.

1. What was the case for increasing the tax? There were three distinct supportive arguments: the impact on smoking and health, the po

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   enefits from programs supported by the new revenues, and the high economic costs of smoking. In addition, the time was ripe. California's cigarette tax of ten cents had not been increased since 1967. Every other state except Virginia had increased its tobacco tax since 1967; only six other states had lower taxes than California, and four of those were tobacco producing states.
2. Which is the best approach for increasing the tax—an initiative or the Legislature? Because of the tobacco industry's lobbying power in Sacramento, enacting a tax increase through the Legislature seemed hopeless since it had defeated thirty-seven bills to do so since 1967. Although an initiative meant mounting a major election campaign against the tobacco industry, it seemed to be the only way to increase the tax. In spite of the failure of previous statewide initiatives—Propositions 5 and 10—conditions seemed favorable for this one. Public attitudes toward smoking were changing and there was a large societal cost associated with smoking. In addition, by using the initiative process, the proponents could decide the amount of the tax increase and how the money would be spent. Proponents felt that, with careful crafting of the initiative, it would be possible to build public support for the tax.
3. How much should the tax be increased and how should the new revenues be allocated? Early discussion considered an increase of twenty cents to forty cents per pack. A high tax was favored because it was felt that it would have the largest impact on tobacco consumption and generate the most revenues, but too high a tax might invite criticism and loss of public support. The ALA estimated that a 10 percent increase in the price would lead to a 14 percent drop in tobacco consumption and that every one-cent increase would generate $25 million in new revenues. Three important points were raised regarding revenue allocation: How could the money be used to have the greatest impact on tobacco consumption? How could the money be allocated to gain support from interest groups whose backing would be necessary to win? How could the money be used to generate the broadest public support?
4. What are the technical aspects involved in running an initiative? Qualifying the initiative would be a difficult task, followed by an even more difficult election campaign. This process would require employing a professional campaign director, conducting polling to determine campaign strategy, and hiring professional signature-gatherers, all of which represented substantial financial and organizational commitments.

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From the beginning, the public health and environmental advocates had problems with the CMA. Jay Michael, CMA's vice president for government relations, tried to limit participants in the planning effort. From the beginning he tried to exclude the more politically sophisticated Connelly and the PCL so that he would have to deal only with the voluntary health agencies, which lacked the political muscle and sophistication that Connelly and Meral had. According to Mekemson, who was trying to help organize the coalition,

What we ran into with the CMA was they were concerned about the breadth of the coalition that we were developing. In other words, they didn't want Lloyd [Connelly] involved in it; Jay didn't want Lloyd involved in it. They didn't want the environmentalists involved in it. It seemed to be okay as long as it was Heart, Cancer, Hospitals, so forth and so on.

And of course, I insisted on continuing to involve Gerry [Meral], I mean it was Gerry's initial idea. And obviously Lloyd. Lloyd brought in his power and wonderful ability to analyze things from a political perspective, and his experience with initiatives as well as Gerry. …One day we had an incredible meeting. Jay called me up, and he said he didn't want Lloyd or Gerry at the meeting, and I insisted on it. And he insisted right back. So finally I had agreed that I would show up with Tony [Najera of ALA] and Betsy [Hite of ACS] and we could all sit down and work it out but they are going to be involved. Well, I just beat Gerry there. I waited outside CMA's offices on a hot day. I said, “Gerry, here's the situation.” Then Lloyd came along and I said, “Lloyd, here's the situation.”

And Lloyd just got that look in his eyes and said, “No way,” he marched in, left us standing outside. I don't know what he said to Jay, but when we walked in, Jay was pissed. Obviously absolutely infuriated. Because Lloyd comes back out and says, “Come on in, Gerry. I worked it out.”…That was the last meeting we had at the CMA building because…. put them right over here [at ALA of Sacramento–Emigrant Trails], not on neutral ground, on our ground.^[1]

On November 20, 1986, Connelly sent a letter inviting potentially interested organizations to join the effort to increase California's tobacco tax and cited three objectives of the tax: to reduce teenage smoking, to raise revenues to fund public awareness campaigns, and to reduce the overall suffering and financial burden caused by tobacco.^[5] On December 4, 1986, Connelly hosted a meeting to identify organizations that might support the tobacco tax effort.

Prior to this meeting, George Williams, executive director of the ALA of California, and the ALA board of directors set the standard of commitment by providing $50,000 to support the tobacco tax effort. This

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very large (for a voluntary health agency) financial commitment showed the ALA's dedication to the effort and forced other agencies to be ready to make the same financial commitment. Mekemson saw this early and substantial commitment as a key factor in establishing a significant anti-tobacco education component of the emerging initiative. He observed,

It said to everybody out there, “This is really a serious proposition,” and that's what we had to accomplish. In other words, we had to show…that this was something that's going to happen. But the other important thing that the $50,000 does is that it really bought the American Lung Association a seat at the table. For any negotiations that took place or happened, we would be a key player. That became important, especially when we decided to divide up the pie…we kept running up against CMA, who would say, “Certainly some money should go into education. How about five percent [of tobacco tax revenues]?”…So between having the $50,000 contribution from ALAC, and the fact that we started the whole process, and the fact that the poll supported it, those were the chips I needed to get 20 percent set aside for prevention in that very intense battle that we had.^[1]

The California Association of Hospital and Health Systems (CAHHS) and the CMA, both major political forces in the Legislature, were now willing to join the tobacco tax effort. The support of these two medical organizations was viewed as significant because of their credibility, their potential to provide money, and their link to individual hospitals and doctors throughout the state. Hite remembered that Jim Nethery, a dentist who was president of the ACS California Division, worked to involve the CMA.

There was a lot friction with all of the groups and CMA. Categorically it was the groups and CMA. The CMA changed their direction a number of times. We had verbal promises from their president [Dr. Armstrong] at the time. …He and Dr. Nethery, who was the president of the American Cancer Society at that time, had a number of discussions that CMA was completely behind us, they'd spend whatever it would take to get it through; it was a really good public health policy to try and discourage smoking by raising the tax and by dedicating some of those funds to education. As we went further and further along in the drafting over the next eight months, CMA became less willing to commit resources and more willing to take the benefits.^[6]

The health groups did not know that key CMA leaders were actively working with tobacco interests on economic issues that were important to organized medicine, particularly malpractice and tort liability issues, at the same time as they were meeting with the health groups.^[7] In the end, common economic interests with the tobacco industry would dominate the CMA's decision-making process. In the meantime, it was in the

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CMA's interests to push the tobacco tax initiative, both as a way to increase the pool of money available to pay for medical services and as a bargaining chip with the tobacco industry in negotiations over malpractice reform and tobacco products liability.

Mekemson and others had approached ANR and the other leaders in the fights for Propositions 5, 10, and P, but they declined to get actively involved. As Hanauer explained, “We were deathly afraid that we couldn't win a statewide initiative. …I got snake bitten twice and I wasn't in the mood to try a third time…Fortunately there were other people who were willing to do that, and were able to bring fresh blood into that kind of campaign. Stan Glantz and I and Paul [Loveday] shuddered at the thought of even getting involved, much less working forty, fifty hours a week at that point on a statewide campaign.”^[8]

ANR supported the concept of a tobacco tax but did not think it could pass.^[1][9] ANR took the position that any new state-level initiative would meet the same fate as Propositions 5 and 10: the public's strong early support would wither in the face of the tobacco industry's expensive counter-campaign. ANR was also offended that the large, wealthy organizations that were setting up the campaign demanded a contribution of $25,000 from ANR (at the time, a four-person operation with a budget under $200,000) for the privilege of sitting on the Executive Committee.^[10] In addition, the local ordinance strategy adopted by ANR and other grassroots organizations was producing important successes at the local level. As already noted, by the end of 1986, 263 local tobacco control ordinances were in place, 117 of which were in California, and ANR did not want to put its energies into a statewide campaign.

By early January 1987, an informal coalition was ready to attempt to increase California's tobacco tax. The Coalition for a Healthy California consisted of the ALA, AHA, ACS, CMA, PCL, CAHHS, and Lloyd Connelly.

The Legislative Effort

The next step in the tax effort was to attempt to pass a tobacco tax increase through the Legislature. Connelly's invitation letter to the December 4, 1986, meeting of the Coalition stated, “While we are planning to make an initial effort at the Legislature, we frankly expect the tobacco lobby will defeat us there. After all, they've been doing so for 20 years.”^[5] Still, a legislative attempt was necessary to develop the Coalition further, to test the various arguments for a tobacco tax increase, and to educate

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the public regarding the desirability of an increase. The process also was designed to improve the drafting of the initiative by exposing it to public comment. In addition, the process of going through the Legislature provided some hope of a compromise with the tobacco industry before an initiative battle had to be faced.^[3] It was also necessary, before going to the voters, to try the legislative approach and demonstrate that it simply would not work.^[11]

As predicted, the Coalition had to contend with the tobacco industry's lobbying power in the Legislature. Despite the industry's very low public credibility and the popularity of the tax increase on cigarettes, the industry had been very successful in defending its political agenda within the Legislature through large campaign contributions to legislators and its organized and politically influential lobbyists.^[12–14] According to Hite, the Coalition tried to persuade the tobacco industry to let the bill go through, but without success: “We did our best to tell the tobacco folks, `We're going to do this, we're going to do an initiative on this, and we've got right on our side and you know we've got the numbers on our side, you know we're right, we're going to win this. Cut your losses and let's do legislation.' And they wouldn't.”^[6]

The Coalition decided to seek a constitutional amendment rather than a simple statute for two reasons. First, proponents of the tax increase wanted to avoid spending limits that the voters had enacted in 1979 when they passed Proposition 4, known as the Gann Limit (after Paul Gann, its primary sponsor). This constitutional amendment, which was passed the year after Proposition 13, limited the growth of state government expenditures to the rate of inflation and population growth. While the Gann Limit did not prohibit an increase in the cigarette tax, it could have prevented the state from spending the money raised by the tax.^[15] Second, proponents wanted to protect the tax-funded tobacco education programs from the Legislature, and only the voters can change a voter-passed initiative. Assembly Member Tom Hayden (D-Santa Monica) realized that protecting Proposition 99 would be an ongoing battle. Hayden had gained fame as a leader in the antiwar movement of the late sixties and early seventies as a member of the Chicago Seven. He eventually channeled his energy into mainstream politics and, in addition to becoming a member of the Legislature, founded Campaign California, which pushed a variety of liberal, environmental causes, including several ballot initiatives.^[16] Hayden would become one of Proposition 99's defenders in the Legislature.

Since the proponents of the tax increase were certain of defeat in the

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Legislature, they wanted to craft the proposed tax initiative to draw maximum public support. With money from the CMA, ACS, and ALA, they hired Charlton Research to conduct a public opinion poll in January 1987 on the topic of raising the tobacco tax.^[17] The Coalition sought public input in five major areas: the amount of the tax, the breadth of the tax, the distribution of the new revenues, the issue of whether to adjust for inflation, and ways around the Gann Limit.^[18]

The poll found substantial public support for a cigarette tax increase of twenty-five cents a pack (to a total of thirty-five cents): 73 percent supported the increase (57 percent strongly, 16 percent somewhat) and only 23 percent disapproved of it. Even after hearing the arguments for and against a cigarette tax increase, support remained high—at 68 percent. Nearly two-thirds of the respondents said they would be likely to vote for the tax increase for the following reasons: tobacco use costs society billions of dollars, increasing the tax would discourage smoking among young people, and tobacco use is the single most preventable cause of death in America. And 42 percent said they would be more likely to vote in favor of a tax increase if they knew large out-of-state cigarette companies would contribute millions of dollars to oppose the initiative. Arguments against the tobacco tax were less persuasive. The most popular argument against the tax—that increased cigarette taxes mean another government bureaucracy and more bureaucrats spending more tax money—made 46 percent of the respondents less likely to vote for the tax.^[17]

The poll provided the Coalition with public feedback and helped to influence how to allocate new revenues from the tax increase. Funding education programs to prevent drug and tobacco abuse was the most strongly supported (72 percent), followed by health research on tobacco-related disease (60 percent), MediCal (Medicaid in California; 42 percent), and increased funding for parks and wildlife (20 percent). The results of the poll were significant for two reasons. First, they clearly demonstrated that the tobacco tax had overwhelming public support. Second, they clearly showed that funding prevention and education was more popular than funding health care services. The Coalition decided that the bill would allocate revenues to three major types of programs: reducing smoking, mitigating the health impact of smoking, and mitigating the nonhealth impact of smoking.

On February 23, 1987, Connelly introduced Assembly Constitutional Amendment 14 (ACA 14), cosponsored by Assembly Member William Filante (R-Greenbrae), a physician, to increase the tax on cigarettes from

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ten cents to thirty-five cents per pack, with comparable taxes on other tobacco products. By April 1987, ACA 14 addressed the Gann Limit and the allocation of revenues. ACA 14 stipulated that the new revenues raised by the tax would be allocated as follows: tobacco use prevention (47.5 percent, with 27.5 percent for school health promotions aimed at reducing cigarette smoking and substance abuse and 20 percent for community-based smoking prevention activities); augmentation of MediCal funding for the treatment of lung cancer, chronic obstructive lung disease, heart disease, and other tobacco-related illnesses (27.5 percent); clinical research on the diagnosis and treatment of tobacco-related diseases (15 percent); and efforts by various local and state jurisdictions to mitigate the nonhealth impact of tobacco use such as fires and litter (10 percent). The allocation of revenues roughly paralleled the Charlton Research poll results: education and prevention were favored over health care services, and environmental programs were given the lowest priority. Only the research allocation did not reflect the public's preferences as shown in the poll (being placed third instead of second).

The bill's proponents were not the only ones planning strategy in the spring of 1987. By March, the tobacco industry, far from considering a compromise with Connelly, was actively planning its opposition. The Tobacco Institute had commissioned Houston-based V. Lance Tarrance to conduct a private poll to measure public opinion regarding a tobacco tax increase and to develop the tobacco industry's political strategy to defeat it. In the polling results, the initiative was winning 63 percent to 30 percent, with 6 percent undecided.

Like the Coalition poll, the Tobacco Institute poll tested various arguments and issues to determine potential weaknesses and strengths of the tobacco tax increase. The results were not encouraging for the tobacco industry:

The data strongly indicate that a campaign for fighting the tax increase will not be received well by voters. Convincing voters that the tax level is already too high, and stressing the importance of the Gann Spending Limit law may be possible, but the bottom line is that people do not like smoking or smokers. Therefore, anti–cigarette tax support should not be expected to rise substantially from the levels they are now. The single chance the anti-tax campaign has is to move this issue away from smoking. These data show moderate levels of support for a campaign constructed around the following themes: (1) Increased taxation— any tax increase is bad; (2) Government mismanagement of tax money; (3) Scheme to “bust” the Gann Spending Limit [and] get around state spending law; (4) 25 cents a pack is too much on a single product—

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unfair. Realistically, these themes could win, if backed by a broad coalition of anti-tax people. …Even with such a coalition, the “no” campaign would be expensive and difficult given the very negative feelings against smoking.^[19] [emphasis in original]

Many of these themes were to appear in the tobacco industry's election campaign against Proposition 99.^[20] In fact, the industry named its front group Citizens Against Unfair Tax Increases.

Although Coalition leaders doubted that the Legislature would approve ACA 14, they mounted a genuine effort to build public support. Mekemson outlined their strategy: “We could generate a lot of media around it, and that would be the beginning of our sort of push to the public. We also felt that it would be an opportunity to take some of the concepts and ideas that we had developed and throw them out on the table to see whether they would float or not. We also felt that it would be a way of beginning to sort of feel the tobacco industry out and take a look at what their strategy would be and arguments.”^[1]

In late April, the Coalition held a series of press conferences about ACA 14, the Coalition, and the tobacco tax effort. The Coalition released its poll data showing overwhelming support for the tobacco tax,^[21] and Assembly Members Connelly and Filante held a press conference in Los Angeles at which Patrick Reynolds (grandson of R. J. Reynolds) testified in support of ACA 14.^[22] In early May the independent California Field Poll showed that two-thirds of those surveyed supported increasing the cigarette tax by as much as thirty cents per pack.^[23] The ALA and ACS were also active throughout the spring of 1987, sending action alerts to local affiliates and urging legislators to vote for ACA 14.^[24][25] Connelly was cynical about the likelihood of legislative action but pushed it so as to move the initiative process forward.

The tobacco industry took ACA 14 more seriously than Connelly did. A discussion of how to defeat ACA 14 consumed most of a meeting of the Tobacco Institute's State Activities Policy Committee on April 3, 1987, in Washington, DC. According to Gene Ainsworth of RJ Reynolds, ACA 14 received this extensive attention because “given the size of the California cigarette market (9.7 per cent of total domestic volume), and California's political bellwether position, the specter of a state-wide initiative to increase the cigarette excise tax is a most serious situation.”^[26] The Tobacco Institute State Activities Policy Committee gave specific directions to its lobbyists to keep the tax issue off the ballot through both the legislative and initiative processes. The group also

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clearly identified the CMA as an important player to be neutralized if the industry was to avoid an initiative fight over the tobacco tax. Ainsworth observed, “It is clear that the money machine for the Coalition's California tax proposal is the California Medical Association. Without the promised $1 million from the CMA, the tax initiative would be difficult to qualify and we could possibly avoid a costly and extremely difficult state-wide tax battle in 1988.”^[26]

Between April 15 and May 18, a Sacramento lobbying firm representing the tobacco industry, A-K Associates, mounted a major and wide-reaching campaign behind the scenes to stop ACA 14. The firm's report to Roger Mozingo, head of the Tobacco Institute's State Activities Division in Washington, catalogued these activities.

• The California Chamber of Commerce, California Taxpayers Association, California Retailers Association and California Manufacturers Association all were recruited and went on record as being opposed to ACA 14. This allowed us the opportunity to meet with and brief the “key” people within each of these groups in order to educate them about ACA 14 and the possible statewide initiative. These groups are now on record and can be expected to be a valuable resource if needed to actually fight an initiative.
• Hispanic Lobbying Associates was retained to generate Hispanic opposition to ACA 14. The Mexican American Political Association, American G.I. Forum, Latino Peace Officers Association, California Hispanic Chamber of Commerce, California Hispanic Women's Forum and the Latin American Pacific Trade Association all officially went on record in opposition to ACA 14. These groups are still with us awaiting our signal to be turned loose against the tax Initiative.
• A very successful letter writing campaign to “key” legislators by companies and TI [Tobacco Institute] was orchestrated and effectively carried out.
• Personal lobbying of organized medicine began even during the lobbying efforts on ACA 14 in the Legislature. These included personal meetings with the following California Medical Association Leaders:

• Bob Elsner, Executive Director.
• Jay Michael, Director of Government Relations.
• Dr. Gladdin Elliott, Immediate Past President.
• Allen Pross, CALPAC Director.
• Dr. Kai Kristensen and Dr. Phillips Gausewitz, San Diego area.
• Frank Clark, Executive Director of the Los Angeles Medical Society.
• Dr. Manny Abrams and Dr. David Olch, Los Angeles area.
• Dr. Frank Glanz and Dr. Marshall Ganns, Orange County area.
• Dr. Ed Hendricks and Dr. Pierce Rooney, central valley area.

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• Dr. Michael Lopiano, Santa Barbara area.
• Dr. Paul Dugan, northern California rural area.
• Dr. Tom Elmendorf and Dr. James Moorfield, Sacramento area.
• Dr. Fred Achermann and Dr. Roberta Fenlon, San Francisco area.

• Met with “key” black political leaders to solicit and begin solidifying black support among state legislators for the anti-initiative campaign. We met personally with the following black state legislators or legislative staff:

• Willie Brown, Speaker of the Assembly.
• Maxine Waters, Majority Whip.
• Curtis Tucker, Chairman of the Assembly Health Committee.
• Dodson Wilson, Staff to Speaker Willie Brown.

• Met with David Kim re Korean community and advise [sic] re other possible Asian consultants.
• Met with Assemblyman Dick Floyd, Tommy Hunter (Calif. State Pipe Trades) and Jack Henning [secretary-treasurer of California AFL-CIO] regarding the proposed tax initiative.
• Met continuously with Jack Kelly [regional vice president of the Tobacco Institute] to coordinate testimony and lobbying activity.^[7]

The tobacco industry got its way in Sacramento. When ACA 14 came before the Assembly Revenue and Taxation Committee on May 18, only seven of the committee's sixteen members showed up (two short of the necessary quorum), precluding any action on the bill.^[27] Committee chairman Johan Klehs (D-San Leandro) did not even allow supporters of ACA 14 to testify.^[15] Assembly Member Dick Floyd (D-Wilmington) marched up and down the aisles blowing cigar smoke at supporters of ACA 14. The tobacco industry's contract lobbyist, A-K Associates, declared victory:

In order to accomplish our anti-initiative strategy to discourage support for the pro-initiative coalition, we felt it was imperative to attain a decisive victory in the first committee to show strength and resolve on the part of the opponents to the proposed tax increase. In fact, when these two bills were heard before the Revenue and Taxation Committee, they were dealt a “crushing” defeat. Neither received a motion, much less a single affirmative vote.

Our major goal of weakening potential support and showing strong opposition was certainly accomplished. The California Medical Association was shocked that their intense lobbying effort could not receive one “aye” vote in the Committee, considering their campaign support for the members

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of the Revenue and Taxation Committee (Organized Medicine—$80,300 vs. TI—$17,750 during 1986). The minutes of the proponents' June 17, 1987 organizational meeting even makes reference to this defeat.^[7]

The motion to propose ACA 14 died for lack of a second.

The CMA and the Tobacco Industry

Initiative proponents wanted the CMA involved because, unlike the voluntary health agencies, it had significant political muscle and it was rich and accustomed to spending money for political purposes, including initiative campaigns. The tobacco tax was also appealing to the CMA because it created a new pool of money—$600 million a year—to pay for medical services. From the beginning, however, the relationship between the health groups and the CMA was rocky. Indeed, in 1993, Connelly reflected, “If I had to do it over again, I wouldn't have had CMA in the room, because they were more trouble than they were worth.”^[3]

The tobacco industry was also interested in the CMA's deep pockets and saw that keeping the CMA out of the upcoming fight over the initiative was crucial. The industry knew that it would be difficult and expensive to beat the tobacco tax initiative at the ballot box and decided that the best strategy was to block proponents from collecting enough signatures to qualify the initiative in the first place.^[7] Since it costs money to run a signature drive and the CMA was the most likely source of big money, the tobacco industry turned its attention to convincing the CMA to stop supporting the tobacco tax effort. An A-K Associates report explained strategy this way:

Recognizing that the most effective approach to any such battle is to contain and, if possible, take away potential resources from the proponents, our initial goal was to contain the California Medical Association, who had already pledged $1 million to qualify the initiative. With this kind of resources, there is no way the initiative could be kept off the ballot. A game plan was formulated to discourage and keep the CMA out of the initiative. This included possible counter anti-medicine initiatives and legislation, as well as the use of A-K's considerable contacts within organized medicine. Having already expended considerable effort in this area during the Legislative phase of the program we turned our attention almost full time to dissuading the CMA from joining the fray.

We were immensely successful in this regard. CMA, after considerable pressure, decided to “tokenize” the tax initiative campaign with, at best, a $25,000 contribution and the possible use of their mailing list for a solicitation letter. To date CMA has not actually given the proponents any campaign

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money. The decision was made that no punitive action would be taken in regard to anti-medicine initiatives or legislation as long as the CMA maintained this non-participatory attitude toward the tobacco tax initiative. Following are the major activities that have taken place to date:

• Met with key organized medicine leaders to continue to dissuade them from actively participating in the proposed tobacco tax initiative.
• Generated some well placed and vocal complaining from organized rank and file membership throughout the state to the CMA's Council (organized medicine's governing body in California).
• Arranged for the Council to take the policy position that all requests for political issue contributions of either staff or resources must first go to their Finance Committee for approval before the Council can take action. This effectively took the tobacco tax initiative issue out of the hands of the current CMA leadership and placed it in the hands of the “old guard.” This placed a huge roadblock in front of people like Dr. Armstrong, the current CMA President, who is an avowed anti-tobacco crusader and was one of the major witnesses in support of ACA 14 in the Assembly Revenue and Taxation Committee hearings.
• Made multiple trips to San Francisco to meet with “key” CMA executive staff to firm up their opposition to CMA's participation in the initiative.
• Arranged for the Golden State Medical Society (statewide black physicians organization) to object to the CMA's participation in the initiative.
• Met with several legislators who are anti-medicine for various personal and political reasons to have anti-medicine legislation drafted and leaked to the right CMA leaders.^[7] [emphasis different from original]

Initiative proponents complained that the CMA was not enthusiastically supporting the initiative effort, but they had no idea of the depth of the connections between the CMA and the tobacco industry.

The Napkin Deal

Tort reform was an active issue before the Legislature at the same time as ACA 14, and the CMA needed to protect its Malpractice Insurance Compensation Reform Act (MICRA). In 1975 the CMA had persuaded the Legislature to pass MICRA, which capped medical malpractice judgments and the size of trial lawyer contingency fees. MICRA had launched an ongoing fight about product liability among doctors, trial lawyers, insurance companies, manufacturers, and others, with everyone willing to make substantial campaign contributions to block everyone else from getting what they wanted through the Legislature.

The manufacturers and insurance companies, tired of dealing with

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the Legislature, had used the initiative process to pass Proposition 51 in 1986. Proposition 51 ended the legal doctrine of “joint and several liability” whereby the wealthiest defendants in multi-defendant lawsuits paid the vast majority of the damages if other defendants did not have the resources. The insurance companies were willing to go to the ballot again to pass an even more favorable law. On the other side, the trial lawyers and consumer groups were willing to try to pass their own initiative that would make it easier to sue and recover damages.

On September 10, 1987, Assembly Speaker Willie Brown (D-San Francisco), who had by the end of the 1988 election cycle received $125,900 in campaign contributions from the tobacco industry, hosted a dinner meeting at Frank Fat's, a Sacramento restaurant popular with Capitol movers and shakers.^[28][29] He invited the trial lawyers, the CMA, and the insurance companies to work out a tort reform deal that would accommodate all of their interests and avoid a very costly initiative battle. They were joined by the tobacco industry.

The dinner guests (public health and consumer groups were excluded) worked out a nonaggression pact in which everyone at the table got something. Insurance companies got protection from lawsuits and avoided regulation of their industry, doctors kept their existing liability protections and got a higher standard of proof that a victim had to meet to receive damages, and trial lawyers got larger contingency fees to compensate them for the fact that the cases would be harder to win. The tobacco industry (and producers of castor oil, butter, sugar, and alcohol) got virtual immunity from lawsuits based on consumer use of its “inherently” unsafe product.^[29]

The deal was written on a napkin; the “Napkin Deal” emerged as a legendary political deal in Sacramento.^[29][30] The resulting bill, introduced by Senator Bill Lockyer (D-Hayward), was the subject of a perfunctory one-hour committee hearing, went to the floor (where it was blocked from amendment by the leadership), and passed by a wide margin.

The tobacco industry clearly understood the intimate connection between MICRA and the tobacco tax initiative insofar as it related to the CMA. In its report to Mozingo of the Tobacco Institute, dated September 24, 1987, shortly after the Napkin Deal was enacted into law, A-K Associates analyzed the CMA's position:

To date organized medicine has stayed out of the [tobacco tax] initiative fight. In all honesty, luckily, the CMA's primary objective was tort reform and they planned to use the bulk of their resources in sponsoring a tort reform Initiative at the same time as the tobacco tax Initiative would be on the ballot if it

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should qualify. Obviously, we used this to our great advantage in convincing CMA to stay out of the tax initiative. During the last day of the 1987 California legislative session, the trial attorneys and the proponents of tort reform came to a political compromise which was subsequently enacted by the legislature. As part of this compromise there was an agreement to a five year moratorium on tort reform initiatives agreed to by all parties, including the CMA. This could potentially open up the CMA to re-thinking their position in regard to the proposed tobacco tax initiative. We are duplicating all of our previous efforts to assure that this does not happen.^[7] [emphasis in original]

The industry understood how central the malpractice insurance reform issue was to the CMA, more central than Proposition 99. The CMA would be willing to make some trades to get the tobacco industry's support. When Roger Kennedy, a Santa Clara County physician who was active in both tobacco control and the CMA, was asked whether he was surprised when the CMA signed off on the Napkin Deal, he said, “I think that it was something that was so important to the leadership at that time. …In order to preserve that MICRA…they probably would have done almost anything. Because that was number one.”^[31]

Conclusion

Meral and Mekemson's idea of increasing the tobacco tax and allocating some of the money to public health and environmental programs had matured and developed a committed constituency, led by the ALA and ACS. After documenting public support for their idea, they made the obligatory attempt at getting the Legislature to act. Following the bill's defeat, the proponents of the tax increase were poised to start their initiative campaign and hoped, vainly, that they would receive substantial support from organized medicine. They had no idea how deeply the tobacco industry had already neutralized the CMA as they moved into the battle to qualify the tobacco tax initiative for the ballot campaign for voter support.

Notes