5. Moving to the Legislature

Proposition 99 raised over $600 million a year in new tobacco taxes, over $150 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 of revenues), Health Education (20 percent), 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

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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' revenues—about $900 million—to spend in the first budget year, 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

Following its defeat at the polls on November 8, 1988, the tobacco industry immediately adopted marketing, political, and legal strategies to counter the effects of Proposition 99 on its sales. It developed marketing strategies to blunt the effect of the price increase brought about by the tax increase so that people would not quit smoking. It also intervened politically to try to get the Board of Equalization, the state agency that collects the tobacco tax, to set a low tax rate on tobacco products other than cigarettes. It also sued to try to overturn Proposition 99.

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.^[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 the Benson & Hedges, Merit, and Virginia Slims brands, 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 that month.

In late November 1988, the tobacco distributors mounted an effort to establish a low tax rate on non-cigarette tobacco products. The initiative

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had established a tax increase of twenty-five cents on each pack of cigarettes (1.25 cents per cigarette), but had left other tobacco products to be taxed at a rate “equivalent to the combined rate of tax imposed on cigarettes” 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 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 rule that required initiatives to cover only one subject. The arguments were identical to those in 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

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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

The wording of Proposition 99 creating the Health Education Account stated only that funds were to be available “for appropriation for programs for the prevention and reduction of tobacco use, primarily among children, through school and community health education programs.” No agency was given responsibility for the Health Education program, and one of the important questions to be addressed was how much money would go to health departments and how much would be given to schools.

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

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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.^[11]

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.

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The California Association of School Health Educators (CASHE) suggested a program 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 by 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]

In 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.

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A Hostile Legislative Environment

Proposition 99 arrived at the Legislature with some controls in the form of specific accounts, each with a percentage allocation. Even so, the Legislature was still responsible for deciding which agencies would run the programs, the forms those programs would take, and the allocations to those programs. The text of Proposition 99 had been worded as simply as possible to build support with the voting public. This brevity and simplicity, while keeping the initiative clear for the voters, meant that the initiative was not written to withstand the special-interest lobbying and legislative manipulation that would greet it at the Legislature.

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]

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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 paid 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 other member of a state legislature in the United States and more than the tobacco industry had given many members of Congress. Moreover, contributions to Brown 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].”^[14] The 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

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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

California's fiscal situation had become increasingly grim since the passage of Proposition 13 in 1978, which limited local government's ability to raise property taxes and forced the state to take over funding for many locally provided services, and of the Gann Limit (Proposition 4) in 1979, which limited yearly increases in government spending. The two measures passed during a period when the state had built up a substantial financial surplus, which buffered their effects. By the time Proposition 99 was before the Legislature in early 1989, the situation had changed: the state was facing a deficit. Elizabeth Hill, the Legislative

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Analyst, said that she expected the state to end the 1988-1989 fiscal year as much as $126 million in the red and that the subsequent year's budget problems might be “even worse.”^[25] The Legislative Analyst is a widely respected nonpartisan official who has a reputation for objectivity and is charged with preparing an analysis of the governor's budget for the Legislature.

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 Employees 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 George Deukmejian had many cash-starved programs under his administration's Health and Welfare Agency. 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 primary challenge faced by the voluntary health agencies was that the tobacco education program would be the first and largest of its kind, and no one knew a sure way to reduce smoking. In the absence of a proven model, the public health groups had to argue their case as trying something new and carrying out the will of the people.

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,

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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 were 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 toward prevention programs, would prove to be characteristic of their behavior throughout the Proposition 99 allocation 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 first on the Health Education Account and then on the Research Account, the voluntary health agencies would cling to the CMA.

The Coalition's Disintegration

In contrast to its clear and consistent strategy during the two-year effort to develop and pass Proposition 99, the Coalition had not developed a

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coordinated plan to implement Proposition 99 after the election victory. On December 15, 1988, in its first meeting after the election, the Coalition met and briefly discussed whether it should be the lead organization in securing the legislation to implement Proposition 99. Jack Nicholl, who had managed the election campaign, sent a memo to the Coalition Executive Committee arguing that the Coalition should remain together and proposing a budget for doing so: “The Coalition is the guardian of Proposition 99 as it was written. Individual organizations will use their quite substantial lobbying resources to pursue implementing legislation. The Coalition's mission is to preserve the framework of Prop 99 which the voters passed by a margin of 58%-42%. If we don't do it, no one else will. …Our principle [sic] objective will be to generate grass roots pressure on the Governor and the Legislature to head off attempts to change the direction or intent of Proposition 99.”^[27] Nicholl proposed a budget of $8,000 per month to insure that over $100 million a year was spent wisely on new tobacco control programs.

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 disbursing funds from 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

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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:

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]

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Kizer understood that with each organization following its own insider strategy in the Legislature, consensus was going to be difficult to achieve in implementing Proposition 99.

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, apparently at Nethery's request, wanted to use the money to hire Betsy Hite, who had recently left ACS.^[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

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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

In January 1989 Governor Deukmejian issued his budget for the 1989-1990 fiscal year, the first budget to include the Proposition 99 revenues. He recommended that the Health Education and Research Accounts be funded in accordance with the initiative. The Health Education programs received their full 20 percent—$175.6 million—for a new smoking prevention program administered by DHS. The Research Account received its full 5 percent—$43.9 million—for a research program administered by the University of California. The voluntary health agencies did not want to have the entire Health Education Account within DHS or have the university administer the Research Account, but the funding allocations at least followed the initiative.^[40]

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

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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 “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, as the initiative specified, new programs 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

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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, 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 from these revenues 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]

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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

On January 17, 1989, the tobacco industry and its consultants met to discuss their short- and long-term strategies for dealing with Proposition 99. For the short term, they hired Sacramento lobbyist Kathleen Snodgrass as the lead “offensive” lobbyist and Paul Kinney from A-K Associates as the lead “defensive” lobbyist. They hired Nielsen, Merksamer, the law firm that had done the industry's political legal work in California at least since Proposition 5, to analyze the budget for the industry and to serve as political consultants.^[45] Steve Merksamer was a former chief of staff to Governor Deukmejian and helped put together the Napkin Deal.^[19] Jack Kelly, the Tobacco Institute's regional vice president in Sacramento, was to coordinate these efforts, working with the company representatives.

For the tobacco industry, 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.^[45] The strategy for the Research Account was to limit it: “We believe that appropriate language confining the $43.9 million to hard research would make this item acceptable.”^[45] 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 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

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state revenues be spent on education], and other constraints such as entitlement programs and automatic cost of living adjustments.

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]

By February 21, 1989, the State Activities Division of the Tobacco Institute had issued its Project California Proposal, together with a detailed budget, amounting to $611,000 on top of the institute's existing lobbying budget for California. Of this money, $545,000 was to pay Nielsen, Merksamer to analyze the budget, to work for diversion of anti-tobacco funds to other purposes, and to strengthen ties with the CMA, CAHHS, and other health care interests in order to build a coalition that would restructure state finances in a way that would eliminate Proposition 99's earmarked money for tobacco control programs.^[46]

The report analyzed the governor's budget to determine what were “acceptable” and “unacceptable” uses of the Proposition 99 revenues:

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

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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]

By February 21, 1989, the long-term strategy was on its way to being implemented: the Tobacco Institute's consultants had already started meeting with the Gann Coalition. The Project California Proposal was very specific about the industry's goals in participating in the Gann Coalition. Although they were willing to support modifying the Gann Limit and Proposition 98, which required at least 40 percent of the state budget to go to education, they emphasized that “the industry's key goals are to eliminate earmarking or dedication to Prop 99 revenues, and, if possible, also to prevent future excise tax increases through the initiative process” (emphasis in original).^[46] While the industry was willing to help the Gann Coalition with “leadership, strategy, and money,” this help was conditional, as the February 21 plan made explicit: “It is our firm thought at this juncture that the tobacco industry would withdraw from active participation in the Gann coalition should the industry's goal—eliminate earmarking of Prop 99 revenues—not be included in the coalition's ultimate objective.”^[46] The long-term strategy would eventually be reflected in an effort subsequently known as Project 90, which remained secret until the summer of 1989.

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

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Public Resources Accounts. The law firm recommended spending the monies in the Unallocated Account on hospitals and physicians.^[47]

Conclusion

Until Proposition 99 passed, the voluntary health agencies had been peripheral players in Sacramento power politics. This situation changed with the passage of Proposition 99, when they suddenly became key players in a fight over how to allocate $600 million a year in new tobacco tax money, including $120 million for tobacco use prevention programs and $30 million for research. Despite the fact that they were designing the largest tobacco use prevention program in the world at a time when state resources were declining, they did not expand their lobbying staffs or enlist the support of outside technical experts. They were entering the world of hardball politics with a popular mandate but had not committed the resources necessary to protect that mandate.

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