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Readying for the second round, the tobacco industry began to strengthen its ties with medical organizations. An April 18 Tobacco Institute memo reveals that the industry knew it could continue to benefit from the interests of the medical groups because "the doctor and hospital segments appear to believe the media funds would be better spent to pay medical costs."

Later tobacco memos reveal how the diversion scheme was solidified. By May 1990, an internal Tobacco Institute memo to Chilcote from a staffer stated quite plainly its goal of using medical organizations such as the CMA to lead efforts to "attach an amendment to a vehicle bill to redirect the media -- and perhaps other 'educational' -- funds to pressing health care concerns."

Tobacco again planned to use the state's ever-worsening financial situation to its advantage. With California in the midst of a recession, the staffer wrote, "it is likely that the Governor will have to recommend funding cuts for many popular, existing health care and other programs. Our plan to redirect Prop 99 funds could possibly meet with greater support once health care ... providers realize that a redistribution of existing funds may be the only way to keep current budgets in place."

There was good reason for the tobacco industry to fear the state's anti-tobacco media campaign. A year after the 25-cent tax was implemented, tobacco manufacturers saw retail sales decline by 8.4 percent. By 1992, tobacco use had fallen by almost 7 percent in California, translating into a nearly $286 million drop in profits for the tobacco industry, internal documents show.

Even though the industry had succeeded in diverting some of the Prop. 99 money, the state's ad campaign was still striking fear in the hearts of tobacco executives. A January 1990 plan noted that the industry's "ability to conduct business in the state -- and smokers' ability to consume tobacco products -- is at risk."

The 15-page plan offered two long-term "strategies." First, the industry would try to redirect even more Prop. 99 money away from anti-tobacco activities. Second, it would try to stop the spending of Prop. 99 monies entirely.

Tactics for redirecting money were quite detailed and included "assigning individual industry lobbyists or staff to the task of moving allocated funds to alternate categories," as well as "encourag[ing] allies and other interest groups to request Prop 99 funds for other worthwhile projects. Encourage allies to apply for Prop 99 grants and/or encourage creation of groups with legitimate claims on Prop 99 funding."

As the second round of budget fights loomed in 1991, the tobacco industry found itself with another ally. Republican Pete Wilson had just been elected governor, and was sympathetic to tobacco interests. Though Wilson did not receive a large amount of tobacco campaign contributions directly, the industry offered thousands to the California Republican Party.

With an ally in the Governor's Office, Big Tobacco was able to pursue its diversion plan even more aggressively, lobbying madly to move funds for anti-tobacco activities to other categories in the next fiscal year.

The tobacco industry's total lobbying expenditures in 1992 increased by almost 13 percent from the previous election cycle. Taken together, the industry's fees paid to lobbyists, entertainment expenses, and other costs totaled more than $3.4 million.

Although specific amounts to lawmakers varied -- and some received no money at all -- the tobacco industry donated to political campaigns the equivalent of $13,000 for each Assembly member and $17,000 for each senator. Eight of the 103 state lawmakers did not take tobacco money that year. Only the California Medical Association's political action committee made greater donations to state officeholders.

This time out, however, tobacco lobbyists were more discreet. The press had lambasted the industry for its over-the-top lobbying display during the last budgetary session, so the industry went straight to the governor, Miller says.

When Wilson released his first budget, it slashed health programs, and suggested taking close to $300 million from Prop. 99 revenues to help defray the cuts. Legislators knew the proposal was probably illegal, but they had to scramble to appease the governor, the advocates of the threatened programs, and the law.

Wilson also wanted to implement Access for Infants and Mothers (AIM), a new prenatal care program for low-income women that was more expensive and less politically progressive than the state's existing Medi-Cal program. A Ways and Means Committee analysis states that Wilson suggested taking over $50 million from Prop. 99 anti-tobacco education funds to pay for AIM. The 1992 budget bill that Gov. Wilson signed did exactly that.

Like Willie Brown, Wilson had ties to the tobacco industry. He had been named in a March 4, 1990, Phillip Morris memo as being "pro-tobacco," and Wilson actively tried to kill off the state's fledgling anti-tobacco advertising campaign by refusing to sign ad agency contracts in 1992. And, like Brown, Wilson's pet program, AIM, received a large chunk of diverted Prop. 99 health education money.

Wilson did not respond to repeated efforts to contact him.

Miller says that late during the budgeting process, he and Tony Najera of the American Lung Association were pulled into a meeting with administration officials such as Director of the Department of Health Services Kimberly Belshe, who both Miller and Najera say was acting on behalf of the governor. In that meeting, Miller and Najera say they were simply told that anti-tobacco education money was going to be used for programs that the governor wanted, such as AIM.

"They said, 'You are going to agree to it, and if you do not, we're going to administer the Tobacco Control Program to death,'" Miller recalls indignantly. "They said, 'We'll find the most incompetent bureaucrats and put them in charge and this program will never achieve anything, so you decide.' There was not a lot we could do in that circumstance. It was that heavy-handed."

"It was portrayed as budget woes, but we know that it was really tobacco influence," adds Najera.

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