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c . Nelson-Padberg Consulting PROPOSaL GRASSROOTS LOBBYING IN CALIFORNIA FOR THE TOBACCO INSTITUTE

NELSON-PADBERG CONSULTING November 8, 1982 . Mr. Jack Kelly Senior Vice President The Tobacco Institute 1875 I Street, N.W. Washington, D.C. Dear Jack:. Pursuant to your request of November 8, 1982, we are pleased to offer our services to The Tobacco Institute to help you oppose unfair excise taxes in California. You have asked us to evaluate the wisdom of proceeding with an advertising and public relations effort aimed at influencing the State Legislature regarding tobacco excise taxes. You have also asked us to briefly discuss how we would proceed with such a program; and to identify the costs and timing of such a project. In preparing this proposal, we have assumed that an excise tax is a very'real threat in the early stages of the*next legislative session. We also assume that such a tax would be very detrimental to sales. As a result, we have taken a very aggressive approach in the program we recommend. If the costs associated with the proposed action plan exceed your budget, we would be happy to modify the program within your constraints. Obviously, any reduction in the program will have a corresponding reduction in the quantity of communication with legislators. We were pleased to be a part of the successf ul No on Proposition 10 campaign in California in 1980; and we would sincerely welcome an opportunity to work with the tobacco family once again. Sincerely, ~ ~ obert E. Nelson Eileen E. Padberg ~ rb C'~ 18071 Fftch • Irvine, California 92714 •(714) 957-1010

C Nelson-Padberg Consulting CONTENTS : Page I. Background 1 II. Strategy 2 III. Action Plan 4 A. Mobilizing the TAN Network 4 B. Mobilizing Known Allies 5 C. Mobilizing Tobacco Consumers 6 D. Mobilizing Tax Opponents 8 E. Stimulating Friends in the News Media 9 IV. Project Management 10 V. Proposal 12 VI. Budget Estimate 13 VII. Schedule 14

Nelson-Padberg Consulting ~ 4 ~ ~ I. BACKGROUND On November 2, 1982, a new Governor was elected in California. Republican George Deukmejian will assume the reins of leadership at a time when California government faces the greatest fiscal crisis in its history: a looming $1 Billion deficit in the state budget. To compound this~problem, local governments are in dire financial straits. Since voter approval of the Proposition 13 tax limitation measure in 1978, cities and counties have developed a dependency on state government to bail them out of revenue shortfalls. Because of the enormous deficit facing state government, the day of the bail out is over, unless new revenue sources are created at the state level. During his campaign for Governor, Mr. Deukmejian pledged he would not raise taxes in California. He is certainly an honorable man, and he would no doubt like to keep his word during his first term...or at least during his first year. But he is also a realist. As a State Legislator he was author of the largest tax increase in the state's history, to prevent insolvency following the fiscal ineptitude of former Governor Edmund G. Brown, Sr. (It is interesting to note that both Governor Browns left the state with enormous pending deficits. In 1966, newly elected Governor Ronald Reagan faced a $400 million deficit as the legacy of the elder Brown.) Thus, it cannot be assumed that Mr. Deukmejian will be able to honor his word-and reject new taxes. And, even if he were to veto a tax bill, the Legislature could probably override the veto. Governor-elect Deukmejian has said that he will resolve the deficit by cutting back on existing pro.grams, rather than enacting new taxes. But there is no way to cut $1 billion in spending without gutting the state transportation program, educational system, or welfare system; and there are insufficient votes in the Legislature to accomplish radical changes in any of these programs. We assume there will be some cutbacks in state programs. But we also assume that there will be some tax increases. Undoubtedly, the greatest burden of new taxes will fall on corporations, either through higher corporate income taxes, excise taxes, separate property tax considerations, or some combination of all three. There is no doubt in our mind that a major effort will be made in January, 1983 to increase excise taxes on tobacco products as a means of offsetting part of the revenue shortfall California faces in the immediate future.

Nelson-Padberg Consulting mr-ft rA t4 tN II. STRATEGY ( : Ultimately, the only way to prevent increased excise taxes on tobacco products is through an effective lobbying program early in 1983, aimed at keeping a tobacco tax bill from reaching the floor of either house. The Tobacco Institute has already retained one of the finest lobbying organizations on the West Coast to represent them on this issue; and it can be expected that they will do an excellent job in advocating TI's position. However, lobbying has it's limitations. It is, in effect, a "sales" approach to advocacy. That is, each legislator must be personally convinced, one at a time, that our position is the correct one. And we must accomplish this in the midst of similar efforts on behalf of all other taxable interests in the state. To give the Tobacco Institute an enhanced opportunity for success in this endeavor, we propose to add a second dimension to the effort to influence legislators: a "marketing" approach to encourage large numbers of individual Californians to contact their legislators to oppose excise taxes. Such a program would be multi-faceted. It would include an effort to convince certain political activists and community leaders to contact their legislators on our behalf. It would include an appeal to TAN members to contact key legislators, particularly members of the Assembly Ways and Means, Revenue and Taxation, and Senate Finance Committee. And it would include a relatively low key--though not inexpensive--effort to convince known tobacco users in the general public to write members of the legislature and ask for a vote against new excise taxes. Each of these aspects will be discussed in greater detail on the following pages. We have also evaluated the possibility of using traditional advertising tools to help implement this project. Af ter much consideration, we recommend against any kind of public advertising program other than Point of Sale response cards. Radio and television advertising would not be accepted by many (or, perhaps, any) stations; and if they were, they would generate Fairness Doctrine reply opportunities which C would work against us. W ~ Even if such advertising were permitted, we believe such a`~ ~ call for legislative contact would infuriate many O legislators who might otherwise be persuadable on the issue.~

( ( C Nelson-Padberg Consulting It would certainly stimulate the entire GASP network into a major effort to push for the very taxes we oppose. Based on the zealousness of their past efforts, we certainly don't want to fuel the flames of their zeal at this critical time. For the same reasons, we reject the idea of using newspaper or regional magazine advertising. Besides stimulating the GASP-'ers, print advertising would also tend to stimulate opponents in editorial positions. We also encourage TI to consider working with advocates for the beer, wine, and distilled spirits industries, to explore the possibility of a unified strategy. It might also be possible to share certain costs of this proposal--such as letters to tax opponents--with these other industries. -3-

Nelson-Padberg Consulting ~ w'~ arm III. ACTION PLAN ( C The basic Action Plan we propose contains five elements. They are: • Mobilizing the TAN network -• Mobilizing known allies • Mobilizing tobacco consumers • Mobilizing tax opponents • Stimulating friends in the news media A brief description of our approach to each elenent follows. A. Mobilizing the TAN Network As soon as a bill is identified which includes an increase in tobacco taxes, a letter will be sent to all 6,000 TAN members in California: The letter will explain how such a tax would unf airly attack our industry and would have a detrimental affect on sales. The letter would identify members of key legislative committees, and would indicate which legislator lives in an area closest to their own mailing address. The TAN member would be asked to send a short note or mailgram, or make a telephone call to the designated member. The mail package would also include a response card to TAN headquarters with pre-paid postage, by which the TAN member would notify us that he or she had contacted a legislator, the method of contact, and the name/s of the legislators contacted. About three days after letters are received by TAN members, a telephone bank would be used to call about 2,000 TAN members who are known to be active in the California TAN network. This phone bank would remind the TAN members about the importance of contacting legislators immediately; and phoners would be prepared to give names and addresses of legislators over the phone, in the event the TAN member had already discarded the mailing. This effort can be coordinated by existing TAN staff in California making use of company sales personnel. Alternatively, Nelson-Padberg can develop such a telephone bank operation as an additional cost item to this proposal. The names of all respondents will be captured and immediately entered into a data processing system. Thus, the bill gets out of one committee or house, we can immediately contact known respondents and ask them to contact a new set of legislators. if Additionally, at the discretion of TI's California lobbyists, some TAN members may be asked to actually make a visit to key legislators. This contact would probably only be appropriate if the TAN member is personally known to the legislator, is a major employer in the legislator's district, or is a known political activist in the legislator's same political party.

Nelson-Padberg Consulting ~ ~ ~ B. MOBILIZING KNOWN ALLIES c Outside of the TAN organization there are a number of individuals who are sympathetic to our cause. Among them are the Libertarian Party, which is generally opposed to.all taxes, but expecially to excise taxes; bar owners, who will suffer revenue losses tied to decreased purchase of cigarettes in vending machines; and may include friends in ethnic communities, who will bear an unf air burden of taxation with increased excisg taxes. Assuming the cooperation of leadership in the Libertarian Party, we can stimulate at least a modest letter writing program among Libertarian activists throughout the state. We recommend some financial assistance directly to the Party, to help offset the cost of mailings to their members requesting action on the legislation in question. It would also be wise to employ a key Libertarian leader as a consultant to this effort. Generally speaking, Libertarian activists are considered to' be out of the mainstream of political activity. Therefore, we would encourage them to write as consumer/taxpayers, not as political ideologues. Tavern owners share in the revenues from vending machines in their establishments. It seems likely that a substantial increase in taxes on cigarettes will cause an even greater increase in the price of product in machines. It can'be expected, therefore, the vend~ng sales will decline. It is possible to obtain lists of tavern owners through list brokerages; and it is probable that tavern owner associations in California would also cooperate in contacting their members on this issue. Additionally, California tobacco distributors could provide lists of their on-sale accounts, or could distribute an information package/request f or action during the routine servicing of their accounts. There are several Hispanic and black organizations in California, most of which have reached an organizational peak as a result of activities in the November election. We propose to retain a consultant from each of these communities charged with responsibility for obtaining letters from black and Hispanic groups and individuals, protesting the unfairness and regressive nature of excise taxes. These letters might be especially helpful with persons such as Assembly Speaker Willie Brown and Senate W President Pro-tem David Roberti, who are both responsive to 0~ these constituencies. `1 O ~ ?V -5-

Nelson-Padberg Consulting ~ ~ ~ C. MOBILIZING TOBACCO CONSUMERS L c We are aware of two ways to reach persons who are known to be tobacco consumers: mailing to persons who have returned coupons for premiums, purchased cigaret logo products, etc.; and direct contact with the consumer at the point of sale. For purposes of this proposal, we assume that TI members maintain computerized lists which contain about 300,000 names of direct mail or premium coupon respondents. We propose to obtain these lists from each company in a machine readable fosmat (magnetic tapes, as opposed to printouts). While protecting the confidentiality and proprietary nature of these lists, we would produce a list of about 250,000 unique California residents. .This list would be matched against a zip code list or other means of segregating legislative districts. A mailing would then be sent to these persons, asking them to write or call their legislator, whose name, address, and telephone number would be computer imprinted on the mailer. To encourage this effort, we would pre-print the legislator's name and address on a post card, so the consumer would only have to hand write a personal message and attach the required postage. We would also enclose a pre-paid card to TAN headquarters with the respondent's name preprinted, so they can indicate they have responded to our request. These names will then be entered into a data processing system for later retrieval on this issue or future issues of concern. A Point of Sale (POS) program can also be implemented. Such a program should not include public display of the issue through counter tents and the like, as this will tend to stimulate our opponents--and may anger legislators--as they are shoppers, too. Therefore, we recommend that a POS program be confined to that which can be enclosed in or attached to cigarette cartons prior to distribution to retail outlets. If the mechanics of the manufacturing/packaging/distribution system perm its, we recommend an enclosure to all cartons which would explain the issue and invite the consumer to send a prepaid reply card to TAN headquarters authorizing us to send a mailgram to the legislator on their behalf protesting the proposed excise tax. C It is very difficult to estimate how successful these two tj programs would be. TI may be aware of similar programs on ~ tobacco issues in the past, and we would welcome your ~ experience in developing more exact estimates. For purposes ~ of this proposal, however, we have estimated that there are about four million tobacco consumers in California. If .005 w

Nelson-Padberg Consulting ~ U~ (one half of one percent) of them were to respond to the POS message, it would produce 20,000 mailgrams; or an average of 250 messages to each of Cali_fornia's Members of the Assembly. In 1980 we sent a letter of behalf of the No on Proposition 10 cainpaign to about 175,000 premium respondents, requesting a cash contribution to the campaign. This mailing produced about 2,000 responses, equivalent to .011 of the universe contacted. If we assume a similar level of response to the mailing described in this proposal, we could generate about 2,800 cards to 'the legislature. As these cards would be targeted to a group of perhaps 40 key legislators, each would receive an average of 70 cards. (There is also reason to believe the response rate might be higher, as this mailing does not ask for money, and would have a direct bearing on the price of product to them.)