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MEMORANDUM September 15, 1989 TO: Messrs. A.H. Tisch J.R. Ave A.J. Stevens FROM: J.R. Cherry RE: Referenda We have discussed ballot items in Anchorage, Alaska (October 3, 1989) and Kansas City, MO (November 7, 1989) and that in Colorado for 1990. We will have cause to consider presently, ballot items in Belton, MO (November 7, 1989), O'Fallon, MO (November 7, 1989), and of'greatest importance Greensboro, NC (November 7, 1989)1. Also, we are advised~that Montana and Oregon both have the prospect of cigarette tax items on their 1990 ballot. This form of extra-legislative initiative is achieving a frequency we have not experienced before and it is rapidly overwhelming the current Tobacco Institute staff and! straining the company government affairs representatives because of the staff's present inability to timely provide us with the information required to sensibly and deliberately plan an Industry response. It has been my longstanding conviction that the principals of the Tobacco Institute State Activities Divisionn have not brought the necessary thoughtful and systematic approach or the attention to detail or the organizational zest required for the workmanlike conduct of these complicated, expensive and terribly important campaigns. I have attributed this to an unhappy combination of lack of talent and insufficient drive. It is clear, however, that in this view I am a minority of one in the ranks of the company government affairs representatives. The others believe that the volume of work has simply outstripped the available manpower, and R.J. Reynolds and Brown & Williamson have proposed that the State Activities Division staff be expanded to provide a group which will address itself exclusively to referenda. The idea may have merit.

2' One thing is obvious: we are not now equipped to attack these matters in a fashion calculated to achieve the desired results. I cite below some of the related~ unacceptable occurrences of the recent past: 1. Although the Colorado initiative for a $.25 cigarette tax increase has received considerable attention and been the subject of many meetings and much analysis since April of this year, it was not disclosed to us until early this week that the proposal includes a provision for indexing., and~indeed indexing based~upon the medical portion of the Consumer Price Index. This would be a rate of increase which is approximately 300% higher than the Consumer Price Index as a whole. 2. The advice and'materials which we have received to date indicate that the Anchorage proposal is for a: 10% tobacco products tax increase. We are now advised that the proposal is for a$.12 per pack increase on cigarettes and a 10% increase for other tobacco products and that both are indexed based~upon the Consumer Price Index. Further, the Evans/Kraft firm of Anchorage was hired by the Institute to handle the campaign and we were not advised that the firmlis not a campaign management firm but a marketing and advertising outfit that had a campaign manager on its staff. That campaign manager turned out not to be satisfactory and, without consulting us, Paul Jacobson, the Tobacco Institute Regional Vice President for Region V, was installed as the campaign manager. The significance of this is severalfold: A) The approach to any analysis of a proposed~campaign budget is very significantly affected by whether the budget proceeds from a campaign manager who has no~ interest in media placement commissions or a marketing firm which has a definite monetary interest in media placement. B) Employing a regional vice president as a campaign manager is a signal departure from past practice which has been to employ only specialists in this role, and such a move raises concerns about the supervision of a region during the period of time when its vice president is engaged~ full time managing, a campaign. 3. The Kansas City campaign to oppose a.$.05 cigarette tax increase on the November ballot must be begun promptly, yet we do not have in hand either a campaign plan or campaign budget and the press of time has required the Institute to designate Stan Boman, the Region VIII Vice President as campaign manager. m ~ N ~ -4v

3 4. In O'Fallon, MO, a suburb of St. Louis with a population of 18,000 there will be a November 7, 1989 ballot item for a$.05 cigarette tax increase. The proximity to St. Louis compelled a decision to oppose the measure, but in a fashion limited to a$35,000 grass roots campaign which is probably modest enough to be funded from the Institute budget. Our difficulty is that this opposition will have to be carried forward in Stan Boman's regionat the same time that Stan is addressing;himself to Kansas City. How, both matters will be simultaneously handled is something of a mystery at this time. 5. in Greensboro, NC we face the immediate threat and probability that on the 25th of this month the City Council will refer to~the November 7, 1989 ballot a broad! smoking restriction item for that city. The Greensboro matter has been cooking for quite some time yet the State Activities Policy Committee has been kept almost completely uninformed, and without the Committee's knowledge the Institute d'elegated supervision~of the matter to Dick Morgan, the Vice President for Region VI, Larry Bewley, a middle level government affairs man fr= R.J. Reynolds and Alex Spears of Lorillard. While the threat was a remote one, this could have been an excellent arrangement with those having the most immediate interest, control and'feel for matters supervising things, but the Washington staff cut the matter loose, acting as if the threat was the concern and responsibility of Dr. Spears and giving no indication as to whether or not a ballot measure would be opposed with! full Industry support. Then, without preface of any kind the Policy Committee was asked on Tuesday of this week for immediate approval of a $85,000 budget for a direct mail and grass roots campaign to~be conducted by Walt Klein Associates. All this without benefit of either a written campaign plan or budget detailing the elements of the $85,000 proposal. 6. On each of these campaigns it had been our understanding that American Tobacco would not participate in the funding but that where tobacco products generally were concerned, U.S. Tobacco and the Smokeless Tobacco Council would participate in the aggregate amount of 3%. The most recent campaign assessments show participation by American Tobacco and no participation by either U.S. Tobacco or the Smokeless Tobacco Council and no explanation was offered. Subsequent questioning of the Institute staff yielded the advice that American Tobacco has agreed to participate on an assessment-by-assessment basis and that U.S. Tobacco and the Smokeless Tobacco Council are presently reconsidering their participation. I am almost certain that it is the confused~progress of things that has caused U.S. Tobacco and the Smokeless Tobacco Council to rethink their campaign funding. 0

r 4 The R.J. Reynolds and Brown & Williamson idea of campaign specialists on~staff may be an answer to the foregoing. Their proposal has not been developed to a point where details of the necessary additions to staff or costs are available, but the existence of a need for reorganization is apparent. J.R.C. JRC':pd cc: Dr. A.W. Spears 0 ..z