Dan Morain: California ballot initiatives pay off for the millionaires who finance them

10/28/2012 12:00 AM

10/29/2012 6:19 AM

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Contributors have given $340 million to pass and defeat the 11 measures on this November's statewide ballot, by my count. You can assume some of them expect a return on their investment.

Some want to change the world, or at least the state. Some may use their concepts to run for office. If history is any guide, some promoters will enforce the laws their ballot measures create. That can be very good for business.

Take Proposition 33, though please don't take it seriously. It should be rejected, though the No on 33 side has issues, too.

George Joseph, Mercury General Corp.'s chairman, hates the restrictions imposed by Proposition 103, the 1988 initiative that regulates the auto insurance industry. Just as he did in 2010, Joseph is trying to change that law, this time by giving $16 million to the Yes on 33 campaign.

At 91, Joseph hardly needs more money. But if Proposition 33 wins, the company he founded probably would increase its market share, and that would cement his legacy.

It's also personal. Joseph's opponent is Consumer Watchdog, whose founder wrote Proposition 103 in 1988 and has made sport of targeting Mercury in publicity stunts, lobbying and legal actions.

Consumer Watchdog has built its nonprofit business around protecting and enforcing provisions of Proposition 103. The Santa Monica-based nonprofit outfit has collected $5.3 million since 2008 by presenting arguments before the California Department of Insurance in opposition to insurance company rate hike requests.

Consumer Watchdog has gained a lock on the intervenor fees that the Department of Insurance directs insurance companies to pay. No other organization has collected a dime in intervenor fees since 2008.

"We have the expertise to do this stuff, and it takes a lot expertise," Consumer Watchdog President Jamie Court told me.

Court explained that his organization doesn't receive all the money. Actuaries and others who help present the cases get a share. He also said that by persuading Insurance Commissioner Dave Jones and his predecessor Steve Poizner to pare back insurance company rate requests, Consumer Watchdog has saved consumers more than $2 billion.

But if intervenors are needed to protect consumer interests, why exactly do we have an elected insurance commissioner? The answer, of course, is that Proposition 103 created the elected insurance commissioner.

Another advocacy group, the Berkeley-based Greenlining Institute, recently sought to intervene in rate cases, but was rejected.

Now, the Greenlining Institute's political arm set up a campaign committee and is backing Joseph's Proposition 33. Guess who gave the committee $195,000. That's right, George Joseph.

A Greenlining executive said there's no connection between the experience at the Insurance Department and its decision to support Proposition 33.

Then there is Proposition 37, the initiative that would require labels on some – but not all – food that has been genetically engineered. Its funding comes from organic food corporations, alternative health entrepreneurs and true believers convinced that big agricultural corporations like Monsanto Co. threaten our food supply by tinkering with genes.

Monsanto sees a threat in Proposition 37. It has given $7.1 million of the $41 million food companies have spent to kill the measure. Food companies worry that consumers would shun their products if they knew the food had been modified.

Consumer backlash is one concern. Another is more direct. As it's written, the initiative would allow any individual or organization to sue retailers, food producers and others for failing to properly follow rather complex labeling requirements.

The standard for bringing suit would be astonishingly low. Plaintiffs would not need to show that they've suffered injury before obtaining an injunction.

"They don't have to show they relied on the label or bought the product. Kind of remarkable," said attorney Michael Steel of the San Francisco law firm Morrison & Foerster, which likely would defend such suits if voters approve the measure.

For plaintiffs' lawyers, there is a sweetener: Targets of the lawsuits would be responsible for covering the cost of "attorney's fees and all reasonable costs incurred in investigating and prosecuting the action as determined by the court."

Innocent guy that I am, I asked how such a scheme could be constitutional.

"There is no constitutional protection against being abused," Steel answered, though at first he didn't use the word "abused." My innocent ears still hurt.

In any campaign, the winners include consultants, ad producers, pollsters, researchers and lawyers who make up the initiative industry. This year, they should be especially thankful for Charles Munger Jr. and Molly Munger, whose father, Charles Munger Sr., is the billionaire partner of Warren Buffett.

They seek to reshape the state, though in different ways. Molly has spent $32.9 million to promote her Proposition 38, which would raise taxes by $10 billion a year to fund schools. She spent $11 million in a separate campaign that aired ads critical of Gov. Jerry Brown's Proposition 30, which would raise taxes by $6 billion for state services including schools.

Unlike Molly, Charles Jr. is tax- averse and has spent $35 million to defeat Brown's Proposition 30, and promote Proposition 32, which would cripple labor's ability to raise campaign money.

The Munger clan has spent $79.4 million on California politics this year. Think about that. Billionaires are spending that kind of money to defeat the president of the United States.

Then there's Tom Steyer. Steyer, a billionaire, has spent $28.5 million to promote Proposition 39, which would close a California corporate tax loophole and generate $1 billion a year, half of which would fund alternative energy programs. This one deserves to pass, unlike most initiatives.

Steyer, who is stepping down from Farallon Capital Management, the hedge fund he co-founded, would not benefit if voters approve Proposition 39. But don't be surprised if, like other wealthy individuals who have played the initiative game, he tries to use Proposition 39 as a platform from which to run for office.

Not to be trite, but Hiram Johnson never could have imagined what direct democracy would become when he envisioned the concept a century ago. Don't get me wrong. Initiatives are not the devil's spawn. But when rich donors and consultants nuzzle up to one another, initiatives generally are the offspring.

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