A Proposition They Could Refuse : When the Voters Approved Prop. 103, the Lobbyists Lost Round One in the Fight Over Auto Insurance Rates. Then They Really Came Out Swinging.

Early evening in Sacramento. Members of the Assembly Finance and Insurance Committee, looking tired and uncombed from a day of lawmaking, take their seats in Hearing Room 437 of the Capitol. Another dreary committee meeting in a legislative session that will extend far beyond this spring night.

But there’s something odd here. Instead of settling into the high-backed, well-upholstered chairs they usually occupy, the committee members are sitting in the much less comfortable seats at the witness table. Occupying the legislators’ chairs are lobbyists, men and women who haven’t been elected to anything but whose clout is so great in Sacramento that they are known as The Third House.

Committee Chairman Steve Peace thinks the unusual seating arrangement will promote a more informal discussion of the matter before the committee, the long, tangled issue of auto insurance. Others in the committee room are struck by the symbolism--the lobbyists on the rostrum in the seats of power, the legislators down below, as if they are witnesses whose testimony can be heeded or disregarded. Someone’s finally gotten it right. The people who really run the Capitol are on top.

Peace, a San Diego Democrat, is a restless man with an angular, intense face and a sharp mind. He’s up and down, walking around, fetching a cup of coffee, firing off one-liners and impatient questions. His thoughts seem to race ahead of the pack, a quality that has given him a reputation of being brilliant but erratic. To his right is Vice Chairman Louis Caldera, whose quiet, somber demeanor and careful speech is a contrast to his chairman. Born in El Paso of Mexican immigrant parents, he’s a graduate of West Point and Harvard’s law and business schools. Although the Los Angeles Democrat is just a freshman, some legislators and lobbyists are already singling him out as a potential Speaker of the Assembly.

Up on the rostrum, every economic interest associated with insurance is represented--insurance companies, brokers and agents, physicians, chiropractors, auto repair shops and hospitals. Watching them, I’m reminded of historian Carey McWilliams’ description of “the fantastic ‘angling,’ trading and jockeying for position that makes of Sacramento one of the great commodity markets in America where an astonishing variety of interests bid for favor and preference.”

Seated in the middle of the pack is Dan C. Dunmoyer, vice president of legislative policy for the Personal Insurance Federation of California, which represents Farmers Insurance Group, State Farm Insurance Co. and other large companies. He’s the new model lobbyist, well-prepared, well-spoken, sober, presentable. “The policy wonk as lobbyist,” is how Dunmoyer describes himself. But this wonk’s bosses smooth his way with campaign contributions.

To his right sits a man who really shouldn’t be among the lobbyists, for he’s an outsider, a prickly individual who has little respect for the legislative system. Harvey Rosenfield heads Voter Revolt and, in a sense, he brought everyone here tonight. Rosenfield is in perpetual battle with the insurance companies. He’s not a lobbyist in the traditional sense, though he does make the rounds of legislative offices and sends them printed material. He’s more like his mentor, Ralph Nader, concentrating on consumer-organizing campaigns designed to increase regulation of business.

In 1988, with the Legislature unable to agree on how to stop the explosive increase in insurance rates, Rosenfield conceived of a bold, anti-insurance-industry initiative, Proposition 103, which was narrowly approved in the fall election that year.

It promised a one-year, 20% premium reduction, in essence a rebate. Drivers with good records would get discounts, and insurance companies could no longer refuse to write policies in minority areas, the practice called “redlining.” Just as important, insurance companies would be placed under strict regulation for the first time in California history. The chief regulator would be an elected insurance commissioner, a post previously filled by gubernatorial appointment, and usually given to someone from the insurance business.

Proposition 103 was one of five insurance measures on the ballot in 1988, a notably goofy election. More than 20 initiatives were before the voters, and each insurance initiative was enormously complicated; nobody could digest all that information.

Despite that, the issue was probably clear to most voters: Proposition 103 would cut your auto insurance rates. It was passed. It was the law. Checks should have been in the mail. But it didn’t work that way. As we will see, voter approval of the initiative was just Round One in a long, long fight involving legislators, lobbyists, courts and, occasionally, the people. Five years later, the fate of Proposition 103 has become an object lesson in how Sacramento really works.

As I set out to write this story, the details of the Proposition 103 campaign were dim in my mind. So several weeks after Assemblyman Peace’s committee hearing in Sacramento, I flew to San Francisco to replay the events of 1988 with Clint Reilly, who was the insurance companies’ chief strategist in the fight against the initiative.

Reilly is famous in Los Angeles for managing Mayor Richard Riordan’s election earlier this year. He is an outwardly polite man, who keeps elegant offices in a building he owns in downtown San Francisco. But as we sat his black and gray, second-floor conference room, the campaign manager went through a dialogue with a young assistant that offered a glimpse of the killer instinct that makes him a highly sought after political consultant.

The assistant showed Reilly a report he had written on tactics for a client who is running for governor of Arizona. Reilly asked about the opponent: “Does he have any bankruptcies? Are there lawsuits? Does he have any contracts with the city? Character is not the issue now. We’ve got to make character the issue. Now the guy is a goody-two-shoes.” The young assistant left to do more digging.

Reilly said that in 1987, before the Proposition 103 campaign started, he conducted polls and focus groups--demographically representative voters who sit in a room and talk about an issue. “We found a huge amount of discontent about insurance throughout California, particularly in the urban areas, particularly in Los Angeles County,” he said. “It included the poor as well as the urban elites.”

It was going to be a difficult campaign and, for Reilly, the insurance industry proved to be a rich but stubborn client, characteristics that it had always demonstrated in the Capitol. The industry offered an initiative of its own, Proposition 104, that promised changes more to the insurance companies’ liking. One was a system of no-fault insurance, a plan in which accident victims get paid by insurance companies in most cases without having to go to court, even in crashes that that would normally be disputed. No-fault is supposed to reduce insurance rates by reducing legal costs. Proposition 104 also rolled back insurance rates, although Proposition 103 advocates denounced the reduction as phony. And Proposition 104 contained language designed to nullify Proposition 103 if both measures passed.

The industry poured $63.8 million into the campaign, compared to the minuscule $2.9 million put out on behalf of Proposition 103. Proposition 103 lost in 54 of the state’s 58 counties. But Reilly couldn’t overcome the tide of votes from Los Angeles County. Proposition 103 won and Proposition 104 lost. “In Los Angeles County, the economic promise was so powerful that we could make no arguments that were clear and simple,” Reilly said.

Supporters of the victorious proposition insist that it has done great good. The elected insurance commissioner, John Garamendi, has blocked many rate increases, saving Californians about $4.2 billion in premiums since 1988. Redlining has been banned. The commissioner has tilted power in the Department of Insurance away from the insurance companies, which he calls “pigs in the trough,” a phrase we’ll be hearing frequently as he campaigns for the Democratic nomination for governor next year.

But what happened to the main attraction of Proposition 103--the rebate? Immediately after the election, insurance companies went to court to block it. And while the State Supreme Court upheld Proposition 103, it ruled that insurance companies were entitled to a fair rate of return. That issue touched off tangled litigation that promises to continue into the distant future. However, several companies, under pressure from Garamendi, have refunded a total of $725 million to 6.9 million policyholders.

Most significantly, the insurance companies spent the 1993 session waging daily war in the Capitol against Proposition 103, lobbying for legislation to weaken or kill it. “What we have is a slow, almost imperceptible chipping away,” said Judith Bell, a lobbyist for Consumers Union, which publishes Consumer Reports. “It’s like the vultures circling over an animal.”

One of the first stops for such legislation is the Assembly Finance and Insurance Committee, a “juice” committee. Juice means campaign contributions, squeezed out of the businesses and other organizations whose activities are regulated by the lawmakers. Insurance companies are veritable juice machines, spending heavily on lobbying and political campaign contributions. Finance and Insurance members see a lot of both.

Since Proposition 103 was an initiative, passed by a direct vote of the people, you might think that it would be immune from attacks. But that’s not the way it works. The Legislature can change an initiative unless the measure contains a clause specifically prohibiting revision. The authors of Proposition 103 included language permitting the Legislature to amend it by a two-thirds vote.

Their reasoning seemed positive, to give the Legislature the opportunity a chance to revise a complicated law to fit changing times and needs. They felt their law would be protected by a provision stating that any revision had to “further the purpose” of the initiative. But their good intentions had unintended consequences. Rather than promoting good government, they had created a giant loophole, and opponents quickly began charging through.

Assembly Finance and Insurance Vice Chairman Louis Caldera does not like Proposition 103. “I think it is unworkable and I think there are concepts in there that don’t help get to the goal, which is affordable auto insurance,” he said.

It was a few weeks after Chairman Peace’s committee hearing. We were having lunch at the Epicenter, a restaurant a couple of blocks from Caldera’s office in the historic Bradbury Building at Third Street and Broadway in Downtown Los Angeles.

Caldera is an intriguing character with a quiet, almost hesitant manner that masks driving ambition. He knows he’s in a rough political game in Sacramento, an ethically tricky one, considering the power of lobbyists and contributors.

“There is a sense that you don’t want to offend the people who helped get you here,” he said. “If the teachers helped get you here, you don’t want to vote against the teachers. If the trial lawyers helped get you here, you don’t want to vote against the trial lawyers. ... I like to take the attitude that people supported me because I have good judgment. I am willing to listen to them, but ultimately, I will exercise independent judgment.”

As a boy, Caldera moved with his family from El Paso back to his parents’ hometown of Chihuahua in northern Mexico, and then to Boyle Heights, the East L.A. neighborhood that has received generations of immigrants. “I grew up in a poor working-class family,” he told me. From Boyle Heights, the Calderas followed the path of upwardly mobile Latinos east to the more affluent San Gabriel Valley, where Louis graduated from Monte Vista High School in Whittier. Afterward, he went on to West Point, which “sounded like the greatest challenge you could possibly take on. It was a great education (and) I got paid a salary and I could send part of my salary home.”

After the Army and Harvard, Caldera worked for two large Downtown law firms, specializing in municipal bonds, and the Los Angeles County Counsel’s office, all the while fund-raising and walking precincts for electoral candidates, the menial jobs of a beginning politician. In 1992, his ambition brought him to the office of Assemblyman Richard Polanco (D-Los Angeles) who had been asked by Speaker Willie Brown to run Democatic legislative campaigns in L.A.’s Latino districts. Polanco, Caldera recalls “got excited about my running and then later on said, ‘I will help you’ and opened a lot of doors. When you go in and ask people to help with money, they know you have an endorser who has some credibility.”

Caldera arrived in the Capitol at a turning point in California history. He was one of TK legislators elected in the first “term-limit class,” the result of a 1990 initiative. Assembly members are now restricted to three two-year terms and senators to two four-year terms, a radical reaction to years of gridlock and scandal among veteran lawmakers. What it meant for Caldera and the others was an accelerated career timetable. In the past, it took years of apprenticeship to move up to the leadership. But with Assembly tenure limited to six years, it was inevitable that freshman legislators would quickly become leaders. That’s why power handicappers--including lobbyists--are beginning to size up Caldera and a few other newcomers as potential successors to Speaker Brown.

In office, Caldera asked Brown, who makes such decisions, for a place on the insurance committee. “I asked Willie because I wanted to work on the workers’ comp issue. ... Later on, I talked to Steve Peace. ... I told him I wanted to be vice chair. And he said, ‘I would like you to be vice chair.’ ” No doubt his backing by the well-connected Polanco helped Caldera get the job.

Caldera felt that Proposition 103 subjected insurance companies to overly rigid regulation without reducing the cost of policies in his working-class district, which extends from central Los Angeles into the San Gabriel Valley. He introduced a bill that would require insurance companies to pool their resources to, in effect, subsidize low cost, no-frills insurance policies for drivers with good records.

Caldera did not write this bill himself. It was written by insurance industry lobbyists. As Caldera points out, this is not unusual. “A great majority of the legislation that makes its way through the Legislature was drafted by interest groups, whether they are public-interest groups or special-interest groups, who then come around to (legislators) and ask them to carry it,” he said.

The procedure gives a tremendous advantage to lobbyists, especially under the term-limits measure, which, in addition to driving veterans from the Legislature, also mandated a sharp reduction in Senate and Assembly staffs. Among the staff were specialists in law, insurance, health care and other complex issues who either wrote bills or gave those proposed by a lobbyists a careful look. While the specialist system sheltered some well-paid political hacks, the most knowledgeable staff members provided a counterweight to lobbyist influence. Now, the lobbyists have a clear field.

Caldera’s bill was part of a package of measures promoted by the industry. The industry’s aim was to reduce its legal costs, savings the companies said would finance Caldera’s no-frills policies. The centerpiece of the package was a no-fault insurance bill.

Republican Gov. Pete Wilson, a major recipient of insurance industry campaign contributions, supports no-fault. Democratic Assembly Speaker Brown, a trial lawyer and a beneficiary of trial lawyers’ contributions, opposes it. Brown is the single most powerful legislator. As governor, Wilson signs and vetoes bills. Thus their disagreement resulted in stalemate.Caldera’s bill did not pass nor did the rest of the package. But the bills were, in fact, merely a diversion from the insurance lobbyists’ main game, to weaken Proposition 103.

The methods followed by today’s lobbyists in Sacramento were developed half a century ago by Artie Samish, who was known as the Secret Boss of California. If you wanted something done in Sacramento, you asked Artie rather than the governor, even though the chief executive during much of Samish’s reign was the greatly respected Earl Warren. “I am the governor of the Legislature,” Samish once said. “To hell with the governor of California.”

There’s never been another Samish, but in the last few years, an insurance lobbyist named Clayton R. Jackson came close. Like Samish, Clay Jackson is a huge, imposing, highly intelligent man with a keen political sense. His prowess and the campaign money he controls made him the Capitol’s insurance boss. If you wanted to pass or kill a bill in the insurance field, you asked Clay. Judith Bell of Consumers Union said that before Proposition 103 came along, “there had been a bill by (then Assemblywoman Maxine) Waters to set up an insurance consumers’ advisory council. Robbins killed that bill because Clay wanted it killed.”

Nobody was quite sure how Samish operated until he, himself, made the mistake of describing his activities to a reporter for Collier’s Magazine in 1949. The story effectively ended his career. Like Samish, Jackson made the mistake of talking. It wasn’t an investigating journalist who tripped him up, however, but a pal, State Sen. Alan Robbins.

Trying to bargain his way out of a long term in federal prison for tax evasion and racketeering (check charges), Robbins had agreed to secretly record his conversations with Jackson, who was later indicted on charges of racketeering, conspiracy, mail fraud and obstruction of justice.

They met at the El Rancho, an unfashionably out-of-the way hotel across the river from Sacramento. The topic was workers’ compensation, another important part of the insurance business. Jackson wanted some important bills switched to the Senate Insurance committee, chaired by Robbins, who, Jackson hoped, would kill, rewrite or stall them.

“I could probably put something together on this in two days,” the tape records Jackson as saying.

“Such as?” asked Robbins.

“Maybe, a quarter?” Jackson responded.

As the conversation continued, Robbins asked “Who would be coming up with the $250,000?”

“That’d be the small companies,” said Jackson. Their owners and investors . . . .”

“They would have sealed lips and follow careful instructions,” said Robbins.

“Yep,” Jackson responded.

They moved into a discussion of which companies would contribute. Then Robbins asked, “Uh, on our friends in workers comp who are going to come up with the money. Uh, I presume that as long as it’s done in a very careful way that you and I work out, that they’re not limited to (inaudible) campaign money.”

“That, yeah, that’s possible. Like, that is doable, depending on how we do it,” Jackson said.

“Who will the payor be?” asked Robbins. “Or payors?

“My guess is that a bunch of these (insurance) carriers will come directly out of the corporate coffers,” Jackson said. “May end up coming down to the good government fund or something.”

In September, I went up to Sacramento to have lunch with some of the post-Jackson era lobbyists. They were Dan Dunmoyer of the Personal Insurance Federation of California, who I had first encountered at the Assembly Finance and Insurance Committee hearing in May, and James A. Snyder, the federation’s president. Joining us were two others from the group, John P. Caldwell, senior legislative advocate, who does research and writes position papers, and David E. Fountain, who is in charge of public relations.

Their presence was a sign of changing times. Research papers and press releases weren’t part of the old lobbyists’ arsenal. But the basic game hadn’t changed much. The lobbyists’ agenda is still strictly determined by the client’s economic interest.

On behalf of their big insurance companies, my luncheon companions last year easily pushed through a bill requiring that insurance company requests for rate increases be automatically approved unless Insurance Commissioner Garamendi begins hearings within 180 days after they were submitted. Short-staffed and with a backlog of applications, Garamendi will find it hard to meet that requirement when the bill goes into effect.

This year, the insurance lobbyists also won passage of a bill strengthening the 180-day requirement. But their most audacious move was to get Finance and Insurance Chairman Steve Peace to carry a bill that would have all but wiped out Garamendi’s ability to regulate rates--in effect, dismantling Proposition 103. Peace said that Proposition 103 rate reductions would help only residents of high-premium cities, such as Los Angeles. And he feared that his San Diego constituents would end up paying higher rates to, in essence, subsidize the L.A. reductions.

“It was interesting when we first talked to Peace,” said Dunmoyer. “I told him, ‘There is a measure I would like you to carry. It is a radical measure. John Garamendi will classify it as the greatest attack on Proposition 103.’ He said ‘Well, I’m interested, give me some more facts on it.’ So I met with him again and said, ‘I want to make sure, Steve, as a lobbyist, this is very important that I’m not leading you to the slaughter.’ He said, ‘I don’t like Proposition 103. I don’t think it serves my constituents.”

Peace’s bill was already dead as the legislative session moved into its final days days this fall and Harvey Rosenfield, the father of Proposition 103, had been instrumental in killing it.

Rosenfield is a tough, determined, driven grassroots organizer who began fighting business when he was growing up in Randolph, Mass. “When my first used car was defective, I went after the dealer and made him fix it,” he said. “I went after Sears because they installed a defective battery. I grew up with this sense of ‘You can’t sit still, you’ve got to fight back.’ That’s how I found my way to Nader.”

He got a summer job with Nader while at Georgetown Law School. “It was the most wonderful experience I ever had,” he said. “He was my mentor.”

In 1982, Rosenfield told Nader he wanted to leave Washington to do grassroots organizing. Nader sent him to California to unite consumers against rising utility rates. Soon, Rosenfield moved into the insurance field and, by 1987, he was putting together Proposition 103. He had to raise the money for the campaign, and for the salaries of him and the other campaign workers.

The campaigners sent out 2 million pamphlets announcing the beginning of the Proposition 103 campaign. They received replies from 165,000 people who volunteered to circulate petitions. Later, the list, expanded during the campaign, proved to be a reliable source of contributions.

Rosenfield’s office is not in Sacramento. Rather, he works in a plain, brown three-story brown building at the corner of Pico Boulevard and Veterans Avenue in West Los Angeles.

Rosenfield was pleased with killing the lobbyists’ attempt, in the Peace bill, to wipe out the insurance commissioner’s regulatory power. “We did some press work in his district and he pulled the bill,” Rosenfield said. Particularly harmful was a column by Dana Wilkie in Peace’s hometown paper, the San Diego Union-Tribune, with the headline: “So what’s Peace up to with these wild-eyed legislative proposals?”

But as with so much of the Rosenfield’s battle with the insurance industry, every victory seemed balanced by a loss. A powerful lobbyist, John A. Norwood, who represents the Insurance Agents and Brokers Legislative Council, had a bill Rosenfield hated. It permitted insurance agents to keep the commissions they earned on premiums that were supposed to have been rebated by Proposition 103.

“The brokers and agents are very powerful, and it’s going to pass,” Rosenfield conceded. “Norwood is one of the guys who set up the Clay Jackson defense fund for his trial in Sacramento. All the lobbyists have a little Clay Jackson defense fund. They feel the guy is being persecuted and even though the guy is an unbelievably wealthy guy, they are funding his defense efforts because they call know that if he goes down, they could all be on the line, too.”

Eventually, the bill passed--another Rosenfield loss.

By the end of the session in September, the insurance fight had been recessed for the year.

Most consumers still hadn’t gotten their rebates. Bills had been passed that had weakened Proposition 103, although Rosenfield had stopped the insurance industry’s main attempt to eliminate the insurance commissioner’s regulatory power. Nothing, in short, had fundamentally changed since I attended the Finance and Insurance Committee hearing last May.

I saw that when I attended a post-session meeting of the Assembly Finance and Insurance Committee, where I had started reporting this story in the spring.

Everything was the same on this September afternoon as it had been in May. Same room, same lobbyists still sitting above the same legislators. The lobbyists were still in control.

The lobbyists and legislators called each other by their first names. They laughed at the same old jokes. Rosenfield was absent, so there were no real enemies in the room. Assembly members and lobbyists spoke the same lines I’d heard in May, phrases they’d used ever since the insurance issue surfaced more than 10 years ago.

At noon, Chairman Peace left. Vice Chairman Caldera adjourned the meeting in mid-afternoon. Legislators and lobbyists left full of good feeling.

That’s the way they like it. Gridlock. Stalemate. A fight that would never end, guaranteeing full employment for the lobbyists and plenty of campaign contributions for the legislators.

For them--if not for us--it was a perfect system.