And then, the opposition blinked

December 18, 2012

As the calendar closes on an election year that seemed would never end, it provides a last-chance opportunity to recount the year's most significant political story in California that hardly anyone noticed.

It was the passage of Proposition 39, a $1 billion corporate tax increase that somehow slipped under the radar.

It received more than 61 percent of the vote, an unheard-of level of support for a tax measure.

That didn't happen by accident, but amid all the coverage of the ballot-measure wars over Propositions 30 and 32, the story of Proposition 39's landslide win has not been well told.

It was a story jointly written by a brassy political consultant whose style was forged while fighting off scandals in the Clinton White House, a billionaire Silicon Valley investor with a passion for public policy, and a dogged state senator who waged a three-year crusade to change a tax policy he believed was shortchanging California businesses and taxpayers.

In large part, they succeeded because of a guerrilla campaign tactic that eliminated potential opposition before it could materialize.

Consultant Chris Lehane had seen how similar proposition campaigns had recently played out.

In 2010, businesses poured more than $15 million into a successful effort to crush a measure that sought to eliminate a package of corporate tax breaks. In June of this year, a proposed cigarette tax increase had been narrowly defeated after the tobacco industry spent more than $40 million to snuff it out.

Lehane had an idea how to change the script.

"These guys had one free lay-up after another," Lehane told me. "Why wouldn't they do it? It's in their fiduciary interest."

The solution, Lehane believed, was "to change the value proposition" for companies considering whether to finance a campaign to defeat Proposition 39.

Because Sen. Kevin De León, D-Los Angeles, had fought for three years in the Legislature to change the tax formula, he knew what to expect.

"The multistate corporations were so effective in their lobbying. They killed every effort," De León told me. "I knew who the players were."

He knew that the most likely opposition to Proposition 39 would come from the out-of-state companies that had most aggressively lobbied against the idea in the Legislature: Chrysler, General Motors, International Paper and Kimberly-Clark.

Full-page newspaper ads, featuring photographs of the companies' CEOs, were purchased, asking them not to oppose the measure. De León sent a letter to the CEOs challenging them to a public debate "so voters can plainly see how devastating your efforts are to our state."

By Sept. 26, only GM and Kimberly-Clark were still holding out. The Proposition 39 campaign threatened to start running TV ads and to "unleash a relentless barrage" of commercials calling out those two companies.

Because venture capitalist Tom Steyer had deposited $21 million into the Yes on Proposition 39 campaign, potential opponents knew this was not an empty threat. And they knew it would be impossible to wage an opposition campaign on the cheap.

"Tom was not going away," De León says.

By Sept. 28, all four companies had promised not to oppose the initiative. And in the end, the opposition campaign was almost nonexistent.

"We defanged the opposition," De León said. "We won a major tactical battle that defined the war. I think corporate America was very nervous about being maligned to the electorate in California."

De León believes the tactic was blunt, but fair. Had the campaign been compelled to follow through, he says, it would have done so only by arguing the facts — chiefly that the previous system allowed out-of-state companies to compute their California taxes by using an advantageous formula not available to companies based in California.

"We always knew that, on the merits, we were on the right side," he said.

To Lehane, the important thing is that De León and Steyer weren't squeamish about employing a tactic that others might have considered heavy-handed or unseemly.

"Tom and Kevin wanted to play to win," he said. "A lot of people go into a campaign thinking it's a Harvard-Yale debate."

Lehane co-wrote a film called "Knife Fight," a political drama to be released Jan. 25 in which actor Rob Lowe plays a political operative whose character resembles Lehane.

In one scene, Lowe's character advises a potential candidate what it takes to win a high-stakes campaign.

In real life, Lehane said, those involved with Proposition 39 exhibited the exact trait that the character in the movie references. "The people on the other side knew that we were going to be bringing a gun to a knife fight."