Jerry Brown Escapes Scrutiny?

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As Ron Dellums’ fortunes plummet, the chances of his predecessor winning the California governorship received a significant boost late last week. San Francisco Mayor Gavin Newsom dropped out of the 2010 race, leaving Jerry Brown as the only major Democratic candidate running for governor. Newsom’s announcement also came at just the right moment for the attorney general because he was weathering a mini-scandal at the time.

Brown’s spokesman Scott Gerber had been under fire for secretly taping a phone call with San Francisco Chronicle reporter Carla Marinucci. It is illegal in California to tape a conversation without the consent of all parties involved, and Gerber later resigned after Brown placed him on administrative leave.

At the time of the taping, Marinucci was working on a story about Brown allegedly doing a favor for an influential campaign donor. Brown and his office have maintained that no favors were given, but Gerber’s decision to secretly tape a reporter working on a possibly damaging story raises doubts about their truth telling. "They knew what they were doing was wrong," said Doug Heller, executive director of Consumer Watchdog. "And when it became clear that someone was looking into it, they decided to break the law."

The controversy at the heart of the secret-taping incident involved a statewide ballot measure sponsored by Mercury Insurance, the state’s third largest auto insurer. The measure would allow insurance companies to lower rates for some motorists, while raising rates for others, depending on whether they have let their car insurance lapse. The measure is regarded as being bad news for low-income drivers. It also contains almost exactly the same wording as a law backed by Mercury Insurance and carried by former State Senator Don Perata in 2003 that was later invalidated by the courts. Perata had agreed to sponsor the law after Mercury poured $75,000 into one of his campaign accounts.

At first, it looked as if Brown’s office wasn’t going to play ball with Mercury as Perata had. When Mercury submitted its new ballot measure to Brown’s office in July for certification, the attorney general responded with official ballot language that the insurance company didn’t like. Brown’s office at the time stated correctly that Mercury’s initiative would result in lower premiums for some people and higher premiums for others.

Because Mercury officials knew that such wording would doom their initiative, they withdrew it. But in September, the company came back to Brown with a slightly altered version. Brown’s office, in turn, responded with new a new ballot summary that highlighted the positive side of the measure — that some people would qualify for discounts — while omitting the negative part, which was that others, particularly low-income motorists, would probably see their insurance rates go up.

Consumer groups, including Consumer Watchdog, immediately cried foul, alleging that Brown had changed the official ballot wording because Mercury had given him a $13,000 campaign donation. That’s when Marinucci called Brown’s office for comment, and his spokesman decided to secretly tape her. Officials from Brown’s office did not return a phone call seeking comment for this story, but in their interview with Marinucci, they maintained that there was no quid pro quo with Mercury and that they altered the official ballot measure wording because the insurance company had made substantial changes to its initiative.

But did it? Copies of the two initiatives reviewed by Full Disclosure reveal that while Mercury made a few minor changes between July and September, none altered the basic meaning of the measure. Both initiatives clearly allow auto insurance companies to give discounts to people who don’t let their insurance lapse while also allowing rates to go up for people who do.

Although Mercury’s initiative doesn’t specifically mention raising rates, the 2005 California appellate court ruling that invalidated Perata’s law revealed that rates automatically go up for some drivers when they go down for others.

The court specifically cited testimony from two industry experts who explained that insurance companies are required by law to bring in enough revenue to cover their potential losses, so that if they award discounts to some customers, they’ll have to charge more to others.

The court also pointed out that Perata’s law ultimately would have led to higher rates for everyone. The court cited testimony from experts who said that because Perata’s law would result in much higher rates for some motorists, particularly poor people who are more likely to let their insurance lapse, then those drivers would be less likely to buy car insurance at all. And if fewer people get insurance, then rates automatically rise for everyone else, the court noted.

Heller of Consumer Watchdog believes that this is Mercury’s ultimate goal. The company claims that it supports the measure to promote "competition." That is, Mercury wants to attract customers from other insurers by offering them discounts. But that will also allow Mercury to raise rates for people it considers too risky. But raising rates on low-income drivers will force more of them to drop their insurance, which will allow Mercury to raise rates across the board. "It’s not about getting new market share," Heller said. "It’s about getting rid of the people they don’t like."

The court invalidated Perata’s law because it said the state Legislature could not alter Proposition 103 — a statewide initiative passed by voters in 1988 that prohibited insurers from giving discounts to people who don’t let their insurance lapse. The court ruled that only state voters could amend Prop. 103, which is why Mercury is now sponsoring its new initiative.

Consumer Watchdog
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