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PR Firm's Funding Scheme for Quackenbush

Memo spelled out plan to polish his imageSan Francisco Chronicle

Sacramento -- Insurance Commissioner Chuck Quackenbush's mounting troubles may stem from a public relations firm's scheme to use fines from the insurance industry to polish his political image, a memo revealed yesterday.

The unexpected disclosure came in documents released to the Assembly Insurance Committee, which is looking into possible misconduct by the commissioner and some of his top deputies.

The image-polishing plan, submitted by the firm early last year, mirrors actions taken by Quackenbush's insurance department just three weeks later in March 1999.

But while the memo proposed using fines to fund nonprofit foundations -- which is illegal -- insurance department officials took another approach. They threatened the companies with $3.7 billion in fines for mishandling claims from the 1994 Northridge earthquake as a way of encouraging them to make ``settlement'' payments to newly created nonprofit foundations.

Six major insurance companies subsequently donated about $12 million to two foundations that were to fund earthquake awareness programs, research and aid to earthquake victims.

Creation of nonprofit foundations was a key element of the consulting firm's memo. As later revealed, however, none of the settlement money spent so far went to earthquake victims. Instead, money was used for television spots featuring the commissioner and for donations to nonprofit groups, primarily in Oakland and Sacramento. The largest contribution -- $500,000 -- went to the Sacramento Urban League, where Quackenbush serves on the board of directors.

Quackenbush and his top aides deny any wrongdoing.

The consulting firm's memo was described yesterday by one assemblyman as a ``blueprint`` for what later followed. ``This document lays out a course of action that is consistent with the events that actually took place,'' said Assemblyman Fred Keeley, D-Boulder Creek. ``In fact, in my view, this looks like a precise blueprint of the events that unfolded.''

Revelations contained in the memo prompted another lawmaker to raise the possibility of impeachment. Republican Assemblyman Tom McClintock, who represents the Northridge area, said, ``If -- if -- it is proved that the commissioner directed or approved the tactics used to compel contributions to these foundations, or directed or approved disbursement of funds by those foundations, then that constitutes an impeachable offense under the state Constitution.''

The memo, written by the Stoorza, Ziegaus, Metzger and Hunt public relations firm, appeared for the first time yesterday during the second full day of hearings by the Assembly Insurance Committee.

The memo was given to the committee by Linda Smith-Gaston, a private consultant hired to help set up the foundations. She told the committee that she received it on Feb. 10, 1999, from George Grays, then a deputy commissioner in the department. Grays resigned earlier this year after allegations about the foundations surfaced.

In earlier testimony, it was revealed that $100,000 from one Quackenbush foundation -- the California Research and Assistance Fund

--was used, in part, for polling to gauge the Republican commissioner's popularity and that of potential Democratic rivals for higher office.

``I think the combination of the political poll and the political strategy document would cause any reasonable person to conclude that there are significant political motivations involved in the department's and the commissioner's actions,'' said Assemblyman Keeley. ``They are completely consistent with the political poll results and with the political campaign strategy memo given to the commissioner and his executive staff.''

William Palmer, the former general counsel to Quackenbush and his acting chief of staff during the time the memo was written, testified that he had not seen the document until yesterday and that there were no political motivations for establishing the foundations.

``This was not the blueprint. This was not the view of the commissioner,'' Palmer said. ``That foundation was set up to implement those settlements. That was the intent.''

Quackenbush and the funds are under investigation by the Assembly and Senate insurance committees, Attorney General Bill Lockyer and the Fair Political Practices Commission.

Keeley and other members of the Assembly committee said they did not find credible Palmer's testimony that he was not aware of the memo.

``I find it hard to believe that the acting chief of staff to the insurance commissioner had as little involvement in the events that are under the committee's oversight responsibility as he is alleging,'' Keeley said.

The PR firm's memo says: ``The insurance commissioner himself has been the target of unfounded accusations that he is too closely aligned with the insurance companies. All of these issues can be resolved -- and the negative perceptions reversed -- through an aggressive, targeted and proactive outreach campaign. Commissioner Quackenbush can transform a political liability into a major strength.''

The campaign would provide ``an immense benefit to the department as well as to the commissioner's campaign to protect California consumers,'' the proposal said.

The Stoorza firm later won a $25,000-a-month, two-year contract from one of the foundations whose creation it had proposed.

Assemblyman McClintock, who has emerged as one of fellow Republican Quackenbush's sharpest critics in the Legislature, said the poll depicted ``a department operating entirely beyond the law that is making up things as they go along.''