A Project of The Annenberg Public Policy Center

Outside Ads Mislead in California

In the governor's race, Republican Whitman and Democrat Brown are attacked by union-funded and pro-business groups.


Summary

In the race for California governor, outside groups supporting Republican Meg Whitman and Democrat Jerry Brown are airing new TV ads that mislead voters.

An independent group financed by labor unions distorts Whitman’s record as president and chief executive officer of eBay, the online auction site. The ad:

  • Says "overhead" expenses rose 2,000 percent from 1999 through 2007, without taking into account the phenomenal growth of a company that saw its payroll expand during that time from 138 employees to approximately 15,500;
  • Blames her for "failed mergers," although she had more successes than failures, and falsely accuses her of resigning as a result of bad business deals;
  • Claims the new CEO cut her "bloated spending" after taking control of the company, but the economic downturn — not Whitman’s performance — was cited as the principal reason for the layoffs and spending cuts.

Another ad, this one from a pro-business group, attacks Whitman’s Democratic opponent, Jerry Brown, the attorney general of California. Among the ad’s claims:

  • Brown "makes it harder to create jobs." That’s a stretch based on the opinion that California’s litigation environment under Brown is discouraging to businesses.
  • Spending, debt and unemployment increased under Brown. That’s true, but doesn’t tell the whole story. Brown spent surplus money on schools and emergency operations. Revenues during his administration were diminished by a voter-backed initiative he opposed. And unemployment when he left office was high nationwide.
  • Brown proposes "more debt" as a deficit fix. That’s an oversimplification of his position that borrowing may be necessary while the economy is bad.

Analysis

In an ad that first aired Aug. 16, California Working Families for Jerry Brown targets Whitman’s 10 years at eBay — seeking to portray her as a reckless spender who hurt the company and resigned as a result. But that’s a tough sell given the tremendous growth the online auction company enjoyed during her tenure and the fact that she left on good terms to get involved in politics.

It’s such a tough sell, in fact, that the group resorts to distorting her record.

[TET ]

California Working Families’ TV Ad: "Crumble"

Announcer: For 28 years, she didn’t bother to vote. No government experience at all. Now Meg Whitman says her time at eBay qualifies her to be governor. What’s her record as CEO? Overhead spending upped 2,000 percent. Fees hiked six times in six years. Huge losses from failed mergers. That’s when she resigned. The new CEO cut Whitman’s bloated spending and lowered fees. California is in crisis. Under Meg Whitman it could crumble. [/TET]

Excessive spending?

The ad, for example, scolds Whitman for allowing "overhead spending" at eBay to increase by "2,000 percent." The group provides SEC documents that show “general and administrative operating expenses” at eBay went from $43.9 million in 1999 to $904.7 million in 2007 — a 1,960 percent increase. It’s all true. Numbers don’t lie — but they can mislead.

The "overhead" expenses cover such things as consultants, insurance, and employee compensation. During this time frame, from 1999 through 2007, the fast-growing company saw its payroll increase from 138 employees to approximately 15,500. That’s an increase of 11,131 percent. The company’s net revenues? They went from $225 million ($224,724,000) in 1999 to $7.7 billion ($7,672,329,000) at the end of 2007. That’s an increase of 3,314 percent.

California should be so lucky to see its employment and revenues increase by anything close to that amount.

Failed Mergers?

The ad also says Whitman was responsible for “huge losses from failed mergers,” and it implies that she resigned as a result. "That’s when she resigned," the ad says. There is no evidence that Whitman resigned because of bad business deals. To the contrary, Whitman’s overall record at eBay has been almost universally considered a success. This winter, the Harvard Business Review, for example, ranked her eighth among 100 best-performing CEOs. The rankings were based on "their entire time in office."

For evidence of “failed mergers,” California Working Families points to the acquisition of Skype in 2005 for $2.6 billion (which the New York Times in 2009 reported cost of a total of $3.1 billion after "performance incentives" were paid out). It’s true that the purchase of the Internet phone service was not a good fit for eBay. It was widely seen as a mistake, and the company had to take a $1.4 billion charge against profits in 2007 — an admission that it overpaid.

But it may be too early to say if the merger will result in “huge losses.” In 2009, eBay sold 65 percent of Skype to private investors for $1.9 billion, according to the New York Times. The Times called the 2009 deal “a partial redemption.” Jeffrey Lindsay, an analyst at Sanford C. Bernstein, told the paper that eBay sold Skype for “a great price,” while retaining a significant stake in the growing, profitable company that will generate future revenues. Still, Bernstein called the purchase "a serious mistake by Meg Whitman,” and credited the current management for salvaging it.

On the other hand, Whitman engineered the purchase of PayPal in 2002 for $1.5 billion — a deal that MarketWatch called “a masterstroke.” PayPal “now makes up more than a third of eBay’s total revenue base, and still maintains solid, double-digit growth rates each quarter,” MarketWatch wrote in a July 29, 2010, article.

The fact is that on balance Whitman’s career at eBay was marked by more successes than failures. On the day Whitman announced her resignation from eBay, Adam Cohen, author of the book “The Perfect Store: Inside eBay,” wrote that Whitman “had some misfires,” but “it is difficult to quarrel with Ms. Whitman’s success over the past decade.”

Cohen, Jan. 25, 2008: In her decade in charge, Ms. Whitman made the decisions that made eBay the company it is today. Among them was an aggressive program of global expansion, both by acquiring existing online auction sites and starting new ones. … EBay went from $4 million in annual revenue in to [sic] nearly $ 8 billion today. The stock has risen 5,600 percent, and Ms. Whitman herself became a billionaire along the way, ranked # 261 on Forbes’ 2007 list of the wealthiest Americans.

The ad follows its false claim about Whitman’s resignation by claiming the new president and CEO, John Donahoe, cut "Whitman’s bloated spending." For proof, California Working Families cites an October 2008 article in the Los Angeles Times. But that article says Donahoe cut spending, including announcing 1,600 layoffs, because of the "global economic slowdown." It doesn’t mention anything about Whitman or her spending habits as CEO. The chief problem: a decline in consumer spending because of the economy.

Yes, Fees Went Up

The ad also raps Whitman for raising fees "six times in six years." This, too, is true, although there have been some fee cuts during those six years, and the higher fees didn’t stop sellers from flocking to the website.

The New York Times wrote in 2005 that the company had raised fees on sellers for five straight years. In 2006, the Seattle Times carried a MarketWatch story that reported eBay was again raising fees — marking the sixth time in six years. Whitman told MarketWatch that the company was raising fees on certain sellers (those who sold items at a fixed price for an unlimited time) in an attempt to “rebalance the marketplace” and encourage more auctions. She called the auctions part of the eBay experience.

Whatever the reason for the fee hikes, eBay sellers were not happy about them. The New York Times article said sellers sarcastically referred to the company as FeeBay and GreedBay on community bulletin boards. The Whitman campaign does not dispute any of this, but it points out that eBay sellers were free to sell their merchandise elsewhere if they felt they were being treated unfairly. So, we looked at SEC reports and found that during this period, from 2001 through 2006, the number of eBay users increased from 42 million to 222 million.

28 years? Not Exactly.

In addition to attacking Whitman’s years at eBay, the ad goes after her for failing to vote. "For 28 years," the ad says, "she didn’t bother to vote." Here you would think the group would be on safe ground. After all, Whitman herself has described her voting record as “atrocious.” But again California Working Families goes beyond the facts.

There is no evidence to support the claim that she didn’t vote for 28 years. The claim originates from a Sept. 24, 2009, story by the Sacramento Bee. But the story never said she didn’t vote for 28 years. That was the incorrect assumption that others made based on the story.

Here’s what happened: The Bee reviewed voter registration records in “six states and a dozen counties,” seeking to go back to 1974 — when Whitman was 18 years old. But some past voter registration records were not available. For example, the paper said San Francisco’s voter registration database goes back only to 1992, and Whitman lived “much of the 1980s” in San Francisco.

Still, some ignored the paper’s own disclaimer and seized on this sentence: “The first registration record the Bee found, in Mateo County, was dated Sept. 12, 2002.” From that, others incorrectly assumed that she hadn’t bothered to register or vote from 1974 to 2002. The Santa Cruz Sentinel wrote: “Then the Sacramento Bee reported that Whitman had never registered to vote before 2002 — which meant she had failed to register, or vote, for 28 years.”

California Working Families cites the Sentinel story as proof to support its claim that she didn’t vote for 28 years. Simple math, right? Wrong. Two weeks after its story appeared, the Bee reported that “previously undisclosed” voting records showed that Whitman registered to vote in San Francisco in 1982 and again in Santa Clara County in 1999.

Whitman said she distinctly recalls voting “on numerous occasions” — including the 1984 and 1988 presidential elections. That may or may not be the case. We don’t know. And neither does California Working Families for Jerry Brown. All anyone knows is that there is no evidence to support the claim that she didn’t vote for 28 years.

Business Versus Brown

Meanwhile, a group called the Small Business Action Committee is running an ad attacking Whitman’s opponent, Jerry Brown.

[TET ]

SBAC TV Ad: "More Jobs"

Two million Californians out of work and attorney general Jerry Brown makes it harder to create jobs, saying he has 1100 attorneys ready to sue over government regulations. As a 40-year politician, he doesn’t get what it takes to create jobs. As governor, he grew spending, turned a surplus into a deficit, and left office with 11 percent unemployment. And Brown’s solution to California’s deficit? More debt, which will kill jobs. Tell Jerry Brown we need more jobs.[/TET]

The business organization is something of a mystery. There are only two "leadership team" members listed on its website, and one of them, attorney James Lacy, is a co-founder of the United States Justice Foundation, which has pursued lawsuits challenging President Barack Obama’s citizenship. The site has no contact phone number, and the e-mail address provided didn’t work for us. SBAC’s funding for this ad is similarly shrouded; since the ad doesn’t explicitly call for a vote for Whitman (although SBAC has endorsed her), it is exempt from disclosure requirements that cover campaign advertising. However, the group has certainly received at least $10,000 from Whitman — her campaign expenditure report shows a payment of that amount for "print ads."

The ad says that Brown has been “mak[ing] it harder to create jobs” during his tenure as state attorney general, but that’s opinion masquerading as fact. SBAC supports its claim with information about Brown’s habit, as attorney general, of threatening or pursuing litigation against projects that don’t comply with environmental regulations. The ad implies that Brown may be threatening to sue over regulations that had something to do with employment, by saying he "has 1,100 attorneys ready to sue over government regulations." But, in fact, that comment referred to enforcing anti-pollution law.

Some considered Brown’s litigiousness on behalf of environmental regulations premature and overzealous, and SBAC contends that it hurt business. The group cites a press release from the U.S. Chamber of Commerce-affiliated Institute for Legal Reform, which says that California’s “lawsuit climate” is among the worst in the nation. ILR President Lisa Rickard claimed that this climate was “discouraging new businesses and new jobs at a time when the state needs them most.” But the evidence is slim — ILR’s study finds that two-thirds of business owners “say a state’s lawsuit environment is likely to impact important business decisions at their company,” but it doesn’t show that litigation in California is actually reducing jobs or making it harder to create them. All it shows is that many business owners consider their impression of a state’s legal environment when making decisions that may or may not affect jobs, and that on ILR’s rubric of "lawsuit climate" California does not score high.

The group also cites a 2007 press release from a coalition called the AB 32 Implementation Group. The press release warns that Brown’s lawsuits against projects without emissions reduction plans “will both undermine AB 32 (The Global Warming Solutions Act) and delay or stop vital public and private projects.” SBAC is a member of the coalition, which was formed to represent business interests in the implementation of the environmental law. But the co-chair’s statement that “[l]awsuits are the wrong way to develop a cost-effective plan to address climate change” is far from being evidence that Brown’s legal approach made it harder to create jobs, or that he “doesn’t get what it takes” to create them.

Brown’s Spending and Unemployment Record, Again

SBAC goes on to say that Brown increased spending during his stint as governor, and that he turned a surplus into a deficit. We’ve dealt with these claims before. Expenditures did increase while Brown was governor, from 1975 to 1983 — in fact, expenditures in California increased almost every year from 1945-1946 to 2007-2008. But some of the shift from surplus to deficit in Brown’s years was due to Proposition 13, a property tax reduction measure that Brown opposed but on which voters insisted. Brown also distributed much of the surplus to schools and emergency operations, which contributed to increased spending during his administration.

On unemployment, too, the ad is accurate but incomplete. It’s true that when Brown left office as governor, California had 11 percent unemployment. But that was more or less in line with national unemployment, which was 10.8 percent in Brown’s last full month.

More Debt … for a While

Finally, the ad claims that Brown’s “solution to California’s deficit [is] more debt.” SBAC’s evidence for this counterintuitive claim includes a quote from Brown suggesting that borrowing from the federal government might be a way to keep California’s head above water:

Brown, April 2009: For a while you’ll have to borrow. …You’re not going to cut or tax your way to absolute balance. I don’t think it’s possible. You hopefully get money from the federal government.

But that’s not Brown’s only plan. The same column quotes him saying: “You can sell some assets to pay back accumulated debt. You’re going to have to curb spending. That’s going to be extremely frustrating.”

In another interview, Brown says that “the truth is we’re going to have to have a deficit for more than one year,” but he goes on to say that “if we hold the line on spending the economy will come back.” That’s not just a plan to increase debt — it’s a plan to hold spending down and borrow as necessary, temporarily, until the economy recovers. We don’t have a position on the value of that plan, but boiling it down to “more debt” is an oversimplification.

— by Eugene Kiely and Jess Henig

Sources

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