PR Firms Fear Loss of State Campaigns.

L.A.'s advertising agencies and public relations firms are nervous about losing a steady source of their revenue -- public awareness and education campaigns -- when state officials begin making budget cuts.

Local firms were waiting last week to see how their accounts would be affected by Gov. Gray Davis' order that state departments cut spending for the 2002-03 fiscal year by up to 15 percent. While public safety services have been exempted, programs considered less essential stand to lose funding.

"I have no idea how (Davis) is going to treat the budget," said Rick Carpenter, president of ad giant DDB Worldwide in L.A., which has worked on state campaigns ranging from deregulation to recycling. "As far as our industry goes, there's always a potential for this being a source of his cuts."

State officials were reluctant to discuss what cuts were being considered, but some of the governor's recent moves may provide a clue. Earlier this month, Davis vetoed a $1 million PR campaign for a state law allowing parents to leave unwanted babies at hospitals without facing criminal punishment and asked state agencies to find a "cost-effective manner" to get the message out.

In an executive order, Davis told the state Department of Finance last week to identify $150 million in savings and asked agencies and departments to consider canceling, postponing or reducing any new contracts and to avoid increasing current contracts. The order could have a major effect on any state media campaigns that were in the pipeline. The savings plans were due this week.

L.A. firms in thick of it

Some of the state's most lucrative accounts are handled by L.A. firms. Ground Zero, a Marina del Rey ad agency, handles the state Department of Health Services' anti-smoking account, worth $25 million over five years. "That's a big account for us," said Chairman Jim Smith, who said he could not comment on the status of the business.

Illustrating how lucrative state accounts can be, Grey Worldwide in Los Angeles, which was recently awarded the state's energy conservation and lottery accounts, expects a 25-percent increase in revenues over last year, said John Crosson, the agency's president and chief operating officer. This, comes despite a general downturn in the advertising industry.

The state Department of Consumer Affairs and the California State Lottery are multi-year accounts totaling nearly $150 million.

"(State accounts) are very important because of their size. They have high-profile marquee value as well' Crosson said.

Although uncertain as to how the state's cutbacks might affect these large accounts, Crosson said he wasn't worried. "I am fortunate that with the two state accounts we work on, the. investment the state makes has proven to have such a great return that it would be likely that they would try to find the savings elsewhere than to have to cut here' he said.

Those firms handling public service accounts, where the return on investment is not as easy to measure as a decrease in energy use or in playing the lottery, may have more to worry about.

Pulling the plug

Crocker/Flanagan, a Sacramento firm that does a lot of state work, put in more than 100 staff hours into a proposal for a statewide campaign under the Department of Social Services -- only to recently find out the contract was canceled. Scot Crocker, the firm's president, was hoping a proposal submitted last week for a Department of Forestry and Fire Protection campaign would not meet the same fate.

"I think that any PR firm or ad agency...that has a contract with the State of California is probably concerned that they will be reduced in the coming year," he said. "Promotional budgets usually get cut over cuffing jobs."

Officials at Health Services -- which has several campaigns, including the 'Tobacco Education Media Campaign" and "Healthy Families and Medi-Cal For Families" -- revealed little last week about how their outreach efforts might be affected by Davis' mandate.

No decision has yet been made on how or where to reduce expenditures," said department spokeswoman Teri Hodges.

The "Healthy Families" account was put on hold earlier this year and Health Services this summer made a "large scale reduction" in spending on its campaign to combat teen pregnancy, said Eric Borsum of Hill & Knowlton, the PR firm that handles these and other state accounts.