Michael Herson in the News

By Kate Ackley
Roll Call Staff
http://www.rollcall.com/features/Outlook_Lobbying/outlook/-206567-1.html

Democrat Rich Gold and Republican Kathryn Lehman don’t agree on much. But the two Holland & Knight lobbyists have readily come to a consensus on one thing: The 112th Congress, besieged as it is with continued partisan gridlock and obsessed by a federal budget melodrama, will accomplish next to nothing.

Nothing, that is, except perhaps cutting the government programs and the funding for special projects that are so important to the companies, industry trade groups, labor unions, municipalities and universities that spent a combined $3.7 billion advocating for their causes in Washington last year.

“This is fundamentally different from past times,” Gold says. “This year, it’s not clear to me when they’re ever going to do anything again.”

Even the Washington lobbyist’s most reliable standby for making money — working to get a line or two into one of the annual appropriations bills — has become essentially off limits to the denizens of K Street and their clients. Asking lawmakers to attach a provision to a spending bill has become so taboo in the current Congress that, as Gold says, it’s akin to “asking your parents how they have sex.”

Since there’s no point in pursuing earmarks for customers’ pet projects, and minimal hope of achieving any grand policy shifts, the lobbying world of 2011 has become all about playing defense. For those who represent doctors and defense contractors, broadcasters and bankers, chemical companies and solar-panel makers and road builders, this year’s focus at the Capitol is on preventing spending cuts and thwarting legislative efforts to reverse previously won victories. In a year when so little is expected to happen in Congress, Job One is making sure that your clients don’t get hurt by any of the few things that do happen. It’s the best way for the influence industry to survive the same budget crunches and economic anxieties as the rest of the business world.

Succeeding at prevention, though, generally requires a less expensive lobbying campaign than waging a crusade for legislative action. That’s perennially true in the Senate, where proposals can usually be thwarted at the insistence of a handful of senators or fewer — and can almost always be stopped if that’s the will of just 40. But it’s especially true this year in the House, where precisely one out of every five members is a Republican freshman — and many of them (especially those swept into office with tea party support) are wild cards who won’t be reliable votes for even the most politically generous of stakeholders.

“A third of them have signs outside their offices that say, ‘If coming to talk about spending money, don’t bother to cross the doorstep.’ ” says H. Stewart Van Scoyoc, the president of the eponymous firm that’s one of the city’s most prominent lobby shops.

And so all signs point to a dip in revenue from lobbying Congress this year — after, for example, a period of more than 40 percent annual growth at Holland & Knight — as well as a shift at many practices to lobbying the executive branch and state governments. The federal agencies responsible for implementing the two landmark laws enacted last year, overhauling the medical insurance system and the regulation of Wall Street, are getting the lion’s share of that attention.

Which is not to say that Capitol Hill has ceased to matter. Lobbyists continue to lure clients with the argument that, sooner or later, they will want to go back on offense because eventually the gridlock will end — but that their chances of getting what they want tomorrow are reduced if they sit entirely on the sidelines today.

“I argue to clients that you have to be involved this year. Even if it doesn’t happen, all the preliminary work is where they begin in the next Congress,” says Vic Fazio, who as a California congressman rose to chair the House Democratic Caucus in the 1990s and is now a lobbyist at Akin Gump Strauss Hauer & Feld.

Although the current partisan bitterness scares most corporate players, who prefer working with a moderate and collaborative majority, last year’s historic legislation on health care and financial services made it clear to organizations with money to spend — and money at stake — that they ignore Washington at their peril.

“Companies are really struggling with the increased partisanship,” says Doug Pinkham, president of the Public Affairs Council, a nonpartisan group for government relations and communications executives. Still, he says, this is no time to abandon government relations. In reality, companies and organizations are increasingly aware of the importance of pressing hard when big budget cuts loom and regulators are busy implementing big new laws.

“There is a growing awareness of the value of being engaged in politics and government, if you’re a business,” Pinkham says. “A lot more CEOs who weren’t believers in the value of government relations have become true believers because they see what’s at stake. It’s kind of like managing the Middle East peace process. You want to be engaged because there’s value in that, but you aren’t expecting a specific outcome.”

After Earmarks

Managing those client expectations and readjusting to a potentially do-nothing Congress hasn’t been an easy shift for K Street.

Only a few years ago, the main driver of the influence economy was earmarks, those little pots of federal cash that members of Congress secure for specific projects. And corporate executives, mayors, college presidents and just about everyone else whose organization would benefit from a little extra federal cash hired lobbyists to go after their fair share. It was a boom time for K Street. Lawmakers wanted to show their constituents they could bring home the bacon, lobbyists were eager to help them — and the tiny type of the dozen or so appropriations bills was an ideal venue for their work, because those bills always eventually made it into law.

One of Washington’s biggest and most prominent firms, Cassidy & Associates, pioneered the business of winning earmarks in the 1970s. By the 1990s it had not only institutionalized the enterprise but had spawned a number of competitors vying for the money.

But a combination of the ballooning budget deficit and the memory of K Street-Capitol Hill scandals that marred the last time the Republicans ran the House has put the earmark system on indefinite hiatus. (Duke Cunningham, a Republican on the House’s Defense Appropriations Subcommittee, went to federal prison in 2006 after admitting he took $2.4 million in cash, antiques and travel from companies in return for championing their earmarks. Even more famously, the lobbyist Jack Abramoff, who liked to refer to the each Appropriations committee as a “favor factory,” went to prison for working to corrupt the process.)

Determined to avoid a repeat of those scandals and eager to find a way to look fiscally responsible from the outset of their return to power, House GOP leaders imposed a moratorium on most earmarks at the start of the year. Senate appropriators followed suit soon thereafter. And that change in the congressional culture has already changed the balance sheets on K Street as much as anything else.

The total spent on Washington advocacy, which had been surging consistently for a decade, plateaued in 2010. And an outright downturn looks guaranteed for 2011. Overall lobbying expenditures for January, February and March (the most recent period for which there are comparable federal disclosure records) was 12 percent less than during the first quarter of last year. And the decline was essentially across the board, with small boosts in spending in only a couple of areas (government unions, most noticeably) and double-digit-percentage spending cuts by more than half the major industries.

At the same time, the trend of organizations to spend fewer of their lobbying dollars on K Street, and more on their own advocates has continued. The share of lobbying spending that was in-house was 54 percent last quarter — a 8-percentage-point boost in the past decade.

Less spending overall on lobbying doesn’t mean that companies or groups are less engaged inside the Beltway. Many are simply sizing up their priorities and doing a K Street version of triage: figuring out what they can handle in-house, what their associations can take the lead on and what needs to be farmed out to contract firms. “I think that’s just good management,” Pinkham says.

But for firms that specialized mostly in earmarks, it’s a different world. “It’s obvious that if your lobbying has been to get earmarks for companies, your business has slowed up considerably,” said Charlie Stenholm, a former House Democrat from Texas who’s now a lobbyist with Olsson Frank Weeda.

In this more competitive environment, lobbyists are eager to find clients with something to sell that might make government work more efficiently — and they have to sell that idea to the executive branch as well as on Capitol Hill. Stenholm, for example, is an active alumnus of Tarleton State University, which received an earmark in previous years for a data-mining project related to federal crop insurance programs. “What we’ve done now is find $4.5 billion in savings in waste, fraud and abuse and have now become the poster child for all of government,” he said. “One of the things I’m lobbying on is seeing if some other departments might want to use the same technology.”

Stenholm, Van Scoyoc and many of their fellow lobbyists say they are paying more attention than ever to the executive branch, and to finding international work, in the current climate.

Critics and students of the lobbying business say that the shift of attention to the agencies may have an unintended and unhealthy consequence. There is often much less public disclosure available about the lobbying of bureaucrats. And now, especially with the congressional earmark system on hold, it’s these low-level officials who will have more power over how the government allocates money.

“It’s more subterranean,” says Burdett Loomis, a political science professor at the University of Kansas who studies the lobbying world. For K Street, he adds, the executive branch has become increasingly important because the stakes are very high. “Look at how many decisions Kathleen Sebelius has to make,” he says of the secretary of Health and Human Services, who not only runs the domestic department with the biggest budget but is also the principal Obama administration official in charge of implementing the health care law.

Beyond the Beltway

A combination of partisan gridlock in Congress and budget battles in the 50 state capitals has moved much of K Street’s attention not just away from Congress but also far beyond Washington. And hemorrhaging state budgets have put corporations, labor unions and business associations on defense across the nation.

“If you’ve got to balance the budget, you’re either going to raise corporate taxes or put forward user fees for licensing or applications that businesses do,” says Pinkham of the Public Affairs Council. “State government affairs people are playing defense all over the place.”

You don’t have to explain that to Dan Bates. A former director of government relations for Oregon’s largest city, Portland, he is a partner at Thorn Run Partners, with offices there and in Washington. Many of his clients, in both cities, are working to preserve existing policies and programs that could easily be undone or curbed by budget-minded lawmakers. “The gridlock at the federal level forces people to look for solutions at other levels — state and local — if they’re not going to see federal action soon,” he says. “On the opposite side, some of the same trends you see at the federal level are true at the state level, too: budget deficits and split governments.”

Oregon has a $3.5 billion hole in the budget and a legislature with an almost exact partisan split — a situation that’s ripe for some creative budgetary horse racing. Bates is particularly worried about preserving both of the state’s sets of energy credits, one for businesses and a different one for homes. Each has spurred “green” construction and brought clean-energy companies (and their tax revenue) to the state, but they are viewed by critics as too expensive. The question he has to answer for legislators on behalf of his clients is, “How do you trim the costs and still send the message that you’re open for business in this field?”

Another client, the city of Gresham, is not only wary of Oregon’s budget crunch, it has also hired Bates to keep tabs on Capitol Hill. City officials worry about the future of Community Development Block Grants, a main source of supplementary income for municipal public works projects, and they have a keen interest in preserving tax breaks for renewable-energy manufacturers, because the city is eager to draw more of such businesses.

Some in the advocacy business say they are also focusing less on Capitol Hill and more on the states for a different reason. They have their eyes on the 2012 campaign.

“It used to be that elections were interesting and then you go and lobby the people that got elected,” says Grover Norquist, president of the anti-tax group Americans for Tax Reform. “But now because the two parties each have more cohesion in terms of their policies and principles, now the key question is elections.”

Norquist contends it’s essentially a waste of time to trudge up to Capitol Hill to lobby on such matters as tax policy because most senators and House members have made up their minds irreversibly — and did so before they were first sworn in. “It really has moved ‘lobbying’ out into the districts because that’s where you talk to people. That’s where you elect people,” he says.

Loomis of the University of Kansas seems to agree. Last year, he notes, many of the incumbent House Democrats who were defeated were the sorts of pro-business moderates who were more persuadable, by both sides, than the mainstream of their caucus. As a result, they got a disproportionate share of attention from K Street. “Those people could be lobbied,” Loomis says. “Look at who’s come in: tea party people and liberal Democrats. To what extent are a lot of these people even lobbyable?”

Loomis recalls a recent conversation with an official at his school who works on federal government relations. “He walked into a Kansas congressman’s office, a conservative Republican,” Loomis says, while declining to name the lawmaker. “He started to talk about a cancer center issue, about protecting an appropriation.” But the young aide with whom the lobbyist was meeting soon changed the subject altogether — to where the university’s advocate stood on the House Republican budget proposal.

“Our guy read him the riot act,” Loomis says, then explains how his colleague left the meeting wondering how he might alter the way he lobbies members of the freshman class. “Do you waste time on these people? Do you try to educate them? This injection of 40, 50, 60 really conservative Republicans that help make up that majority, that changes the complexion.”

Not all clients have found the new tea-party-infused House GOP to be a difficult or unreceptive audience, however. Pratt & Whitney, for example, reaped an enormous benefit this spring from the changed congressional makeup. As the principal contractor for the main engine that’s supposed to power the next-generation fighter jet, the F-35, the company had been unable for years to get rid of its pesky competitor, a consortium led by General Electric, which continued to get hundreds of millions in federal dollars every year by convincing lawmakers that an alternative engine should be manufactured as a backup. In large part because the new Speaker, John Boehner, represents hundreds of people with jobs dependent on the alternative engine, it was widely expected to survive in the House once again this year. But Pratt & Whitney lobbyists were able to upend that conventional wisdom in February — in part by convincing 47 of the GOP freshmen (and 63 other Republicans) that their loyalty to Boehner should be trumped by their desire to save $450 million in the next year.

“Most of the Republican freshmen class are strong-willed, independent-minded people who came to Washington on a mission to cut wasteful spending and restore a sense of fiscal discipline,” says Michael Herson, president of American Defense International, one of Pratt & Whitney’s outside lobbyists. “Many had real jobs in the real world and are more focused on reducing the nation’s debt than they are on re-election.”

In the past four months, it’s become clear that what seemed to be a clear-cut congressional decision to kill the alternative engine has not turned out that way. GE is still lobbying furiously to keep its program on some measure of life support, putting Pratt & Whitney back on defense as it tries to preserve the momentum it had been savoring in the House.

And the south side of the Capitol hasn’t been the only half of the complex where partisan acrimony and legislative gridlock have been the rule rather the exception. That’s been as true as ever on the north side, as well. “If any compromise can be obtained, that is where it will be worked out,” notes Fazio of Akin Gump. “ At the same time, Senate rules make it difficult to accomplish anything.”

The Long View

Even against this backdrop of low expectations through the next election, veteran lobbyists see potential for an unprecedented uptick in congressional activity at some point before this decade hits its midpoint.

“Right now there is a lot of change and new members and new committee members and staff people. It’s going to take a while to sort itself out,” Van Scoyoc says. “You don’t just step into those jobs and make macro changes.”

And lobbyists for some industries report that — after a period focused disproportionately on altering the federal role in two businesses with enormous lobbying clout, financial services and health care — Congress is showing signs of paying overdue attention on their issues.

Ralph Hellmann, the top lobbyist for the Information Technology Industry Council — which represents such information-era behemoths as Apple, Microsoft and Google — welcomes the return to the agenda of two matters vitally important to his clients, tax policy and international trade. “I was really bored the last two years because health care and financial services sucked all the oxygen out of the room,” he says. “Our issues are much hotter this year.”

Ken Kies of the Federal Policy Group, a leading tax lobby shop, agrees that his signature field has warmed up this year. “It’s not just that there are a lot of tax issues in play, but rethinking the entire internal revenue code,” he says. “This Congress is different in many respects. The level of attention to what is under consideration is higher than we’ve seen in many years.”

Even Holland & Knight’s Gold sees eventual opportunities, despite the downturn. “We are in this period where the industry has gone through really astronomical growth for 10 to 15 years, even through the first part of the recession,” he says. “We thought lobbying would always have double-digit growth, and now I don’t think that’s going to be the case.”

When talking to prospective clients, Gold says, he tries to level with them about congressional realities this year, which he describes this way: “If Republicans are about no government, not limited government, and liberals are just throwing bombs, that’s not a sandbox that we can with a straight face tell clients to play in.”

Yet, Gold and Lehman just signed a new large corporate client, which they declined to name, in early June. “At the end of the day, honestly we’re pretty good at figuring out how to get stuff done for our clients,” Gold says. “It’s just that it’s maddening.”

Shawn Zeller and Alex Knott contributed reporting to this story.

Correction: July 8, 2011

The original version of the article was incorrect in two instances. Lobbying expenditures in the first quarter of this year were 12 percent less, not 11 percent less, than in the same three months of 2010. And the share of lobbying spending that was in-house was 54 percent in this year’s first quarter, not 58 percent — which is an 8-point boost from a decade earlier.

Four graphics also contained errors, mainly the chart detailing recent billings by the biggest firms. To see the corrected graphics, click on the Charts tab above.