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March 31, 2007

Earmark Heartburn

By Peter H. Stone

National Journal

On the surface, it seemed like business as usual at the February 28 campaign fundraiser for House Defense Appropriations Subcommittee Chairman John Murtha, D-Pa. Lobbyists from throughout the defense sector -- from such giant contractors as Lockheed Martin and BAE Systems to such K Street shops as the Livingston Group, PMA Group, and Van Scoyoc Associates -- paid $1,000 a head to show their support for Murtha, whose assistance to their industry is legendary.

"It was kind of like Casablanca," said Jack Deschauer of Patton Boggs. "All the usual suspects were there."

But beneath the surface there was a feeling of anxiety among the lobbyists gathered at Pentagon City's Ritz-Carlton hotel in Arlington, Va. They had their minds on a rule adopted by the House in January that toughens the process for winning -- and will likely restrict -- appropriations earmarks. Those are special-interest provisions, ubiquitous in recent years, in which members of Congress direct money to specific projects by inserting narrow, targeted language into spending bills.

Lobbying for earmarks has become a profitable business for many K Street firms. Weapons makers, colleges and universities, hospitals, municipalities, and many other clients pay lobbyists big fees to persuade the right lawmaker to include a pet project or favorite program in an appropriations measure.

The new rule is causing heartburn because it requires lobbyists and members to submit additional paperwork explaining and justifying their earmark requests. At the Murtha bash, said one lobbyist who attended, there was a lot of chatter about the "onerous documentation" now required of those seeking earmarks.

Beyond that, the lobbyist added, 2007 is shaping up as "a perfect storm for defense earmarks." In addition to the tougher rule -- intended to stop ethical abuses that have given earmarks a bad name -- the wars in Iraq and Afghanistan are forcing budget constraints that are sure to reduce the number of defense earmarks in this year's spending bills.

This is a time of uncertainty for lobbyists who have prospered by capitalizing on the booming earmark business in defense as well as other industries and economic sectors. "We're warning all our clients that they have to be realistic in their requests in terms of dollars," said Stewart Van Scoyoc, who attended the Murtha event and is the founder of the 17-year-old firm whose name is often linked with earmark lobbying.

House Appropriations Committee Chairman David Obey, D-Wis., has said he wants the total value of earmarks, which ballooned to $64 billion in 2005, cut in half this year. The volume of earmarks surged from approximately 4,000 a year in the mid-1990s to more than 15,000 in 2005, according to the Congressional Research Service.

Under the new House rule, members must certify the purpose of an earmark and identify its beneficiaries. Lawmakers must also certify that neither they nor their spouses have a financial interest in an earmark. Rather than adopt an internal rule, the Senate passed a broad ethics reform bill -- which is awaiting House approval -- that would impose a similar regimen on the earmark process.

The tougher rules are a reaction to recent earmark corruption scandals. Former Rep. Randy (Duke) Cunningham, R-Calif., is serving an eight-year prison sentence for accepting some $2.4 million in bribes in exchange for helping two defense contractors win tens of millions of dollars in business through congressional earmarks. And convicted lobbyist Jack Abramoff was a specialist in obtaining earmarks for his clients.

Former House Appropriations Chairman Bob Livingston, R-La., who opened the Livingston Group in 1999 soon after he retired from Congress, attributes some of the worst abuses, as well as the overall explosion in earmarks, to a lack of oversight on the Hill.

Livingston says that when his fellow Republicans were running Congress, members did not spend enough time in Washington keeping their eyes on the ball, and they wound up delegating too much responsibility to their aides. "The process works as well as members want it to," he said. "To the credit of the new majority, [Democrats] are here more often."

Because the new certification requirement "means you have to justify the [earmarks] that you want to get through," Livingston said, "the process may intimidate some members from offering earmarks. But I think it's all probably healthy."

Michael Herson, a longtime defense lobbyist with American Defense International, said, "Some lobbyists are in a state of denial because they're acting like the world hasn't changed. We know we're going to get whacked -- but how much, we have no idea."

The changed environment prompted James Dyer, a former staff director at the House Appropriations Committee who is now a lobbyist with Clark & Weinstock, to advise clients that winning earmarks this year will require a stronger emphasis on the member's district. "I'm trying desperately to involve as many of the constituents as possible," he said.

Members and Hill staffers also find some key sections of the new rules confusing and are seeking clarifications, lest they fail to comply. Lawmakers are required to certify that they have no personal financial stake in an earmark, for instance, and members have asked the Appropriations Committee for guidance on what constitutes "financial interest." The confusion has caused Obey to extend the deadline for submitting earmark requests to his committee from March 16 to April 27.

One of those requesting clarification of the financial-interest provision is Rep. Jerry Lewis, R-Calif., the former Appropriations Committee chairman who has been a big player in earmarks. Federal prosecutors have been scrutinizing his ties to a contractor indicted in the Cunningham scandal who hired lobbyists close to Lewis.

Meanwhile, even as lobbyists scramble to get their clients in line with the new rules, the crowded earmarks field has prompted some lobbying firms to accelerate efforts to diversify their services. Cassidy & Associates, the granddaddy of the appropriations lobbying game and a leader in winning earmarks for universities and municipalities, among others, is moving on a few fronts to adapt to the new rules. "You want to be sure, if you're asking a member to be a champion for one of your constituents, that the client has a good story to tell," said Cassidy Vice Chairman and COO Gregg Hartley. "There are a number of members who have been actively engaged in earmarks who are being more cautious."

In recent years, Hartley noted, pushing earmarks had become a "lot more competitive in terms of the number of people involved and in terms of firms' retainers. A key way that people have gotten into the business is to say that they can do it cheaper."

Given the shifting climate, Cassidy has been making changes. When he arrived at the firm in 2003, Hartley said, appropriations work accounted for about 60 percent of its revenues; last year that dropped to 50 percent. "We started to diversify way before this debate on earmarks began," Hartley said, pointing to Cassidy's practices in telecommunications and media, energy, and taxes.

Livingston said that business started to tighten last year when Congress passed only two of 12 appropriations bills. "I'm sure everybody lost a client or two," said Livingston, whose firm has several defense clients and Louisiana entities that have historically benefited from earmarks. Last year, he said, he warned one client who wanted a dozen earmarks that the request was too large to pass muster. The client had to settle for about a third of them.

Initially, appropriations work was his firm's mainstay, Livingston says, but it now accounts for about 30 percent of total revenue. Like other K Street shops that have been seeking new partnerships, the Livingston Group formed a joint venture this month with the Podesta Group -- a lobbying firm run by well-known Democrat Tony Podesta -- aimed at landing new and bigger clients that a single firm might not be able to attract.

Van Scoyoc Associates also says it is confident about its business prospects. Although Stewart Van Scoyoc is advising clients to lower their expectations for this year, he stresses that he has always told clients that they must "have good justifications for earmarks. We don't have a problem with any new rules or procedures."

The Van Scoyoc firm says its revenues are now split almost evenly between appropriations lobbying -- of which earmarks account for less than half -- and lobbying in the areas of taxes, education, and transportation. Like others on K Street, the firm wants to expand its government marketing practice for clients seeking contracts with the Defense and Homeland Security departments and other government entities.

Still, Van Scoyoc predicts that earmark work will remain an important piece of his firm's business. One reason: the political needs of the new majority. As he sees it, "Democrats are going to have to put in a lot of things for their own members and to get votes of GOP members."

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