Link to the article on the Omaha World-Herald Web site.
Omaha's 21st Century Systems Inc. is making it big as a small defense contractor. Once a basement start-up, the software company now has 10 offices across the nation. Revenues have soared. Just last week, it won the University of Nebraska's top entrepreneurial award. But its feel-good tale of rapid growth isn't just the triumph of smart computer programmers and skilled entrepreneurs. 21CSI, as the company calls itself, owes a lot to federal taxpayers, shrewd lobbying and key friends in Congress from Nebraska and elsewhere. As a success story, it might be subtitled "The Company That Congress Built." "We would have gotten nowhere quickly without steady and strong support of our exceptional advocates in Congress," company founders Alex and Lana Stoyen wrote to employees in 2005. As a defense contractor, about 80 percent of 21CSI's annual revenue comes from the U.S. Treasury, company leaders say. The largest and most lucrative of those federal contracts were "earmarked," or steered directly to the company by a handful of senators and representatives, even though the Pentagon didn't ask Congress for the money. In all, more than $40 million has been earmarked for developing 21CSI's military software. Only one piece of software has been used - to help guard a single Marine camp in Iraq - and it is no longer in use. But company officials say developing sophisticated software takes years, and more uses are on the horizon. Allies of the company include Sen. Ben Nelson, D-Neb., who takes credit for directing $22.4 million of the federal spending. In his re-election campaign last fall, Nelson drew criticism for helping 21CSI while his son, Patrick, is on the company payroll. Nelson isn't 21CSI's only backer. Rep. Lee Terry, R-Neb., joined Nelson in steering federal work to the company. So did Sen. Chuck Hagel, R-Neb., in 2002, although he now criticizes such earmarks. And a handful of other lawmakers, from Hawaii to Rhode Island, have earmarked at least $18.5 million more. 21CSI has left little to chance in courting its congressional patrons.
Since 2002, the firm has spent more than $1.1 million to lobby Congress for money. 21CSI executives poured another $160,000 into the campaigns of senators and representatives. And the company's network of offices often line up with the home districts of the lawmakers being lobbied. 21CSI, for example, opened a branch office in McCook, Neb. - Nelson's hometown. "Companies are in an arms race of lobbying and earmarks," said Steve Ellis, vice president of programs at Taxpayers for Common Sense, a Washington, D.C., group that opposes earmarks. "They become addicted to the federal money and start orienting their business plan in that direction." Congressional earmarks are one way senators and representatives can bring home the bacon: obtaining federal money for local interests. In defense spending, one way Congress tends parochial interests is through new or expanded programs that benefit specific hometown companies: buying more helicopters, switching to a new type of helmet or using specific software. That ensures more business for the companies making those helicopters, helmets or software. The use of earmarks has exploded in recent years, spurring a cottage industry of lobbyists who specialize in obtaining them. Most lawmakers maintain that it's proper for them to determine how the federal government should spend some of its billions rather than leave all decisions solely to unelected bureaucrats. No one says Congress shouldn't set spending priorities. What makes many defense earmarks controversial, however, is that Congress, with little public scrutiny, steers taxpayer money to specific companies. Earmarks were at the heart of scandals involving lobbyist Jack Abramoff and former Rep. Randy "Duke" Cunningham, a Republican congressman from California convicted of taking bribes from a defense contractor he helped with earmarks. Earmarks also can lead to bad public policy. Hagel said senators and representatives are ill-equipped to weigh the merits of specific technology. "Congress can't get into that," he said. "We're not qualified to do that. We have to rely on the experts in government to make that determination." President Bush has called for an end to earmarks. Congress has voted for reforms, although skeptics question how much will change. Earmarking is a murky process, often involving just a single, cryptic line in a spending bill that spans hundreds of pages and hundreds of billions of dollars. The bill seldom reveals which lawmaker sponsored the earmark or which business might benefit. In fact, it's hard to know exactly how much help Congress has provided 21CSI. Nelson discloses his earmarks in press releases, but not all lawmakers do that. 21CSI officials declined to discuss their decision to hire Patrick Nelson as marketing director in December 2004. The senator's son, 35, does public relations tasks for the company. "It's a non-issue," said 21CSI President Jeff Hicks, adding that it was "unfortunate" that Ben Nelson's opponent, Pete Ricketts, raised the matter. Sen. Nelson would not answer questions about his son's job. His office said it would not go beyond the Nelson campaign position last fall: that the senator did not violate any ethics rules. Senate ethics rules prohibit a senator from promoting legislation when the principal purpose is to advance only his own financial interests or those of his family members. In a statement, Nelson said his efforts on behalf of 21CSI help the entire state. "I am proud of the funding we have been able to provide to them," Nelson said. "These critical research dollars helped the company develop their products and services and helped create jobs and economic activity in Nebraska." Terry agreed. In an interview, he said he's thrilled to talk about his support for 21CSI. "If I'm not opening doors for Nebraska companies to do business with the government, then I'm not doing my job," he said. But a congressional earmark does more than open a door to a fair chance to compete - it erases the need to compete. Ellis, from the anti-earmark group, said the practice replaces a merit-based system with one based on political muscle. 21CSI officials say its earmarks have come only after years of working with the Pentagon. The company competed against other firms during those early stages, winning dozens of federal research grants worth millions of dollars. "We have to have something the military wants before we can even get close to taking it to Congress," said Larry Jackson, a 21CSI spokesman. Terry said he has been impressed by 21CSI's demonstrations of its products. "Sure, we made it a line item, which in essence guarantees that they'll get paid for their work," Terry said. But "this is merit - absolutely." Small companies such as 21CSI say they can't afford to wait for contracts through the normal Pentagon budgeting process. So they turn to Congress for the money that keeps them in business as they develop their products. "For small defense contractors, there seems to be a playbook to follow," said Ellis of Taxpayers for Common Sense. Starting in 2001, 21CSI decided to play that game. The first step was to hire a top lobbying firm, the PMA Group, headed by a former staff member on the House Appropriations Committee. PMA touts its "inside track to business opportunities" within the federal government. "No one understands the inner workings of our nation's capital better than the PMA Group," the firm says on its Web site. "We know when to act for maximum success. Timing is everything. We know where to focus for the greatest legislative impact. We know how to apply the proper amount of resources to achieve the client's objectives." The Omaha company's payments to PMA started at $80,000 a year and peaked at $460,000 in 2005. At that point, 21CSI hired its PMA lobbyist, William Berl, as "executive vice president for business development." 21CSI now does its own lobbying. Once the lobbying began, political contributions began to flow from 21CSI officials to lawmakers. Terry received $24,000 from 2002 to this year. Nelson was given $22,500. As the 21CSI empire expanded outside Nebraska, so did the contributions. In 2004, 21CSI gave a total of $15,750 to members of Congress, with about half going to Nelson and Terry. Total contributions jumped to $42,550 in 2005 and $85,200 last year, with the lion's share going to lawmakers in other states. Campaign money isn't the only way to a congressman's heart. Lawmakers value local jobs, Ellis said, so a new branch office can win more allies - and more earmarks. "You can potentially open up more veins into the federal trough," he said. Hicks pointed out that 21CSI's offices usually are near military bases where its products are tested and could one day be used. For example, he said, the company's office in Hawaii is developing software for use at a nearby naval base. Hawaii's congressional delegation has obtained $11.9 million in earmarks for 21CSI. Hicks said those earmarks are worthy programs that help the military do its job. The Pentagon may not have selected those programs during its budget process, he said, but Congress made them part of its priorities. "Congress is doing the sifting," Hicks said. Hagel sees it differently. It's natural, he said, for lawmakers to want to support businesses that provide hometown jobs. But when Congress earmarks contracts for those businesses, he said, it isn't necessarily buying the best products. When it comes to national defense, Hagel said, it's wrong to make decisions based on anything less than merit. "The Department of Defense has one objective, and that is to secure the national security interest of our country," he said. "We cheat the American people if we allow it to become used as a job generator. Unfortunately, that's happened in too many places."
