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K Street Remains an Easy Street in Hard Times

CQ WEEKLY
by Shawn Zeller, CQ Staff

(04/21/2008)—Earlier this year, when the housing market was moving from bad to worse, the nation’s home builders did what could be expected from any savvy industry in dire economic straits: They turned to Congress for a tax break.

The industry’s leaders want expanded authority to write off their current losses against the profits they earned during the earlier part of this decade, which could be worth about $500 million to them over a decade. So in late January, 16 of the largest homebuilding firms - including Toll Brothers Inc., Lennar Corp. and Pulte Homes Inc. - made another savvy if traditional move: They hired a lobbying firm.

The boutique shop that got the call, the C2 Group, is smaller than many of its K Street rivals but boasts more than its fair share of industry-friendly connections on Capitol Hill. Partner Hunter Bates, for example, was once chief of staff to Kentucky’s Mitch McConnell, now the Senate Republican leader. And Robert Van Heuvelen, an independent consultant to the firm, was until last July the chief of staff to Kent Conrad, the North Dakota Democrat who chairs the Senate Budget Committee. And so, less than a week after C2 was hired, the Senate Finance Committee endorsed a Conrad amendment adding the industry’s “net operating loss carry-back” provision to an expansive economic stimulus bill.

That measure quickly stalled, however, when House leaders from both parties and President Bush all insisted that Congress clear the House’s narrower package. But even that temporary defeat for the homebuilders underscores the somewhat perverse economic model for K Street: Just as bad times can bolster the bottom line for strategically positioned lobbying firms, so too can protracted legislative fights.

And so the C2 Group kept plugging away for its new client, and two weeks ago the Senate passed the tax break the homebuilders covet as part of its mortgage crisis relief measure. And the firm can look forward to still more work: The House’s Democratic leaders say they don’t want the provision in their version of the bill, potentially guaranteeing that the fight over the language, and C2’s advocacy opportunities, will last into conference negotiations.

C2 is far from alone. Lobbyists across Washington, particularly those working in recession sensitive industries such as financial services and real estate, are making a pretty penny off the misfortune of the battered sectors. “Without having people like me, companies can have a really hard time” getting their message out to lawmakers, said Tom Crawford, the veteran tax lobbyist who heads the C2 Group.

A Countercyclical Appeal

One might expect that Washington lobbyists would have difficulty maintaining their business at par, given the downward trends in the economy at large. After all, the lobbying industry is coming off its biggest year ever. Spending on lobbying to influence Congress and federal agencies totaled $2.8 billion in 2007, the most since at least 1996, when more robust lobbying disclosure obligations were put in place - and 9.8 percent more than the industry’s 2006 haul.

The lobbying disclosure law enacted last year governs reporting about advocacy starting this year. The statute’s quarterly reporting requirement means that, this week, lobbyists are supposed to file papers with the clerk of the House and secretary of the Senate detailing their activities in January, February and March. Congressional officials say they have put new procedures in place so those reports can be made public in a few weeks - it used to take months - and when they are, the overall profitability picture for K Street in the year ahead will become much clearer.

But judging by the lobbying registrations in the first quarter, K Street may be on course not only to persevere in 2008, but to thrive. The number of reports required of lobbying firms when they get new clients, and by businesses and associations lobbying for the first time, was 14 percent higher than in the same period a year ago - and the 2,127 filings were the largest first-quarter total since Congress began keeping records electronically in 1999.

A sunny economic outlook for K Street also jibes with the evidence from the last recession, from March to November 2001. Coming off a big year in 2000, lobbying growth slowed to 2 percent in 2001, but then it exploded 13 percent in 2002, the most in the past decade.

“Washington is kind of a countercyclical town,” explained H. Stewart Van Scoyoc, whose eponymous firm pulled in more than $25 million in revenue last year. “When companies have problems, they have to turn to people in town to help solve them.”

And sure enough, Van Scoyoc Associates Inc. brought in 16 new clients in the first quarter of 2008, about the same as last year. Some, such as the Center for Responsible Lending, a consumer advocacy group, have a boom in work right now directly because of the economy’s travails. Van Scoyoc also said his firm is retaining established clients at a higher-than-usual rate of more than 90 percent.

Many clients are looking for just what the homebuilders sought: a lucrative benefit from whatever legislation gets written to help the economy. Others are positioning themselves for sympathetic receptions at various regulatory agencies - an often overlooked but vital stream of K Street business. And it looks to be especially brisk this year, since the Bush administration in its final months is likely to produce policy changes by fiat that it could never get through a Democratic Congress.

“Regulatory developments are always ongoing, and most people we represent don’t make shortsighted decisions,” said Kenneth J. Kies, managing director of the Federal Policy Group, a lobbying shop, and a former GOP chief of staff of the congressional Joint Committee on Taxation.

This is all to say nothing, of course, about the many matters that crowd the congressional agenda and keep K Street pretty well occupied even in the slow years, such as this year’s brief but fevered battle over the Colombia free-trade agreement, which pitted labor unions and environmental groups that were well represented by lobbyists against big corporate interests that were at least as well represented by lobbyists.

Slight Slowdown Fears

Indeed, as Van Scoyoc notes, the only thing likely to slow down K Street’s business this year will be the scarce availability of lobbying targets if the legislative season is drastically shortened by the campaign season. “This is a highly political year, with Congress not likely to do a lot,” he said. “The impact of the economy gets washed out in the fact that this is a presidential year.”

There also might be tougher prospects ahead, he says, for lobbying firms that do a lot of business for cities, counties and states that are now struggling with a wave of officials’ woes. Many state and local budget officials take aim at their own Washington lobbyists as a relatively painless and politically expedient cost to cut - while at the same time turning up the heat on their delegations in Congress to do some of the lobbyists’ work, for example by securing money in spending bills for parochial projects.

Some clients might shy away from the idea of paying people to advocate to a Democratic congressional majority that continues to fight the perception that it’s more hostile than the Republicans to business interests. The National Association of Home Builders announced in February, for example, that it was temporarily suspending donations from its political action committee since Congress was neglecting the issues it deemed most important. Still, plenty of others are holding fast, pointing to various successes for their pro-business agendas with the Democrats during the past 15 months.

And even when the Democratic Caucus’ more populist members are having their moment in the policy-making limelight - as with their proposals last year, which ultimately came to naught, to raise taxes on private equity executives - it hardly matters to K Street’s balance sheet. Playing defense can be even more lucrative than offense. The private equity industry in 2007 boosted its lobbying expenditures more than tenfold, spending $10 million to ward off proposals to tax it more heavily. It turned out that a Democrat, Sen. Charles E. Schumer of New York, was mainly responsible for burying the tax-increase idea.

Likewise, parochial projects - commonly known as earmarks - will probably remain a fertile source of lobbying business, no matter how much Congress answers the widespread criticism of the practice and resists larding up appropriations bills this election year. “There’s a lot of talk about it, but in reality a lot of people see the positives out of making sure Congress has the ability to do discretionary spending in the budget,” said Gregg Hartley, chief operating officer of Cassidy & Associates, a leading firm specializing in earmarking. “Most people believe it will stay around despite the rhetoric.”

Anti-earmark crusaders would do well to recall that Hartley was previously the chief of staff to Rep. Roy Blunt of Missouri - now the GOP House minority whip and a leading
proponent of the moratorium on seeking new earmarks being contemplated by the House GOP.

Indeed, something of a fatalist mood has settled in among lobbying watchdogs tracking the industry’s growth in an otherwise sluggish economy. “I don’t think it will make a difference,” Craig Holman, who monitors the lobbying community for the consumer advocacy group Public Citizen, said of the economic downturn. “Whether it’s Republicans or Democrats in charge, the government is going to keep doling out money to keep the economy afloat.”

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