By Jeffrey H. Birnbaum
Washington Post Staff Writer
Tuesday, February 14, 2006
A few years ago, a coalition of 60 corporations -- including Pfizer, Hewlett-Packard and Altria -- made an expensive wager. They spent $1.6 million in lobbying fees -- a hefty amount even by recent K Street standards -- to persuade Congress to create a special low tax rate that they could apply to earnings from their foreign operations for one year.
The effort faltered at first, but eventually the bet paid off big. In late 2004, President Bush signed into law a bill that reduced the rate to 5 percent, 30 percentage points below the existing levy. More than $300 billion in foreign earnings has since poured into the United States, saving the companies roughly $100 billion in taxes.
Although not every political battle yields $100 billion, the return on investment in lobbying is often so substantial that experts and insiders agree that Washington's influence industry will continue to thrive no matter how lawmakers decide to rein it in.
Congress is crafting restrictions on lobbyists this year after the Jack Abramoff political corruption scandal. The initial revisions from both Republicans and Democrats would reduce the amount of travel and dining that lobbyists could cover for lawmakers and require more disclosure of their activities. Other proposals would decrease the number of narrowly targeted appropriations, called earmarks.
But the new House majority leader, John A. Boehner (R-Ohio), has said he preferred more disclosure without the travel and meal restrictions. And the legislation under discussion would not eliminate earmarks entirely.
No one on Capitol Hill is suggesting a ban on lobbying, a change that would run counter to the First Amendment to the Constitution.
As a result, "lobbying will continue to grow," said Stephen J. Wayne, a political scientist at Georgetown University. The principal reason, said James A. Thurber, a lobbying expert at American University, is that "the investment in lobbying is minimal compared to the outcomes."
The Carmen Group Inc., a mid-size lobbying firm, is so proud of its performance that it annually publicizes its clients' costs and compares them with the benefits they receive. In 2004, the latest year available, Carmen said, it collected $11 million in fees and delivered $1.2 billion in assistance to its clients -- a ratio of less than 1 to 100. The payoff is large but fairly typical of modern-day lobbying, said David Carmen, the firm's president.
Take Carmen Group's experience with the General Contractors Association of New York. The association paid Carmen $500,000 to persuade the federal government to cover its members' insurance premiums for cleanup work at Ground Zero after the terrorist attacks of Sept. 11, 2001. After three years of lobbying, the government agreed to pay $1 billion.
Congressional critics complain that average voters are left out when private lobbyists rush in. And some lobbying campaigns fail. The most recent and high-profile example was the oil companies' attempt to open part of the Arctic National Wildlife Refuge for oil and gas drilling.
But from a business perspective, the rewards that come from lobbying are significant.
Such outsize returns are made possible by the immensity of the federal government -- with its nearly $2.8 trillion annual budget -- and the willingness of Congress and the Bush administration to dispense that money widely. The ability of lobbyists to operate effectively in such a climate has made their work "a relative bargain," said Joel Jankowsky, the longtime head of the government relations practice at Akin Gump Strauss Hauer & Feld LLP.
Kansas paid Akin Gump $240,000 to prevent the Defense Department from closing the state's four military bases. The law firm's efforts helped persuade the base-closing commission to spare the facilities last year. As a result, about $190 million in new investment will go to Kansas. Further, bases that were already spinning off $1.7 billion in income to its residents are still open, according to the state's figures.
Akin Gump scored a similar coup for Hanson Building Materials America Inc. Over 18 months starting in 2004, the producer of crushed stone, sand and gravel paid the law firm $450,000 to keep federal highway money flowing. Passage of the highway bill in 2005, which Akin Gump pushed, means the company will receive hundreds of millions of dollars in sales and tens of millions in profit over the next six years, an industry executive familiar with Hanson's situation said.
Lobbying helped keep Northwest Airlines Corp. out of bankruptcy court in 2004. The Pension Funding Equity Act that year allowed Northwest to delay paying an estimated tens of millions of dollars into its pension fund -- enough to allow the airline to put off filing for bankruptcy protection, according to Andrea Fischer Newman, a Northwest executive. Northwest's total spending on federal lobbying in 2003 and 2004 was $4.8 million, and only part of that went to influence the pension proposal.
The costs and benefits of lobbying can sometimes be difficult to quantify. A coalition of technology firms recently spent $850,000 to persuade Congress to set a deadline for the transition to digital television and the accompanying auction of airwave spectrum rights. At the same time, several individual companies spent untold thousands on their own. It is also unknowable what the value of the legislation will be to the wireless communications providers and to makers of wireless devices that will benefit most from the auction.
Yet the companies are anticipating that the payback will be huge compared with the lobbying expenses. New product sales generated by the new law "will be well into the billions of dollars," said Ralph Hellmann, senior vice president of the Information Technology Industry Council.
Sometimes lobbying doesn't succeed at all, of course. "Sure, lobbying can mean millions of dollars, but only if you win, and not everybody wins," said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce. "For every lobbyist on one side, there's a counterforce on the other."
Watchdog groups also worry that the broad public loses out to the corporations, labor unions and interest groups that can afford lobbying fees. "Lobbying is cost-effective only for those who can pay for lobbyists," said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. "Those with an opposing view won't be heard as well as those with lots of money."
Nonetheless, well-heeled interests continue to risk significant amounts of money on Washington's influence industry in anticipation of large returns. The current debate on asbestos legislation is an example. After years of dispute, companies seeking legislation that would end asbestos lawsuits by creating a trust fund have spent $130 million on lobbying, according to Democratic calculations. Opponents have spent a like sum and a final resolution hasn't yet occurred.
But neither side shows any sign of relenting. "This is a critical issue, so if that means continuing to hire lobbyists and consultants on Capitol Hill, so be it," said Timothy J. Keating, senior vice president of Honeywell International Inc., a leader among the asbestos bill's many advocates.
Congress is considering several plans to crack down on lobbying. But the growth of lobbying was not slowed by the most recent changes in the law, a decade ago, which increased disclosure and limited what lobbyists could buy for lawmakers.
Annual fees paid to registered lobbyists reached $2.1 billion in 2004 -- the latest full year for which figures are available -- a 40 percent increase from 1999. For 2005, lobbying revenue is on pace to rise by at least $300 million.
The $100 billion tax bonanza that companies saved on foreign earnings helps explain the surge. Former representative Bill Archer, a Republican from Texas, championed the idea of bringing the earnings home tax-free when he chaired the House Ways and Means Committee in the 1990s. But it wasn't until he retired and became a lobbyist in 2001 that the effort finally got some legs. He was asked to lead the coalition and pressed the case for two years before the tax holiday became law.
Some of the provision's backers say $100 billion overstates the savings because some of the money wouldn't have come back without the lower rate. But for the companies involved, it's still a very good deal. "Even if the actual tax benefits are less than the estimate, they clearly dwarf the lobbying expenses," said Donald G. Carlson, a partner of Archer's at PricewaterhouseCoopers LLP, which led the coalition.