Curbing earmarks: Even with new restrictions, for-profits play a role

By R. Jeffrey Smith
Washington Post Staff Writer
Monday, March 15, 2010; A03

Twice in recent years, House Appropriations Committee Chairman David R. Obey (D-Wis.) helped obtain earmarks totaling $3.2 million for a home-state university to study how to make military jet fuel from plants. Standing behind that nonprofit work, however, is a for-profit Chicago firm that often partners with universities to reap part of their earmark benefits.

Similar collaborations between private companies and nonprofits will pose tricky questions under a policy intended to end earmarks to profit-making firms, which Obey helped shepherd through the House Democratic caucus last week. That new rule was widely touted as a crackdown, but in reality it could leave untouched almost 90 percent of typical earmarks.

The reason is that, like Obey's earmarks, most of the billions of dollars in earmarks approved by Congress each year involve handing out funds to state or local agencies or to nonprofit institutions, which then dole out part of the money to private contractors.

As a result, the new Democratic rule, and a proposal by House Republicans to stop all earmarks for one year, are unlikely to significantly curb Washington's booming earmark industry, experts said. Steve Ellis of Taxpayers for Common Sense, a nonprofit that has criticized earmarking, called the new limits important but compared them to "squeezing a balloon." Without more comprehensive restraints, he said, the money flow could simply move to new pathways.

In the wake of last week's announcement, road-builders, architectural and engineering firms, construction companies, scientific researchers and myriad private firms exploring obscure or unrequested projects will probably expand cooperative ventures with nonprofits, Ellis and others said. But the reach of the House Democrats' policy change remains unclear, raising questions about loopholes and how easily it will be to prosper from them.

In making their announcement on Wednesday, the Democrats estimated that about 1,000 earmarks -- or 11 percent of those in this year's appropriation bills -- would have been cut if their new policy had been in effect. That would have left in place around 8,400 earmarks, worth about $8.3 billion. Eliminating those requested solely by House Republicans would have cut another $800 million, leaving most earmarks unscathed, Ellis's group said.

Moreover, neither the Democrats' ban nor the Republicans' proposal would cover much larger, congressionally directed grants and contracts to major federal contractors, worth $5.9 billion in the 2010 appropriations bills. That is because lawmakers narrowly defined what constitutes an earmark to include only entities that did not compete for funds.

'Undisclosed earmarks'

That leaves out big-ticket defense programs expanded or kept alive annually by lawmakers to boost home-state employment or to meet less-than-urgent needs of the Defense Department. In 2010, these included 10 unrequested C-17 transport planes costing $2.5 billion, unrequested all-terrain vehicles costing $825 million, 14 other unrequested planes costing $732 million, and an unrequested, second engine for the F-35 jet costing half a billion dollars.

Ellis calls these "undisclosed earmarks" because they were added to the budget at the request of lawmakers and defense contractors who had nonetheless competed to win the initial contracts.

In another loophole, the Senate, which does not seem to share the House's anxieties about earmarks, can readily reinstate what the House has now banned and those seeking access to public funds could shift their earmark lobbying and related campaign spending to the Senate. "If the Senate doesn't go along . . . it will make these changes toothless," Ellis said.

Senate Appropriations Committee Chairman Daniel K. Inouye (D-Hawaii) affirmed last week that he sees no reason for change.

"The truth of the matter is that many, if not most, for-profit and nonprofit entities lobby for themselves or employ lobbyists," Inouye said. "In addition, it is no secret that many of these individuals make political contributions." But giving up earmarking would not be "in the best interests of the Congress or the American people," he added, because some earmarks had produced outstanding results.

Inconsistent rhetoric

Whether the administration will intercede to force change is unclear. In a statement, Office of Management and Budget spokesman Thomas E. Gavin hailed what "Congress" did as "an important step" toward fewer earmarks. He said nothing about the Senate loophole.

The president's own rhetoric has been inconsistent. In 2008, he pledged to halve earmarks, but instead signed appropriations bills in which the earmark total rose by 1 percent, according to a tally by Taxpayers for Common Sense. Last March, Obama told a White House briefing that some earmarks are worthy, and "that's why I have opposed their outright elimination." Then in May, Obama said in New Mexico that "I want to get rid of earmarks" -- a goal he has not mentioned since.

The boundaries of the House Democratic position also seem fuzzy, because of the complex relationships between for-profit and nonprofit organizations seeking earmarks.

For example, Ali Manesh, who directs the for-profit Chicago firm that obtained earmarked money by partnering with the University of Wisconsin campus in Obey's district, said that "we have a manufacturing group, process development group, and laboratory. Indirectly, we are benefiting" from earmarks obtained by the schools that "go after them," and then request services from his company.

Although there have been abuses elsewhere, he said, "some of the earmarks are doing a lot of good. . . . Some technology companies, they may have an idea, but they cannot compete with the big guys" for direct federal agency funding.

Ellis Brachman, the Democratic spokesman for the House Appropriations Committee, said projects such as that one -- which Obey supported in 2008 and 2009 -- will no longer be eligible for earmarks. But he had trouble explaining why.

He said first that "if a for-profit company is involved in the project, we will not be earmarking funds for it." But that could hurt nonprofit groups or municipalities that turn routinely to private contractors to build roads, construct offices or provide logistics help after gaining earmarks. So he offered another formulation: "If it is run by a for-profit, it will not be funded."

But many collaborations that benefit for-profit firms are not "run" by them. The Obey biofuels earmarks were administered by a university institute sponsored partly by oil and chemical firms, as well as by other nonprofits and government agencies. Brachman's final formulation was that the ban would apply "if it significantly involves a for-profit entity . . . a for-profit that is in essence benefiting from the project. How's that?"

Such a standard might have blocked some of the earmarks pushed by recently deceased Rep. John P. Murtha (D-Pa.) and by Rep. Alan B. Mollohan (D-W.Va.).

Murtha helped a nonprofit homeland security institute and "electro-optics" center in his state get handsome earmarks, and some of the money went to companies headed by his friends or contributors. Mollohan helped arrange $250 million in earmarks to nonprofits whose leaders were sometimes investors with him.

But policing such collaborations could be a chore when thousands of earmarks are added each year to appropriations bills hundreds of pages long. So far, the Democrats have proposed only a fractional effort. Agency inspector generals will be tasked, they said, with auditing at least 5 percent of all earmarks to nonprofits to prevent "for-profits from masquerading as nonprofits."

They omitted, however, any definition of the term "masquerading."

Research director Lucy Shackelford contributed to this report.

© 2010 The Washington Post Company