Lobbyists scout paths around new policy

Jolted by a sudden tightening of the rules, lobbyists and military contractors who have long relied on lucrative earmarks from Congress were scrambling yesterday to find new ways to keep the federal money flowing.

"The playing field has changed dramatically," said Michael H. Herson, a lobbyist in Washington whose company, American Defense International, represents many defense-industry contractors who have already submitted their requests this year for earmark money.

Those clients, who along with hundreds of other businesses got $1.7 billion last year through the controversial practice of awarding earmarks, will now be barred from receiving money under a new policy adopted Wednesday by Democrats on the House Appropriations Committee.

House Republicans, wanting to outdo the Democrats in ethics reform, went even further yesterday by agreeing to swear off all earmarks, for both nonprofit and commercial organizations, for the next year.

"This is the best day we've had in a while," said Rep. Jeff Flake, R-Ariz., who has been a fierce opponent of earmarks -- no-bid contracts directed by legislators -- but had found little support among Republican colleagues before this week. "In terms of us getting this moratorium, the stars were aligned. What the Democrats did certainly motivated the Republicans."

Senate leaders, however, have not rushed to follow the House, a situation that would set up a clash when the two chambers try to reconcile spending bills.

No one was willing to predict yesterday how that confrontation might play out. Meanwhile, defense contractors and the "K Street" lobbyists in Washington who often represent them were planning new ways of packaging their financing requests -- and trying to keep the revenue coming in.

Some of them talked of partnering with hospitals, universities and other nonprofit organizations in asking for federal money, an idea that congressional officials said might not be allowed under the new rules. Others said they planned to become more aggressive about applying directly to the Pentagon and other federal departments and agencies, and not Congress, for grant money. Still others are warning their clients to diversify their financing sources and become less reliant on Washington.

"For firms that have made their living on getting earmarks for their clients, this is a sea change," said Joseph M. Donovan, the managing partner at Nelson Mullins Public Strategies Group, a Boston lobbying company that represents about 50 private and public clients. "It fundamentally changes their business model."

Donovan said that his company had anticipated a sharp cutback in earmarks because of the political mood in Washington and began taking steps to help clients navigate the new landscape. That includes hiring an in-house writer to help them apply for federal grants directly from executive-branch agencies instead of Congress.

Because that money is usually awarded based on competitive bids, he said it would be harder for smaller companies with promising research-and-development ideas. Contractors will have to be "more strategic" in their thinking, he said, "because I don't want to be in the position of telling them that things are being done through a wink and nod and you're just going to get a million dollars."

In the Senate, some have defended earmarks as a necessary tool for Congress to exercise the power of the purse and influence federal spending. Supporters say that for every "Bridge to Nowhere," the Alaska earmark project that became infamous five years ago, there are worthy projects that get less attention.

As one example, supporters pointed to the earmarking of tens of millions of dollars in the 1990s to General Atomics and other military contractors for early development of what became the Predator program, the unmanned drones now used frequently in airstrikes in Afghanistan. Sen. Daniel Inouye, D-Hawaii, who leads the Senate Appropriations Committee, said that if the House ban on commercial earmarks had been in effect then, "we would not have the Predator today."

Limiting earmarks to nonprofit recipients is not necessarily a cure-all. For example, the late Rep. John Murtha, D-Pa., who was famous for his earmarking largess, set up the Concurrent Technologies Corp. in his district in the 1980s as a nonprofit research center for metalworking, and he helped guide more than $1 billion in defense earmarks to it before he died last month.

Executives at Concurrent contributed frequently to Murtha's campaigns. The group has come under scrutiny by FBI investigators looking into pay-to-play allegations against the now-defunct lobbying company PMA, which represented Concurrent and other clients that got earmarks.

Whether earmark money will dry up completely was a matter of sharp debate yesterday. While Democrats and Republicans alike were trumpeting their respective efforts and hailing the end of an era in earmark abuse, some legislators warned that, without close oversight, lobbyists and contractors would find new ways to get around the restrictions.

In particular, legislators said they were wary about commercial companies piggybacking on nonprofit projects, or remaking themselves into nonprofit organizations.

Indeed, Flake predicted that the rules in the House might tighten even more.

"Democrats will have to go further, once people understand that you'll have for-profits masquerading as nonprofits," he said in an interview.

As a way of guarding against that, the new restrictions by House Democrats include the auditing of 5 percent of all nonprofit earmarks. But some legislators and lobbyists closely involved in the earmarking process predicted that congressional appropriating committees could still find ways to provide money for pet projects at home -- for instance, by directing the Pentagon to add the project money to its own budget.

Legislators who support earmarks "are still going to move money around on the committees," said Herson of American Defense International. "It just won't be as transparent."