Bloomberg News

Deli Owner McCarthy Brings Business Ties to House Leaders

June 19, 2014

U.S. Representative Kevin McCarthy will bring a new blend of business connections to the top ranks of House leadership if, as expected, he’s elected today to replace Wall Street favorite Majority Leader Eric Cantor.

A former sandwich shop owner, McCarthy, 49, has worked for years to build relationships with small business. He helped pass a bill in the House this year backed by small businesses allowing companies to write off capital purchases more quickly.

The Californian lives about 250 miles south of Silicon Valley, which has helped him collect $211,000 from the technology industry since 2011, more than almost any other House Republican. He has served eight years on the Financial Services panel and is a regular on the Wall Street fundraising circuit -- his top donor is Goldman Sachs Group Inc., at $72,750.

“There’s no substitute for having owned and run and experienced what a small business is all about,” said Dan Danner, president and chief executive officer of the National Federation of Independent Business, an advocacy group based in Nashville, Tennessee.

The leadership election today will stabilize, at least temporarily, a House caucus that was stunned by Cantor’s June 10 loss in a Republican primary to college professor David Brat, who is aligned with the Tea Party movement that seeks to restrict the federal government’s size and influence.

Whip Candidates

If McCarthy’s bid is successful, Republicans will elect his replacement to the No. 3 post of majority whip, which McCarthy now holds. Candidates vying for that spot are Representatives Steve Scalise of Louisiana, Peter Roskam of Illinois and Marlin Stutzman of Indiana.

The closed-door, secret balloting gives the caucus an opportunity to present a united front in coming legislative votes, including reauthorization of the Export Import Bank and funding the government’s operations past Oct. 1.

It also removes a distraction before the November congressional elections that are expected to retain the Republican House majority and give the party a chance to win control of the Senate.

That’s not to say there won’t be challenges.

McCarthy, as whip, has been responsible for gathering votes for the leadership agenda that at times has drawn the ire of members aligned with the Tea Party. Among the most divisive votes McCarthy pushed were lifting the U.S. debt limit and ending a 16-day partial government shutdown. McCarthy’s lone opponent in the leadership race, Representative Raul Labrador of Idaho, opposed both of those measures.

Business Community

Some Tea Party-aligned groups have resisted McCarthy’s elevation. FreedomWorks, a Washington-based advocacy group that supports reducing the size and scope of government, urged supporters to call undecided Republicans and tell them to vote for Labrador.

“A rubber-stamp election of the next man in line sends exactly the wrong message to grassroots voters and activists looking for an authentic alternative to big government Democrats,” Matt Kibbe, FreedomWorks’ president and CEO, said in an e-mail.

The House leadership’s difficulty in bringing along Tea Party members sometimes has been a source of frustration for the business community.

Blankfein, Moynihan

Wall Street chief executive officers, including Lloyd Blankfein of Goldman Sachs and Bank of America Inc.’s Brian Moynihan, held a private meeting with McCarthy in Washington during last year’s government shutdown when the U.S. was moving close to a federal debt default.

Their point was simple, according to one of the participants -- the debt ceiling must be lifted because default was irresponsible and could have catastrophic effects on financial markets.

McCarthy made clear that his conference wasn’t bluffing -- and that there was little he and others could do at that moment to change things, one of the people said.

Blankfein later expressed his impatience.

“They shouldn’t use the threat of causing the U.S. to fail on its obligations to repay its debt as a cudgel,” Blankfein said.

Legislative Gatekeeper

As majority leader, McCarthy would decide which legislation will receive votes. U.S. lawmakers introduced more than 10,000 bills from 2011 to 2012 -- fewer than 400 came to a vote, according to GovTrack.us, a website that tracks federal legislation.

That influence could buoy the U.S. tech industry, to which McCarthy has been a reliable friend. He brought six U.S. lawmakers on a trip to Silicon Valley last year, and his former coalitions director, Brian Worth, is a lobbyist for Uber, a taxi-fetching smartphone application.

McCarthy backed a surveillance overhaul bill this year and has supported expanding eligibility for high-tech worker visas.

He was also behind a provision, favored by former AOL Chief Executive Officer Steve Case, that lifted a ban on small companies from using advertisements to solicit investors for private offerings. It was included in the Jumpstart Our Business Startups Act, which President Barack Obama signed into law in 2012.

The influential majority leader position can help open doors -— and wallets -— when it comes to raising money.

Cantor Fundraising

Cantor leveraged the post to raise more than $22.1 million since the party took control of the House, including $2.8 million from securities and investment interests, according to the Center for Responsive Politics, a Washington group that tracks political spending.

McCarthy has raised $11.5 million during that time, including $211,000 from computer and Internet companies, more than any other House Republican besides Cantor or House Speaker John Boehner.

McCarthy has collected $826,000 from Wall Street since 2011 -- no industry has given him more. He’s received $72,750 from Goldman Sachs employees and political action committees, his largest single source of contributions, according to the center.

He was scheduled to speak at a Goldman Sachs energy conference the day after Cantor’s defeat. He ended up canceling the appearance as he prepared for the majority leader campaign.

McCarthy, known for networking skills, has been in politics since he graduated from college. He paid for the tuition after selling a deli he opened with the $5,000 winnings from a scratch-off lottery ticket.

He was turned down for an internship in the office of then-Representative Bill Thomas, a Republican who represented Bakersfield, McCarthy’s hometown.

McCarthy went back, promising to sweep floors if Thomas would reconsider. The lawmaker agreed, and McCarthy eventually became Thomas’s district director and succeeded him in Congress in 2007.

To contact the reporters on this story: Michael C. Bender in Washington at mbender10@bloomberg.net; Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Laurie Asseo


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