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Inside The Hidden World Of Earmarks


In March, 2004, not long after the U.S. Navy had shipped off its official budget request for the next fiscal year, Admiral Vernon E. Clark, then Chief of Naval Operations, went shopping for more. Spending limits had forced the Navy to cut back on plenty of goodies it wanted, including a top-of-the-line Gulfstream jet. So Clark, the Navy's top-ranking officer, signed off on another, far less formal budget request, this one listing many projects that hadn't been funded. Soon that list began circulating among defense industry lobbyists, including those working for Gulfstream Aerospace Corp. and its parent, General Dynamics Corp. (GD). They hit the halls of Congress, and by the time the 2005 defense budget passed four months later, the Navy got its new Gulfstream, courtesy of a special funding request known as an earmark.

The Navy wasn't the only one happy with the behind-the-scenes deal. That one earmark alone was worth $53 million to Gulfstream, and it was just one of 29 earmarks valued at $169 million given to General Dynamics or its subsidiaries that year--quite a payout, especially considering that the company spent only $5.7 million on lobbying in 2004. Put another way, for every dollar it shelled out to lobbyists, it got almost $30 back in earmarks from Uncle Sam.

One of Washington's great mysteries is exactly how much money companies rake in from their lobbying efforts on Capitol Hill. Sure, companies have to disclose how much they spend on the hired guns or in-house government affairs staffers who press their interests before regulators and Congress. And the population of lobbyists has clearly exploded--which suggests that their clients, at least, think they're getting a good deal. But no one outside the lobbying firms and corporate boardrooms has ever known just how much all those lobbyists bring in.

But now, thanks to disclosures prompted by recent scandals over congressional earmarks--those specially targeted spending measures that members of Congress slip into legislation to send money to favored companies and organizations--it's possible for the first time to shed light on at least that corner of the lobbying world. To do that, BusinessWeek teamed up with Columbia Books, a Washington publisher of lobbying and trade association directories and operator of a lobbying data Web site. Together we examined the nearly 2,000 earmarks that went to companies in fiscal 2005, the only year for which the government has released complete data. We then compared the earmark funding each company received with the amount it spent on lobbying the prior year.

The results suggest a startling conclusion: On average, companies generated roughly $28 in earmark revenue for every dollar they spent lobbying. And those at the very top did far better than the average: More than 20 companies pulled in $100 or more for every dollar spent. By any standard, that's a hefty ratio: The companies in the Standard & Poor's 500-stock index brought in just $17.52 in revenues for every dollar of capital expenditure in 2006. Or look at the results in direct marketing, where an extremely successful campaign might bring in $5 in revenue for every dollar spent. "If mainstream American businesses got a 28-to-1 ratio in sales, they'd be ecstatic," says Steve Zammarchi, president and CEO of Wunderman New York, a sales and marketing firm.

Of course, not every company emerges from the process a winner. Some end up without any earmarks despite extensive lobbying. Some secured earmarks even though they didn't pay out a dime to lobbyists that year. And since companies are not required to disclose how much of their lobbying goes toward earmarks vs. more general lobbying, it is impossible to know exactly how their spending is allocated. Many also lobby for policy changes, tax breaks, or money for projects in the regular budget, all of which can bring in revenues that can run into the hundreds of millions or more. So for many companies, particularly those in sectors like defense that depend heavily on government contracts, the true return on their lobbying dollars is probably far higher than stated here.

But if gauging the value of lobbying based on earmarks is by necessity an imprecise measure, it's also obvious that on that basis alone it can be highly lucrative. Take a look at just who got the most out of the earmarking process. In sheer dollar value, the defense industry is the uncontested winner. Of the top 50 earmark recipients in 2005, the vast majority were military contractors such as Raytheon Co. (RTN) and Lockheed Martin Corp (LMT). The few nondefense companies among the top 50, such as Cummins Inc. (CMI) and Caterpillar Inc. (CAT), won their earmarks selling trucks or other equipment to the military. A rare exception to the military rule: the Alaska Railroad Corp., which got $43 million to finance everything from the development of a transportation facility in downtown Anchorage to routine rail maintenance, thanks to five earmarks sponsored by Senator Ted Stevens (R-Alaska) and the two others in the state's congressional delegation.

In many cases, companies won a dozen or more earmarks from different spending bills. Boeing Co. (BA), by far the biggest earmark recipient in 2005, got a total of $456 million through 29 separate earmarks to purchase everything from missile technology to helicopters. The prior year, the aerospace giant spent just $8.5 million on lobbying. That works out to $54 in earmark revenues alone for every lobbying dollar spent. Boeing does not disclose how much it spent on lobbying for earmarks vs. the many other projects it has pending with the federal government. Earmarks were just a small slice of the $28 billion the company booked that year in government contracts.

Like many other companies on the receiving end of earmarks, Boeing declined to answer questions about how they were granted or the lobbying involved. Those that did speak generally defend their awards as legitimate congressional spending on needed projects that were somehow overlooked by the bureaucracy. That argument has found an increasingly receptive audience on Capitol Hill over the years. As recently as 1987, President Ronald Reagan famously vetoed a highway bill because it included 157 earmarks valued at about $1 billion. But by 2006, Congress O.K.'d a breathtaking 13,000 earmarks overall worth $67 billion.

Critics counter that Congress is spending all that money for the wrong reasons. In the normal budget process, federal agencies and the Administration go through an extensive procedure to set spending priorities among competing projects, and contracts generally are only awarded following competitive bidding. With earmarks, that rarely happens. Members of Congress have wide discretion to target funding to pet projects, and they can direct the spending to a particular company or organization without taking any rival bids. Says Keith Ashdown, chief investigator for the watchdog group Taxpayers for Common Sense: "The lion's share of these projects is about politics and jobs, rather than real needs."

PROLIFERATING SCANDALS

The sad history of earmarks features a long list of abuses: earmarks used by congressional leaders to buy votes on other legislation, earmarks sent to political donors, and earmarks used in outright bribery. Such issues continue to arise: As recently as July 30, the FBI raided the home of Senator Stevens in a probe into potential earmark-related corruption. Senator Stevens, who has not been charged with any wrongdoing, will not comment until the investigation is complete. In the face of recent earmark scandals, Congress in early August passed a reform bill aimed at reducing abuses by opening up the highly secretive process. Whether those efforts succeed won't be clear until yearend.

One indication will come from whether the defense sector continues to pocket such a large chunk of earmark dollars. Take the way Gulfstream Aerospace landed that order for a top-of-the-line jet in 2005. After Admiral Clark finished negotiating with Administration officials over the Navy's official budget for the year, he sent a letter known as an "unfunded request list" to key congressional leaders in charge of appropriations. At that, the Navy isn't alone--the U.S. Army and the other services all quietly circulate similar lists asking for more funding after signing off on their official budgets.

TASTES LIKE PORK

Think of them as essentially wish lists that each service puts out to cover all the extra stuff it wants but can't afford once their annual budgets are set. As those lists circulate, lobbyists scour them for their clients' products, then work with the companies to hit up the home state legislators where the goods will be manufactured. Lawmakers who want credit for generating jobs back home are only too eager to agree to an earmark.

That year, Clark's list included 61 items, including a request for a "C-37." That's the military designation for a Gulfstream G550 jet--the same civilian aircraft used by globe-trotting CEOs everywhere. Clark's list began circulating among defense industry lobbyists, including those working for Gulfstream Aerospace and General Dynamics. Soon, those lobbyists were talking with the Navy, whose officials told them the service needed the plane for the Pacific fleet, where officers have to travel great distances, says a person familiar with the situation. All of General Dynamics' lobbyists--both its hired guns and its in-house staff--began working Congress to try to win an earmark for the plane. They started with the Georgia congressional delegation, since Gulfstreams are built in that state. The tactic worked: The final defense bill that year included a $53 million earmark to fund the plane. In a press release, Saxby Chambliss (R-Ga.) took credit for the earmark as just one of "$147 million in new projects for Georgia that will help our troops win the war on terror." A spokeswoman for Chambliss says the senator is proud of the work he does to bring jobs to the state. Gulfstream referred calls to General Dynamics, where lobbyist Kendell Pease, a former rear admiral, said the earmark made sense for the Navy, since the G550 fit the service's requirements for a long-range jet.

But that brand-new C-37 never made it to the Pacific. After taking possession of the plane, which came with a special oxygen atmosphere system designed to keep passengers fresh and alert on long trips, the Navy decided to keep it at Andrews Air Force Base near Washington, D.C., and designated it for use by two top officials: the Navy Secretary and the Chief of Naval Operations--the very same office that had requested the earmark in the first place. Told that the Navy had not sent the airplane to the Pacific, Pease lets out a chuckle. "Imagine that," he says. "They kept the new one."

Clark retired in July, 2005, before the Gulfstream was delivered. Now a director at Raytheon, he declined to comment. The earmarked Gulfstream is used today by Clark's successor, Admiral Michael Mullen, and Navy Secretary Donald C. Winter. A Navy spokesman says the service kept the Gulfstream in Washington so it could send an older plane to the Pacific. That plane was the same model as others used in the region, making upkeep easier.

If the big defense contractors dominate the list in total dollars awarded, even relatively small companies do well when measured by the ratio of lobbying spending to earmarks received. By that yardstick, the most successful company of all is a little-known defense contractor based in Atlanta called Scientific Research Corp. The maker of classified intelligence technology spent just $60,000 on lobbying in 2004 and in fiscal 2005 got nine earmarks worth more than $20 million to develop covert radios for soldiers and threat simulation software, among other projects. For each lobbying dollar it spent, $344 in earmark funding flowed back its way. David Chapman, the company's vice-president for business development, says the contracts fulfilled "validated military needs," adding that in the congressional earmark process, "being a small company with small dollars, you can get some pretty high ratios."

It helps, of course, to hire the right lobbyist. The company hired just one in 2004: Hurt, Norton & Associates. That firm is run by Robert H. Hurt, a longtime staffer to Sam Nunn, the former Democratic Senator from Georgia who used to chair the Senate Armed Services Committee. The tie helps ensure the contacts and the access--not to mention the technical and budgetary knowhow--to present their clients' projects to current congressional staffers in charge of defense spending.

Hurt declined to speak publicly about his role in lobbying for earmarks, but hiring such former Hill aides to pitch their old colleagues is clearly key. The list of lobbyists working for the most successful earmark-wrangling companies is replete with former Hill aides who served with the money-spending appropriations committees, and even a member of Congress or two. And as the number of dollars available on Capitol Hill has surged, earmark lobbying itself has become a cottage industry. In 1998, 1,447 entities hired lobbyists to work on budget and appropriations issues, according to Taxpayers for Common Sense. By 2006, that number had swelled to 4,516 lobbying clients.

It's not just the clients that have grown: From virtually nothing a decade ago, roughly a dozen firms specialize in garnering earmarks today. One such firm, PMA Group, founded in 1989 by former defense appropriations staffer Paul Magliochetti, represented at least 15 of the top 50 corporate earmark winners in 2005, including Lockheed Martin, General Dynamics, and Boeing (BA). Others well known for delivering federal money include Van Scoyoc Associates, Alcalde & Fay, and Cassidy & Associates. In this quietly lucrative world, many say they don't advertise for clients--companies find them. "The people who want results come to me," says one prominent earmark lobbyist. "The smart ones figure out who can deliver."

Will the recent wave of reform efforts bring an end to such practices? Both President George W. Bush and House Speaker Nancy Pelosi (D-Calif.) have called for earmarks to be slashed in half this year. In early August, Congress passed extensive new disclosure requirements. New Internet databases will also make it easier for the press and the public to follow the money. That appears to be having an impact: From a peak of 2,657 earmarks worth $11.6 billion in the 2005 defense spending bill, earmarks in the fiscal 2008 defense spending bill are down significantly. The House version of the still incomplete bill includes 1,337 earmarks worth less than $4 billion, according to Taxpayers for Common Sense.

Still, many earmarks typically don't get added to the budget until the final days of budget negotiations, which will likely take place late this fall. And some old habits die hard. This year, the Navy trimmed its unfunded request list to just 20 items. But the dollar value of the earmarks is $5.6 billion--more than twice the $2.7 billion it requested for the 61 items on its 2005 wish list.

Privately, many lobbyists predict earmark totals will bounce back once the spotlight fades. "Ever since budgets were invented, man has figured out ways to get around them," says H. Stewart Van Scoyoc, president of Van Scoyoc Associates. "A lot of what we do in this town is gamesmanship of budgets."

And why not? With $28 in earmarks coming in for every dollar in lobbying, it's a great business.

By Eamon Javers


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