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In their zeal to clamp down on lobbying, congressional reformers may be missing a crucial fact. The ship, in some sense, has already sailed. Last year was a boom year for lobbyists, despite what some would see as a time of plague with the Jack Abramoff and Duke Cunningham scandals grabbing headlines. Those controversies suddenly rendered the halls of Congress terra incognita to the alligator-shoe crowd. Yet it hardly seemed to matter. Among the 50 highest-grossing firms, combined lobbying revenues rose 9 percent to $921 million — just a few earmarks short of a billion. That occurred even though most firms reported nominal growth in traditional shoe-leather lobbying, the kind that fits neatly under the reporting requirements of the Lobbying Disclosure Act of 1995. Instead firms have steadily swelled their revenues by diversifying their offerings to include more regulatory and consulting work — activity that goes undisclosed. It’s a growing trend that may herald a significant obstacle to lawmakers’ attempts to corral aggressive lobbyists. PLEASE CHECK OTHER That cash spigot is booked by most shops under the heading “other related work.” That category, as defined by the Influence survey, includes any income generated from attempts to “influence public officials or to shape laws or regulations.” Five law firms out of the top 10 revenue earners in 2005 — including Akin Gump Strauss Hauer & Feld, DLA Piper Rudnick Gray Cary, and Covington & Burling — reported more revenue from “other related work” than they did from publicly reported LDA fees. Most of the reform measures currently being circulated in Congress focus on increasing scrutiny of lobbyists’ contacts with members. But today firm revenues are increasingly drawn from other areas, and none of the bills under consideration expands the definition of lobbying to include regulatory work or consulting. D.C. powerhouse Arnold & Porter illustrates the shift. The firm missed this year’s survey because its revenue from LDA work fell below $2 million. But in 2004 the firm racked up $13.2 million in lobbying fees, of which more than $9 million came from nontraditional lobbying. “A substantial amount of our policy work does not fall within the definition of lobbying as defined by the LDA or the FARA,” says Jeffrey Smith, head of the firm’s public policy practice. Rather, he says, the firm gives “strategic advice” on regulatory issues, transactions, and litigation. The move beyond traditional LDA-type representation is not solely confined to law firms. As the competition for earmarks — a traditional staple of lobby shops — has increased, the shops have been forced to diversify. Increasingly, public relations, business consulting, and campaign-style public affairs operations have taken on greater importance. “Lobbying is still our primary business,” says Richard Powell, managing director of Quinn Gillespie & Associates. “But I’d say the rate of growth of our nonlobbying growth is starting to outpace it.” The first sign of a significant shift in lobbying came in 2004, when firms such as Cassidy & Associates and Greenberg Traurig reported hefty revenue gains with their federal marketing practices as the administration increasingly outsourced government services. The revenue from that kind of work isn’t required to be reported under lobbying disclosure laws. In 2005 firms also reported growth in other nontraditional practices, like strategic consulting for corporations that want to avoid stepping on political land mines. For example, Sonnenschein Nath & Rosenthal has grown its “political intelligence” practice, offering inside information about Washington to hedge fund managers and investment bankers. The firm also handled political strategy work on about $50 billion worth of transactions for Wall Street clients. But it was largely regulatory work that drove the top lobbying firms’ revenue numbers in 2005. “[Non-LDA revenue] fundamentally, I think, is regulatory work, which is often sort of adjacent to lobbying work, and it can be efforts to influence regulation,” says Stuart Pape, managing partner at Patton Boggs, the top revenue earner in 2005. Almost half of the firm’s reported $75.9 million in revenue comes from the “other” category. Health care and energy practices had a particularly good year, as firms focused on the rule-making of the Medicare Prescription Drug Improvement and Modernization Act of 2003 and translating the broad legislative strokes of the energy bill for clients. “We continue to do a lot of work as an outgrowth of the energy bill,” says James Miller, head of Hunton & Williams’ government affairs practice. The firm’s revenues were up 28 percent in 2005 to $31.9 million. Lobbyists don’t see any slowdown in regulatory revenue on the horizon. “There is going to be a time of tight budgets and scrutiny on lobbying and limited earmarks where the work then moves from that area into regulatory,” says Craig Engle, a lobbyist at Arent Fox. “There is a season for everything. Now the season is regulation.” Engle says that Arent Fox’s top 10 clients have shifted from construction and finance to the health care sector as companies try to navigate the new rules and cut spiraling health care costs. Despite receiving increased scrutiny, lobbyists have even managed to turn Washington’s much-deplored “culture of corruption” into a selling point. Firms with strong government ethics practices, such as Covington & Burling and Arnold & Porter, increased their revenue as corporate clients’ Washington operations sought vetting of their lobbying activity and political giving. “It’s exponentially picking up right now,” says Tim Jenkins of O’Connor & Hannan, of government ethics work. “It’s not surprising. Everybody is sort of getting focused on making sure they have best practices in place.” Jenkins says his firm has gone beyond basic compliance work and started simulating some of the investigation techniques that government lawyers employ to ensure its clients are in compliance with lobbying rules. Sonnenschein’s Elliot Portnoy, head of the government relations practice, agrees that staying on Uncle Sam’s good side is a particular worry at the moment. “There is a significant uptick on client work on [political action committee] management and lobbying compliance,” he says. Law firms have also begun to increasingly move away from the monthly retainer fee arrangement that is standard for lobbying work, doing more hourly billing as a means of pumping up revenues. “We’re not really straining to build LDA numbers. Our bread and butter really is on the other side of the ledger,” says John Merrigan, the government affairs practice chair at DLA Piper Rudnick Gray Cary, whose LDA numbers have flatlined the past three years at around $16 million. “For our firm, especially given our billing rate, the LDA is a particularly poor measure,” says Merrigan. “We don’t have 300 clients at $10,000 a month; we have 100 clients at a higher figure. It’s a different niche. . . . You just can’t do a retainer practice that competes with firms around town.” Quinn Gillespie & Associates has also grown its nontraditional lobbying practices in recent years. One example the firm touts is its extensive work with Hewlett-Packard Co. When former CEO Carly Fiorina led a merger with Compaq Inc. in 2001, she brought the firm in to consult on a proxy vote after shareholders initially rejected the merger. “She wanted a group of people who understood how to run a campaign,” says Powell. Cassidy & Associates has also seen growth in its corporate commerce practices, taking on clients such as Wal-Mart Stores Inc., United Rentals Inc., and Bombardia Corp. “Our firm is becoming more of a valuable ally as a vendor to a number of these major companies that are trying to position themselves or reposition themselves in Washington,” says Cassidy’s Greg Hartley. MAKING THE SWITCH? Although 2005 was a good year for lobbyists, most don’t expect similar increases this year, given that Congress faces midterm elections and is considering various lobbying reforms. “I’m going to be surprised if ’06 is a very big growth year for most firms in town,” says Hartley. “It doesn’t seem like there’s going to be a lot of new, big legislative issues that companies will be hiring on.” Lobbyists say pending tax legislation and pension bills are the most likely to fuel LDA fees, while health care, telecom, and energy are all expected to continue to be big business on the regulatory side, which should serve as a buffer against an expected legislative downturn. “Part of the reason we have such an active rulings and regulations practice is that part of the practice tends to be more institutional in nature with the executive branch, not as disrupted as the legislative process,” says Hunton & Williams’ Miller. But the X factor is those midterm elections. A shift in power in either chamber could dramatically affect companies’ lobbying strategies. The last time such a change occurred was in 1994, when Democrats were swept from Congress. On a dime, many lobbyists went from being on the defensive on health care reform to taking the offensive on tax cuts. “[A chamber flipping] would mean a fundamental change in the political dynamic,” says Patton Boggs’ Pape. “It would mean some issues would come up that would otherwise not come up.”
Anna Palmer can be contacted at [email protected].

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