When Barack Obama was elected president two years ago, Washington law firm leaders — whatever their ideological persuasion — were all but singing “Happy Days are Here Again.”

After eight years of the Bush administration, with its deeply held suspicion of new government regulations, here was a president and a Democratic Congress that spoke of a more expansive government and stricter industry oversight. From a Washington lawyer’s point of view, “Change we can believe in” sounded a lot like “Change we can bill for.”

Regulatory work accounts for about 25% to 30% of revenue for Washington firms on average, so the prospect of a sudden surge left law firm leaders practically giddy.

“We had visions of sugarplums,” said Akin Gump Strauss Hauer & Feld chairman R. Bruce McLean, adding that many Washington lawyers anticipated “a virtually immediate increase in regulatory activity in a number of places.”

Except it hasn’t quite turned out that way. “We’ve not seen an overwhelming amount of regulation,” said Venable managing partner Karl Racine, speaking at a recent law firm leaders roundtable hosted by The National Law Journal. “It’s been kind of slow.” Hildebrandt Baker Robbins consultant Lisa Smith confirmed his observation. Regulatory practices in Washington have been flat, she said — not bad, considering some practice areas are down by 20%, but there’s been no Obama-era uptick either.

So what happened to the bonanza?

During the campaign, Obama staked out four major areas for stepped-up regulation — health care, financial services, energy and the environment. The hitch, of course, was that all required precursor or companion legislation. “I think many of us underestimated the complexity and time it would take to get health care passed,” McLean said of the bill that became law in March. “In its wake, we’ll see a wave of significantly increased regulatory activity — but we haven’t really seen it yet.”

It’s the same with financial services. In July, Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act — the biggest overhaul of the financial services sector since the New Deal. A half-dozen agencies that oversee markets and banks are now busy writing regulations to implement the law. That’s yielded some new business — for example, scores of big-firm lawyers in recent months have met with Commodity Futures Trading Commission (CFTC) officials to lobby for specific provisions to benefit their clients, according to the agency’s visitors log.

MISSING MONEYMAKERS

But the real moneymakers for lawyers — compliance and enforcement — mostly have yet to take effect. When such provisions do kick in, lawyers expect a nice uptick in work. There’ll even be an all-new agency to focus on, the Consumer Financial Protection Bureau, which will officially come into existence in July. “During the past year, we have seen the framework put in place for a new wave of regulations in a number of important sectors, including banking, capital markets, health care and the environment. And we’ve been busy gearing up for this new regulatory landscape,” said Michael Lyle, managing partner of Weil, Gotshal & Manges’ Washington office.

But the question remains whether the agencies will have the resources to tackle enforcement in more than a cursory way. Take the CFTC: It has just 600 employees and has been tasked with overseeing the $583 trillion over-the-counter derivatives market, along with other new responsibilities. “The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded role,” Chairman Gary Gensler told a Senate committee earlier this month.

The U.S. Securities and Exchange Commission is in the same boat. The Wall Street Journal reported that the agency is already slowing the pace of some investigations and inspections due to lack of resources as it struggles to write 97 Dodd-Frank regulations.

Prospects for a big bump in funding don’t look promising. “Some of you may have observed that there was an election in November,” said Roger Warin, chairman of Steptoe & Johnson LLP’s executive committee, at the NLJ roundtable. “I think that, with the new Republican congress, you should presume that a number of agencies that were anticipating to increase their regulatory activities will be frozen out economically.”

Patton Boggs managing partner Stuart Pape sees this potential at the Food and Drug Administration, with the passage of the food safety bill on Dec 21. The original House bill provided funding for enforcement via registration fees, but the final version sent to the president did not. The law gives the FDA “massive new authority, but [Congress] may not give the FDA funds to carry it out,” Pape said. In the meantime, Pape, who specializes in food and drug law, said he’s already seen a jump in food safety-related legal work, but less action on the drug side. “Food got ignored for a while, and now the pendulum has swung back,” he said. “The FDA is more active, but it’s sort of spotty.”

ENERGY FIZZLES

Perhaps the biggest legislative disappointment (at least from a legal business point of view) was the cap-and-trade energy legislation, which died in the Senate. Legislation that would impose a nationwide renewable electricity standard also stalled in Congress. In the absence of legislation, the U.S. Environmental Protection Agency has moved to regulate greenhouse gas emissions. “There’s been a boatload of activity associated with trying to neutralize the EPA, both pro and con,” said Larry Eisenstat, head of Dickstein Shapiro’s energy practice. Still, it’s nothing like the “reshuffling of the deck” that would have ensued if cap-and-trade passed.

At this point, the biggest issue for energy lawyers and their clients isn’t so much regulatory action or inaction, Eisenstat said, it’s regulatory uncertainty, and that makes companies reluctant to invest in new projects. Even at agencies where legislation wasn’t a prerequisite for action, by and large there hasn’t been as much regulation as many expected. The Federal Communications Commission, for example, has proven surprisingly cautious. “They’re not a swashbuckling, pro-regulatory group,” said Wiley Rein managing partner Richard Wiley.

Under Chairman Julius Genachowski, the FCC spent more than a year developing a massive National Broadband Plan, holding workshops and field hearings galore before sending a 377-page report to Congress in March. “It’s a very important issue, very complex,” Wiley said. “But there are a lot of other issues I’d like to see the commission act on.” Things may be heating up, though, after last week’s vote on net neutrality, which is sure to spark lawsuits, he said. And Wiley noted that the agency is expected to issue a decision on the pending merger of Comcast Corp. and NBC Universal early in 2011. While Comcast/NBC kept some lawyers busy, antitrust practices in general were hurt by the scant number of corporate mergers. True, the Federal Trade Commission has done its best to occupy lawyers, challenging eight consummated deals, but the boom years of antitrust remain a memory.

The Department of Justice recently brought two civil antitrust enforcement cases and has been active on the criminal side going after cartels, noted Wilmer Cutler Pickering Hale and Dorr co-managing partner William Perlstein. Perlstein said regulatory work overall at Wilmer has been brisk this year — but it also helps that his expectations weren’t outsized. “Whenever there’s a fully Democrat-controlled government, there’s a long list of possible actions and increased regulatory work,” he said. “But you’re never going to have it all occur, or all occur as quickly as people thought.”

Jenna Greene can be contacted at jgreene@alm.com.