Tough Economy Overshadows K St.

Posted November 5, 2008 at 7:03pm

The day after a presidential election usually leaves lobbyists seeing green, as they look to pick up new clients eager to tackle a new Congress.

Yet despite a historic election that saw America’s first African-American president and expanded Democratic majorities in Congress, several lobbyists took a more pessimistic view of K Street’s prospects next year.

That’s because for an industry that is usually considered recession-proof, the effects of the economic turmoil have already started to affect downtown.

“We’re going to see massive budget cutbacks across the city from various industry groups,” said Steve Hart, head of Williams & Jensen. “Start with the automakers and go straight down the line.”

While it’s been clear for weeks that financial services companies were some of the hardest hit by the economic downturn, other business sectors have also been facing cutbacks of as much as 20 percent to 30 percent of their Washington, D.C., office budget.

“We’re seeing some of our clients cut back on their internal lobbying teams or government affairs teams,” Andrew Rosenberg of Ogilvy Government Relations said. “They are looking for places to trim.

“I think while there will still be a commitment to hiring lobbyists in town, there is an element of price sensitivity that might not otherwise be there,” Rosenberg said.

Not everybody was sold on the gloom and doom of recession talk.

Several lobbyists said that despite the tough economic times, companies are going to continue spending on lobbyists simply because they face a Democratic Congress that could inflict severe pain with increased regulations.

“Every stakeholder, whether they are consumers, investors, retired people, businesses or nonprofits, they all want to be at the table,” said Nick Allard, co-chairman of Patton Boggs’ government relations team. “You certainly want to avoid the risk of unintended consequences.”

The Alpine Group’s Gregory Means agrees.

“There will definitely be shuffling because of the economic downturn,” Means said. “Clients are going to have to examine what they have covered, what they don’t have covered.”

Still, the tough financial reality was on display last week when the Securities Industry and Financial Markets Association announced it was cutting 40 jobs, or nearly 25 percent of its employees. The layoffs, which largely came from Washington and New York, included lobbyist Jill Hershey, who focused on municipal bond and tax issues, and Amy Mathis, who headed up the trade group’s political action committee.

It’s not just financial services companies scaling back.

Even though health care is slated to be one of the biggest legislative fights in the next several months, UnitedHealth Group recently slashed its number of outside consultants.

Jud Sommer, who left Goldman Sachs last year to become UnitedHealth Group’s senior vice president of government affairs, said he was simply trying to find a more rational approach to the firm’s sprawling lobbying team.

“When I came here 15 months ago there were 14 outside lobbyists. I’ve got that down to four,” Sommer said. “That was not because I had instructions to save money — that was a side benefit.”

Part of the reworking of in-house and external lobbying teams is a natural outgrowth of yearly contracts expiring.

Many companies and lobby shops are also looking to beef up their Democratic bona fides, given the increased Democratic majorities in the House and the Senate.

The Pharmaceutical Research and Manufacturers of America, for one, began retooling its in-house team in September, bringing on Democrat Bryant Hall as its chief Congressional and federal liaison.

The trade group, long known for having a retinue of outside K Street consultants, is now reviewing its contracts with these consultants, which it does on an annual basis, according to spokesman Ken Johnson.

“Our industry is no different than any other one in America,” he said. “The economy is having an effect on everyone, and we’re trying to be smart about how we spend our money.”

Lobbying firms are also bracing for increased regulation of their industry, with some predicting that Congress will move to further restrict lobbying by companies that take the economic bailout from lobbying.

“It’s not going to be business as usual,” said Patton Boggs’ Allard, pointing to the ban on lobbying by insurance giant AIG and Fannie Mae and Freddie Mae after they took government funds. “There are going to be more rules than there were two years ago.”