Congressional bust on deficit panel is a boon for lobbyists on K Street

The end of the supercommittee is just the beginning for Washington’s lobbyists.

The debt panel’s inability to reach an agreement on the deficit won’t trigger reductions in defense and healthcare spending until 2013, giving those powerful sectors and their lobbyists at least a year to wriggle away from the budget ax.



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The panel’s failure could also make for a busy holiday season on Capitol Hill, since the agreement from the 12-member committee was considered a likely legislative vehicle for a number of expiring programs and tax breaks. 

With the supercommittee a bust, a number of programs that expire at the end of December, including unemployment benefits and the payroll tax cut, face an uncertain future. 

Tony Podesta of the Podesta Group said lawmakers and interest groups had hoped to attach their favorite piece of legislation to the supercommittee deal.

“It was an opportunity to attach a boxcar to the train,” Podesta said. “The train became very long, but it never left the station.”

That legislation would have required only a simple majority vote in the Senate, making it impervious to filibusters. With that in mind, lawmakers were considering attaching tax breaks and other measures that expire annually. That would have simplified their passage through Congress and prevented the usual year-end scramble to get them renewed.

“It’s a complete mess when it comes to the expiring provisions,” a Democratic lobbyist said. “No one knows where they are going to go and how they are going to do it and how they are going to pay for them.”

“It all comes down to a pretty active December,” said Kenneth Kies, managing director for Federal Policy Group.

Kies said he never expected the supercommittee to reach a deal, so he was ready to lobby for the tax incentives once the panel was put to bed.

“Anybody who thought this process was going to work must have come to Washington this July,” Kies said. “I never thought they could reach a deal. Period. So I never thought there was ever a deal to attach anything to.”

Lawmakers and the Obama administration will have to begin negotiations next month on what programs can pass Congress and survive into 2012.

Kies believes the White House will aim for extensions of unemployment benefits and the payroll tax cut, and will work to prevent a cut in physician reimbursement payments, known as “the doc fix.” Republicans will want something in return, which might include the tax incentives, a fix of the Alternative Minimum Tax and a repatriation holiday that would allow U.S. companies to bring back their overseas profits tax-free.

“The December bill could end up being the jobs bill,” Kies said. 

The supercommittee’s failure to reach a deal could also boost K Street’s bottom line in 2012.

“The chaos in Washington always breeds opportunity. That is my view,” said Barry Rhoads, president of Cassidy & Associates.

The spending cuts that are set to begin in 2013 include about $454 billion in sequestered reductions from defense programs, according to the Congressional Budget Office. Rhoads, a defense lobbyist, said sequestration would be “devastating” for America’s fighting force.

“No one should be playing ostrich on this,” Rhoads said. “You will have to protect certain programs from cuts.”

Michael Herson, president of American Defense International, said he would be watching the Defense Department’s next budget request, which will likely be submitted in February. If that request reflects the spending cuts under sequestration, lobbyists will spring into action.

“If that’s the case, we’re going to be spending the year trying to restore those cuts,” Herson said. If the Pentagon’s budget request does not contain those cuts, it means a deal to change the sequestration is in the works. 

“Either way, it’s a very active year,” Herson said.

The healthcare sector could also take a blow from sequestration, as roughly $123 billion will be cut in Medicare payments to doctors and hospitals.

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The supercommittee’s failure is not all bad news for the health sector. Some in the industry were happy with the panel’s gridlock, lobbyists said, noting the panel was looking at reducing prescription drug benefits that could have affected the bottom line for pharmaceutical companies. Healthcare lobbyists nonetheless expect a yearlong slog in 2012 to dial back the spending cuts.

“There is a lot of people who don’t expect sequestration to happen,” said a Republican healthcare lobbyist. “There’s going to be a yearlong education program by the healthcare industry with Congress.”

Chip Kahn, president and CEO of the Federation of American Hospitals, however, told The Hill earlier this month that the partisan differences over taxes will determine how the spending cuts are changed, if at all.

“In some ways, we’re the tail, not the dog. The big issue here is revenue versus spending. Republicans are on one side of that, and Democrats are on the other. You can’t even talk about how you’re going to mitigate the sequester until you make a basic decision about whether there are going to be some revenues or no revenues,” Kahn said.

The end of the supercommittee also leaves the doc fix in limbo.

“The hope was to get it done with the supercommittee. But everyone knew in their back of their minds if the supercommittee didn’t get anything done, they know we would have to scramble again,” said the GOP healthcare lobbyist.

While K Street will work to stop sequestration, most concede that some cuts are unavoidable. 

“A lot of the lobbying industry is going to think that this is a bad turn, but there is still plenty of time to legislate around this. I don’t think anyone thinks they are going to legislate around this to make the sequester go away. They are going to have to come up with a deal to reduce the deficit by $1.2 trillion,” said Herson of American Defense International. 

“Getting rid of the sequester with no reduction in the debt risks another downgrade of our credit rating, and no one wants that.”

— Julian Pecquet contributed to this report.