K Street firms are predicting a strong rebound in 2013.
Even Patton Boggs, the perennial earnings champion that axed 65 jobs last week, expects an upturn in business after a frustrating election year that brought congressional activity to a near standstill. That optimism is being echoed around K Street.
During last year’s lobbying slowdown, many on K Street predicted that the arrival of a new Congress in 2013 would snap the industry’s two-year losing streak.
The news last week of layoffs at Patton Boggs seemed to undermine that prediction, stirring anxiety at a time when Washington is already set to suffer a sudden blow from the arrival of spending cuts from sequestration.
Patton Boggs attributed its cutbacks to broader trends in the legal industry, however, and said the outlook for 2013 remains bright.
“The stars of the firm remain there. The people who have driven business for the last couple of decades are still there and we are still recruiting new talent,” said Kevin O’Neill, deputy chairman of Patton Boggs’s public policy department. “The potential to have a very good year is there.”
The firm saw its lobbying revenue drop by more than $2 million to $46 million last year. On Thursday, the global law firm laid off 65 people, 23 of whom were based in the firm’s Washington office.
But only three of the roughly 150 employees in the firm’s public policy department — essentially Patton Boggs’s lobbying team — were let go. Ed Newberry, the firm’s managing partner, said the cutbacks didn’t stem from the fall in lobbying revenue.
“It’s more of a reaction overall to the economics of the legal industry and, in particular for us, the wind-up of several major cases,” said Newberry, who also expressed confidence about the firm’s prospects for 2013.
Newberry noted that Patton Boggs recorded $317.4 million in revenue overall for last year — making the $2 million decline a mere drop in the bucket.
“As we see some cases wind down, we were seeing a modest decline in demand and we are responding to line up head count and expenses with revenue,” Newberry said. “While we are the largest lobbying firm in the country, we are one of the largest full-service law firms in the country.”
Some observers say layoffs at the king of K Street could be a sign that the recession is making a late arrival in Washington.
“Despite a horrible economy, lobbying spending kept on rising in 2009 and in 2010. Much of that had to do with amassing resources for historic legislation like the healthcare reform bill and Dodd-Frank, but it was also consistent with a decade of growth for influence,” said Sheila Krumholz, the executive director at the Center for Responsive Politics (CRP).
“It’s possible that the healthcare reform and financial reform battles have just delayed the pain that has been coming.”
In 2011, lobbying revenue on K Street was reported at $3.33 billion, down from $3.55 billion the year before, according to CRP. It declined again in 2012, down to $3.28 billion.
Issue advocacy advertising, a major component of K Street campaigns, has been sliding downward, according to Kantar Media’s CMAG — a further sign of trouble for the industry.
“For advocacy advertising across the board, there has been less,” Elizabeth Wilner, vice president for the tracking firm, said of the Washington market. “Things were not great and they are not going to get better because of sequestration.”
Leading lobbyists on K Street say the congressional agenda is already packed full of issues that call for their representation and expertise. Aside from the legislative activity on immigration and guns, K Street is buzzing about the potential for tax reform — a potential cash cow for Washington lobbyists that would affect nearly every industry in the country.
“There’s no shortage of pressing issues here, so there’s a lot to do,” said Tony Podesta, chairman of Podesta Group.
Tom Quinn, a partner at Venable, said lawmakers returning to “regular order” — committee hearings and markups for major legislation, especially a tax bill — would boost traditional lobbying work.
“When the earmarks were banned and regular order trailed off, you will notice the revenue fell off, too,” Quinn said. “Once regular order comes back, I think there will be better business.”
Many suspect that lobbying spending has moved elsewhere, to work that doesn’t require registration and the disclosure of earned fees.
Krumholz noted 2012 had the fewest number of registered lobbyists — more than 12,300 — in a decade. That lower number comes after a 2007 ethics law and President Obama’s new restrictions on K Street that specifically targeted registered lobbyists.
“It’s possible that business is just shifting under the radar, that work is being legitimately reconfigured in order to avoid contacting covered officials, or it is just being described differently,” Krumholz said.
Firms have also worked to diversify their services with public relations and regulatory work that isn’t disclosed under the revenue totals of the Lobbying Disclosure Act.
The American Petroleum Institute (API), the main lobby group for the oil-and-gas industry, has moved much of its focus from Capitol Hill to Pennsylvania Avenue, according to Khary Cauthen, the group’s senior director of federal relations.
“The avenues where advocacy happens have shifted,” Cauthen said. “We engage more with the executive branch more than we have in the past.”
API is interested in several regulations that the Obama administration is crafting as part of a push to quell the effects of climate change. The administration has chosen to pursue air emissions fuel standards through the rule-making process, because they have little chance of passage through the divided Congress.
The administration is now considering hundreds of new rules on many fronts, including worker protections, food safety and healthcare. Cauthen said he believes API is not alone in its concentration on the executive branch’s actions.
“In town, I think that with a lot of the action moving into the regulatory realm, more folks are talking to the executive branch,” Cauthen said.
Budget cuts could eat into companies’ profits, leading them to spend less on advocacy. Other firms might have to cut back if demand falls for lobbying.
“This is the one time where Washington is going to get hit the hardest, and there may be places that take proactive steps to deal with that, not just reactive steps,” Wilner said, referring to the sequester.
Nevertheless, Patton Boggs remains upbeat about the coming year.
“Once the issues start to get substantive, the demand for lobbying is going to increase,” O’Neill said. “Historically, the odd years are better than the even years because there are more issue campaigns typically at the beginning of the congressional session, rather than at the end.”