By Jeremy Herb and Brandon Conradis - 04/27/12 09:50 AM EDT
Lobbying for the top defense contractors remained mostly flat in the first three months of 2012 compared to last year despite the threat of sequestration that could hit the Pentagon budget with an additional $500 billion in across-the-board spending cuts.
Spending on lobbying by 20 of the top defense and aerospace contractors in 2012 decreased a slight 2.4 percent compared to the companies’ first-quarter 2011 spending, an analysis of lobbying disclosure records found.
Sequestration was set into motion in November when the congressional supercommittee tasked with finding $1.2 trillion in deficit reduction failed.
Unless Congress acts, defense and non-defense discretionary spending will face a cut of $500 billion over the next 10 years. That cut, which would take effect starting in January 2013, would hit the defense industry especially hard because it’s coming on top of a $487 billion reduction that’s already been agreed upon.
Most people predict that the issue will not be addressed until a lame-duck session at the end of the year, as the two parties remain deadlocked on taxes and cannot agree on alternative deficit reduction.
“If companies thought that their lobbying efforts could lessen the threat sequestration poses to military spending, they would be lobbying the issue furiously,” said Loren Thompson, an analyst at the Lexington Institute who consults with many top defense contractors. “But the political system seems too distracted by the upcoming election to listen to the pleadings of one sector on the subject.”
Even if the dollars for lobbying have not increased, the rhetoric has amplified.
House Armed Services Committee Chairman Buck McKeon (R-Calif.), one of the industry’s biggest allies on Capitol Hill, has repeatedly railed against waiting to deal with sequestration, warning that the industry has to start planning for cutbacks now.
McKeon has put forward a bill to delay sequestration for one year that has not moved, and he’s expressed frustration with trying to convince his colleagues that the automatic cuts can’t wait until the lame-duck session.
Lockheed Martin CEO Bob Stevens, who announced his retirement Thursday, said in a Capitol Hill speech last month that even the prospect of sequestration was having “a chilling effect on the industry.”
“We’re not going to hire. We’re not going to make speculative investments. We’re not going to lean forward,” Stevens said. “We’re not going to invest in incremental training because the uncertainty associated with $53 billion more of reductions in our first fiscal quarter next year is a huge disruption to our businesses.”
Kendell Pease, a spokesman for General Dynamics, said his company isn’t lobbying yet on sequestration, as the industry already has two great lobbyists: McKeon and Defense Secretary Leon Panetta.
“We’ll see what happens after November,” Pease said. “Until then, there’s not much we can do because we don’t know what direction it’s moving.”
Defense lobbyists say another reason some in the industry haven’t ramped up their lobbying is because the individual companies aren’t uniting to fight sequestration in a way that other industries, such as those in healthcare, have done in the past.
“It’s something that affects everybody, but they really don’t have a history of banding together and saying, ‘OK, let’s all work together,” said Michael Herson, president of American Defense International. “The cuts might be coming but we have to focus on our stuff — that’s the mentality.”
The defense industry’s biggest effort to fight sequestration comes from the Aerospace Industries Association, which has launched a campaign touting the industry’s importance to the domestic economy. AIA released a study last year claiming 1 million jobs could be lost if sequestration occurred.
“There’s a growing awareness in Congress that the effects of sequestration are going to be devastating to our industry, but we need Congress to act quickly to avoid massive disruptions to our businesses, supply chains and national security,” said AIA spokesman Dan Stohr.
AIA boosted its lobbying in the second half of 2011, nearly quadrupling its spending to $885,000 in the third quarter of 2011. AIA spent $620,000 in its first quarter of 2012.
Many of the largest defense contractors did not chart the same course.
United Technologies lobbying dipped to $3.8 million in the first quarter this year, down from $6 million in the same period in 2011. General Dynamics dropped to $2.2 million this year from $2.8 million in 2011, and EADS North America went from $950,000 in 2011 to $760,000 in 2012.
Some of the reductions are a result of long-running battles ending, such as the F-35 second-engine fight. A United Technologies spokesman said the group’s lobbying returned to normal levels this year, adding that the company was not devoting any extra lobbying resources to sequestration.
Of course, with the Pentagon’s budget cutting a host of weapons systems in its 2013 budget, there’s been plenty for companies to lobby on this year, too.
Some contractors have increased their lobbying budgets, including Lockheed Martin, which raised its spending to just shy of $4 million in 2012, compared with $3.2 million in 2011.
Northrop Grumman also jumped up to $4 million after spending $2.7 million during the same period last year, and Harris Corp. pushed its first-quarter total over $1 million after spending $800,000 last year.
Mackenzie Eaglen, a defense analyst at the American Enterprise Institute, said that if companies are waiting for the lame duck to make a lobbying push, it could be too late.
“It is surprising the major defense companies have not doubled down on their efforts to inform policymakers on the consequences of sequestration — a prospect that is becoming more likely by the day,” Eaglen said. “The groundwork has to be laid now for any decisions made and votes taken in a lame-duck session. Surely the contractors know that.”