A-OK Street

Is lobbying becoming more efficient?

Even as the national economy struggles, one industry remains basically unaffected: lobbying. A handful of sectors, notably the oil and gas and health care industries, have been especially active despite the downturn. Others, such as real estate and finance, are spending less on lobbying. But overall, the decrease is small—and the influence of lobbyists has suffered no corresponding decline. Whatever the criticisms of Washington’s influence-peddling industry—and there are many—it’s hard to take issue with its efficiency.

The financial sector offers the best example. Normally, industries spend on lobbying in direct proportion to how much relevant pending legislation there is (hence the uptick in health care and energy lobbying last quarter, as congressional committees wrestled over health insurance as well as cap-and-trade bills). Likewise, banks and investment firms saw the biggest regulatory overhaul in years handed down by the White House in June—and many observers say that the regulations are favorable to the financial industry.

Yet the financial sector spent less—about 10 percent less!—on lobbying in the second quarter of 2009 than it did in the second quarter of 2008. An analysis by the Center for Responsive Politics finds that finance and credit companies spent $7.24 million in the second quarter this year, compared with $8.24 million last year. And while commercial banks spent slightly more on lobbying in that quarter than they did a year ago, their year-to-date totals have declined from $25.2 million to a flat $25 million.

Why the slip? The obvious answer is that the sector has shrunk. Bear Stearns and Lehman Bros. no longer exist, Merrill Lynch was bought out, and Goldman Sachs and Morgan Stanley are now commercial banks rather than investment banks. The economic downturn has squeezed balance sheets, prompting many banks to focus on paying off their TARP loans rather than lobbying Congress. Citigroup, for example, has spent only $3.1 million on lobbying so far this year—roughly a third of the $8.8 million it spent all of last year. (Although the crash hasn’t stopped some of them.) It’s also possible some banks are holding their fire for later in the year, when Congress takes a closer look at the president’s proposal.

But the dip in spending doesn’t seem to have hurt lobbying performance at all. If anything, it’s been the financial sector’s most successful quarter in a long time. Sure, banks aren’t happy about Obama giving regulatory power to the Federal Reserve, nor is the idea to create a Financial Services Oversight Council especially popular. But overall, Wall Street has been pleased with the president’s proposed reforms. And it’s only getting happier: The longer Congress takes debating health care and energy bills, the more the economy recovers, the more watered-down the regulatory legislation will likely be once it reaches the president’s desk.

Indeed, observers of K Street and Wall Street alike suggest that lobbying hasn’t let up a bit. “Just because the overall numbers may be down from where they were previously doesn’t mean lobbying efforts have ceased by any stretch of the imagination,” says Dave Levinthal of CRP.

Ed Mierzwinski of the Public Interest Research Group says finance sector lobbyists are as active as ever. “On the Hill, we have not noticed any decline in the drumbeat from the opponents of reform,” he says. “There may be fewer players, but the bankers, credit unions, they’re still out there in a big, big way.”

If less money plus more results equals greater efficiency, then perhaps the takeaway is that the financial crisis has made K Street more efficient. A dollar spent on lobbying has always been one of the best ways a company—and, in the aggregate, an industry—can expand its margins. But if the first half of 2009 is any indicator, that dollar just got even more profitable.