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K Street Lies in Wait for Next Year

With this summer’s dismal business backdrop — the final year of a lame-duck administration, a sagging economy and a raging election season on the horizon — K Street can hardly wait for 2009. Lobbyists expect the next six months, especially during the traditional lazy summer lull, to put a kink in their bottom lines. Many firms have put hiring on hold and are giving clients their best pitch to hang on or sign up in preparation for the expected legislative boom set to begin next year.

“I think this is going to be a challenging year for everybody,” speculated Mike House, the managing partner of Hogan & Hartson’s legislative group. “A lot of things have already died in Congress. It is the eighth year of a presidential cycle, which is inherently slower. And the focus is already on next year.”

House isn’t the only lobbyist bracing for challenges.

H. Stewart Van Scoyoc, whose Van Scoyoc Associates is one of the city’s largest independently owned firms, said he is working to hold his own.

“It’s a very difficult business environment,” said Van Scoyoc, whose firm, traditionally known for its appropriations work, is weathering increased hardships in that sector. The shop also recently lost its single largest client, the government of Pakistan, after an election in that country brought a new party to power.

The troubled economy has hit real estate and sales tax revenues, which in turn has hurt the budgets of many traditional public entities such as municipalities and county governments that hire hire lobby firms to win appropriations earmarks, he said.

But next year, Van Scoyoc predicts, will be a different story. “In military terms, we are expecting a target-rich environment,” he said. “I’ve lived through a couple of transitions of significant magnitude, and probably next year will be a transition of the most significance I can recall.”

Former Rep. Marty Russo (D-Ill.), CEO of Cassidy & Associates, said that while lobbying revenue may be lagging a little, his shop has tapped into other types of consulting. That work may not show up in lobbying disclosure reports due next month, but Russo said business is good.

“Right now it’s not slower,” he said. “But I expect it to, especially after the August break. A lot of things are going to be put off until the next Congress and the next president.”

While K Street is typically well-insulated from larger economic trends because the government never shuts down, lobbyists say some clients that are facing their own lagging bottom lines have had to cut back or skip the K Street scene altogether.

“There was one potential client who was very interested in us and working with us,” said Dan Tate Jr. of Capitol Solutions. “But they had some pretty serious financial issues that took all of their expansion in Washington off the table,” he said, declining to name names.

Nick Allard, co-chairman of Patton Boggs’ lobbying practice, said that overall his firm’s business remains steady, fueled in part by the large amount of Congressional investigation work his colleagues are doing. But he acknowledged that the tendency of many potential clients to sit back and wait for the election to be done and a sagging economy are having an impact.

“Whenever there is a weak economy, companies are forced to make a choice between making a payroll or paying for a trade association membership. And you know what the choice is going to be,” Allard said.

“It’s analogous to being lost in the Arctic and freezing to death,” he explained. “Your body [keeps] pumping blood to the brain and heart and takes it away from the extremities. So, lobbying work, as important as it is, is more like the extremities.”

Even firms that are doing well during this tough market report jitters about making new hires, especially since the outcome of the election is unknown and potential new hires could become available only after November.

Despite the economic downturn, Margery Kraus, head of APCO Worldwide, said her firm grew 24 percent in the first quarter of 2008.

“You try to balance the hiring against the uncertainty,” Kraus said. “You try to hire not too far ahead of the curve.”

Yet Kraus points to the impending stress of the presidential election without an incumbent running, something that should further flood the market with potential hires.

“I think it is going to be hard to absorb that much of a sea change no matter who gets into power,” Kraus said. “There hasn’t been a time where there is no real incumbent, so I think there will be a lot of change there and pressure on hiring.”

Holland & Knight’s lobby practice leader Rich Gold, for one, has been looking more at people downtown who already have a book of business, instead of off the Hill or from the administration, even though his shop’s lobby revenue is up.

“I’m much more focused on bringing people in with business. And that is a reflection not of how we are doing but the reality of an economy that seems soft, so I am being conservative,” said Gold, who says he has been in talks with small practice groups.

In general, lobbyists say they will be in the market for Democratic lobbyists. Still, despite the likelihood of Democrats adding spots in the House and in the Senate — and potentially taking the White House — don’t count Republicans out altogether.

Businesses expect to be in a more defensive posture on tax and energy legislation, and Senate Republicans could play an even more important role in stopping potentially harmful laws from moving forward, said Kirk Blalock of the all-Republican Fierce, Isakowitz & Blalock lobby shop.

“Senate Republicans are going to be the ultimate backstop from keeping really bad things from happening,” Blalock said. “Right now they are the stop before the presidential veto, but who knows what next year will bring.”

Some sectors are already looking particularly hot for next year, including health care reform and climate change legislation.

Rich Tarplin, who opened Tarplin Strategies this year, focuses on health care and financial services and said both areas remain active as Congress tries to grapple with the mortgage crisis and a Medicare bill is in play.

“I think it’s the calm before the storm in other sectors,” Tarplin said. “I think people generally believe not much is going to happen the rest of this year, but companies are already considering their needs for next year because they know that whoever is president, there will be a tidal wave of demand for lobbying services.”

But all those expectations for 2009 don’t mean much for this year’s revenue. Just ask Democrat Tom Jolly of Jolly/Rissler.

He said the attempts to woo new clients in the current environment seem to have slowed.

He described the environment as an extended “flirtation” — potential clients want to sit down and talk about what may happen in the next Congress without necessarily making a commitment, at least not quite yet.

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