TIME Lobbying

Alcohol Distributors Ply Statehouses to Keep Profits Flowing

rhinegeist
Rhinegeist Brewery

Rhinegeist Brewery invested $250,000 in trucks and employees to bring its beers into Kentucky, just a few miles from its fledgling brewery in downtown Cincinnati.

Sales boomed in the “thirsty” Kentucky market, said brewery co-founder Bryant Goulding.

But in March, just three months after the deliveries began, the legislature there voted to make Rhinegeist’s distribution business illegal.

“We were crestfallen, heartbroken, disappointed, really frustrated by the political process,” Goulding said. “We felt like we really didn’t have genuine access or really didn’t get genuine consideration from a lot of the politicians.”

Rhinegeist had run into a little-known but powerful political force at play in nearly every state: alcohol distributors. They don’t brew the beer, and they don’t serve it. But as wholesalers who function as the legally mandated middlemen between alcohol makers and retailers, they have a wide-ranging influence on the booze Americans drink, marking up prices and controlling the growth of craft brewers and small wineries.

Alcohol distribution is a $135 billion industry in the U.S. that has made many rich, including Cindy McCain, head of her family’s beer distributing company and wife of Sen. John McCain, R-Ariz. To protect the post-Prohibition regulations that guarantee their business, wholesalers bankroll scores of lobbyists and give millions of dollars in contributions in election seasons. And because wholesalers are often local, family-run, American-owned businesses, they are popular with politicians.

“The beer wholesalers are a lot like the teachers unions,” said John Conlin, a Colorado management consultant who works with beverage companies. “The teachers unions have incredible clout, too, and the reason is there are teachers in every congressional district out there… And historically that was the same with beer wholesalers.”

But recently two economic forces have encroached on wholesalers’ power and territory, putting them on defense: big multinational brewer Anheuser-Busch InBev, which boasts $47 billion in annual revenue; and the burgeoning craft beer industry that wants more freedom to distribute its own beer, offer tastings in new places or sell to-go containers called growlers.

At least 22 states had bills in 2015 seeking to allow alcohol makers to circumvent distributors and sell their products directly to customers, according to the National Conference of State Legislatures.

They faced firm opposition this year because state alcohol wholesaler alliances had at least 315 registered lobbyists spread across every state and the District of Columbia, except Wyoming, according to a Center for Public Integrity analysis of state records.

And alcohol distributors are by far the most involved in state politics out of those in the booze business. They gave roughly $14.6 million to state candidates, parties and ballot issue groups in the 2014 elections, while alcohol manufacturers gave about $5.3 million and retailers gave roughly $2 million, according to data from the National Institute on Money in State Politics.

They are politically active on the federal level, too, but because alcohol is largely regulated at the state and local level, wholesalers aim most of their political firepower at statehouses. Their giving in 2014 state races was more than double the approximately $5.9 million that they gave for congressional contests.

“As local businesses representing Main Street America, beer distributors take pride in participating in the political process and support a wide range of candidates,” the National Beer Wholesalers Association’s spokeswoman Kathleen Joyce said in an email.

Using that political firepower, wholesalers defended their economic turf this year in several states, including Kentucky, Georgia and North Carolina, by advocating for the exclusive right to distribute alcohol. And now wholesalers are also trying to expand their turf by going after the legal recreational marijuana market proposed in Nevada.

This winter, 38 lobbyists roamed the halls of the Kentucky State Capitol, employed by one side or the other of the beer debate. The alcohol bill they were discussing, lawmakers joked, was the Lobbyist Full Employment Act of 2015.

“You couldn’t walk the halls without a lobbyist from one side or the other wanting to be in your ear,” said Sen. Jimmy Higdon, a Republican from Lebanon in central Kentucky.

Wholesalers were pushing a bill that prevented brewers from owning a license to distribute beer — a move to close a long-overlooked gap in Kentucky’s regulatory system and effectively force Anheuser-Busch InBev to auction off its two distributorships in Kentucky.

Rhinegeist, with its newly opened distribution business, was also hit.

“We were just kind of a gnat caught between these two Mack trucks colliding,” Goulding said.

Anheuser-Busch InBev owned a distributorship in Louisville for decades. In 2014, it bought another one in Owensboro, a move that set off alarm bells among wholesalers who worried the beer giant would corner the market as part of a reported campaign to buy more distributorships.

Wineries, breweries and distilleries are generally required by state laws to hire separate distributors to get their drinks to customers, with exceptions that vary by state. States made these rules after Prohibition: some acting to avoid returning to the days of saloons controlled by major alcohol producers that pushed drunkenness; some to decentralize the industry and its political power; and others motivated by former bootleggers with political ties who wanted to stay in business as state-mandated wholesalers.

Today, distributors are in a power position. They can stifle the growth of craft breweries or small wineries by refusing to distribute their products. Or they can foster them by helping them reach customers they couldn’t efficiently reach on their own. Having separate distributors can also push up the price of alcohol.

Some public health advocates credit the layers of regulation that come from this middleman-style system for helping prevent cheap or dangerous libations from creeping into the market in a country where alcohol is already the third leading lifestyle-related cause of death.

Yet Daniel Okrent, author of “Last Call: The Rise and Fall of Prohibition,” called the public health arguments sanctimonious and said there’s no evidence that wholesalers protect public health. “They are essentially protecting what is in effect a quasi-monopoly business,” he said. “They are very powerful political lobbies with a great deal of money.”

In Kentucky, wholesalers turned to the legislature to bar Anheuser-Busch InBev from having a piece of their market, just as wholesalers have successfully done in eight other states since 2010, according to the National Conference of State Legislatures.

Two Kentucky distributorships in particular, Chas. Seligman Distributing Company and Kentucky Eagle Inc., led the charge against Anheuser-Busch. Their executives and employees have given at least $213,000 to state and local elections since 2000, according to a Center for Public Integrity analysis of state records. Kentucky Eagle’s owner Ann Bakhaus gave more than $124,000 of that, including $13,300 last year. She said she had her business in mind when she did so.

“Our business is highly regulated,” she said. “There’s a whole lot of parts and pieces to it, and so I’m always trying to watch out for our business and for our state, too.”

During the 2014 elections alone, the Kentucky Beer Wholesalers Association gave more than $14,000 to Kentucky lawmakers. Comparatively, Anheuser-Busch has given little — just one $500 donation in 2008, according to the National Institute on Money in State Politics. Neither alcohol group responded to multiple requests for comment.

Both sides lobbied hard. And both sides took to the airwaves. Wholesalers spent $151,000 on Facebook, newspaper, TV and radio ads, state records show. Anheuser-Busch, while outspent in political contributions, tried to make up for it with nearly $330,000 in advertising.

“Greedy special interests are trying to run Anheuser-Busch out of the state, seeking for them to close a business they’ve owned for nearly 40 years,” said a TV ad from the beer company.

In the end, though, it wasn’t even close. The wholesalers’ bill passed the Senate 23-13 and the House 67-31. The world’s largest brewer and Rhinegeist lost. Anheuser-Busch InBev said Tuesday it plans to shed its Kentucky distributorships. Rhinegeist has already dismantled its distribution business there.

Rep. Adam Koenig, a Republican from Erlanger, fears the law will have a broader chilling effect.

“After seeing Rhinegeist basically have the rug pulled out from under them, and a company that’s been operating legally with no complaints for 30 years be forced to divest, it makes you think twice about opening a business in Kentucky,” he said.

Limiting the craft brewers

This spring, North Carolina state Rep. Chuck McGrady, a Republican from Hendersonville, sent his colleagues a draft of a bill he planned to introduce. The bill would have helped local craft breweries by allowing them to distribute more of their own beer. Not long after, two of the co-sponsors called and asked him to remove their names.

“Those legislators told me the beer and wine wholesalers in their area had already called and they were big contributors to the campaign,” McGrady said. “They still supported the bill, but they didn’t want to be on it. It was really rather striking.”

Craft brewing had taken off in North Carolina, as it has in the rest of the country. The number of craft breweries in the U.S. more than doubled from 2008 to 2014, reaching 3,418, according to the Brewers Association, a national craft brewers group based in Boulder, Colo. And they’re getting more organized — the U.S. now has local craft brewers associations in every state.

In North Carolina this year, craft brewers saw an opportunity to improve state laws to allow them to grow. Currently, brewers in North Carolina can distribute 25,000 barrels of their own beer. If they want to grow larger, they must hire a distributor for all of their beer, a move some breweries are loath to make.

McGrady’s bill would have given brewers slightly more wiggle room by not counting beer sold at taverns (usually only a few thousand barrels) toward the 25,000-barrel limit.

But North Carolina Beer & Wine Wholesalers Association Executive Director Tim Kent said his members didn’t want to cede any ground and opposed McGrady’s bill and a similar one.

“North Carolina already has by far the most progressive beer laws of any state from Virginia to Texas,” he said. “You’ve got a small group of brewers who are trying to deregulate the industry…at the expense of public health.”

Alcohol wholesalers in North Carolina have given more than $740,000 to state lawmakers since 1996, according to data from the National Institute on Money in State Politics. They had seven registered lobbyists working this spring. On the other side, the craft brewers together had four registered lobbyists but had given comparatively little to political candidates.

“We’re putting a lot of money into growing our business and making sure we’re getting new equipment and hiring people and stuff like that,” said Erik Lars Myers, the president of North Carolina Craft Brewers Guild and the founder of Mystery Brewing Company in Hillsborough. “That means that we don’t have a lot of extra money to spend on lobbying. They have a significant financial advantage over us.”

Both bills stalled when a committee co-chairman, Rep. James Boles, wouldn’t let them be heard, brewers said.

Boles, a Republican from Moore County, received more than $17,000 from alcohol wholesalers for his unopposed 2014 re-election, including $5,000 from the North Carolina Beer & Wine Wholesalers Association PAC. Aside from the money he gave his own campaign, the association is Boles’ second most generous donor over the course of his six-year career in the statehouse, according to the National Institute on Money in State Politics. He did not respond to requests for comment.

The bills’ failures mean that at least four craft breweries in the state won’t expand, hire more people or make more of their specialized local beer, Myers said.

“There’s going to be a lot of people who want beer who won’t be able to get it,” he said.

Settling for compromise

A similar story played out in Georgia this spring, when brewers put forward a bill that would have allowed breweries to sell a limited amount of beer directly to customers who visited. What they wound up with instead was the ability to offer free beer to patrons who pay for a tour.

“We don’t sell you beer, but we take your money and you leave with beer,” said Nick Purdy, president of Wild Heaven Craft Beers just outside of Atlanta. “It’s a bit of a theater of the absurd.”

Georgia Craft Brewers Guild Executive Director Nancy Palmer said it was the guild’s first time going up against the longstanding relationships the wholesalers have built, in some cases over generations.

“The wholesalers are astute politicians,” she said. “If I were in their position, I would be doing exactly what they do. The depth and breadth of their influence is certainly formidable.”

Alcohol distributors in Georgia have given nearly $1.2 million in contributions to state lawmakers since 1992, according to data from the National Institute on Money in State Politics. They also invite lawmakers to an annual, paid conference at a seaside resort. The state distributor association did not return requests for comment.

The man credited with reworking the bill to allow only paid tours and free beer, Sen. Rick Jeffares, has received $6,900 from wholesalers since 2010, including $4,750 out of the $81,000 he raised for his unopposed re-election bid in 2014. The Republican from McDonough, south of Atlanta, did not respond to requests for comment.

Still, for the brewers it wasn’t a total loss. Palmer said they were pleased to get at least the compromise that allows them to sell tours.

Finding new territory

Wholesalers are now flexing political muscle not just to protect their current businesses, but to enter a new market: marijuana distribution.

Alcohol salesmen often see pot as a competitor vying for consumers’ dollars. And liquor industry advocates have bristled at pot activists’ assertions that marijuana is safer than alcohol.

But wholesalers in Nevada gave a combined $87,500 to a 2016 ballot measure campaign to legalize recreational marijuana there — about 13 percent of the amount raised through December, according to the most recent report available. The ballot initiative, if passed, would mandate that for the first 18 months of legal weed, only licensed alcohol distributors could distribute the drug, giving the alcohol wholesalers a head start in the pot distribution business.

Backers of the initiative consulted with alcohol distributors when they wrote the measure to avoid a fight. The 18-month window allows experienced distributors to help get the industry off the ground, according to campaign spokesman Joe Brezny.

“Experience matters,” he said.

For those without political connections, access to new markets is proving more difficult. Back in Cincinnati, Rhinegeist Brewery gave up finding new turf on its own. Instead, it’s re-entering Kentucky through a wholesaler. It’s a move co-founder Goulding thinks will work out well for sales, but he’s still disappointed.

“It seems really strange that government can come and, something that was legal a few months ago, just take it away,” he said.

This story is from The Center for Public Integrity, a nonprofit, nonpartisan investigative media organization in Washington, D.C. Read more of its investigations on the influence of money in politics or follow it on Twitter.

TIME Military

Defense Contractors Spend Millions to Overturn Limits on Military Spending

The Pentagon’s top contractors sent an army of more than 400 lobbyists to Capitol Hill this spring to press their case for increasing the nation’s spending on military hardware, in a massive effort costing tens of millions of dollars of their own funds from April to June alone, according to an analysis of public lobbying data by the Center for Public Integrity.

The contractors are upset in part because most military spending has been capped for the past few years under budget controls meant to rein in government debt. So far, the caps have forced a decline in main defense budgets from about $528.2 billion in fiscal 2011 to $496.1 billion in fiscal 2015, instead of a previously projected increase to roughly $598 billion. Mounting frustration with the caps was evident in the administration’s submission this year of a military budget that exceeded the limits by about $38 billion, followed by moves by both branches of Congress to add even more billions.

The caps remain the law of the land, however, and they won’t go away until Congress votes to lift them. The issue has so far been tangled up in a dispute between the parties over whether to also increase spending on social welfare programs. But several lobbyists said in interviews that they were optimistic that this could finally be the year that lawmakers agree to let defense contractors return to their historic pattern of ever-higher revenue from the federal treasury.

This could explain in part why total lobbying expenditures by the 53 top defense contractors that reported paying for such work in the second quarter of 2015 were more than 25 percent higher than the amount they spent in the same quarter of 2014 — $58.5 million instead of $45.7 million. But not all of the lobbying was related solely to military spending.

Boeing, a $100 billion corporation that makes military aircraft and other lethal hardware, as well as civilian aerospace goods, reported to the clerk of the House and the secretary of the Senate that it spent almost $13.2 million on lobbying in the first two quarters of this year. Its filing said some of this expenditure was related to expanding its “Commercial Aircraft Sales/Services” and supporting the Export-Import Bank, among other issues. The aerospace contractor’s commercial aircraft division receives billions in financing from the bank, and so it has a large stake in this year’s continuing congressional skirmish over renewing the bank’s charter.

Gayla Keller, a Boeing communications director, declined to comment specifically on their lobbying activities in an emailed response to questions.

Parsing the lobbying reports to sort out just the defense-related expenditures for these contractors is not easy, because the lobbying reporting requirements have some ambiguity baked into them. Lobbying expenses are only reported on an overall basis for an organization, and aren’t tied to specific issues or associated with the agencies that lobbyists target. And for some of the top defense contractors, the Pentagon is only one of many customers, albeit an outsized one.

Still, 40 of the 53 top contractors that lobbied during the last quarter reported that one target of their efforts was the National Defense Authorization Act, the main legislation authorizing defense spending each year. Some of these firms — including Boeing, General Dynamics, Northrop Grumman, and Raytheon — said that their efforts were aimed at budget controls.

General Electric — which makes washing machines and light bulbs and has a major healthcare division — lobbied on the Export-Import Bank, Medicare, passenger and freight train safety and natural gas production, according to its latest disclosure. It also lobbied on several defense weapons programs, including the B-1 Bomber, the CH-53K Super Stallion helicopter, the F-18 Fighter and the F-35 Joint Strike Fighter.

General Electric responded to the Center’s requests for comment with an emailed statement that its “[e]mployees educate officials on our Company’s operations, emerging technologies and markets, as well as on our views on public policy issues.”

Boeing and General Electric had the largest increases in lobbying spending compared with the same period in 2014, among the 15 defense contractors that spent $1 million or more to lobby in the quarter. General Electric almost tripled its lobbying spending compared with the earlier period, from $2.8 million to almost $8.5 million. Boeing more than doubled its spending for the quarter, from almost $4.2 million in the second quarter of 2014 to $9.3 million in the most recent quarter of this year.

Industry experts the Center spoke with said that while there were probably multiple reasons for the heightened lobbying, lifting the budget caps has been the industry’s central ambition. “People are concerned about the sequester,” said retired Maj. Gen. Arnold Punaro, the chairman of the National Defense Industrial Association, the country’s main defense industry association. “For the industry as a whole, that may be the top issue,” said a veteran defense lobbyist, who asked not to be named.

Of the total 655 lobbyists employed by the contractors, 423 of them specifically lobbied on defense, in some cases along with other issues, according to the lobbying reports.

General Dynamics paid for 74 lobbyists, more than any other contractor, for example, and 70 of these lobbied on defense, part of its $2.7 million lobbying tab. Lockheed Martin Corp., the world’s largest defense contractor, spent $3.5 million and enlisted 64 lobbyists to press government officials, including 56 who lobbied on defense as well as other issues.

“The defense budget is capped at a level that neither the industry nor the Pentagon wants,” said Gordon Adams, a fellow at the Stimson Center and a senior White House budget official for national security during the Clinton administration. “The industry has been active on that, company by company, and by the industry as a whole,” Adams said. Companies “either want to raise the caps or get rid of them all together.”

 

TIME Lobbying

How a Federal Lab Lobbied With Taxpayer Dollars

The exterior of the Center for National Security and Arms Control at Sandia National Laboratory in Albuquerque, N.M. in Aug. 1997.
Eric Drape—AP The exterior of the Center for National Security and Arms Control at Sandia National Laboratory in Albuquerque, N.M. in Aug. 1997.

The Energy Department’s Inspector General said this was a violation of federal law.

Top officials at one of the U.S. nuclear weapons laboratories secretly drew up a careful list of targets in 2009. But these were not Russian missile silos or Chinese leadership targets. The officials’ aim was instead to hit a small group of policymakers in Washington with enough political pressure to ensure that the laboratory’s managers could get a lucrative new, 7-year federal contract.

To ensure victory – which to the corporation controlling the lab meant avoiding a messy competition with any other corporations – those at the helm of Sandia National Laboratories devised what they called a “capture strategy” for senior Obama administration officials, according to a laboratory internal document. In part, it entailed hiring three high-priced consultants, at a total expense to taxpayers of up to half a million dollars, who helped craft the target list.

Those on the list were in many cases the usual suspects — members of Congress who served on key committees, their staffs, top Department of Energy officials, a governor of New Mexico and a retired senator. Meetings were held, emails were sent, letters were written, and Washington-based corporate staff was enlisted, all with the aim of keeping the Lockheed Martin Corporation in control at Sandia.

This was, Sandia said in one of its position papers, not merely in the corporation’s best interest, but in the country’s. “We believe,” one of the lab officials said at one point, “it is best for LM [Lockheed Martin], Sandia, and the nation to work together towards influencing DOE to retain this team.” Another message was blunt: “It is in the taxpayer’s best interest to not compete for competition’s sake, but to use the regulatory processes already available” to keep the existing contractor.

While this might seem predictable – after all, what federal contractor would not be eager to keep the federal monies coming in? – it is nonetheless noteworthy for one reason in particular: The analyzing, the strategizing, and the lobbying to get a new contract were all funded by the existing federal contract, according to the Energy Department’s Inspector General, who said this was a violation of federal law, not to mention Sandia’s contract language.

“We recognize that LMC [Lockheed Martin Corporation], as a for-profit entity, has a corporate interest in the future of the Sandia Corporation contract,” said Inspector General Gregory H. Friedman in his Nov. 7, 2014 “Official Use Only” report, which was released to the Center for Public Integrity under a Freedom of Information Act request. “However, the use of Federal funds to advance that interest through actions designed to result in a noncompetitive contract extension was, in our view, prohibited by Sandia Corporation’s contract and Federal law and regulations.”

“Given the specific prohibitions against such activity, we could not comprehend the logic of using Federal funds for the development of a plan to influence members of Congress and federal officials to, in essence, prevent competition,” Friedman said in the report.

Sandia did not see it that way. Its officials told Friedman’s investigators they were merely trying to inform officials in Washington about the work they were doing, an explanation Friedman said was contradicted by the lab’s internal documents.

At stake in the three-year effort was the Lockheed Martin Corporation’s proposal for a 7-year contract extension, with the option for a 5-year renewal after that. While the company’s prospective revenues were not stated in the report, the existing contract called for spending, on average, about $2.4 billion a year. So the total revenues might have exceeded $16 billion.

“Sandia National Laboratories has cooperated fully with the government’s review of this matter,” Heather Clark, a spokeswoman for Sandia National Laboratory, said in language that resembled a statement she issued when a truncated summary of Friedman’s report was first released by the Energy Department last November. “We will continue to work closely with the Inspector General’s office, the Department of Energy and the National Nuclear Security Administration to address all the IG’s recommendations. We are hopeful this matter will soon be resolved.”

In 2009, the report explains, Sandia Corp. hired a consulting firm headed by former U.S. Rep. Heather Wilson, R-New Mexico, and two unnamed former employees of the Energy Department’s National Nuclear Security Administration, at least one of whom previously had oversight authority at the lab. Wilson’s company, Heather Wilson, LLC, provided explicit directions about how to influence the most crucial decision-makers in the contract-award process, according to the IG report.

“Lockheed Martin should aggressively lobby Congress, but keep a low profile,” Wilson’s firm advised, according to notes from a meeting obtained during the investigation.

The notes showed that Wilson’s firm instructed Lockheed Martin to “work key influencers” by targeting then Energy Secretary Steven Chu’s staff — as well as his family, friends, and even his former colleagues at another Energy Department laboratory — and by enlisting former members of Congress to endorse extending Lockheed Martin’s contract without competition.

Wilson has publicly denied that she personally took part in the interactions between her firm and Lockheed Martin involving the Sandia contract. Reached by phone, she declined to answer questions and promised a statement, which did not arrive before the deadline for this publication. Sandia Corp. has said it already repaid the Energy Department $226,378 for the federal money that it spent with Wilson’s firm.

But Friedman went further: He urged the department to determine whether it should recover the money spent by Sandia on the other two consultants, and on the salaries of Sandia officials and employees who worked on the new contract “capture strategy.” Asked if anyone at the department had pursued this effort, a spokeswoman for the National Nuclear Security Administration — which oversees Sandia’s work — did not reply before the deadline for publication.

A Justice Department spokesman, asked if a federal investigation was under way into what Friedman depicted as a violation of federal laws, similarly did not reply before the deadline for this publication.

The copy of Friedman’s report that was released to CPI was heavily redacted to withhold names. But it made clear that Sandia’s push for a long-range, no-bid contract extension under the present administration was not the first attempt to lobby public officials at taxpayers’ expense. “Perhaps [Sandia National Laboratories] felt empowered because it had improperly directed Federal funds to similar activities in the past,” the Inspector General’s report said, in a phrase that did not appear in the November public summary.

A Department of Energy official in 2009 warned lab leaders that their actions “crossed the line” when reports to Congress recommended funding levels for particular programs and policy positions, actions the officials compared to illegal lobbying, according to the report. But in a 2010 email, one of Sandia’s officials – whose name was redacted – said that using federally funded laboratory staff for purposes of pursuing contract extensions was not a big deal, because it had been done before.

“We used operating costs in the same way in securing the extensions in [1998] and 2003,” the lab official wrote.

Lockheed Martin has received a series of one-year contract extensions since 2012, but its push to lock in a longer-term contract failed. Currently, the management and operation contract for Sandia National Laboratory is up for competitive bid – the precise result that Sandia and Lockheed worked to block. The corporation’s existing contract expires April 30, 2017.

This story is from The Center for Public Integrity, a nonprofit, nonpartisan investigative news organization in Washington, D.C. To read more of their work on national security, go here or follow them on Twitter.

TIME Innovation

The Epic Scale of Lobbying Cash

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TIME policy

Google Spent Even More on Lobbying Than Comcast in 2014

Google headquarters in Mountain View, Calif. on Jan. 30, 2014.
Justin Sullivan—Getty Images Google headquarters in Mountain View, Calif. on Jan. 30, 2014.

Outspent the cable giant currently seeking approval for a merger

Google’s influence is increasingly being felt in Washington, according to a corporate spending watchdog.

The search giant spent $16.83 million on federal lobbying in 2014, according to public records analyzed by public interest nonprofit Consumer Watchdog — just a little bit more than the $16.8 million spend racked up by noted big spender Comcast last year, as it sought to win approval for a planned $45 billion merger with Time Warner Cable.

Google is also spending considerably more than its direct competitors, such as Microsoft, which spent $8.33 million on lobbying efforts, and Facebook, which spent $9.34 million. In fact Google’s spend was the largest of 15 tech and communications companies that Consumer Watchdog tracks, including Verizon, Time Warner Cable and IBM.

As Google continues to expand to new business ventures, such as its just-announced contribution to a $1 billion investment into SpaceX, the company must wrangle with an ever-growing list of laws and policies. The Washington Post pulled back the curtain a bit on how Google spends its lobbying dollars earlier this year, revealing that the tech giant regularly funds research at think tanks and invests in advocacy groups on both sides of the political aisle.

Current political issues that would likely be of high interest to Google include the revamping of net neutrality laws and President Obama’s new initiative to ensure that cities are able to build their own municipal broadband networks, which could lead to faster Internet for customers.

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TIME Campaign Finance

D.C. Influencers Spend More on Advertising and PR Than Lobbying

capitol-building
Getty Images

Forget lobbying. When Washington, D.C.’s biggest trade associations want to wield influence, they often put far more of their money into advertising and public relations, according to a new Center for Public Integrity investigation.

Take, for example, the American Petroleum Institute. The oil and gas industry trade group spent more than $7 million lobbying federal officials in 2012. But that sum was dwarfed by the $85.5 million it paid to four public relations and advertising firms to, in effect, lobby the American public — including $51.9 million just to global PR giant Edelman.

From 2008 through 2012, annual tax filings show, the API paid Edelman a staggering $327.4 million for advertising and public relations services, more than any other contractor.

It’s been well-publicized how much industry spends on lobbying the government, but not so much is known about how much money goes toward influencing the public. In an effort to find out more, Center for Public Integrity reporters examined the tax returns for trade associations that spent more than $1 million on lobbying in 2012. The IRS requires the groups to report their top five contractors.

Of $3.4 billion in contracts reported by the 144 trade groups from 2008 through 2012, more than $1.2 billion, or 37 percent, went toward advertising, public relations and marketing services, more than any other category. The second-highest total, $682.2 million, or 20 percent of the total, was directed toward legal, lobbying and government affairs.

By industry sector, the biggest clients of PR, marketing and ad services were energy and natural resources associations.

The public relations industry is on a growth tear while the number of federally registered lobbyists is actually shrinking. Public relations work, unlike lobbying, is not subject to federal disclosure rules, and PR and advertising campaigns can potentially influence a broader group of people. In addition to Edelman, among the other major players are President Barack Obama’s go-to ad agency GMMB, “issue-advocacy” firm Goddard Gunster and government policy specialists Apco Worldwide.

While not a complete accounting of spending, the analysis provides a glimpse into just how important the public relations industry is to groups seeking to influence public policy.

Big energy leads spending

Boosted by the $327.4 million-worth of contracts Edelman inked with the American Petroleum Institute — consistently the largest contracts the Center found in five years of collected data — the energy and natural resources industry outspent every other sector on advertising and public relations.

The API, Growth Energy — which represents ethanol producers — and other energy and natural resources trade groups collectively spent more than $430.5 million on PR and advertising to help burnish their image between 2008 and 2012.

It’s not clear how much of the total went into the bank accounts of the PR and advertising firms and how much was passed on to media companies, however. Edelman declined to comment with Center reporters for this story. Edelman likely left some of the work for the API to its Blue Advertising subsidiary, which offers media planning and placement in its services and discloses work for the oil giant on its website.

Other top energy and natural resources interests included the National Fisheries Institute, which represents seafood harvesters, wholesalers and retailers, and the National Biodiesel Board, whose members take recycled cooking oil and animal fats and turn them into fuel.

Business associations — led by the U.S. Chamber of Commerce — represented the second largest industry category, paying PR and advertising firms a total of at least $214.9 million from 2008 through 2012. The U.S. Chamber, the nation’s biggest lobby and a prolific spender on political ads, paid $173.5 million to its top advertising firms during the five-year period.

In 2010 and 2012, all five of the trade group’s top contractors were advertising agencies.

The U.S. Chamber paid Republican media-buying firm National Media Research, Planning & Placement more than $60.8 million for advertising services in 2009 alone. National Media, based in Northern Virginia, researches voter demographics and behaviors and places ads in key media markets.

Another top advertising contractor for the U.S. Chamber was Revolution Agency, which the trade group paid more than $38.2 million from 2010 through 2012.

Revolution is a Northern Virginia-based advocacy firm that possesses the “Creativity of Madison Avenue” and the “Strategic Discipline of a Political Campaign,” according to its website. Its partners all formerly worked as staffers or consultants for Republican lawmakers, and the firm’s clients have included business groups and the telecommunications industry.

The agency was behind an award-winning public affairs campaign targeting the proposed Consumer Financial Protection Bureau, an agency birthed out of the 2008 financial crisis. The campaign on behalf of the U.S. Chamber included a TV ad that attacked the proposed bureau as a “massive new federal agency that will create more layers of regulation and bureaucracy.”

The finance, insurance and real estate sector ranked third in contracts with advertising and PR agencies, paying $184.5 million to contractors, including favorites the Most Organization, a West Coast advertising agency, and Locust Street Group, a “grassroots” advocacy firm. The sector was led by the National Association of Realtors and America’s Health Insurance Plans.

The Most Organization, based in Orange County, California, earned more than $116.7 million from 2010 through 2012 for its work to promote the National Association of Realtors in a national advertising campaign.

Fourth in PR spending based on top contracts was the food and beverage industry, which paid out $104.5 million from 2008-2012. Big spenders included the American Beverage Association, which has been shelling out millions to try and keep cities and states from taxing sugary drinks.

Rounding out the top five industries for PR and advertising spending was communications and electronics, led by CTIA — The Wireless Association, which represents telecommunications companies like AT&T Inc. and Verizon Communications Co. Also in that category: the Software Alliance.

Steve Barrett, editor-in-chief of trade magazine PR Week, says it’s clear why trade associations rely so heavily on PR and advertising.

“They certainly want to influence the general public,” he says, “because the general public will then influence the politicians, the lawmakers or the regulators in that particular industry.”

Edelman leads PR firms

The Center’s analysis includes the top five contractors for each trade association. Annual totals need to be at least $100,000 to be reported. The Center looked only at trade associations that spent more than $1 million on lobbying in 2012, according to the Center for Responsive Politics. [See Methodology.]

Edelman’s lucrative contracts with the American Petroleum Institute helped the PR giant earn $346.8 million, significantly more money from top trade associations than any other advertising or public relations firm, according to the Center’s analysis. But the oil industry trade group wasn’t the firm’s only client.

Others included the Business Roundtable ($9.9 million), a group of CEOs who advocate for business-friendly policies, the Software Alliance ($2.5 million) and the Grocery Manufacturers Association ($1.8 million).

The food-industry trade group paid Edelman more than $1 million in 2011 for work related to its campaign to put select nutrition facts on labels — a move that some health experts criticized as a way to head off the Food and Drug Administration’s effort to require more comprehensive labeling.

Edelman is the country’s largest independent public relations firm. It employs more than 5,000 workers and maintains subsidiaries that specialize in grassroots communications and advertising.

The firm’s Washington office has a staff of 225, which includes “former journalists, campaign veterans, political speechwriters, White House staffers and legislative aides,” according to the firm’s website. Among them: Steve Schmidt, a senior advisor to Arizona Republican Sen. John McCain’s 2008 presidential campaign; former White House deputy press secretary Jamie Smith; and former Sens. Judd Gregg, R-N.H., and Kent Conrad, D-N.D.

Edelman is known for its at-times controversial tactics. In 2006, the firm was forced to apologize for creating a misleading grassroots campaign for Wal-Mart. To polish the company’s reputation, the agency had created “Working Families for Wal-Mart,” for which a couple drove across the country blogging positive accounts of the retail giant’s employees and customers — initially without disclosing that they were compensated. The campaign, which launched amid bad press about the company’s employment practices, sought to portray Wal-Mart workers as happy middle-class families.

More recently, leaked documents revealed Edelman’s aggressive plans to attack opponents of a pipeline being developed by TransCanada Corp. Within days of the leak, TransCanada announced that it was severing ties with Edelman.

In both cases, according to reports and leaked documents, Edelman maintained the same three-step approach: promote positive messages, respond to criticism and pressure opposition groups.

Michael Bush, a spokesman for the firm, declined to comment for this story. In an email, he wrote, “We do not talk about the work we do for clients.”

Public relations and advertising agencies boast of their communications savvy, but firms contacted for this story were mum. Some, like Edelman, declined to comment, while others did not return repeated phone calls and emails seeking comment.

Most trade associations also did not respond to the Center’s inquiries.

Lisa Graves, executive director of liberal watchdog group the Center for Media and Democracy, which operates the website PRWatch.org, says trade associations are designed to be a “shield and a sword” for their corporate members.

“It’s important for people to know more about how the trade associations operate and which PR operations they’re funding,” she says, “because those nonprofit entities are extremely powerful special interests in Washington, D.C.”

‘Turning the tide’

Communications firm GMMB ranked second behind Edelman. The agency, which has offices in Washington, D.C., and Seattle, brought in $123.5 million from contracts with five different associations in the beverage, communications, transportation and business industries from 2008 through 2012.

Known most prominently for its political work on behalf of Barack Obama’s presidential campaigns — GMMB’s leadership team includes Obama’s campaign advisor Jim Margolis — the firm has created ad blitzes for trade groups including CTIA and the American Beverage Association, whose members include Coca-Cola and PepsiCo.

From 2009 through 2012, the wireless association paid GMMB $40.5 million to produce ads, including one TV spot with the message that “wireless is freedom.” The beverage association, which teamed up with GMMB on a 2012 ad campaign to promote new prominently displayed calorie labels, paid the firm more than $55.2 million.

The Most Organization and National Media Research, Planning and Placement were the third- and fourth-highest paid contractors for advertising and public relations services. Goddard Claussen (now Goddard Gunster) came in fifth, followed by Revolution Agency, which was sixth, thanks mostly to its work for the U.S. Chamber of Commerce, according to the Center’s data analysis.

Apco Worldwide, which ranked seventh, earned $42.9 million from trade associations. The Washington, D.C.-based firm is known for its work for the tobacco and health care industries. Mike Tuffin, a managing director in the firm’s Washington office, joined Apco in 2012 after serving as executive vice president of America’s Health Insurance Plans, a trade group that represents health insurers.

On behalf of AHIP, the agency created front group Health Care America to attack filmmaker Michael Moore’s 2007 documentary Sicko, which demonized American health insurers, according to Wendell Potter, a former industry-executive-turned-whistleblower. (Disclosure: Potter is a regular columnist for the Center for Public Integrity.)

In the two years before Congress passed health care reform in 2010, Apco won at least two contracts with AHIP, totaling more than $5 million.

Among former government officials at Apco are ex-Gov. Bill Richardson, D-N.M., and ex-Congressmen Don Bonker, D-Wash., and Tim Roemer, D-Ind.

Ogilvy & Mather came in just behind Apco, earning nearly $41 million from four trade associations during the five-year period reviewed by the Center. But the firm, a subsidiary of communications giant WPP, earned almost all of its money from the American Chemistry Council, which represents chemical companies.

The American Chemistry Council paid Ogilvy more than $15 million in 2008 alone. That year, the firm led a couple of PR and advertising campaigns on behalf of the trade group, including one that discouraged Americans from supporting a ban on products containing phthalates, a group of chemicals found in plastics and suspected of causing changes in hormone levels, birth defects and other health effects.

The firm earned awards for the phthalates campaign, which it dubbed “From Toxic to Truthful: Turning the Tide on Phthalates.” Even though Congress eventually banned the use of certain types of phthalates in children’s toys, the firm patted itself on the back for helping to “neutralize negative coverage” and bring “a noticeable shift in the public mood.”

FleishmanHillard ranked ninth, according to the Center’s analysis. Its public relations and advertising clients included the American Petroleum Institute ($27.6 million) and CropLife America ($1.5 million), which represents the manufacturers of pesticides and agricultural chemicals.

The firm, which describes itself as being driven by “the power of true,” has consistently ranked within the top three of the world’s highest-paid public relations companies for the past five years, according to the World PR Report published by the Holmes Report. Its D.C. office is led by Kris Balderston, a former State Department official and deputy assistant to former President Bill Clinton.

Keeping the players straight in the advertising and public relations game is no easy task due to a series of massive mergers that have taken place over the past decade or so. GMMB, for example, is actually a subsidiary of FleishmanHillard, which is owned by the giant advertising and communications holding company Omnicom Media Group, based in New York City.

But most of the subsidiaries function under their own names.

Locust Street Group rounds out the top 10 firms for PR and advertising services. The Washington, D.C.-based agency earned $23.6 million in trade group money from 2008 through 2012, almost all of which came from America’s Health Insurance Plans. It’s unclear what exactly the agency did on the insurance group’s behalf — the firm’s founder, David Barnhart, declined to answer questions for this story — but Locust Street Group’s website says it builds “boots on the ground” coalitions and creates social media campaigns to help influence lawmakers.

“D.C. may have K Street with tons of lobbyists,” the firm’s slogan says, “but small towns all over America have a Locust Street.”

High stakes, big reward

For public relations agencies, landing a contract with a large trade association is a big deal.

“The stakes are high, and the competition is intense,” says Larry Parnell, director of George Washington University’s master’s program in strategic public relations. “But as you can see, winning one of these things is very lucrative.”

It’s difficult to draw sweeping conclusions from the data analyzed by the Center. Trade groups often vaguely describe the services their top contractors provide as “professional fees” or “consulting.” Many firms offer a wide range of services, at times making it unclear exactly what kind of work was done on the industry associations’ behalf.

Because the Center only reviewed the most politically active trade associations, the data didn’t include some industry groups that fell below the $1 million lobbying threshold but still spent heavily on public relations and advertising.

But the contractor information provides an inside look at the way trade associations use PR and advertising to ply the American mind. Trade groups determined to fight regulations and boost profits of their members have spent heavily to influence how the public perceives policies that affect everything from the air we breathe to the beverages we drink.

The strategy, public relations experts say, is not designed to replace lobbying so much as it is to enhance it.

“You can leverage [public relations work] so your lobbying is to a finer point,” says Parnell, noting that lobbyists can better influence lawmakers by showing them polling gathered by “grassroots” PR campaigns. “It provides air cover.”

“People and organizations are getting increasingly sophisticated with their communications strategies. They are more multi-dimensional,” adds Anne Kolton, vice president of communications for the American Chemistry Council. “With any advocacy [effort], the key is to create an echo chamber so people hear your message in numerous venues.”

There are some advantages to putting millions into PR rather than lobbying. For example, a trade association may be pushing a particular policy that is not so popular with the public. As long as it doesn’t directly contact a government official, it need not report who it has hired to do the PR work. Lobbying firms generally must report how much they are paid, who their clients are and what subject areas they are working on.

Misleading tactics

PR agencies may further obfuscate their role by creating so-called “front groups” that appear to be grassroots organizations, in an effort to push their clients’ messages. It is often difficult to discern who is behind these manufactured entities, though sometimes information can trickle through.

For example, the tax form for the National Mining Association showed that it paid $4 million to Weber Merritt, a Northern Virginia public affairs firm, as an independent contractor. The services were listed as “Count on Coal” in 2012, according to IRS filings.

Count on Coal calls itself a “grassroots organization” that educates people on coal-powered electricity. Its social media and online petitions, which criticize government proposals to cut carbon emissions, all omit ties to the mining association.

While this type of “grassroots” mobilization is increasingly driven by an industry or paid consultants, it is only one piece of the growing demand for communications professionals, who specialize in everything from crisis management to social media advocacy.

In 2013, the global public relations industry grew 11 percent over the previous year to $12.5 billion, according to trade journal The Holmes Report.

The steady rise in public relations worldwide spending has been accompanied by an overall drop in lobbying spending, beyond the trade group sector.

Lobbying expenditures peaked in 2010, when special interests spent $3.6 billion on lobbying federal lawmakers. Since then, they have declined steadily, falling to $3.2 billion in 2013, according to the Center for Responsive Politics. The total number of registered lobbyists has also dropped.

Some say the change indicates a shift toward so-called “soft lobbying,” a strategy that enables industry groups and unions to influence public policy not only with public relations, but through think tanks, nonprofit organizations and grassroots groups that aren’t subject to federal disclosure rules.

Journalists overwhelmed

The golden age for PR has coincided with the decline of mainstream journalism, especially newspapers, which have suffered from plummeting ad revenue that has necessitated layoffs in newsrooms across the country.

Today, not only are PR professionals outnumbering journalists by a ratio of 4.6 to 1, but the salary gap between the two occupations has grown to almost $20,000 per year, according to the Pew Research Center. The widening employment and income disparities have left journalists underpaid, overworked and increasingly unable to undertake independent, in-depth reporting.

Rick Edmonds, a writer for the Poynter Institute who covers the business of journalism, says the shift has been particularly evident in the coverage of science and health news. Many news organizations that once reported extensively on those issues no longer have the resources to cover them adequately, and special interests have filled the void.

“A great deal of science and health news is coming from the PR side,” Edmonds says.

For trade associations like the American Petroleum Institute, that’s part of the larger public relations strategy that makes lobbying federal lawmakers a lot easier.

“If we’re concerned about a particular member [of Congress], we will educate that constituency and encourage people to weigh in with their elected official,” Jack Gerard, the American Petroleum Institute’s president and CEO, told The Washington Post in a 2012 interview explaining the mentality behind the trade group’s PR offensive. “Congress is a lagging indicator. Congress is responsive to the American people. That’s why a well-educated electorate is a key to sound policy.”

The gradual shift from a focus on traditional lobbying toward greater use of the “outside game of politics,” or communications like PR, has been going on for at least a decade, close observers say, but is now accelerating with advances in technology, social media and digital strategies, says Doug Pinkham, president of the Public Affairs Council, an association of public affairs professionals who specialize in corporate PR, lobbying and grassroots advocacy.

Not all of the trade associations reviewed by the Center spent more money on top contracts for public relations and advertising than on those for lobbying and legal services. But the data appear to support broader trends in the so-called “influence industry.”

“In the world we live in now,” says Pinkham, “if you have an issue that is visual and has a compelling narrative, we’re better off spending more resources on trying to educate the public” than relying on traditional lobbying.

Troubled industries turn to PR

The trade associations that rely most on PR and advertising campaigns are usually those representing industries facing the heaviest regulation and the most public contempt, says Edward Walker, a sociology professor at the University of California, Los Angeles, and author of the book Grassroots for Hire.

And the campaigns are often tied to specific public policy crises. As Walker says, they usually launch “when industries really feel threatened that they might actually lose a policy battle.”

Over the last few years, both the American Petroleum Institute and the American Beverage Association have used PR campaigns to defend their respective industries during heated debates over issues like the proposed Keystone XL pipeline and proposed taxes on sugary drinks.

At the outset of 2012, the American Petroleum Institute announced a “Vote4Energy” campaign to promote the industry in a contentious election year. Its social media endorsed the idea that domestic oil production would bring jobs, revenue and national security.

With Edelman’s help, the American Petroleum Institute also organized a speech and panel discussion targeting “key influencers” in attendance, including think tanks, government officials and the media. Online groups also emerged, like “Energy Tomorrow,” which hosts a blog by Mark Green, a journalist-turned-industry-blogger.

In addition to Edelman’s work, the petroleum group paid FleishmanHillard $22.8 million in 2012 for advertising to promote hydraulic fracturing, or fracking, to skeptical citizens. TV advertisements targeted a half-dozen shale gas-producing states, including Pennsylvania, Texas and North Dakota, emphasizing small-town reliance on energy and downplaying environmental impacts, as part of its Energy from Shale campaign.

Big soda

Few industries have felt more threatened in recent years than soda makers.

Since 2009, the makers of sugary beverages have found themselves under attack from government officials and public health advocates who have blamed soft drinks for the nation’s expanding waistlines and have favored taxing popular sweetened beverages.

The American Beverage Association has fought back — vigorously — with the help of Goddard Gunster, a Washington, D.C.-based firm famous for creating the “Harry and Louise” ad campaign that helped bury President Clinton’s health care reform proposal in 1993 and 1994.

Goddard has produced anti-tax ads and created front groups in cities and states considering soda taxes. In 2012, the firm helped the association defeat two soda-tax ballot measures in Richmond and El Monte, California — campaigns that preceded its 2014 ballot-box battles in San Francisco, where voters rejected a soda-tax measure, and Berkeley, where a sugary-drink tax passed.

Jenny Wang, a public health worker and mother of two girls, recalls how the beverage industry flooded Richmond with anti-tax ads, buying up the town’s billboards and hiring residents to deliver mailers door-to-door.

“We didn’t have the manpower to fight against all of that messaging,” says Wang, a former Richmond resident who supported the soda tax. “They were so pervasive and so persuasive.”

John Dunbar contributed to this report.

TIME Lobbying

Governors Lean Heavily on Industry-Funded Group on Offshore Drilling

Chevron's Jack/St. Malo Oil Platform Departs From Kiewit Offshore
Eddie Seal—Bloomberg/Getty Images Birds fly as pedestrians watch tug boats transport the Chevron Corp. Jack St. Malo semi-submersible drilling and production platform to the Gulf of Mexico from Kiewit Offshore Services in Ingleside, Texas, U.S., on Nov. 15, 2013.

Energy lobbying firm worked through industry-funded advocacy group to provide research and resources

It was a brisk February morning, and the governors of Alabama, Mississippi, Virginia and North Carolina were seated around a ring of tables draped with pleated beige fabric in the ornate Nest Room of Washington, D.C.’s Willard InterContinental Hotel. Sitting across the tables was Interior Secretary Sally Jewell, whom the governors had invited so they could make their case for expanding offshore energy production. It was a long-awaited meeting for the governors, and they’d armed themselves with specific “asks” — that Jewell’s department open access to oil and gas drilling in the Atlantic, for instance, and improve “regulatory certainty” for energy companies operating rigs off the coasts.

The get-together this past winter was but one small push in the type of broader political campaign that occurs every day in countless Washington conference rooms, watering holes and hotel suites. For the past three years, a group of eight, mostly Republican governors from coastal states has been lobbying the Obama administration to expand access to the nation’s offshore oil and gas deposits, working through an organization called the Outer Continental Shelf Governors Coalition.

While the message from the governors that morning would have come as no surprise to Jewell, less clear, perhaps, was that the governors were drawing on the research and resources of an energy lobbying firm acting on behalf of an oil industry-funded advocacy group.

Indeed, the background materials handed to the governors for the meeting, right down to those specific “asks,” were provided by Natalie Joubert, vice president for policy at the Houston- and Washington D.C.-based HBW Resources. Joubert helps manage the Consumer Energy Alliance, or CEA, a broad-based industry coalition that HBW Resources has been hired to run. The appeal for regulatory certainty, for example, came with a note to the governors that Shell, a CEA member, “felt some of the rules of exploration changed” after it began drilling operations in the Arctic.

The governors’ efforts have produced more than just talking points. This summer, the coalition won a major victory when the Interior Department said it would accept applications to probe the Atlantic seabed for oil and gas with seismic tests, a significant step toward allowing drilling off the East Coast — drilling that has been off-limits for decades. While the federal government ultimately controls where offshore drilling is allowed, the Obama administration has made clear it will allow production where the public — and public officials — support development.

And so it appears as if CEA’s considerable investment of time and resources has paid off. Indeed, a review of thousands of pages of public documents, obtained by the Center for Public Integrity through records requests, shows that much of the governors coalition work has been carried out by HBW Resources and CEA, a group that’s channeled millions in corporate funding to become a leading advocate at the state level for drilling.

The governors coalition is just one of many groups, such as the American Legislative Exchange Council (in which CEA is actively involved), that allow powerful corporate interests to gain a direct line to state policy makers not available to common citizens or other stakeholders, all under the banner of a generic advocacy organization.

“It would be alarming I think for many people if they found out that some of the biggest polluters were running a governors group, but less so if it’s a nonprofit,” said Nick Surgey, director of research at the Center for Media and Democracy, a liberal advocacy group. “That one step removed stops the alarm bells going off, but it should really concern people.”

The documents suggest that CEA staff attended the February meeting with Jewell, but Interior Department spokeswoman Jessica Kershaw did not respond to a question asking whether Jewell knew of CEA’s involvement, saying only that the department speaks with “a broad group of stakeholders,” and considers “all points of view.” She said Jewell told the governors that the department “is committed to working with them and their participation in the planning process is fundamental for any kind of coastal development.”

The Center requested interviews with staff of each of the governors — additional coalition members include the chief executives of Alaska, Texas, South Carolina and Louisiana — but none made anyone available, though Alaska responded to questions in writing.

There’s been little effort to explain CEA’s relationship with the coalition, which is currently chaired by North Carolina Gov. Pat McCrory. The coalition’s website made no mention of CEA until recently, when one page was edited — after the Center began reporting this article — to acknowledge the organization provides “information and administrative support.” In March, when the Center first asked who staffs the coalition, Ryan Tronovich, a spokesman for McCrory, said the governors provide the staff (records show Tronovich actually consulted with CEA to answer the Center’s questions). When the Center asked again after learning of CEA’s involvement, Tronovich said in an email that he “should have been more clear,” and compared CEA’s help to that given by an intern. (The Republic Report, an investigative news website, first reported a possible connection with CEA in February when it noted that a coalition letter appeared to have been written by Joubert.)

In an interview, David Holt, president of CEA and managing partner of HBW Resources, said CEA provides assistance to the coalition at the governors’ request. He said both the coalition and CEA have an “all-of-the-above” energy policy that supports renewable as well as fossil fuels. He also characterized his organization’s role as supportive of the coalition in the same way any number of stakeholders may be.

But there’s no evidence that any other group has played a substantive role in the coalition, or that environmental organizations have been invited to any of its meetings. Earlier this month, the McCrory administration organized a meeting with federal officials to discuss Atlantic drilling; no other governors were there, but staff representing the governors of South Carolina and Virginia did attend. McCrory administration staffers told journalists and environmental organizations that the meeting was closed to interest groups so as not to “allow for the potential of the appearance of influence.” In fact, CEA and other industry groups did attend the meeting. Nadia Luhr, the legislative counsel for the North Carolina Conservation Network, wrote a letter to the administration protesting the circumstances of the meeting. She had not previously been aware of CEA’s role in the coalition, but indicated she wasn’t surprised.

“It’s just another example,” she said, “of industry having a voice where no one else does.”

Rebirth of an industry

Each May, tens of thousands of people gather in Houston for the Offshore Technology Conference, the industry’s premier event, and in 2011 they were looking for a fresh start. A year earlier, the Deepwater Horizon rig had exploded in the Gulf of Mexico just weeks before the conference, killing 11 people and leading to the largest oil spill in the nation’s history. In the aftermath, Obama placed a moratorium on deep-water drilling and canceled plans to allow drilling in the waters off Virginia.

Nevertheless, the 2011 conference was bigger than ever, with exhibit booths displaying the latest in drilling technology sprawling over nearly 600,000 square feet of Houston’s Reliant Park complex, which encompasses a cavernous exhibition center, an indoor arena that seats nearly 6,000 people, and covered outdoor booths. There were policy discussions and technical events with titles like “Active Heating for Life of Field Flow Assurance.” The first day kicked off with a panel hosted by Holt and an executive with Noble Energy that featured officials from the five inaugural states of the coalition — Texas, Alaska, Virginia, Mississippi and Louisiana — who decried the federal government for standing in the way of development.

It was there that the governors of those five states announced their coalition, with a stated goal of improving dialogue between the states and the federal government. The coalition’s first chairman was Louisiana Gov. Bobby Jindal, who as a congressman in 2006 sponsored a bill that would have removed the federal moratoriums on drilling in the Atlantic and Eastern Gulf. In 2010, as governor, Jindal railed against Obama’s deep-water moratorium — a moratorium that had been lifted by the time the 2011 conference was held. The governor has been a reliable friend to the oil industry, which has contributed more money to his campaigns than any other sector — more than $1.4 million over the past decade, according to the Center for Responsive Politics and the National Institute on Money in State Politics.

Jindal’s office did not respond to an interview request or to questions about the coalition’s formation. Sharon Leighow, a spokeswoman for Alaska Gov. Sean Parnell, the second chairman of the coalition, said in a written response that the founding governors, not CEA, had decided to form the coalition. When asked how CEA got involved, she wrote: “Unknown.” (Parnell recently lost a bid for re-election.)

CEA president Holt said the governors approached his group because it represents not only energy companies, but also other sectors like airlines, trucking and construction. “They knew of us and asked CEA because we represent the whole economy,” he said.

Some environmental advocates have a dimmer view of why the group was formed that May. “The Outer Continental Shelf Governors Coalition is a Trojan horse,” said Richard Charter, who has fought against offshore drilling for decades and is now a senior fellow at the Ocean Foundation, which supports marine conservation. Oil companies and other industry groups, including CEA, started a campaign a decade ago to repeal the Atlantic moratorium by lobbying officials and the public state-by-state, he said, and the coalition is the culmination of that effort. “They want to create the appearance that a bunch of coastal states are clamoring for ‘drill here, drill now.’”

Throughout its three-and-a-half-year life, the governors coalition has focused on the Interior Department’s “Five-Year Program” — the arcane, bureaucratic process the department uses to plan the nation’s offshore drilling regimen — lobbying at each incremental turn for the department to open more areas to drilling and to ease restrictions where drilling is underway. The coalition has also pushed for the federal government to share more drilling revenue with the states.

The Center requested documents related to the governors coalition from the three states that have chaired the coalition. Louisiana and Alaska provided thousands of pages, though Alaska’s response was heavily redacted. North Carolina has yet to respond to the request, which was submitted in April.

Whatever the origins of the coalition, the documents show that Holt was an early driving force. In May 2011, he and his colleagues at CEA designed a logo for the group. In July, he sent an email to Chip Kline, deputy director of Jindal’s Office of Coastal Activities,congratulating Louisiana on being named the coalition’s first chair, stressing that the governors would add a “meaningful voice” to the energy debate. When they were planning the coalition’s first meeting, alongside a Republican Governors Association gathering in Jackson Hole, Wyoming, and RSVPs weren’t coming in as hoped, Holt fired off a message saying, “REALLY need to have this OCSGC meeting to get things rolling.”

Voice of the consumer?

The Consumer Energy Alliance calls itself “The Voice of the Energy Consumer.” The group was formed in 2006, operating initially out of a small office park in Houston. Its first board of directors included executives with Shell, Hess and a wind power company, as well as geologists and representatives of “consumer” industries such as trucking. Also on the board: Jim Martin, chairman of the 60 Plus Association, which bills itself as the conservative alternative to the elderly advocacy group AARP, but which is also part of the well-financed political network led by Charles and David Koch, the billionaire industrialists with major stakes in oil and gas.

Holt, 48, who speaks with folksy Texan charm, has been the alliance’s only president. Before starting CEA, he had worked in government affairs for Hart Energy, an industry publishing company, and before that, he says, as legal counsel to the top oil and gas regulator in Texas.

The alliance says it seeks to improve understanding of the nation’s energy needs and advocates for lower energy prices through an “all-of-the-above” policy of increased domestic energy production. Over the past eight years, the group’s membership has grown to about 240 corporate entities, including groups from “energy consuming” industries like transportation and construction, as well as energy companies. CEA also claims to have some 400,000 individual members who have signed petitions or taken other actions that are described on its website. (In October, however, Wisconsin regulators rejected a petition CEA had filed in an electricity rate case there after an investigation by the Madison Capital Times revealed that some of the 2,500 people whose names had been used were unaware they appeared on the petition, and actually opposed CEA’s stance. CEA said it stood by the 2,500 signatures, but had actually requested that the petition be withdrawn before it was rejected.)

In 2011, the year the governors coalition was formed, CEA’s annual revenue ballooned to $3.8 million from just $737,000 the previous year, and it’s remained above $3 million since then. Holt says the majority of CEA’s members are from “consuming” sectors and that its funding comes from all members. He wouldn’t say who pays what, however, and tax records show that in 2011 and 2012, the most recent years available, at least 30 percent of the money came from just three entities: the American Petroleum Institute, the American Fuel and Petrochemical Manufacturers and America’s Natural Gas Alliance, each a prominent oil and gas industry group.

More than $1 million of that revenue goes as a management fee to HBW Resources, an energy-focused lobbying and consulting firm that Holt formed in 2008 along with Michael Whatley — a former chief of staff for Sen. Elizabeth Dole — and Andrew Browning, who had worked as a lobbyist and in the Department of Energy. With the exception of a few regional directors, CEA’s staff is comprised of HBW staff, and to the layman, it’s hard to tell the difference between the two.

HBW’s Washington, D.C., office sits in a giant truncated pyramid of a building, with sloped outer walls, that overlooks Farragut Square on the city’s lobbyist-dense K Street. The firm has offices in five other cities in the U.S. and Canada and has its fingers in many pies. Its 18 employees manage not only CEA, but also the Energy Producing States Coalition, a group of state lawmakers that work on energy policy, and the National Ocean Policy Coalition, a collection of energy companies, commercial fishing organizations and other business interests that opposes the Obama administration’s oceans policy. Whatley is also the vice president of Nebraskans for Jobs and Energy Independence, ostensibly a group of Nebraskans who support the construction of the Keystone XL pipeline. The firm lobbies on behalf of just a handful of clients, including Noble Energy and The Babcock and Wilcox Company, which makes nuclear reactors and other industrial power equipment.

HBW employees have contributed tens of thousands of dollars to dozens of political campaigns. Notably, they gave $1,600 to Democrat Terry McAuliffe — who, following his election as governor of Virginia last year, joined the governors coalition after Whatley and Joubert made a direct appeal to one of his senior advisers during a December meeting. They also gave more than $8,300 to Gov. Nikki Haley of South Carolina within a day of a coalition meeting that Haley attended, in Houston in 2013.

One of the firm’s first major campaigns began in late 2009, when Whatley worked with a Canadian diplomat to help block state and federal attempts in the U.S. to pass low-carbon fuel standards, which could have threatened imports from Canada’s tar sands oil deposits.

The effort previewed what would become a recurring strategy for Whatley and his colleagues: pairing a public advocacy campaign with direct, behind-the-scenes appeals to elected officials, urging them to make similar public comments in their own voices. More recently, CEA has worked through the American Legislative Exchange Council, the conservative state legislators group, to oppose a new federal rule limiting greenhouse gas emissions.

Holt says his organization supports all forms of energy production and is directed by its board, which no longer includes energy companies. “We are a consumer controlled and a consumer funded and a consumer dominated organization,” he said.

Most of its campaigns and communications focus on oil and gas, however. That, coupled with what’s known about its funding, has led some advocacy groups to view CEA as a front group for energy companies, an entity created to give the appearance of an independent and broad-based voice. To these advocacy groups, the governors coalition is just another player in the larger game. “This is a purposed campaign to mislead the public,” said Claire Douglass, campaign director for climate and energy at Oceana, an environmental group that opposes offshore drilling. “The politicians are now doing industry business, not being public servants.”

Gaining speed

The governors coalition’s work inched forward through much of its first year-and-a-half, at least in part because there wasn’t that much it could do. The Interior Department had excluded new areas from the current drilling plan, covering 2012-2017, and it hadn’t yet begun substantive work on the next one. The coalition wrote letters to Congress and the Obama administration (two of which appear to have been edited by Shell and Exxon Mobil), urging open dialogue and pressing on other issues, such as revenue sharing. It held periodic meetings. On December 7, 2012, three Alaska officials — Kip Knudson and Nathan Butzlaff, who led Parnell’s work on the coalition, and state Commerce Commissioner Susan Bell — attended CEA’s holiday party at the Old Ebbitt Grill in Washington, according to emails.

In 2013, the newly-elected McCrory, formerly a Duke Energy executive, joined the coalition, adding an important player in the group’s push for drilling off the South Atlantic coast. The group had a new chairman in Parnell, who before entering office had been ConocoPhillips’ chief lobbyist in Alaska and had worked on energy for Patton Boggs, a D.C. lobbying firm that represented Exxon Mobil.

As part of the coalition’s effort to establish itself, the governors and CEA formalized their relationship with a memorandum of understanding designating CEA as volunteer staffwith specific duties to manage the organization. It held a “strategy session” with the American Petroleum Institute.

In October, the coalition convened at the Beau Rivage Resort and Casino in Biloxi, Mississippi, alongside the annual gathering of the Southern States Energy Board for what would be a formative meeting. The following year would present the first opportunity for the group to weigh in on the next five-year drilling plan, and the governors and CEA wanted to make sure they were prepared to make their case.

Govs. Parnell, McCrory and Bryant, along with staff of the other governors, met for more than an hour in one of the resort’s ballrooms with executives from Exxon Mobil, Shell, Spectrum Geo — a seismic testing company — and other energy groups, including the Southeastern Coastal Wind Coalition, to hear their concerns, according to a meeting agenda.

Briefing documents prepared by CEA include talking points on the economic benefits of drilling, saying, “the key is to echo these messages to Congress and the Obama Administration, encouraging them to pursue a sensible path that allows for Atlantic leasing.” The document adds that “coastal governors, legislators, and other stakeholders should play a lead role in delivering the messages below to the Administration and to Congress.”

According to notes from the meeting prepared by CEA’s Joubert, Randall Luthi, president of the National Ocean Industries Association, an offshore industry group, advised the governors that they could suggest to the Interior Department which areas should be leased, and he “urged the governors to keep their areas of potential interest as broad as possible.” He also warned of “increasing activism by NGOs against seismic activity and cautioned the governors about some of these groups’ false rhetoric.”

The day after the meeting, Tony Almeida, a senior adviser to McCrory, sent an email to Holt saying the governor had agreed to serve as vice-chairman of the coalition. “Great news, Tony!” Holt replied, adding, “Great work yesterday. Pat was outstanding! Lots of key action items. We can’t thank you enough for all your support and leadership on OCSGC. 2014 is going to be… interesting. :)”

An “interesting” year

This year, the debate over drilling in the Atlantic picked up significantly just as the coalition finally gained the sort of direct access to the Obama administration it had been seeking. And, the emails show, CEA played a critical role in helping the governors respond.

Two weeks before the governors’ meeting with Jewell that cold February morning in Washington, officials from Alaska and North Carolina had a series of email exchanges and phone calls with CEA’s Joubert to prepare for the meeting. Joubert advised Donald van der Vaart — North Carolina’s deputy environment secretary, who had been tasked with preparing McCrory — on specific policies, such as what to request regarding seismic testing. Van der Vaart asked Joubert to send talking points, noting that a previous briefing book she had sent was “an amazing resource.”

In that meeting at the Willard, Jewell reportedly told the governors that her job isn’t “to get in the way of development,” but rather “to make sure it’s done right.” She and her staff also noted that environmental organizations had increased scrutiny of seismic testing, so her department would make sure appropriate mitigation measures were in place to protect marine animals.

Just days after the meeting, the Interior Department released a long-awaited environmental assessment that would allow seismic testing, and the governors coalition decided to defer to industry for their response. “Natalie — Would you be able to check with NOIA and/or API to see where they are on their respective reviews/analyses?” wrote Butzlaff, the Parnell staffer, in March, referring to the National Ocean Industries Association and the American Petroleum Institute, and calling Joubert by her first name. Joubert responded that the industry hadn’t yet reached consensus, but that it “has concerns more broadly that setting a precedent for stringent mitigation measures in the Atlantic could affect future measures in the Gulf and the Arctic.”

This past summer, the Interior Department said it would begin reviewing applications for that testing, with those more stringent measures in place. At the same time, it began accepting comments from industry, advocacy groups and other stakeholders on which areas it should open to drilling beginning in 2017.

Representatives of the governors coalition have maintained that it is an open and transparent group that strives to include different viewpoints. But the Center was only able to learn the details of the organization by submitting records requests — which North Carolina still has not provided — and there’s no evidence that opponents of drilling have been invited to any meetings.

Indeed, critics point to that North Carolina meeting earlier this month as the perfect illustration of what’s wrong with the way the governors coalition operates. On Nov. 6, North Carolina hosted a meeting on the five-year planning process that focused on the Atlantic. Officials from the Department of Environment and Natural Resources told journalists and environmental groups that the event was invitation only and that “neither special interest groups nor industry representatives” would be present.

That was true in regard to environmental groups — but apparently not for others. During the event, reporters waited in the halls of Raleigh’s Nature Research Center as state and federal officials listened to panel discussions that featured, among others, a CEA staffer and someone from the Center for Offshore Safety, an industry group.

McCrory did allow reporters in, but not until after the meeting was finished, and industry groups had given their presentations. McCrory’s position hasn’t wavered, and he made that clear, telling reporters that “North Carolina ought to participate in our country’s energy independence.”

TIME Tech

Tech Firms Desert Powerful Right-Wing Group After Climate Change Spat

Silicon Valley distances itself from the American Legislative Exchange Council

Google wasn’t the first major tech company to leave powerful conservative activist organization the American Legislative Exchange Council (ALEC) over its position on climate change, but it seems to have been the one that set the other dominoes falling.

After Google Executive Chairman Eric Schmidt said Monday that the company would no longer support the group, which opposes environmental regulations and has said climate change could be “beneficial,” Yahoo, Facebook and Yelp all issued statements indicating that, for unspecified reasons, their memberships in the group would be allowed to expire.

Microsoft had already quit the organization in August, according to the liberal group Common Cause which monitors ALEC, after a Boston-based investment group raised questions about the company’s support in light of ALEC’s opposition to federal renewable energy programs.

The group is known for creating model legislation that promotes free market and conservative policies, which it then works to pass in state legislatures around the country. On energy policies, it has sponsored initiatives to curb the authority of the Environmental Protection Agency and opposed federal programs aimed at increasing the production of energy from renewable sources.

It has been extraordinarily effective at getting legislation passed, particularly in the last several years, and has become a favorite target of progressive groups, much like the billionaire industrialist Koch brothers, who are themselves reputed to be major ALEC supporters. ALEC did not respond to multiple requests for comment from TIME. In response to news that Google would be pulling its support, ALEC CEO Lisa Nelson said in a statement, “It is unfortunate to learn Google has ended its membership in the American Legislative Exchange Council as a result of public pressure from left-leaning individuals and organizations who intentionally confuse free market policy perspectives for climate change denial.”

The most recent wave of departing Silicon Valley companies haven’t explained their decisions to leave ALEC, but the news comes after intense lobbying from liberal and environmental organizations. “We reevaluate our memberships on an annual basis, and are in that process now,” Facebook said in a statement. “While we have tried to work within ALEC to bring that organization closer to our view on some key issues, like net neutrality, it seems unlikely that we will make sufficient progress and so will be unlikely to renew our membership in 2015.”

Similar spurts have happened in the past. According to records kept by ALEC watchdog The Center for Media and Democracy, in 2012 both Coca-Cola and Pepsi announced a parting of ways with ALEC. The same year McDonald’s announced it was revoking support for the group and Pepsi followed the next day with an announcement that it too had cut ties with the group.

The Guardian reported in 2013 that ALEC was facing a “funding crisis” following the departures of a number of member firms.

TIME

Herbalife Hires Biden’s Former Chief of Staff

Herbalife Ltd. signage is displayed outside of Herbalife Plaza in Torrance, Calif. on Feb. 3, 2014.
Bloomberg/Getty Images Herbalife Ltd. signage is displayed outside of Herbalife Plaza in Torrance, Calif. on Feb. 3, 2014.

Alan Hoffman will oversee the company's vast lobbying effort in Washington, DC. as it fights allegations that its business model is a predatory pyramid scheme

In yet another chapter in what has become a real-life, Wall Street-D.C. soap opera, the nutritional supplements company Herbalife announced today that it has hired Vice President Joe Biden’s former chief of staff, Alan Hoffman.

Hoffman, who left Biden’s side in 2012 to join Pepsi Co., will start in August as Herbalife’s new executive vice president in charge of everything from “public policy” to “government affairs”—a title that translates, in layman’s terms, to the person who will oversee the company’s vast lobbying effort in Washington, DC.

It’s a big job. Herbalife is reportedly under investigation by the Federal Trade Commission, the Department of Justice, the FBI, and at least two state attorney generals over allegations that the company’s business model is a predatory pyramid scheme.

Herbalife’s arch nemesis, the billionaire hedge fund manager Bill Ackman, gave a three-hour presentation on Tuesday this week outlining his case against the company, which he describes as a “criminal operation” that fleeces poor people by promising, but not delivering, lucrative rewards for selling Herbalife’s nutritional supplements.

But Herbalife’s all-star team of backers, which includes former Secretary of State Madeleine Albright, the activist investor Carl Icahn, and soccer celeb David Beckham, have dismissed Ackman’s allegations out of hand as “completely false and fabricated.”

Ackman has led a lonely crusade against the company for the last 18 months, spending $50 million of his investors’ money hiring a battalion of investigators to prove that the company is misleading distributors, misrepresenting sales figures and selling its products at inflated prices. Ackman became tearful Tuesday describing the company’s practices, which he compared to those used by the Mafia, the Nazis, and Enron.

Ackman’s hedge fund, Pershing Square Capital Management LP, has also bet against Herbalife in the market and stands to gain $1 billion if the company’s stock collapses.

Herbalife’s stock has soared and plummeted, roller coaster-like, since December 2012, when Ackman first vowed to take the company down. Since January 2013, Herbalife has thrown itself into the battle, dumping roughly $2 million on official lobbying efforts in Washington, according to the Center for Responsive Politics. That kind of spending marks a major increase for the company, which shelled out about the same amount on lobbying over the course of a decade between 1998 and 2008.

This week, the company suggested that it may sue Ackman for defamation — something public companies seldom do, in part because the legal barriers are very high and in part because such an action could give Ackman the power to demand access to some of Herbalife’s non-public records. (Ackman responded Tuesday to a question about the possible lawsuit: “Bring it on.”)

Hoffman, who has worked for all three branches of government, has close ties with officials within the Department of Justice, the Federal Trade Commission, Congress, and the Obama administration. “I look forward to ensuring that the public more clearly understands the critical role the company plays in advancing good nutrition,” Hoffman said in a statement today. “I also look forward to promoting the economic opportunities that this global nutrition company provides for hard-working people in communities everywhere.”

During Ackman’s presentation this week, which he promised would be a “death blow” for the company, Herbalife’s stock actually rose, ending the trading day 25% higher than where it had started. Ackman alleged that the company had bought its own stock to make its price rise.

Herbalife’s retail strategy depends on hiring salespeople who do not draw an independent income, but instead share in revenues generated by the salespeople they recruit, and those of their recruits’ recruits. Herbalife does not dispute that model.

But Ackman alleges that many of Herbalife’s “customers” are purchasing the company’s products in an effort to qualify to open a branded “nutrition club,” which the company bills as a lucrative business opportunity. Ackman says his investigators’ analysis of a sample of Herbalife’s “nutrition clubs” lost an average of at least $12,000 a year, and that fewer than 2% of its salespeople made more than $5,000 last year. Herbalife says those numbers misrepresent its model, where many customers sign up as “salespeople” to get discounts on the products for themselves, their friends and family.

“I’m an extremely, extremely persistent person. Extremely,” Ackman said Tuesday. “And when I believe I am right, and it is important, I will go to the end of the earth.” Whether he’s right or wrong, he’s up against a formidable team in Washington, DC.

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