VideoEditor's Note: This article, on the apparent effectiveness of small company lobbying, originally appeared yesterday in our sister publication, Roll Call. With the 2008 election season already in full swing, CFO.com will occasionally bring its readers selected stories from our sister publication that are relevant to corporate finance.
INDIANA, Pa. — In April 2004, Rep. John Murtha (D-Pa.) celebrated the groundbreaking for a gleaming new office building here, designed around its anchor tenant, a Rockville, Md.-based technology company called Aeptec Microsystems.
Murtha pursued millions of dollars worth of legislative earmarks for the company, and Aeptec's federal contracts blossomed after it opened a branch in his district in 2001, rising from about $13 million in 2000 to $45.6 million in 2003 and $33 million in 2004, according to fedspending.org, a database of federal contracts. The company had been represented by two lobbying firms with close ties to Murtha: KSA Consulting and the PMA Group.
But Aeptec never moved into the Indiana building, which was built mostly with state and local development funds and remains mostly empty after opening last month. The company, also known as 3eTI, instead moved its staff of about 15 people into a nondescript office park across town, where its name is not even posted on the outside door. It has since been bought by Texas-based EFJ Inc.
Aeptec's story is not unique. Murtha has obtained millions of dollars in earmarks for firms in his district, many of them clients of PMA and KSA. But in many cases the money is not for local companies, it is for companies that move to the district, and frequently it is for start-ups that essentially would not be in business were it not for Murtha's largesse. Some of the firms also are simply store-front offices of companies that do most of their work elsewhere.
Murtha has almost — but not quite — single-handedly created a new economy in his district, with start-up companies getting Murtha earmarks, getting contracts from other companies that have gotten Murtha earmarks or getting trained on how to get government money by other institutions that have gotten Murtha earmarks.
A good guide to the patterns of Murtha's largesse is the client list of KSA Consulting, a lobbying firm that employs a former Murtha staffer and used to employ Murtha's brother, Kit Murtha.
News stories have highlighted KSA's success in getting earmarks for its clients, but there is more to the story than that. KSA's client list consists largely of small businesses that are either based in Johnstown, Pa., or have opened offices in Johnstown, plus a significant smattering of companies that no longer exist and may never have existed at all.
The pattern that appears dominant is that the companies' federal contract dollars expand shortly after they open an office in the 12th Congressional district — though it is not entirely clear how much of their work is actually conducted in the district.
Kit Murtha, who says he retired from KSA a year ago, told Roll Call that he doesn't believe there is any connection between the earmarks and the companies' move to the Johnstown area. "You can't really answer that . . . which comes first, the chicken or the egg?" he said. KSA represents "people that are in Johnstown, and some came to Johnstown, and which came first, and why, you can't say."
But KSA's client list indicates a pattern. Applied Ordnance Technologies was a Maryland-based firm that signed up with KSA in 2001, opened a Johnstown office in 2004 and saw the value of its government contracts jump from $12 million in 2003 to $21 million in 2004 and $24 million in 2005.
Murtha's office issued a press release declaring that "Congressman Murtha helped to attract AOT to Johnstown." Murtha said in the release, "AOT represents the type of organization that is helping to revitalize our communities — small, technology-based companies with potential to grow."
Last year, contracting giant SAIC bought AOT, maintaining the Johnstown office with about a dozen employees.
Another KSA client, ChemImage, a Pittsburgh-based company that does specialized imaging for medical and defense applications, signed up with KSA in August 2001 and opened a Johnstown office in 2004. On its Web site, the company explains that, "To maintain ongoing government relationships, ChemImage also retains an office in Johnstown, Pennsylvania." A person answering the phone at the Johnstown office said there is a staff of three there, and about 45 people in the Pittsburgh office.
According to the FedSpending database, ChemImage had no government contracts before 2003, then gathered $12 million in contracts from 2003 to 2005.
Ken Stalder, the CEO of KSA, said there is no connection between the Johnstown location and the earmarks, and he does not urge his clients to move to Johnstown unless there is a good economic reason to do so.
"Johnstown is a phenomenal place to do business, for a number of reasons, including the plus of Mr. Murtha," Stalder said. As chairman of the House Appropriations subcommittee on Defense, Murtha has an extraordinary ability to steer federal dollars to specific projects. But Stalder points out that the work force in the area is relatively inexpensive, there are nearby universities training students in high-tech and defense-related programs, and major defense companies such as Lockheed Martin and Boeing have offices in the district that provide partnership opportunities for local businesses.
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