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Companies Follow Earmark Trail

Companies that open offices in Congressman John Murtha's district tend to see their federal contract dollars expand shortly afterwards.
Paul Singer, Roll Call
June 26, 2007

Editor'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.


Stalder says his emphasis is less on lobbying and earmarks and more on helping companies develop an infrastructure that will make them capable of bidding on and winning government contracts.

"What I can do is — I know how to get the money, how to position yourself to win a contract. And that is what I do well," Stalder said. "What happens is, you have people who have a good idea, and it's all great and you can get enough contracts to keep a 10-person company going. But if you are ever going to move further, you've got to get official, and that's what I do best.

"We use earmarks, legislative stuff — that's a tool we use to help build business," Stalder said. "But it wouldn't be that's the whole thing."

Dealing mostly with small businesses, KSA's client list has its share of mysteries. Lobbying disclosure forms the firm submitted to Congress in May — several months past the statutory deadline — listed two clients, Summit Technologies and VidiaFusion, that are no longer in business. Gary Carter, who ran Summit, and had a Johnstown office until last year, said KSA never represented his company. Roll Call could not locate VidiaFusion, though there appears to have been a company by that name in Florida at one time. Stalder said he thinks the company was bought and moved to New Hampshire, but acknowledged, "We don't represent VidiaFusion."

KSA also filed a termination form for a company called Lindsey Energy in Norfolk, Va. The address reported by KSA matches the address of Harvey Lindsay Commercial Real Estate, but Lindsay told Roll Call he knows of no such firm and there is no Lindsey Energy in the building. Stalder had no recollection of the firm.

Stalder admits that his company has mishandled its disclosure forms — "That's probably because we don't know how to file them" — but denies that his company has profited from its ties to Murtha.

"We're a pretty easy target I guess, because of the Murtha connection," he said, "but no one ever picks up on the Young connection, or Lewis, who I get more support from — I get more support out of other people than I do out of Mr. Murtha." Bill Young (Fla.) and Jerry Lewis (Calif.) are top Republicans on the House Appropriations Committee.

But with Murtha's assistance, some of Stalder's companies have had tremendous success. For instance, former Lockheed employee Dave Herbener founded a company in 2003 called KDH Technologies to sew bulletproof vests. In April 2004, KDH signed a $2 million contract with the Navy to sew the vests — though the company did not yet have a manufacturing facility.

Days before the contract was signed, The Tribune-Democrat in Johnstown reported that KDH was hoping to establish its manufacturing site in Johnstown, and added, "Herbener said he came to Johnstown through the efforts of U.S. Rep. John P. Murtha."

In 2005 the company opened its facility in a former garment factory in Johnstown, and has since opened a second site in Waynesburg, on the western edge of Murtha's district. According to FedSpending, KDH received $2.8 million in contracts in 2004, $9.4 million in 2005 and at least $7.3 million in 2006. Herbener did not respond to several calls requesting comment.

Officials in the district say it is a mistake to look at the region's economic progress simply as a factor of Murtha's efforts, and emphasize the broad, coordinated push by local institutions to boost economic growth.

Indiana County Chamber of Commerce President Dana Henry said, "I don't ever remember getting a phone call from Jack Murtha saying 'I can help you.'" Henry said the county's unemployment rate has dropped from as high at 15 percent seven years ago — "we were desperate for business" — to about 4 percent today because of a broad, coordinated effort to attract business to the area and support start-up companies.

After the mines and mills that were the backbone of the local economy shut down, the region was left with "a lot of guys in their basements doing things that are similar to what Bill Gates was doing in his garage," Henry said, and local officials have cultivated this inventiveness.

The chamber partners with other local institutions — particularly Indiana University of Pennsylvania and a regional economic development group called Johnstown Area Regional Industries, which trains businesses on how to get government contracts.

Rodney Ruddock, chairman of the Indiana County Commission, pointed out that local efforts are geared toward weaning these businesses off defense contracts and getting them to broaden into other work that is more sustainable. "We don't want to put all of our eggs into the defense industry basket," Ruddock said.

Instead, companies are shifting into homeland security work, Ruddock noted, in part with the assistance of the John P. Murtha Institute for Homeland Security at IUP.

The institute itself grew out of Murtha earmarks. The university, in announcing the center in 2003, said that "Congressman Murtha has arranged for more than $20 million in funding to IUP for homeland security initiatives."

Since its launch, the institute has wobbled a bit. Jeffrey Crane, the institute's new executive director, said, "I came in last year; the institute was a little bit dormant ... [it] has been running but it hasn't been at full swing" because its programs are scattered around various academic departments. Crane said his mission is to revitalize the institute, and broaden its mission to focus on emergency preparedness and other elements of the evolving homeland security field. "We are going after more sponsored grants from the Department of Homeland Security, and earmarks and plus-ups" that involve Murtha's assistance, Crane said.


Ruddock and Henry also point out that there is now a critical mass of companies in the region that can serve as mentors for small businesses or partners for contracts.

But even those companies frequently are running on Murtha earmarks. Perhaps the biggest success story in the district is Concurrent Technologies Corp., a nonprofit technology innovation center that was created through Murtha earmarks in the late 1980s and has received millions in Murtha earmarks ever since.

CTC now has facilities all over the world, annual revenues of more than $230 million, more than 1,500 employees and buildings scattered around the 12th Congressional district — including the John P. Murtha Technology Center.

But some don't work out as well. In August 2004, Murtha announced that another Maryland-based company called Advanced Engineering and Planning Corp. had recently opened an Indiana office and would do "much of the development work for a $3 million contract" awarded by the Navy to maintain a logistics software system.

Today AEPCO — a KSA client — has a staff of one person in the district, and its office is in the same building as Aeptec's.

Murtha's office declined to provide comment for this article.




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