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Winter Reading: Rick Hasen's "Lobbying, Rent-Seeking, and the Constitution"
Wednesday, February 12th, 2014
Robert Wechsler
UC at Irvine Law School professor Richard Hasen's essay, "Lobbying,
Rent-Seeking, and the Constitution," 64 Stanford Law Review
191 (2011), is a good complement to the Teachout essay I recently
wrote about. Besides its valuable look at the idea that lobbying should be regulated because it is harmful to our economy, Hasen's paper looks at two post-Citizens United judicial decisions that struck
down regulations that limited lobbyists' campaign finance activities
and the cooling-off period between public office and lobbying.
Both courts said that the laws could not be sustained on anticorruption grounds, and Hasen believes that they would not likely be sustained on political equality grounds, either. In this essay, Hasen advances an alternative rationale that might support some lobbying regulations: "the state's interest in promoting national economic welfare."
Hasen believes that lobbying threatens our nation's economic welfare in two ways: (1) it facilitates rent-seeking behavior, that is, the devotion of resources to obtaining financial benefits from government (and providing financial benefits to officials, sometimes due to pay to play) rather than putting these resources to a truly productive use; and (2) the government acts that lobbyists seek to influence often involve the inefficient use of government resources. The latter is especially true at the local level where, for example, lobbying can influence contract specifications to be written so that contracts do not go to the lowest bidder and so that change orders can easily be arranged to greatly increase the cost of the contract; or grants can go to inefficient arts or social service providers. The cost to our economy of lobbying is many times greater than the amount of money spent on lobbying.
One way of looking at the Progressive movement of the early twentieth century is as a means to curb the excessive rent-seeing activity of the Gilded Age. But the focus then was not on lobbyists. We like to think that seeing lobbyists as dangerous to our economy is recent. But Hasen quotes Hugo Black, when he was a U.S. senator in 1935, as blaming the Depression in part on lobbyists: “our Government has lost hundreds of millions of dollars which it should not have lost and which it would not have lost if there had been proper publicity given to the activities of lobbyists.”
Hasen notes that rent-seeking lobbying occurs most often and most successfully with low-salience issues, that is, those issues where officials have little personal preference and where the public is either ignorant of what is going on or does not have strong views. "[L]obbyists, like mushrooms, thrive in areas of low light." This is a good description of most of the local issues in which lobbying is most successful.
Hasen says that the lobbying regulations that have the greatest effect on the prevention of rate-seeking are those that regulate lobbyists' fundraising, which allows them to ingratiate themselves with elected officials, and revolving door laws, which both prevent officials from quickly selling their personal access to their former colleagues and subordinates, and prevent current officials from being in a position to help companies and lobbyists seeking benefits in order to ensure their employment upon leaving public office.
Hasen notes that, not only does preventing these activities prevent the rent-seeking that undermines our national economic welfare, but that these activities do not involve free speech or petition rights. That is, no matter what one's views are about First Amendment lobbying rights, raising funds from others and quickly getting a lobbying job after leaving public office do not involve free speech or petition rights nearly as much as lobbyists making contributions or having access to public officials.
According to Hasen, lobbying rules that do less to promote efficiency and yet seriously interfere with free speech rights include bans on lobbyist campaign contributions (limits are more acceptable). The hardest cases, he feels, are those where both interests are strong, such as lobbyist fundraising for candidates, where he feels there needs to be careful balancing.
Federal Lobbying Reform
Hasen only looks at federal lobbying laws, but it's worth considering the changes that have been made in recent times. He says that the Lobbying Disclosure Act of 1995 got through Congress only by requiring no disclosure of "grassroots lobbying." What the act added was application to congressional staff and the executive branch, and an expansion of the definition of "lobbyist" and of the information that needs to be disclosed. What it did not add was a good enforcement mechanism, and the required disclosures were still minimal and not readily accessible.
In 2007, the act was amended to "marginally strengthen" disclosure requirements (one addition was bundling), penalties, and gift rules (banning lobbyists from making gifts to legislators or their staff), and to make disclosure information available online. It also lengthened the cooling-off period before a senator (although not senate staff) could lobby, from one to two years.What it didn't do was require more detailed information about the specific officials who have been lobbied.
Also, in 1993 an amendment to the Internal Revenue Code got rid of the deduction for at least certain lobbying expenses, which had been allowed only between 1962 and 1993. In addition, the Code bars or limits certain nonprofits' lobbying activities, and 501(c)(4) organizations that engage in lobbying are no longer eligible for federal grants or loans. I will have to look into whether in any state or local jurisdictions, there is a similar rule. My guess is that there is not.
In 2009, President Obama added lobbying regulations as one of his first acts. He prohibited the appointment of a lobbyist to a position, including an advisory panel, without a waiver; or lobbying by any administration member during the president's term in office. What is most interesting about the Obama reforms was that he did not defend them with arguments about potential individual corruption. His ethics adviser, Norm Eisen, said that it was about “the system as a whole. For too long, lobbyists and those who can afford their services have held disproportionate influence over national policy making.” The policies were geared to “level the playing field” so that “all Americans and not just those with access to money or power” would have Washington address their
concerns, and to “reduc[e] the undue influence of special interests.” This is not judicial language, it's the language of the news media, which is closer to how ordinary people think about these issues. Hasen also feels it's language that won't hold up in court.
Judicially, what we're stuck with is the same considerations as used in campaign finance: anticorruption, appearance of corruption, and the interest of the public in information. This will certainly allow disclosure, and some limits on lobbyist contributions, but it's not clear yet how much further regulation of lobbyists can be done in a post-Citizens United world that does not recognize, as Hasen puts it, "ingratiation and the sale of access." So far, most courts have allowed lobbyist contribution bans, prohibitions on contingency fees, revolving door rules, and restrictions on lobbyists bundling or sitting on campaign committees. But will things change? Would regulation of grassroots lobbying be permitted, even with respect to disclosure?
In his glance at state lobbying laws, Hasen notes that many states limit or ban contributions from lobbyists and have revolving door provisions, some prohibit lobbyists from having fundraising roles in campaigns, and most prohibit contingency lobbying, where a lobbyist is paid based on the success of her work.
Hasen makes some reform recommendations, mostly based on the 2011 report of the ABA Administrative Law Section task force. One recommendation is to prohibit lobbyists from fundraising for elected officials if the lobbyist has made a lobbying contact with that official within the past two years. Another is to further limit contributions.
Hasen notes that Heather Gerken has argued for public subsidies for lobbying activities, as a means of "leveling up." And U.S. Sen. Rand Paul has proposed that big contractors be barred from lobbying or making campaign contributions. One problem with Paul's proposal is that those seeking contracts, as well as trade associations, would still be able to lobby, and there would be more incentive to get everything advantageous into the specifications. A better approach (this is me, not Hasen) would be to have very tight ex parte communication rules and truly independent contractor selection committees, so that all lobbying about specifications and selection would be illegal or ineffective. A similar solution would work for grants.
The Brinkman and Green Party Decisions
Lobbyist disclosure has consistently been found to be acceptable for anticorruption and information-based reasons. But these reasons have not been sufficient with respect to stricter lobbying regulation in some early post-Citizens United decisions. Hasen sees these decisions as "canaries in a coal mine," signaling the difficult path lobbyist laws may have in the future.
The two judicial decisions that Hasen focuses on are (1) Brinkman v. Budish, 692 F. Supp. 2d 855 (S.D. Ohio 2010), which struck down an Ohio revolving door statute that had only a one-year cooling off period; and (2) Green Party of Connecticut v. Garfield, 616 F.3d 189 (2nd Cir. 2010), which (1) upheld the ban on contributions by state contractors, principals, and their spouses and children, while striking down (2) the ban on contributions by lobbyists, their spouses and children, and PACs that they establish or control; and (3) the ban on both lobbyists and contractors soliciting contributions.
In Green Party, Hasen says that the court applied closely drawn scrutiny to (2). Insisting that "influence and access ... are not sinister in nature," it concluded that limitations on lobbyist contributions would be sufficient. As for (3), the court rejected the idea that “an individual might secure a political favor by recommending that another person make a campaign contribution.” That sounds very naive.
The federal district court in Brinkman also applied strict scrutiny, but its focus was uncompensated lobbying, whose prohibition the court felt could not be sustained on anticorruption or level playing field grounds. With respect to compensated lobbying, the court felt the law was insufficiently tailored to prevent corruption, because there was insufficient evidence for the 12-month cooling-off period, even to show the appearance of corruption. And the law was not limited to matters in which individual officials had participated and, therefore, had an opportunity to learn about confidential information. Finally, the law was too focused on lobbying, ignoring non-lobbying jobs, gifts, and the like.
Public Choice Theory
A political science approach called "public choice theory" takes the position that elected officials seeking to maximize their chances of reelection will alter their actions in response to large contributions, including those from and bundled by lobbyists. Therefore, a cap on such contributions or limits on bundling will make it more likely that elected officials will not be swayed by contributions.
Information Theory
Lobbyists and elected officials tend to use another theory: that lobbying assists legislative deliberation by providing specialized information. The result is more informed decision-making. This is true on many issues. But it is important to recognize that doing this is part of a reciprocal relationship, which leads officials to "help a friendly lobbyist achieve her client’s interests, especially when the client is a constituent or has business affecting the legislator’s district." A lobbyist's success comes not from a change of mind about a major policy, but rather in the details of a bill, of a regulation, and/or of a bill or regulation's implementation. None of these can be obtained without access, and access cannot be obtained outside of a reciprocal relationship, which includes personal relationships and relationships based on help provided with campaigns.
Another area where it is easier for a lobbyist to be effective, without the need to provide specialized information, is in blocking the enactment of new laws, amendments, or regulations. Preservation of the status quo, which is often in a client's interest, requires far less expertise than drafting new rules.
While expertise is important in determining which lobbyists work in which areas, Hasen cites a study, by Marianne Bertrand et al, that shows that lobbyists "tend to follow their former legislative bosses from committee to committee, switching from lobbying on an issue such as health care to one such as defense. Expertise is secondary to personal contacts."
Disclosure Is Insufficient
Hasen notes that the requirement of disclosing lobbyists' bundling of campaign contributions "might have had the perverse effect of increasing the stature of the lobbyist with an elected official, by documenting how hard a lobbyist is working for an elected official or her party. It is only a ban on such fundraising activities that can help break the cycle of special access and favors."
The Bottom Line
For Hasen, the goal of lobbying regulation is to break the ties between, on the one hand, money and personal connections, and, on the other hand, government action, with the result of a "a meritbased system in which the most useful information rises to the top."
Robert Wechsler
Director of Research-Retired, City Ethics
---
Both courts said that the laws could not be sustained on anticorruption grounds, and Hasen believes that they would not likely be sustained on political equality grounds, either. In this essay, Hasen advances an alternative rationale that might support some lobbying regulations: "the state's interest in promoting national economic welfare."
Hasen believes that lobbying threatens our nation's economic welfare in two ways: (1) it facilitates rent-seeking behavior, that is, the devotion of resources to obtaining financial benefits from government (and providing financial benefits to officials, sometimes due to pay to play) rather than putting these resources to a truly productive use; and (2) the government acts that lobbyists seek to influence often involve the inefficient use of government resources. The latter is especially true at the local level where, for example, lobbying can influence contract specifications to be written so that contracts do not go to the lowest bidder and so that change orders can easily be arranged to greatly increase the cost of the contract; or grants can go to inefficient arts or social service providers. The cost to our economy of lobbying is many times greater than the amount of money spent on lobbying.
One way of looking at the Progressive movement of the early twentieth century is as a means to curb the excessive rent-seeing activity of the Gilded Age. But the focus then was not on lobbyists. We like to think that seeing lobbyists as dangerous to our economy is recent. But Hasen quotes Hugo Black, when he was a U.S. senator in 1935, as blaming the Depression in part on lobbyists: “our Government has lost hundreds of millions of dollars which it should not have lost and which it would not have lost if there had been proper publicity given to the activities of lobbyists.”
Hasen notes that rent-seeking lobbying occurs most often and most successfully with low-salience issues, that is, those issues where officials have little personal preference and where the public is either ignorant of what is going on or does not have strong views. "[L]obbyists, like mushrooms, thrive in areas of low light." This is a good description of most of the local issues in which lobbying is most successful.
Hasen says that the lobbying regulations that have the greatest effect on the prevention of rate-seeking are those that regulate lobbyists' fundraising, which allows them to ingratiate themselves with elected officials, and revolving door laws, which both prevent officials from quickly selling their personal access to their former colleagues and subordinates, and prevent current officials from being in a position to help companies and lobbyists seeking benefits in order to ensure their employment upon leaving public office.
Hasen notes that, not only does preventing these activities prevent the rent-seeking that undermines our national economic welfare, but that these activities do not involve free speech or petition rights. That is, no matter what one's views are about First Amendment lobbying rights, raising funds from others and quickly getting a lobbying job after leaving public office do not involve free speech or petition rights nearly as much as lobbyists making contributions or having access to public officials.
According to Hasen, lobbying rules that do less to promote efficiency and yet seriously interfere with free speech rights include bans on lobbyist campaign contributions (limits are more acceptable). The hardest cases, he feels, are those where both interests are strong, such as lobbyist fundraising for candidates, where he feels there needs to be careful balancing.
Federal Lobbying Reform
Hasen only looks at federal lobbying laws, but it's worth considering the changes that have been made in recent times. He says that the Lobbying Disclosure Act of 1995 got through Congress only by requiring no disclosure of "grassroots lobbying." What the act added was application to congressional staff and the executive branch, and an expansion of the definition of "lobbyist" and of the information that needs to be disclosed. What it did not add was a good enforcement mechanism, and the required disclosures were still minimal and not readily accessible.
In 2007, the act was amended to "marginally strengthen" disclosure requirements (one addition was bundling), penalties, and gift rules (banning lobbyists from making gifts to legislators or their staff), and to make disclosure information available online. It also lengthened the cooling-off period before a senator (although not senate staff) could lobby, from one to two years.What it didn't do was require more detailed information about the specific officials who have been lobbied.
Also, in 1993 an amendment to the Internal Revenue Code got rid of the deduction for at least certain lobbying expenses, which had been allowed only between 1962 and 1993. In addition, the Code bars or limits certain nonprofits' lobbying activities, and 501(c)(4) organizations that engage in lobbying are no longer eligible for federal grants or loans. I will have to look into whether in any state or local jurisdictions, there is a similar rule. My guess is that there is not.
In 2009, President Obama added lobbying regulations as one of his first acts. He prohibited the appointment of a lobbyist to a position, including an advisory panel, without a waiver; or lobbying by any administration member during the president's term in office. What is most interesting about the Obama reforms was that he did not defend them with arguments about potential individual corruption. His ethics adviser, Norm Eisen, said that it was about “the system as a whole. For too long, lobbyists and those who can afford their services have held disproportionate influence over national policy making.” The policies were geared to “level the playing field” so that “all Americans and not just those with access to money or power” would have Washington address their
concerns, and to “reduc[e] the undue influence of special interests.” This is not judicial language, it's the language of the news media, which is closer to how ordinary people think about these issues. Hasen also feels it's language that won't hold up in court.
Judicially, what we're stuck with is the same considerations as used in campaign finance: anticorruption, appearance of corruption, and the interest of the public in information. This will certainly allow disclosure, and some limits on lobbyist contributions, but it's not clear yet how much further regulation of lobbyists can be done in a post-Citizens United world that does not recognize, as Hasen puts it, "ingratiation and the sale of access." So far, most courts have allowed lobbyist contribution bans, prohibitions on contingency fees, revolving door rules, and restrictions on lobbyists bundling or sitting on campaign committees. But will things change? Would regulation of grassroots lobbying be permitted, even with respect to disclosure?
In his glance at state lobbying laws, Hasen notes that many states limit or ban contributions from lobbyists and have revolving door provisions, some prohibit lobbyists from having fundraising roles in campaigns, and most prohibit contingency lobbying, where a lobbyist is paid based on the success of her work.
Hasen makes some reform recommendations, mostly based on the 2011 report of the ABA Administrative Law Section task force. One recommendation is to prohibit lobbyists from fundraising for elected officials if the lobbyist has made a lobbying contact with that official within the past two years. Another is to further limit contributions.
Hasen notes that Heather Gerken has argued for public subsidies for lobbying activities, as a means of "leveling up." And U.S. Sen. Rand Paul has proposed that big contractors be barred from lobbying or making campaign contributions. One problem with Paul's proposal is that those seeking contracts, as well as trade associations, would still be able to lobby, and there would be more incentive to get everything advantageous into the specifications. A better approach (this is me, not Hasen) would be to have very tight ex parte communication rules and truly independent contractor selection committees, so that all lobbying about specifications and selection would be illegal or ineffective. A similar solution would work for grants.
The Brinkman and Green Party Decisions
Lobbyist disclosure has consistently been found to be acceptable for anticorruption and information-based reasons. But these reasons have not been sufficient with respect to stricter lobbying regulation in some early post-Citizens United decisions. Hasen sees these decisions as "canaries in a coal mine," signaling the difficult path lobbyist laws may have in the future.
The two judicial decisions that Hasen focuses on are (1) Brinkman v. Budish, 692 F. Supp. 2d 855 (S.D. Ohio 2010), which struck down an Ohio revolving door statute that had only a one-year cooling off period; and (2) Green Party of Connecticut v. Garfield, 616 F.3d 189 (2nd Cir. 2010), which (1) upheld the ban on contributions by state contractors, principals, and their spouses and children, while striking down (2) the ban on contributions by lobbyists, their spouses and children, and PACs that they establish or control; and (3) the ban on both lobbyists and contractors soliciting contributions.
In Green Party, Hasen says that the court applied closely drawn scrutiny to (2). Insisting that "influence and access ... are not sinister in nature," it concluded that limitations on lobbyist contributions would be sufficient. As for (3), the court rejected the idea that “an individual might secure a political favor by recommending that another person make a campaign contribution.” That sounds very naive.
The federal district court in Brinkman also applied strict scrutiny, but its focus was uncompensated lobbying, whose prohibition the court felt could not be sustained on anticorruption or level playing field grounds. With respect to compensated lobbying, the court felt the law was insufficiently tailored to prevent corruption, because there was insufficient evidence for the 12-month cooling-off period, even to show the appearance of corruption. And the law was not limited to matters in which individual officials had participated and, therefore, had an opportunity to learn about confidential information. Finally, the law was too focused on lobbying, ignoring non-lobbying jobs, gifts, and the like.
Public Choice Theory
A political science approach called "public choice theory" takes the position that elected officials seeking to maximize their chances of reelection will alter their actions in response to large contributions, including those from and bundled by lobbyists. Therefore, a cap on such contributions or limits on bundling will make it more likely that elected officials will not be swayed by contributions.
Information Theory
Lobbyists and elected officials tend to use another theory: that lobbying assists legislative deliberation by providing specialized information. The result is more informed decision-making. This is true on many issues. But it is important to recognize that doing this is part of a reciprocal relationship, which leads officials to "help a friendly lobbyist achieve her client’s interests, especially when the client is a constituent or has business affecting the legislator’s district." A lobbyist's success comes not from a change of mind about a major policy, but rather in the details of a bill, of a regulation, and/or of a bill or regulation's implementation. None of these can be obtained without access, and access cannot be obtained outside of a reciprocal relationship, which includes personal relationships and relationships based on help provided with campaigns.
Another area where it is easier for a lobbyist to be effective, without the need to provide specialized information, is in blocking the enactment of new laws, amendments, or regulations. Preservation of the status quo, which is often in a client's interest, requires far less expertise than drafting new rules.
While expertise is important in determining which lobbyists work in which areas, Hasen cites a study, by Marianne Bertrand et al, that shows that lobbyists "tend to follow their former legislative bosses from committee to committee, switching from lobbying on an issue such as health care to one such as defense. Expertise is secondary to personal contacts."
Disclosure Is Insufficient
Hasen notes that the requirement of disclosing lobbyists' bundling of campaign contributions "might have had the perverse effect of increasing the stature of the lobbyist with an elected official, by documenting how hard a lobbyist is working for an elected official or her party. It is only a ban on such fundraising activities that can help break the cycle of special access and favors."
The Bottom Line
For Hasen, the goal of lobbying regulation is to break the ties between, on the one hand, money and personal connections, and, on the other hand, government action, with the result of a "a meritbased system in which the most useful information rises to the top."
Robert Wechsler
Director of Research-Retired, City Ethics
---
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