Big Losers in Budget Fray Were Sunk by Deficit Woes

WHAT do rural electric cooperatives, the restaurant industry, and trade associations have in common? They were all groups that, for a variety of reasons, wound up as losers in the budget bill passed by Congress last week and is expected to be signed today by President Clinton.

Their experience shows why some of the special-interest provisions sought by well-heeled lobbyists did not make it into the budget package: While lawmakers were eager to please constituents, they were bound by the need to achieve roughly $500 billion in deficit reduction, and other factors beyond their control.

Trade associations were trying to defeat the administration's call for a phaseout of the tax deduction for lobbying, expected to raise $850 million to $1.25 billion over five years.

Many trade associations, whose bread-and-butter work is lobbying, feared the measure would hurt their bottom line significantly. They were as concerned about the onerous reporting requirements under the bill as they were about losing the deduction itself. "It would cost associations more to comply with this than the government would gain in revenue," says Tyler Wilson, an attorney with the United States Chamber of Commerce.

But rallying public support for lobbyists wasn't easy. Mr. Wilson's group did manage to mobilize grass-roots activity around the theme that lobbyists represent average Americans, too. The campaign had some effect, but not much.

"A lot of congressmen heard from local chambers of commerce, from mom-and-pop business owners that they didn't want to lose the tax deduction for contacting their city council," says one House Ways and Means Committee staff member. So conferees allowed local lobbying to stay tax deductible, dropping the provision's projected revenues down to $700 million over five years.

"It's a little better than what we were potentially facing, but it's still rotten tax policy," says Timothy Jenkins, a partner with the law-lobbying firm, O'Connor & Hannan.

The restaurant industry didn't even fare that well. Both houses passed provisions that would drop the deductibility of business meals and entertainment from 80 percent to 50 percent. That is expected to raise roughly $15.3 billion over five years.

The National Restaurant Association, the Hotel Employees and Restaurant Employees International Union, American Express, and other players in the food and tourism business put together a major campaign in February to preserve the deduction. They paid for a study showing that the reduced deduction would result in 165,000 lost jobs, although the Congressional Research Service believes that it would have had virtually no effect on employment.

"We wanted to show that this was misperceived as a three-martini-lunch issue when in fact it was a jobs issue," says Jeff Prince, senior director of the National Restaurant Association. "We mounted an enormous grass-roots lobbying campaign."

Mr. Prince's group ran television advertisements in 16 states depicting a waitress who allegedly would be put out of work by the reduced deduction. Hundreds of restaurateurs flew into Washington to deliver that message personally to Congress. And the group hired Bonner & Associates, a political consulting firm that specializes in organizing "grass-roots" campaigns, to inundate the Capitol switchboard with pro-deduction calls.

The lobbying led the Senate, as part of its budget bill, to pass a nonbinding resolution calling for negotiators to push for a higher deduction in conference committee. But that proved impossible after conferees, under pressure from Sen. Max Baucus (D) of Montana, settled on a 4.3-cent-per-gallon gas tax - considerably less than originally planned. That increased the pressure on lawmakers trying to meet a $500 billion deficit-reduction target to find money elsewhere.

"It got down to the point where congressmen smiled and told us our arguments didn't matter anymore. They simply had to have the revenue [from a reduced deduction]," Prince says.

In an attempt to soften the blow, Congress waived Social Security taxes on waiters' tips. But that didn't stop the hotel and restaurant workers' union, normally a Democratic stalwart, from urging a "nay" vote on the entire budget reconciliation package.

The loss for the nation's 1,000 rural electric cooperatives was even more heartbreaking. The National Rural Electric Cooperative Association had worked with Rep. Glenn English (D) of Oklahoma to craft a complete redesign of its federal loan-subsidy program. Included in that redesign was a measure avidly sought by the co-ops that would protect their facilities from hostile annexations by city-owned utilities.

The American Public Power Association, which represents 1,700 municipal utilities, organized a successful lobbying effort to keep that provision out of the Senate bill. But with the support of co-op lobbyists, Representative English, who wasn't even a conferee, managed to insert a slightly watered-down form of the "territorial provision" in the conference committee's bill.

When the conference committee ended its work on July 30, the co-ops' lobbyists were smiling. "We'll actively and vigorously support this," said Bob Bergland, executive director of the National Rural Electric Co-Operative Association.

But there was a dramatic turnaround last week. The Senate leadership, concerned about Republicans knocking out parts of the budget on points of order, decided to preemptively strike any provisions that might violate the "Byrd Rule," which prohibits extraneous measures in deficit-reduction bills. Altogether 150 measures were knocked out - including the provisions relating to rural electric co-ops.

"We won!" exulted Larry Hobart, executive director of the public power association. "It just goes to show: It's never over 'til it's over."