Despite reforms, Congress hides $3.5B in defense earmarks

No matter who wins, the next president promises to take back Washington from powerful interests and lobbyists.

It is the same stirring promise Congress made last year when — rocked by scandal and under new leadership — lawmakers passed what they trumpeted as some of the most significant ethics reforms in years.

Key among those reforms: rules requiring lawmakers, for the first time, to disclose their earmarks — federal dollars they were quietly doling out as favors.

But time after time, Congress exploited loopholes or violated those rules, a Seattle Times investigation has found. An in-depth examination of the 2008 defense bill found $8.5 billion in earmarks. Of those, 40 percent — $3.5 billion — were hidden.

And Congress broke its pledge — and President Bush's challenge — to cut earmarks in half. Lawmakers cut the dollar amount of defense earmarks by about a fourth and the number by 19 percent.

The hidden earmarks range from $8 million for lighting sold by a financially troubled company in North Carolina to $588 million for a submarine the administration doesn't want.

After months of investigating the $459 billion 2008 defense bill, The Times found:

• The hidden $3.5 billion included 155 earmarks, among them the most costly in the bill. Congress disclosed 2,043 earmarks worth $5 billion.

• The House broke the new rules at least 110 times by failing to disclose who was getting earmarks, making it difficult for the public to judge whether the money is being spent wisely.

• In at least 175 cases, senators did not list themselves in Senate records as earmark sponsors, appearing more fiscally responsible. But they told a different story to constituents back home in news releases, claiming credit for the earmarks and any new jobs.

Lawmakers do not face penalties for failing to follow these ethics rules.

"The whole ethics bill was a sham," said Sen. Jim DeMint, a Republican from South Carolina, after being told of The Times' findings.

"It was written to create loopholes, to get around any transparency and our ability to cut out those earmarks. Neither leadership is committed to significantly changing the earmarking process."

Complicating matters, lawmakers routinely accept campaign donations from the people asking for earmarks, raising the specter of corruption.

The Times found that people at companies that benefited from defense earmarks this year gave more than $60 million in campaign donations to incumbents in Congress over the past six years. In addition, companies getting earmarks in the 2008 defense bill spent $141 million lobbying Congress last year alone.

"The people who want the earmarks are the same people who we count on to raise us money for the campaigns," DeMint said. "It's just a little too cozy."

Last year, Congress promised to shed light on the secretive process. But the lists of earmarks are still buried in obscure documents that are difficult to find and search. Until Congress put them online a couple of weeks ago, the House disclosure letters, linking lawmakers to companies, were thick volumes of paper kept in a cabinet in the offices of the House Appropriations Committee.

When a reporter for the Congressional Quarterly pointed out how difficult it remains to pull all the information together, Rep. John Murtha, D-Pa., chairman of the committee that drafts the defense bill, had a quick answer: "Tough shit."

The Times spent months compiling this information — including campaign donations and companies' lobbying efforts — and put it in a searchable database. It can be found on our Web site at seattletimes.com/favorfactory.

Big bucks for little-known product

One case in which Congress clearly broke its disclosure rule involves an $8 million earmark to buy a "portable illumination system." It turned out to be for Cyberlux, a tiny lighting company in Durham, N.C., that is struggling to survive.

Cyberlux competes against corporate giants such as General Electric but advertises that its lights save energy and cost less than common household bulbs. Despite its efforts, the company barely sells any products to consumers.

Cyberlux lost $9 million on sales of only $332,000 for the first six months of this year. Since its founding in 2000, Cyberlux has lost more than $50 million and the company has sunk deeply in the red. Its stock sells publicly for about a penny. Earlier this year, its independent auditor said in the company's financial statement that Cyberlux was in danger of failing.

To stave off failure, Cyberlux has turned its attention to the military and to earmarks.

In a December letter to shareholders, Cyberlux said: "After product demonstrations to aides in the Capitol building, they enthusiastically recommended budgetary provisions for the BrightEye to their respective Representatives and Senators who responded with a line item inclusion of $8 million."

Thanks to the undisclosed earmark, the company announced in February that the Air Force had made a commitment to order $3.3 million of portable lighting products from Cyberlux, including one product on collapsible legs that looked much like its name, "Watchdog."

Cyberlux's chief executive officer declined requests for an interview. The Times was not able to get confirmation of the order from the Air Force.

Cyberlux hosted separate fundraisers in the spring for Rep. David Price, D-N.C., and Sen. Elizabeth Dole, R-N.C., and even posted solicitations on its company Web site, asking people to donate $500 to the lawmakers. The events raised $10,600 for the two.

(Lawyers with expertise in campaign-finance laws say it's illegal for a company to assist in raising campaign donations from the public.)

Through a spokesman, Dole said that her staff met with the company but that she did not ask for an earmark.

Price serves on the powerful House Appropriations Committee. His staffers met with Cyberlux and contacted the defense subcommittee "to see if they are favorably inclined to the technology, to putting funding in the bill," said Price's chief of staff, Jean-Louise Beard.

Even so, she said, they didn't consider those actions an earmark request.

Cyberlux announced it was seeking $25 million in defense earmarks for 2009 and that it had "submitted this forecast to its sponsorship in the House of Representatives and Senate."

Military didn't want $588 million submarine

The biggest single earmark in the defense bill was $588 million to "accelerate" buying a new submarine made by General Dynamics, which builds submarines in Groton, Conn.

The military never asked for the project, and the Bush administration asked that it be stripped from the bill.

After the earmark was added, the Office of Management and Budget complained in a statement: "This funding is unnecessary and takes resources away from more urgent defense needs."

It stayed in.

Although they don't list themselves as sponsors of the submarine earmark, independent Sen. Joe Lieberman and Democratic Sens. Chris Dodd of Connecticut and Jack Reed of Rhode Island did take credit for the new submarine program in news releases back home, highlighting their work to bring jobs to the region.

"The funding for a second submarine has been an extended battle for Connecticut, and today we declare victory," Lieberman said.

According to Congress, this spending was not an earmark. Its reform bill is full of loopholes that allow lawmakers to insert favors and not have to disclose them as earmarks.

For example, a Senate report describes situations in which no individual senator championed a request but instead it somehow arose through group consensus. In those cases, the add-on was not considered an earmark but a "committee initiative."

Under the reforms, Congress uses a semantic maneuver to conceal earmarks.

The common definition of an earmark is money that somebody gets from Congress because they cannot get it from a federal agency. Congress uses a far narrower definition: an earmark has to be "primarily at the request of a member," targeted to a specific company or location, with no competitive bidding.

This past spring during budget season, staffers at the House Appropriations Committee toiled round the clock not vetting the earmarks on their merits but trying to decide whether to actually call them earmarks, according to a congressional aide involved in the process. If they believed the project might enjoy broad support and pass a vote of the House on its own, then they decided not to list it as an earmark.

No real competition

A pet project in Pennsylvania reveals how Congress tries to hide earmarks using the semantic loopholes.

Latrobe Specialty Steel of Latrobe, 40 miles east of Pittsburgh, makes specialty steel for aircraft parts.

In 2006, its parent company, Timken, spent $2.9 million lobbying Congress on various issues and persuaded lawmakers to ban the Defense Department from buying any products using foreign-made specialty steel. As the sole U.S. producer of certain kinds of specialty steel, Latrobe saw its orders climb. Timken then sold Latrobe to a group of investors in a $250 million deal.

But the buy-American restrictions for specialty steel caused serious problems for the Air Force, creating a 17-month lag in getting spare parts for aircraft used in the wars in Iraq and Afghanistan.

In May 2007, Latrobe said it needed to expand but complained of high electric bills and publicly threatened to build a new plant in Virginia or West Virginia instead. Pennsylvania offered grants and tax credits to the company worth $1.2 million.

In Congress, lawmakers were quietly lining up a much sweeter package.

In the defense bill passed in December, someone had inserted language that ultimately directed $18.4 million for "domestic expansion of essential vacuum induction melting furnace capacity and vacuum arc remelting furnace capacity."

"Latrobe Specialty Steel is the only domestic producer of that steel," Army Lt. Gen. William Mortensen said at a hearing.

A month after the bill passed, Latrobe began a $62 million expansion in its home state.

No one in Congress has admitted sponsoring the Latrobe earmark.

One congressman's fingerprints, however, weren't so easy to conceal. Latrobe sits in the congressional district of Rep. John Murtha, a Democrat who chairs the subcommittee that drafts the defense bill and wields the most power over defense earmarks.

Latrobe's officials have given $5,000 to Murtha's re-election fund in the past two years.

Also, Murtha had talked about giving taxpayer dollars to Latrobe. "We're trying to get together to see how we can work out an increased capacity for that particular company," Murtha said at a subcommittee hearing in April 2007. "I've talked to that producer. And what I'd like to see is them put some money in, us put some money in, and reduce the time it takes to get those spare parts out."

This spring, the Air Force carried out the earmark by asking companies to submit proposals for a $16.6 million research grant that would expand production of specialty steel made through "vacuum induction melting and vacuum arc remelting."

The money was aimed at alleviating the shortage of specialty steel.

But the foreign-steel ban proved so restrictive that the military and major defense contractors, such as Boeing, complained that they couldn't get parts. In December, Congress loosened the ban.

Latrobe has tentatively won the research grant, a Pentagon spokeswoman confirmed, although details are still being worked out.

The company would not comment on any discussions it had with Murtha. A spokeswoman defended getting the grant, saying it had been competitively bid. Even so, she acknowledged that Latrobe is the sole U.S. producer of certain specialty steels, a requirement for getting the money.

She said Latrobe was a few months away from completing the $62 million expansion while it waits for the government handout.

Through a spokesman, Murtha said the project was not an earmark because the contract was competitively bid. Last year at a hearing, however, Murtha talked of giving Latrobe funding because it was the only U.S. company that could make that steel.

Lobbyists get pork

At first, the Senate seemed gung-ho about eliminating the secrecy surrounding earmarks. Last year, senators voted 96-2 to force themselves to reveal the names of those getting earmarks. But leadership stripped that rule out before the bill's final passage.

So this year, for example, Sen. Maria Cantwell, D-Wash., listed 28 earmarks. A typical entry reads: "Mobile Objects for Net-Centric Operations, $2.4 million." No company or names are listed.

She disclosed far more before the widely publicized reforms, through news releases that identified who received the favors.

Cantwell's office would not explain why the senator no longer identifies companies that benefit from her earmarks.

The House has stricter rules, requiring members to sign letters naming the intended recipient of their earmark. But in 110 cases, lawmakers didn't follow the rules.

Some House members merely said their favors went to the Department of Defense or a military branch or unit.

For example, Rep. Mike Conaway, R-Texas, said a $1.6 million earmark he co-sponsored would go to the "Office of Naval Research." Yet other co-sponsors tagged the money for Global Delta, a young company created by two longtime lobbyists.

John Albertine and his brother James, past president of the American League of Lobbyists, have knocked on lawmakers' doors seeking earmarks on behalf of clients. In 2003, they formed Global Delta and decided to get an earmark for themselves. Several months later, they succeeded. With no background in engineering, the two lobbyists landed a $4.1 million contract with the Office of Naval Research to study and develop advanced, cost-effective radars.

Soon after getting the contract in June 2004, John Albertine hired a couple of engineers to do research. Meanwhile, he and his brother continued to operate Albertine Enterprises, their lobbying firm.

Over the past five years, Global Delta officials have donated $35,000 to Conaway and others who sponsored its earmarks.

Conaway's office said he was unavailable for comment.

The company snagged a defense earmark in 2006 for $3 million and another in 2007 for $1 million.

John Albertine said he asked for $4 million in 2008 but landed only $1.6 million.

Global Delta turned down the earmark because it wasn't enough funding, he said. They opted to search for private funding so they could own the intellectual property rights to some of the research, he said.

Their concept was to build a low-cost radar system to track ships. A prototype was never built, Albertine said.

"Whatever they can get away with"

Other than a little embarrassment, there's no cost to lawmakers for failing to disclose earmarks.

In past reforms, Congress imposed criminal penalties for filing false disclosure forms on personal finances or gifts. Republican Sen. Ted Stevens of Alaska, for example, is standing trial on charges he failed to disclose at least $250,000 in gifts from a wealthy supporter who got earmarks.

Last year, as public cries for reform grew louder, Congress enacted civil and criminal penalties for lobbyists who failed to detail their activities on federal disclosure forms. Yet lawmakers included no penalties for themselves if they failed to disclose earmarks.

If Congress were serious about reform, it would close the loopholes, said Steve Ellis of Taxpayers for Common Sense.

"An awful lot of members of Congress would much prefer to have business as usual and they are going to do whatever they can get away with," said Norm Ornstein, a political scientist at American Enterprise Institute.

"Clearly what this suggests," he said of The Times' findings, "is that we need another wave of reform."

A new administration could bring that. Sen. John McCain, R-Ariz., vows to veto any bills with earmarks, arguing that pork-barrel spending is not only wasteful but leads to corruption.

"We Republicans came to power to change government, and government changed us," McCain said during the first presidential debate.

Sen. Barack Obama, D-Ill., pledges he'd scrutinize earmarks more closely as president, eliminating those that are wasteful.

But Congress shows no inclination to give up on earmarking and has shot down recent reform efforts. In March, both McCain and Obama voted for a one-year moratorium on earmarks, but the measure failed in the Senate, 71-29.

After first avoiding the issue, President Bush in the past two years has talked tough about curbing earmarks. This year he ordered federal agencies to ignore any earmarks buried in "conference reports" — obscure, fine-print attachments — rather than written into the clear language of a bill.

In response, Congress wrote language into the bills that in essence told federal agencies they had to honor the earmarks buried in the conference reports.

Bush also threatened to veto any spending bill that didn't cut earmarks in half this year. But Congress ignored it and Bush did not follow through on his threat.

Perhaps nothing shows more how entrenched earmarks are than the recent $700 billion financial bailout.

At first, the bill failed because lawmakers were deluged with calls from angry constituents who didn't trust Congress to put the interests of the country ahead of the special interests of Wall Street. The bill to ease the credit crunch and avoid a severe recession passed only after the Senate included favors for the makers of wooden arrows, NASCAR racetrack owners, the rum industry and makers of wool — in all, more than $100 billion in targeted tax cuts and earmarks.

David Heath: 206-464-2136 or dheath@seattletimes.com; Christine Willmsen: 206-464-3261 or cwillmsen@seattletimes.com. Researchers Gene Balk and David Turim contributed.