States and Localities Are Losing Their Influence in Washington

June 01--This year, states will miss out on an estimated $11.4 billion in revenue from online sales that are exempt from taxation by federal law. With that much money at stake, it's no surprise that collection of online sales taxes has become a high priority for state and local government lobbying groups in Washington, D.C. Not only have bipartisan groups like the National Governors Association, National Association of Counties and U.S. Conference of Mayors backed legislation to tax online sales, but even antitax governors such as Wisconsin'sScott Walker have lent their support. Yet multiple proposals over the last decade -- including the current Marketplace Fairness Act of 2013 -- have stalled in Congress.

That Congress hasn't passed a law enabling the tax collection of online sales is a symbol of a larger problem facing the country's governors, county officials and mayors: Organizations that represent state and local government in Washington don't influence federal policy decisions as they once did. Publications that cover lobbying used to list the National Governors Association (NGA) among the top-ranked groups in the capital. But since 2010, neither the NGA nor any of the other associations representing states or localities has made the cut.

Leaders of these lobbying groups place much of the blame on political polarization -- the way it paralyzes the White House and Congress, the way it turns state and local officials against one another, and the way it discourages compromise. That's surely a major part of the problem. But there's also a growing recognition that it's time for these organizations to reassess their approach. In the past, these groups held sway in Washington simply because their members were state and local governments. They had a guaranteed place at the table because of whom they represented. That's not necessarily true anymore. State and local associations today hold no special place when it comes to influencing a mostly gridlocked federal government.Historically, these government lobbies have used the bipartisan makeup of their national membership to portray their positions as centrist and in the best interests of local constituents across the country. But in many cases, even a broad coalition of Democrats and Republicans from all levels of government hasn't prevented decisions harmful to state and local interests. Take, for example, the Community Development Block Grant (CDBG) program, which the U.S. Conference of Mayors calls "the most important federal-city partnership over the last four decades." The grants go to roughly 1,200 units of state and municipal government across the country to pay for a wide range of local needs, such as water infrastructure, affordable housing and meal programs for seniors. Since 2010, funding has been cut by 25 percent, or $1 billion. President Obama has called for another cut of $200 million in his 2015 budget.

The case of CDBG is one of many instances in which the president started as a strong supporter of state and local government priorities, but adopted antagonistic budget positions after two years. In his economic stimulus package in 2009, Obama signed into law an increase of slightly more than 8 percent in funding, or about $300 million, for CDBG. "Early on, we were fighting for more block grant funding and we understood the efficacy of it," says Adolfo Carrión, who oversaw the White House Office of Urban Affairs for Obama's first 14 months. When Obama came into office, he was sincerely interested in collaborating with local officials, Carrión says. That's why the administration created an Office of Urban Affairs and conducted the first interagency review of federal engagement on urban and metropolitan issues in 30 years. But after Congress fell under divided party control in 2010, the Urban Affairs Office went dormant and CDBG has lost funding each of the last four years. "The gesture and the intent was good," Carrión says, "but like so many things, it got caught in the buzz saw of political dysfunction."

In addition to their failures on Internet taxation and disappointments on CDBG, state and local groups are increasingly worried about the future of an existing federal benefit they have long cherished: the tax-exempt status of municipal bonds. These bonds are the primary tool for financing state and local infrastructure projects, such as hospitals, libraries and schools. But they have become a primary target for deficit-cutters, since the tax breaks translate to $32 billion in forgone federal revenue each year. Recent budget proposals from the White House, from the chairman of the U.S. House Ways and Means Committee and from the president's National Commission on Fiscal Responsibility and Reform have called for either eliminating or reducing the tax break. This would ratchet up the cost of construction projects for state and local government.

"When it's our No. 1 issue and it's still on the table, you'd have to say in that case they're not really listening to the cities," says Scott Smith, the former mayor of Mesa, Ariz., who recently completed a term as president of the U.S. Conference of Mayors. The problem hasn't been access. Leaders at each of the associations say they have weekly meetings with members of Congress, federal officials and on occasion, President Obama or Vice President Biden. But the meetings rarely result in anything positive for the local groups that attend the sessions. "We're on different sides on many issues," Smith says. "I'm not sure how effective our influence has been."

For all the state and local groups, the 2010 midterm elections marked a turning point in support from the White House and Congress on many of their core issues. "When the Republicans took over the House, things changed dramatically," Carrión says. The Obama administration, state and local leaders insist, started making policy concessions to Tea Party conservatives whose only real priority is reducing the deficit. Tom Cochran, executive director of the U.S. Conference of Mayors, argues that CDBG grants should appeal to congressional Republicans, and once did. After all, Cochran says, the program is flexible, targeted to the local level and stems from the efforts of two Republican presidents, Richard Nixon and Gerald Ford. Yet CDBG has few strong supporters in the current Republican-led U.S. House. "It's a different world," Cochran says. "There's no question that we don't have the federal involvement and funds that we had in the past."

To many state and local leaders, the decline in their congressional influence is tied intimately to increased partisanship even within their organizations. "It's very difficult to have a constructive conversation about Obamacare," says David Adkins, executive director of the Council of State Governments, "because you have one group that just wants to repeal it and another group that just wants to defend it at all costs." Yet the government organizations continue to seek bipartisanship wherever they see a glimmer of hope for it. Because bipartisanship is increasingly rare, "it becomes very powerful when Democrats and Republicans stand together in our organizations on an issue," Adkins says.

Among the leading governmental lobby groups, the National Governors Association has experienced some of the most visible impacts of partisanship. The NGA has the most politically powerful members and potentially the most influence in Washington. But in recent years, its standing as a state government advocate has been diluted by some Republican governors who say the organization is left-leaning, ineffective and not worth its annual membership dues. The NGA won't say how many of its members pay dues, but local news outlets have reported that Republican governors in Florida, Idaho, Louisiana, Maine, Ohio, South Carolina and Texas each decided at some point in the past three years that the annual fees were a poor use of public dollars. Those governors still attend some NGA events in Washington, but they spend more time with the Republican Governors Association, which is partisan, funded by private donations and focused on raising money for gubernatorial elections. (Liberals have their own partisan group, the Democratic Governors Association, which serves the same purpose.)

As members have become less involved in the NGA, the pool of candidates to lead the organization has also shrunk. "You don't have national governors who are interested in leading the NGA," says Delaware Sen. Tom Carper, himself a former governor and chairman of the NGA. Instead, high-profile governors with presidential ambitions take the chairmanships of partisan groups. Two recent examples are former New Mexico Gov. Bill Richardson and Texas Gov. Rick Perry, who led partisan governors associations the year that they announced their candidacies for president in 2007 and 2011, respectively. "We used to be the main place that governors came and tried to break outside the pack," says Raymond Scheppach, a former executive director of the NGA. "Today they can go speak at the American Enterprise Institute or a number of other places. Now NGA is just one of the organizations, not the organization."

With fewer engaged members and high-profile leaders, the NGA has seen its influence decline, Carper says. In 1999, Fortune magazine ranked the NGA the 12th most powerful lobbying group in Washington. "My guess is, if you go back and do that ranking today, it's not close to being in the top 12," he says. The weakening of the NGA indirectly hurts other state and local groups because governors are best positioned to convene the other associations and lead on issue advocacy. But now the group has trouble finding consensus among its own members. Sources familiar with the NGA say Republican and Democratic governors are less likely today to give their signature for joint letters to Congress and federal officials compared to 10 or 20 years ago. It's also harder, they say, to take formal positions on controversial topics, since that requires approval from two-thirds of governors attending the group's winter meeting. (Despite several interview requests, the NGA's current executive director, Dan Crippen, declined to comment for this story.)

A general lack of progress on federal legislation has forced some government associations to re-evaluate how they approach lobbying. "We went through many years of frustration before we took a long look in the mirror," says Matt Chase, executive director of the National Association of Counties (NACo). Chase and leaders from other government associations say they've had to come to terms with the fact that Washington often views state and local government as just another interest group -- not a partner in implementing public policy. In light of that reality, groups like NACo cannot expect the White House and Congress to embrace their positions without persuasive arguments rooted in financial and economic data. "We're spending more time explaining why we're taking our position," Chase says, "rather than just explaining what our position is."

Both NACo and the U.S. Conference of Mayors are trying to frame their budget requests as smart financial investments. In the past year, the Conference of Mayors has published reports on how cities are using federal grants to build clean energy infrastructure, reduce homelessness and fight hunger. Before asking for more funding, they try to prove that the grant programs work.

While the lobbying groups haven't been winning on most of their core issues, they can count some recent legislative victories as proof that they remain relevant. For example, a federal law passed in 2012 to reform national flood insurance regulations would have triggered dramatic increases in flood insurance premiums for many property holders. Cities and counties voiced a concern last year that the new law would force residents and businesses to leave some jurisdictions, potentially reducing property tax revenue. NACo tapped local officials and armed them with data they could use to educate federal lawmakers about the potential harm of the premium hikes. They showed that 95 percent of counties across the United States, many with rivers or smaller tributaries, have residents with subsidized flood insurance policies who could see their rates increase. "A lot of people didn't know that flood insurance impacts people inland," says Yejin Jang, a lobbyist for NACo. The strategy worked. In March, Congress passed new legislation that limits annual insurance rate increases to 15 percent and exempts from the increase all properties built to code under previous floodplain maps.

If Congress does eventually agree to the taxation of Internet sales, a similar tactical adjustment may be the reason. In past years, government associations pitched the collection of these taxes as a boon to states and municipalities suffering from recent budget cuts. That invited criticism that permitting the collection of revenue from Internet sales was merely a tax increase in disguise. Advocates today downplay the plight of state and local government and instead talk about unfair regulations that put brick-and-mortar retailers, who pay the sales tax, at a competitive disadvantage. "The whole motivation is to help level the playing field for local businesses," says Louisiana state Sen. Sharon Broome, a member of the executive committee of the National Conference of State Legislatures. "That should resonate for many of the congressional members."

J.B. Wogan -- Staff Writer

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jwogan@governing.com -- @jbwogan -- Google+

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