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Document 22 of 27.

July 10, 1999

SECTION: LOBBYING; Pg. 2014; Vol. 31, No. 28

LENGTH: 3984 words

HEADLINE: Blue-Ribbon Brawls

BYLINE: Louis Jacobson

HIGHLIGHT:

Lobbying gets tough, Congress appoints a commission. That's when
interest groups and their lobbyists enter the fray.

BODY:

WILLIAMSBURG, Va.--Here in the cradle of colonial
America, questions of taxation and representation are once again
being debated. In late June, corporate titans, government
officials, and lobbyists filed into an auditorium at the College
of William and Mary for the inaugural meeting of the Advisory
Commission on Electronic Commerce. Over the next 10 months, the
19-member panel will decide whether to recommend a tax on
Internet commerce. Congress created the commission last year
after agreeing to a three-year moratorium on Internet taxes.

The stakes are enormous. E-commerce sales are expected to
rocket from $ 10 billion last year to $ 1 trillion in 2003,
according to the International Data Corp., a Framingham, Mass.,
market research company. But the boom could prove a bust for
state and local governments. Some retailers are losing business
to online rivals, which means a drop in sales-tax receipts. By
2003, warns the National Association of Counties, sales-tax
receipts could drop by $ 50 billion.

Like other blue-ribbon panels established to ponder
weighty matters, this one has an impressive galaxy of members.
The Clinton Administration named three government officials to
the commission. Congressional leaders appointed eight state and
local officials, including the Governors of Utah, Virginia, and
Washington, and an equal number of corporate executives,
including America Online Inc. President Robert W. Pittman, AT&T
Corp. CEO C. Michael Armstrong, Gateway 2000 Inc. founder Ted
Waitt, and MCI WorldCom Inc. Vice Chairman John W. Sidgmore.

Yet political skirmishing almost derailed the commission
before its start. As Capitol Hill leaders pondered their
appointments to the commission, ''lobbying firms would come in
and make their pitch as if we were making a change in the law,''
said a Capitol Hill aide involved in the process.

In March, the U.S. Conference of Mayors and the National
Association of Counties went to federal court and sought an
injunction to block the commission from meeting. The groups
maintained that Congress had failed to comply with its own
requirement that eight of the commissioners represent state and
local governments. Only in late April--after Senate Majority
Leader Trent Lott, R-Miss., replaced a corporate executive with a
county commissioner--did the groups withdraw their motion.

A request for an injunction by disgruntled groups before
a commission starts work is virtually unprecedented. But then,
few commissions are above-the-fray, consensus-building bodies
insulated from the partisanship and politicking of Washington.
That's especially true of recent commissions, which have been
stocked with fewer lawmakers and more representatives of special
interests that have an economic stake in the panels' proposals.
Plenty of interest groups have lobbied to shape these panels'
recommendations. Most commissions have no hard-and-fast ethics
guidelines or revolving-door rules. And conflict-of-interest
charges have been hurled at some commission members.

Consider the first meeting of the e-commerce commission.
Lobbyists from Washington, Silicon Valley, and various state
capitals jammed a small, elegant room at the historic
Williamsburg Inn to watch commission members hammer out
procedural rules. Later, experts presented their cases in an
auditorium wired with the slickest video gadgetry this side of
Hollywood. In both places, lobbyists wielding cellular phones and
PalmPilots demonstrated their networking skills.

Roughly three-quarters of the 225 participants at the
meetings represented an alphabet soup of trade associations,
high-technology companies, professional organizations and,
public-interest groups. The rest were academics or government
officials. Michael J. Boland of Boland & Madigan and Frank J.
Donatelli of Akin, Gump, Strauss, Hauer & Feld were just two of
the K Street lobbyists who trekked to Williamsburg to work the
room.

The commissioners immediately confronted some tricky
questions. The panel's chairman, Virginia Republican Gov. James
S. Gilmore III, proposed that each commissioner's employer
contribute as much as $ 150,000 to erase the commission's $ 1.7
million deficit. But Gilmore's motion was attacked even by
commissioners from corporations. ''It would not look good if
members of the commission paid for it,'' AT&T's Armstrong said.
''We're capable of doing it, but it was not the intent of
Congress, and it could color the recommendations.''

Gilmore, an antitax advocate, scrapped the idea, but he
came under attack again the next day. After he nominated Heather
Rosenker, a former vice president for communications at the
Professional Services Council, to be the commission's executive
director, Utah's Republican Governor, Michael O. Leavitt, noted
that Rosenker's husband, Mark, is vice president for public
affairs at the Electronic Industries Alliance, which reportedly
has provided the commission with $ 263,000 worth of free office
space. Even so, she got the job.

At these opening meetings of the commission, many of
those interviewed declined to say they were lobbying. ''We're
here to see who is attending, the dynamics, the personalities,
and to figure out what the commission will do,'' said Rick Lane,
a director of congressional and public affairs at the U.S.
Chamber of Commerce. ''In Congress, you know who the players are.
We know some of them here, but not all.''

Indeed, several commission members said they were being
lobbied less than they had expected to be. But it's still early.
''My guess is that it will heat up between now and the next
meeting,'' said Bartlett D. Cleland, a policy counsel for
Americans for Tax Reform, whose president, Grover G. Norquist, is
on the commission. ''Ask me the same question in two to three
months, and I think I'll be seeing a lot more lobbying going
on.''
The Commission Route

''When the going gets tough, the tough appoint a
commission.'' So goes an old Washington chestnut. The issues
change, of course, but lawmakers usually create a commission to
duck a nasty, divisive policy debate. ''It's what Congress does
when it recognizes it has a lose-lose political issue,'' said
Jeffrey Eisenach, the president of the Progress & Freedom
Foundation, a libertarian-leaning think tank that specializes in
technology issues.

Kent Weaver, a Brookings Institution scholar, puts
commissions into one of two camps: those that have clout, and
those that don't. ''Congress only appoints commissions with power
when lawmakers already agree on what to do, but need a fig leaf
to avoid accountability'' on politically perilous issues, he
said. Two examples, Weaver said, are the Base Realignment and
Closure Commission (see box, p. 2017) and the Commission on
Executive, Legislative, and Judicial Salaries, which was also
known as the Quadrennial Pay Commission. On four occasions, BRAC
panels have decided which military bases should be closed down or
converted to other military uses. Congress had to vote on the
BRAC proposal, or else it became law. Each time, Congress
accepted the commission's plan. The other commissions only make
recommendations to Congress, Weaver says.

Still, some commissions have raised the visibility of key
issues. The National Commission on Social Security Reform of the
early 1980s, which was headed by future Federal Reserve Board
Chairman Alan Greenspan, helped forge a consensus among policy-
makers that serious corrective action was needed to save Social
Security.

Given the proliferation of commissions over the past 20
years, lobbying activity has intensified. When members of
Congress struggled to put together the National Bipartisan
Commission on the Future of Medicare last year, then-House
Speaker Newt Gingrich, R-Ga., was set to name AARP Executive
Director Horace Deets, a staunch supporter of programs for the
elderly, to the commission. But before that odd-bedfellows
arrangement could materialize, Gingrich asked potential GOP
nominees to agree to a pledge not to raise taxes. Deets refused
to sign--and was kept off the commission.

The lobbying doesn't end with the clashes over commission
membership. Sometimes it's even difficult to tell the lobbyists
from the lobbied. Take David Abernethy, a lobbyist for New York
City-based HIP Health Plans. When the Medicare commission got
under way, Abernethy was lobbied by his K Street brethren for one
reason: His boss, Anthony L. Watson, had a seat on the
commission.

Health care lobbyist Deborah Steelman, a veteran of
several commissions, recalled that when she was a member of the
Medicare commission, the Association of American Medical Colleges
sent her a letter, signed by more than 50 Senators, blasting a
proposal the commission hadn't even begun to consider. ''It was
pretty impressive,'' she says.

Steelman's activities as both a health care lobbyist and
a member of two commissions have provoked criticism about
potential conflicts of interest. For example, she managed to get
a seat on last year's Medicare commission despite the fact that
she heads her own lobbying firm. Steelman said she pre-empted
complaints of conflict of interest by having all of her clients
sign a letter stating that she didn't represent their views on
the commission.

With commission members increasingly drawn from the
private sector, the lobbying clashes have become more intense.
Consider the National Gambling Impact Study Commission, which
issued its report in mid-June. The commission advocated a ban on
the sale of lottery tickets to anyone under 21, a prohibition
against betting on college sports, restrictions on gambling-
industry campaign donations at the state level, the removal of
cash machines from casino floors, a decrease in advertising for
state lotteries, and, perhaps most important, a moratorium on the
spread of gambling. The casino industry--which had three members
on the panel--has a stake in protecting its business from
additional competition. According to BusinessWeek, the gambling
industry's adroit lobbying managed to ''defang'' the commission.

Indian gaming interests had long complained that the
commission was stacked against them. Of the nine panel members,
only one represented Indian gaming interests. The appointment of
a second member with an Indian gaming background was reportedly
scuttled when gambling foes opposed his appointment.

The commission's imbalance, Indian-gambling advocates
say, enabled the two social conservatives on the panel--James
Dobson of Focus on the Family and Kay C. James, formerly the dean
of Regent University, which was founded by the Rev. Pat
Robertson--to team up with the three casino gambling
representatives and to freeze out Indian interests. ''When you
look at all these commissions, they're built for failure,'' said
Thomas C. Rodgers, a lobbyist for the National Indian Gaming
Association. ''They're supposed to resolve something and create a
discussion document, but if you don't have the right balance,
you're not going to have a good product.''
No New Taxes

The e-commerce commission could turn into a brawl, too.
For years, states and localities have agitated for the right to
tax mail-order sales. Business interests have opposed their
efforts. Now that the Internet has spawned a booming trade in e-
commerce, the battles have re-emerged with a vengeance.

Members of Congress have been caught in the firefight.
Most lawmakers are wary of imposing new taxes and leery of doing
anything that might curtail the explosive growth of electronic
commerce and the high-tech sector. But many members of Congress
don't want to offend the ''brick-and-mortar'' retailers who
contend that Internet retailers have an unfair tax advantage. And
lawmakers could risk their re-election chances if their
constituents see a reduction in tax-funded services because of a
drop in sales tax receipts. The solution last year was a three-
year moratorium on Internet taxes and a commission to study the
issue.

Almost immediately, business groups went to work on the
four top leaders of the House and the Senate. ''There was a
stampede in Washington among the representatives of various
industry people to get their CEOs on the commission,'' said Neal
Osten, the senior committee director for commerce and
communications at the National Conference of State Legislatures.
''It got to be a badge of honor if you got your CEO on the
commission. One Hill staffer explained to me that any industry
person who gave $ 1,000 or more (in campaign contributions) was
writing letters to get themselves appointed.''

Not every company succeeded; Citicorp, which is worried
about the administrative hassle of collecting an Internet tax,
didn't place a representative on the panel. Neither did
Amazon.com, the Internet-based book seller. ''It would be of
benefit to have a leading e-commerce company on the panel, and
you can't say that's the case now,'' said Paul Capelli, a
spokesman for Amazon.com.

Other companies made the cut. AOL, online brokerage star
Charles Schwab & Co. Inc. and computer-maker Gateway 2000, got
senior executives appointed to the commission. Software giant
Microsoft Corp. won big when Gingrich named longtime anti-tax
activist Norquist to the panel. He's a registered lobbyist for
Microsoft and the president of Americans for Tax Reform, a
conservative group.

Given the number of business luminaries on the panel,
lobbyists for states and localities feared that the commission
makeup was tilted dramatically against Internet taxes. The
legislation that created the commission laid down precise
membership rules. The panel would have 19 members: three Cabinet
members, eight representatives from business, and eight from
state and local governments. But the legislation also required
that one lawmaker or Governor be from a state without an income
tax and another be from a state without a sales tax. ''The
composition of the commission was very much the product of a
highly politicized process,'' said Michael Mazerov, a senior
policy analyst at the Center on Budget and Policy Priorities,
which is advising state and local governments.

A congressional screwup didn't help matters. After each
congressional leader announced his picks, there were 10, not 8,
corporate executives on the panel. The four Capitol Hill leaders,
sources said, each made their picks without working out the
overall composition of the commission. To achieve the correct
balance, Senate Minority Leader Thomas A. Daschle, D-S.D.,
replaced Cisco Systems Inc. President Larry R. Carter with Gene
LeBrun, president of the National Conference of Commissioners on
Uniform State Law. But government groups cried foul, claiming
that LeBrun, who last served as a state legislator almost 25
years ago, did not meet the definition of a governmental
official.

''We asked that some adjustments be made,'' but the
requests were ignored, said Edwin S. Rosado, legislative director
at the National Association of Counties. ''We were at an
impasse.'' The counties and the mayors' conference filed suit,
seeking to delay the commission's proceedings until the
commission's makeup reflected its legislative mandate. (Five
other state and local groups declined to join the suit.)

After the suit was filed, Lott yanked one of his picks,
Netscape Communications CEO James Barksdale, a buddy of the
Majority Leader's from Ole Miss, and replaced him with Washington
County (Ore.) Commissioner Delna Jones. Not to worry: Netscape
had just merged with AOL, which already had a seat on the
commission. After Jones' appointment, the suit was withdrawn.

But the flap put the commission, which has just 18 months
to finish its work, behind schedule. ''Keep in mind that it was
not the business community that asked Congress to form this
commission, it was the governments,'' said Mark E. Nebergall,
vice president and counsel for finance and tax policy at the
Software and Information Industry Association. ''The moral, it
seems to me, is to be careful about what you ask for.''
Meeting Time

After the lawsuit was withdrawn, the various lobbyists
prepared for the commission's first session in late June. For
some, it wasn't hard to figure out whom to target. The Internet
Tax Fairness Coalition, which is made up of a dozen companies and
trade associations, is a key lobbying group. Four top executives
at companies in the coalition serve on the commission. The
coalition also includes the American Electronics Association,
Cisco Systems, and the Investment Company Institute. During the
commission meetings, the coalition sponsored a well-attended
reception for conference participants at the upscale Williamsburg
Lodge on June 21.

At this stage, the coalition is focusing on research.
''The coalition is developing materials to make sure that the
commissioners have the proper perspective on issues,'' Nebergall
said. ''We feel strongly that the information the state and local
governments put out is incorrect, or lacks foundation. We want to
make sure the record is balanced.''

Another group, the eCommerce Coalition, consists of such
giants as AOL, Cisco Systems Inc., FirstData Corp., Intuit Inc.,
Microsoft, Time-Warner and Wal-Mart Stores Inc. The coalition
retained Ernst & Young to produce a report, titled ''The Sky Is
Not Falling: Why State and Local Revenues Were Not Significantly
Impacted by the Internet in 1998,'' that was widely distributed
in Williamsburg.

Individual companies are doing at least as much lobbying
as the coalitions are. Charles Schwab has retained a team of tax
experts at the Deloitte & Touche accounting firm and hired
Washington Counsel lobbyists Mark Weinberger, a former chief of
staff to the 1994 Bipartisan Commission on Entitlement and Tax
Reform, and Nicholas Giordano, a former Senate Finance Committee
aide.

The companies with the best seats in the house will
naturally be those with executives on the panel. An AOL spokesman
said that '' 'lobbying' is probably not the appropriate term for
what we'll be doing. We have a representative there who will
raise his perspective and that of the company. It would be like
saying a Senator is 'lobbying' the rest of the Senate.''

The Direct Marketing Association intends to work closely
with commission member Stan Sokul of the Association for
Interactive Media, a wholly owned subsidiary of the DMA, said
Mark Micali, the DMA's vice president for government affairs.
Sokul took perhaps the hardest line against taxes of all the
commissioners who spoke in Williamsburg. ''Our first goal is to
maintain the current protection that interstate marketers are
afforded in the collection of sales taxes,'' Micali said. ''The
second goal is making permanent the three-year moratorium on
taxation of Internet access. We will arm Stan with as much data
as needed so that he can educate his fellow commissioners about
our point of view.''

Meanwhile, the government groups are also pressuring
their allies. In late May, the seven Washington-based state and
local groups sent a joint letter of principles to the
commissioners. The missive was followed by a concerted
educational and lobbying effort aimed not only at the commission
members, but also at Congress, which most likely will consider
the panel's recommendations. ''We need to make the commission
understand the importance of the tax system and what the
potential loss of revenues means in lost services, from education
to parks to transportation,'' said Rosado of the National
Association of Counties. ''We have to educate the public that
this is not a question of us wanting a chunk of their taxes. It's
a fairness issue. E-commerce is a huge chunk of sales that should
be taxed like everything else.''

For its part, the National Conference of State
Legislatures has gone so far as to create what amounts to a
shadow e-commerce commission. ''We have set up an NCSL executive
committee task force that will look at the very same issues the
commission will look at, as well as provide background
information,'' the NCSL's Osten said. The NCSL panel even
includes Virginia Del. Paul Harris, who is on the e-commerce
commission, Osten said. ''We would have been happier with a
different makeup,'' he added, ''but this does not mean NCSL says
the commission will not be fair. We are very much planning to
participate in the process.''
Compromising Commission

The Williamsburg meetings showed that even as the
Internet and e-commerce communities battle the advocates for
state and local government, differences of opinion exist within
each camp.

Some commissioners from the business community are
expected to be softer on taxes than others. Gateway CEO Waitt,
for example, told the audience that he is ''coming to (the tax
issue) with an open mind,'' while Schwab President David S.
Pottruck startled many observers by his willingness to consider
e-commerce taxation. Even MCI WorldCom Vice Chairman Sidgmore,
who gave a dazzling speech touting the future of e-commerce, said
that in the long term, different tax policies for different types
of sales are ''not tenable.''

An industry lobbyist with ties to the commission said
that while ''there are people out there suggesting that there
never be Internet taxation, but the people saying that have to be
smoking something.''

In the meantime, some governmental appointees are likely
to be flexible on the tax issue. Washington Democratic Gov. Gary
Locke represents a state that is home to such Internet giants as
Microsoft and amazon.com, while Harris, the Virginia state
lawmaker, represents a district that's home to ValueAmerica.com,
a leading Web retailer. And Jones, a former state lawmaker who
pushed legislation to impose the state's first sales tax,
represents the so-called Silicon Forest, home to a large Intel
Corp. microchip facility and many high-tech workers.

''I have the sense that most people on the commission are
coming with a particular view or agenda,'' Jones said. ''But I
have the idea that people are willing to work through the
system--that they're willing to sit down and solve problems.''

The Internet companies look like heavies now, but that
could change. ''At some point, the politics will change,'' said
Internet analyst William Whyman, a principal at Legg Mason
Precursor Group. ''Right now, the Internet is a 'third rail'--
people are saying we shouldn't kill the goose that laid the
golden egg. But at some point, the questions will change to 'Why
are we subsidizing the Internet at the expense of bricks-and-
mortar retailers?' ''

Indeed, despite the continuing rancor, some believe the
commission may actually do what it's supposed to do. ''I actually
think we ended up with a surprisingly good commission,'' the
Progress & Freedom Foundation's Eisenach said. ''There was
nothing systematic about it, but I think we wound up with exactly
the right group.''

LOAD-DATE: July 13, 1999

Document 22 of 27.


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