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In 2009, Congress appropriated $16 billion in earmarks. In March of 2010, that the House eliminated earmarks to for-profit companies. However, enterprising managers soon found a way to get around the restriction. I contend that figuring ways to get around restrictions is the default in corporate responses to regulations where the latter cannot be used for strategic advantage.

In Marcy Kaptur’s (D-OH) district, a defense contracting company incorporated a nonprofit organization, the Great Lakes Research Center, at the same address and doing the same work. The center received earmarks of $10.4 million to sell the Pentagon small hollow metal spheres for body armor. Kaptur, who had received tens of thousands of dollars in campaign contributions from the owner’s family and the company’s lobbyists told the media that the center “met the requirements of the Reform.” If this is true, the reform was in effect nugatory—so one might ask: why did the House go to the trouble unless for the short-term PR benefit? There is a deeper problem in even the appearance of a conflict of interest wherein a lawmaker has a role, whether direct or indirect, in money going to an organization that has contributed to the lawmaker’s campaign. Even if not intended, the conflict of interest should be sufficient as a red-light, yet as long as money is not being used by the company’s owner for personal use, such conflicts of interest are typically ignored.  I contend, however, that both types are equally sordid and hence that we should be on guard for them both.  If I am correct, there is an unduly lax and restrictive attitude in the US toward institutional conflicts of interest. This lapse has in turn enabled corruption in the Congress.

Source: Eric Lipton and Ron Nixon, “Companies Find Ways to Bypass Earmarks Ban,” NYT (7/5/10), 1A.

See http://www.nytimes.com/2010/07/05/us/politics/05earmarks.html?_r=1&hpw

In March, 2010, leaders of the US House Appropriations Committee (chaired by Rep. David Obey (D-WI)), banned ear-marks to for-profit companies. Had the ban on for-profit earmarks been in place in 2009, it would have meant the elimination of about 1,000 awards worth a total of about $1.7 billion. Many of those earmarks went to military contractors for projects in lawmakers’ home districts. The decision ends a practice that has steered billions of dollars in no-bid contracts to companies and set off corruption scandals. So far, though, the Senate is not joining in. House Democrats had tried to reach an agreement with their counterparts to ban for-profit earmarks, but the senators balked, Congressional officials said. With the Senate including for-profit earmarks in its budget bills and the House excluding them, negotiators from each body will have to determine which earmarks, if any, would make it into a final bill sent to the White House for approval. So it is possible that businesses could continue to get no-bid government contracts. According to the Office of Congressional Ethics, there is a “widespread perception” among the private-sector recipients of earmarks that giving political contributions to lawmakers on the panel helped secure the grants. It is possible that this assumption could survive from future ear-marks (via conference committee negotiations)  even as the House leaders are percieved as having solved the problem.  In other words, the corporate political contributions continue even as the House incumbants campaign on having solved the problem in the House.

Source: http://www.nytimes.com/2010/03/11/us/politics/11earmark.html?ref=us