REPORT FROM THE U.S.—After initial discussions about reducing federal per-diem rates by as much as 30% prompted an outcry from several hotel industry representatives, the U.S. General Services Administration on Tuesday said it will freeze per-diem rates for fiscal-year 2013 at the current 2012 levels.
The standard federal per-diem rate, which applies to approximately 2,600 markets, will be $77 for at least another year. Non-standard rates, which apply to approximately 400 of the country’s top markets, will remain the same as they were this year across the board.
“A freeze is not what we would have liked to have had happen,” said Mark Carrier, president of Washington, D.C.-based B. F. Saul Company Hospitality Group, “but it’s a positive outcome compared to something that would have been dramatically challenging to overcome.”
The freeze helps the GSA meet the Obama administration’s directive to reduce travel costs government wide. In a news release, the GSA said freezing the federal travel reimbursement rates will save an estimated $20 million in avoided costs in fiscal year 2013, which gives some indication that per-diem rates would have increased based on the GSA’s traditional methodology had the freeze not been implemented.
“Freezing the per-diem is one of several parts of an ongoing top-to-bottom review to ensure we are closely evaluating federal travel spending,” said GSA spokeswoman Chris Scott.
In July, the GSA approached hoteliers with an early plan of re-evaluating its methodology to calculate federal per-diem rates. The GSA was looking at a number of potential options that would result in per-diem decreases in most markets, which many hoteliers feared would cripple business and come with a bevy of unintended consequences.
The American Hotel & Lodging Association and the U.S. Travel Association, among other parties, got involved by lobbying the GSA with their concerns and providing data and materials that opposed dramatic reductions to per-diem rates.
“While certainly not ideal, the rate freeze is a far less radical approach than the crippling move that GSA had contemplated,” the AH&LA said in a statement. “AH&LA appreciates the consideration GSA gave to our concerns and looks forward to working with them to ensure per-diem rates reflect the market and are good value to the federal government.”
Shawn McBurney, senior VP of governmental affairs at the AH&LA, said once his organization heard about the proposed changes it was able to assemble some groups and visit GSA representatives armed with knowledge about unintended consequences a significant per-diem drop would create.
For instance, federal travelers might not be able to find hotel rooms near their destination at the per-diem rate so they would have to stay farther away and accrue additional transportation costs; and conferences might be relocated to secondary markets, which would lead to higher airfare on non-direct flights.
“We weren’t sure how far along in the process they were, but after our first meeting it seemed like they were pretty far long,” he said.
Cindy Bowen, GM at the Lexington Lansing Hotel in Lansing, Michigan, went a step further, saying increased demand would have allowed revenue managers the flexibility of closing out any deeply discounted per-diem rates altogether and yielding toward more higher-rated business.
Bowen said her hotel does more state government business than federal government business, but that often state programs are federally funded so those travelers must adhere to federal per-diem guidelines. Bowen was eying the GSA decision closely as she was determined that federal decreases would influence Michigan’s state officials to decrease state per diems as well.
Bowen, who sits on the board of the Michigan Lodging and Tourism Association, said she is “very impressed and pleased” with the efforts of AH&LA and local state associations on several issues over the past couple years, including open communication with the GSA and with the Department of Justice over pool-lift requirements.
“Costs are going to go up to run our hotel, and they also want to limit our ability to make a profit. (Government) has got to give us a break on one end or the other,” she said. “There’s a perception that hotels are big business and make big money, but as an independently owned hotel in a tertiary community, it’s not the cash cow, big-buck business that people think it is.”
“This is an example of how the industry was motivated to speak with one voice—from brands to owners to trade associations—and convey important information,” Carrier said. “A collective strength of our voice is one that can be heard when we work together.”
In the midst of the GSA’s exploration, Mark Woodworth, president of PKF Hospitality Research, produced a report indicating potential effects a dramatic reduction in per-diem rates would have. One of its major findings: Federal travelers would have lost access to the types of hotels that are best positioned to satisfy their needs.
Woodworth said choosing not to cut per-diem rates “seems to be a very good decision.”
“While there is uncertainty in the year ahead, we’ve certainly been pleasantly surprised by the level of demand recovery,” he said. “There’s no reason not to believe in continued demand growth through 2013, which would have exacerbated the availability problem more so.”
However, Woodworth said the hotel industry isn’t necessarily out the woods yet.
“Potential negative implications were not limited to just a reduction in the per-diem rate,” he said. “There is a remaining concern that there will in fact be reductions in federal travel.”