Federal Government Freezes Travel Per Diems for 2013 — Does Your Senator Think You’re Not Paying Enough?

The Office of Management and Budget has made a directive for federal travel budgets to be cut 30%.

The General Services Administration was looking closely at federal government hotel rates and had been intending to cut payments for those. They use a formula that includes a mix of rates for different scales of lodging, and one possibility was cutting out the upper upscale segment. That would have lowered the rates they were willing to pay.

There was fierce lobbying in opposition to this by the hotel industry. In the end no cuts are being made. Which the GSA declares is their making a difference in “controlling costs and ensuring that taxpayer dollars are used wisely.”

And yet hotel industry supporters are still not thrilled. They want more spending.

Prior to the release of the 2013 per diem rates, some legislators had urged GSA to ensure reimbursement rates were not too low.

“Although I support efforts to save taxpayer dollars, I am concerned that the changes proposed by your agency have not been fully analyzed and could ultimately increase costs to the taxpayers,” Reid said in the letter.

So far, Reid has not received a response from GSA, according to a Democratic aide.

Government sources told Federal News Radio that Rep. Nancy Pelosi (D-Calif.) and Del. Eleanor Holmes-Norton (D-D.C.) have also sent letters to GSA.

In some markets like Washington DC the federal government rate — what the federal government will pay for a room night in a given city (although federal workers can certainly pay more and come out of pocket for the difference) — is the primary driver of a hotel’s revenue. So unsurprising that the industry would care a great deal what a major customer is willing to pay.

I don’t have a strong belief on what the right amount is, that’s the sort of thing that ought to be subject to negotiations (something major companies with travel departments do all the time). And I don’t express an opinion here on what quality level of hotel a given federal employee ought to stay at, I suspect it varies based on the purpose of the trip and who is making that trip. I do know that the federal government rate at some of the better properties in DC is fantastic and I’m jealous that I’m not eligible…

It is a bit surreal though when the Senate Majority Leader — who would presumably be speaking on behalf of the government is saying that he’s concerned his side isn’t paying enough for what it’s getting. Note he’s not saying that workers need to travel more. He’s saying that for the travel they are doing, that they ought to be paying more. And that strikes me as somewhat strange.

(HT: Jim S.)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Foreign per diem rates for my Asian destinations have been flat for years, so not sure what the big deal is. Even better, many of those foreign hotels give elite type benefits as part of unpublished embassy negotiated rates, often including breakfast, some laundry, internet, and club lounge.

    The flat rates also work out nice for my leisure travel, especially overseas where the per diem rates are net of tax.

  2. I’m not sure what was underlying Reid’s letter, but there are some very real concerns here that have to do with travel to urban areas. My favorite example comes from someone I know who has worked for Justice for a long time. He frequently travels to Boston from DC on short notice. He’s complained in the past that, because of the timing, the cheaper hotels in Boston are booked. Because of the intricacies of Federal travel policy, he can’t book the more expensive hotels — so he ends up paying for a cheaper hotel in the suburbs, renting a car, paying for parking in downtown Boston, etc — which end up costing way more than just booking the more expensive hotel downtown.

  3. @David but in the case of extraordinary demand days / hotel sell-outs the problem isn’t that the per diem is too low, it’s that it’s one-size fits all, that the federal goernment is willing to pay one price and one price only for rooms regardless of market conditions, but does not negotiate rates with individual hotels or with hotel chains, getting last room availability at those rates. They don’t do what large companies do to lower travel costs. And, not doing that, the process to exceed per diem is incredibly cumbersome and thus folks wind up with backward travel. The answer isn’t a higher per diem….

  4. Gary, did you even read Reid’s letter? He’s not arguing that the federal government should be paying more than it currently does for hotel rooms. He’s arguing that if, going forward, the government mandates a price that is lower than hotels are willing/able to accept, productivity will be harmed because employees won’t be able to book hotel rooms close to where they need to be (especially in city centers).

    He’s not saying the government should be paying *more* than it pays now; he’s saying that if the government tries to start paying significantly *less* than it is paying now, it may end up losing more money than it saves.

    Now maybe you think that’s a pretext and Reid is just a shill for the hotel industry, or maybe you think it won’t happen (though, as an economically minded guy, you must understand that there is SOME price below which hotels won’t find it worthwhile to take government business, and that a per diem below that price would be pretty disastrous for both the government and for the travel industry). If so, you should say that instead of setting up a strawman.

  5. The reality is that most of the times the hotels are far from being sold out – it is the room they allocated to the Government rate are sold out (sometime there are only 3-4 of them per day).
    In the old days (only couple of years ago) if you could show that the total cost of the stay will be higher than going over the per-diem (i.e., cheap hotel + transportation + parking > expensive hotel) you could have gotten the per-diem rate waved. This is long gone now (in the perfect bureaucratic logic).

    I understand your comments about lack of negotiations – but lets face it the Government is one huge customer, and the competition is plentiful. I see no harm in using the size of the Government to unilaterally set the prices. No hotel has to participate, and many of them do not.

    If anything, following the GSA fiasco, the moratorium on holding meetings in hotels hurt the hotels probably much more than the fixed per-diem (particularly in the DC area).

  6. Also, I just took a look at the current per diem rates, and many of them are already awfully low. $125/night in Los Angeles? Yikes. I doubt many corporate travel departments are paying less than that, unless they’re making their people sleep at the Super 8.

  7. The government doesn’t negotiate last room availability at hotels for their negotiated rate the way that private sector companies did, that would solve the whole problem. My point is that the government’s representatives aren’t acting in its own interests.

    You don’t need to pay higher rates ON EVERY NIGHT just when hotels are sold out. And when they aren’t you can probably pay LOWER rates.

    And some savings can be captured by having different appropriate rates for different purposes, driving stays to different caliber hotels.

    On some trips you need to be right downtown, or near a conference, other trips you do not.

    It’s a flawed approach overall.

    As for whether Reid sincerely worries about getting higher costs because of cost-saving measures, even Federal News Radio (no government skeptic) frames his statements as a pre-text.

    Remember that the GSA was prepared to lower the price they’d allow for hotel stays based on lowering the quality of hotels that they were surveying for pricing.

    The hotel industry lobbied hard against this. They have fixed capital costs, and would be receiving less money from the government.

    There was no comparable lobbying on the part of advocates of saving money.

    So the GSA backed off, having heard the interests of industry expressed through Members of Congress and through the lobbyists directly.

    Reid of course represents Nevada, and Las Vegas had more hotel rooms than any other city in the world the last time I checked.

    GSA’s per diem freeze was a compromise, no inflation-adjustment but no big cut. Still a flawed approach overall though.

  8. I travel frequently for the government and can tell you that the hotel per diem rates are ridiculously low in some cities. In practice, that means the number of rooms actually made available by the hotels at that rate is very low, and I have to hope that I’m lucky, or stay somewhere other than my destination, which as someone already mentioned, adds a lot of cost. But it is nice to at least have the potential to choose the hotel that makes the most sense for my trip, regardless of hotel chain. This is not true with airfare — the Govt negotiates each route with s specific carrier (much as you’re suggesting they negotiate with specific hotels), and I am restricted to one chosen carrier that I’m allowed to use between each pair of cities (this kills my ability to get status on any one airline and isn’t always the carrier that has a hub at that city). Unfortunately while it may save the Govt money on the actual airfare (not always the case) it does sometimes require insane routings and overnight hotel stays where one would not be necessary if I could take the most appropriate flight. This then adds significant cost to the Govt in my time and lodging costs, that probably increase the price of the overall trip.

  9. I happen to know way too much about per diems – but suffice it to say – per diem rates were established by a commission set to lower travel costs for federal workers about a decade ago. Actual room rate data is collected by an independent firm and then GSA applies a 5% discount. The issue at hand was that GSA proposed taking out an entire set of room rate data and creating a new per diem rate based on these artificially low numbers. The GSA-proposed data set for Washington DC, for instance, would have excluded 85% of hotels. With that formula for per diems, federal travelers would most definitely not been able to afford hotels anywhere near their meetings or business and as David said above — many unexpected costs for traveling to the meeting occur. GSA also has a caveat built in that mission critical meetings can obtain waivers to pay market rate in order to stay. (Nearly 80% of federal meetings are deemed ‘mission critical’) So in the end, reducing per diem rates would most likely cost the federal government much more.

    If this sounds like a jumbled ball of federal bureaucracy – you are correct. A seemingly common sense move will almost always cause a much worse outcome.

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