On the Friday before the Memorial Day long weekend, Congressman Bill Posey (R-FL) introduced a bill to have the federal government keep paying higher rates for government employee hotel stays, even with hotels empty and rates dropping. It’s being co-sponsored by Congressmann Charlie Crist (D-FL), making this ‘bipartisan legislation’.

Notably though Posey hasn’t even issued a press release about the bill he’s introduced, H.R. 6995 “To prohibit the Administrator of General Services from setting Continental United States (CONUS) per diem-reimbursements rates below a certain level, and for other purposes.”

The U.S. government sets per diem rates for federal travelers. That’s the most they can spend in a given city on lodging, and also for things like meals and incidentals. Companies often default to federal GSA rates to determine what’s objectively reasonable for their own travel policies.

What Represenative Posey wants to do is require the federal government to overpay for lodging – not to reduce allowable hotel rates – even though market rates may be falling. The federal government spends billions on travel, and the hotel lobby shop AHLA thinks this will “allow hotels to be fairly compensated for the services they provide.”

In reality it’s a backdoor subsidyto hotel chains and owners. Although it wouldn’t work the way the hotel industry thinks. The government sets a single maximum. If that’s above the market rate for most hotels in town, that just means government employees will have their pick of hotels. They may take the most convenient one for their meetings or events. Or they may:

• Take the nicest hotel in town, suddenly affordable under inflated per diems

• Encourage hotels to rebate all manner of services, bundled in their room rates.

Not all hotels will benefit equally. This bill doesn’t just let hotels get paid what they used to get paid for rooms. This will shift government travel demand to more upscale properties.

If the St. Regis San Francisco used to run $450 per night, federal employees wouldn’t stay there. In September 2020 they’re allowed to spend just $334 per night, so they stay at the Hilton instead. However rates are coming down across the board. Now the St. Regis San Francisco runs $325, and gets the federal business – taking it away from the Hilton.

On the other hand, we’ve seen during the regulated era of airlines what government setting prices too high leads to. The Civil Aeronautics Board used to mandate high prices and limit competition, to ensure airlines were profitable. However airlines still competed for business, even though they couldn’t discount their fares. They competed on services and amenities. The Civil Aeronautics Board, looking to stop the practice, once considered a rulemaking to limit the thickness of sandwiches that could be offered.

Airlines would rebate some of the excess fare to passengers, to win their business. And that’s exactly what we’ll see from hotels. Free laundry, free room service, gift bags filled with hand sanitizer, toilet paper, and N95 masks – whatever people value these days.

Put another way, more upscale hotels benefit at the expense of average accommodations, and hotel owners don’t capture all of the additional money, some of it is actually captured by federal workers instead.