In response to AH&LA’s efforts on behalf of the lodging industry, the General Services Administration (GSA) announced today that they will not alter its market-based methodology in calculating federal per diem rates.
After hearing from AH&LA and its members about the severe unintended consequences of radically changing the methodology, GSA has decided to freeze per diem rates at the FY2012 level.
While certainly not ideal, the rate freeze is a far less radical approach than the move that GSA had contemplated.
For almost a decade, GSA calculated per diem rates based on the average rate of mid-priced hotel rooms. GSA determines hotel average daily rates (ADR) by including rates from hotels in the four tiers of the “mid-price range” with GSA omitting rates from economy and luxury hotels from the data as it considers them outside the mid-price range (too low and too high, respectively).
After determining ADR for locations throughout the U.S., GSA then reduces those rates by five percent and establishes per diem rates at that discounted level.
In late June of this year, AH&LA learned that GSA was prepared to radically change that methodology by removing the data of an entire tier of mid-priced hotels in calculating the average, excluding most hotels in many large cites. If the change was made, it would result in an artificially low “average” rate that would not reflect actual room rates. Although it would vary by market, some estimates indicated that per diem rates would be slashed by 30 percent.
AH&LA stressed that per diems were calculated on a formula based on significant research with a government discount already in place. If the formula was altered without regard to actual rates, federal workers would be priced out of market and unable to secure lodging where they had business.
AH&LA also noted that the change would increase federal travel spending because federal travelers would have to secure lodging far from their places of and would have to pay for rental cars or taxis. In addition, federal travelers would end up paying up to 300 percent more than the per diem rate for rooms since hotels could not accept the new artificially low rate.
AH&LA brought the concerns of the industry to the immediate attention of Congress, the White House, and GSA. As a result of those actions, GSA did not take the precipitous action that would have increased federal spending, made federal travel less efficient, and harmed the lodging industry and its employees.