A Better Benchmark: Industry Urges Congress to Stabilize Per Diem Rates

per diem rates

The COVID-19 pandemic has tested our industry far more than any challenge we have ever faced. From job losses to property closures, the last year has pushed our industry to the brink of collapse. While our recovery is just beginning, there are negative long-term impacts the COVID-19 pandemic will have on the hotel and lodging industry. One area that is giving us great cause for concern is the prospect of fiscal year (FY) 2021 being the basis for future federal per diem room rates.

The General Services Administration (GSA) sets per diem rates for federal travel within the United States and those rates are updated annually according to average daily rate (ADR) information. Due to stay-at-home orders, mandatory shutdowns, and social distancing measures, the ADR collected for calendar years 2020 and 2021 will produce extremely depressed per diem rates, greatly impacting the hotel and travel industry recovery. The hotel industry is urging Congress to lock in a floor for future federal per diem rates based upon FY 2021 rates. It is our hope that Congress will extend the stabilized rates to mitigate the continuing impact of the pandemic travel shutdowns.

The impact of this potential outcome on our industry cannot be overstated. Federal employee travelers are a significant customer base for our industry. Under the current law, the GSA sets the federal maximum lodging rates reimbursed to employees by location based on rate samples collected from surveys during the previous fiscal year. If market lodging rates go up, then reimbursable rates increase. And when market rates decline as they have during the pandemic, then reimbursable lodging rates decline. This lost revenue for struggling hotels looking to make up for a lost year will slow our recovery. According to the GSA, $3.8 billion was spent on lodging in FY 2019. With worse-than-ever ADR declines due to COVID-19—down 29 percent over the per diem period on average—a calculation including these affected months will be devastating to the recovery of a reeling hotel industry.

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After 9/11, it took roughly three years before hotel room rates came back to the same level as before the crisis. Following the 2008 financial crisis, hotel rates did not rebound for nearly six years. The hotel room rate declines related to COVID-19 have been significantly more severe than those seen in prior downturns. Without congressional action, rate impacts will be four times worse than they were after the Great Recession. It is vital that a floor for the GSA per diem rates be set for an extended period to mitigate the disastrous impact of this crisis on the hotel industry.

We are urging our allies in Congress to support H.R. 2104, the Restored, Equitable, Coronavirus Adjusted Lodging (RECAL) Act, to help set federal per diem rates for FY 2022-24. This bill will not only help the businesses impacted by the pandemic but their families as well. The road to recovery is in sight, but we need more help if we want to continue welcoming guests during their travels this year and beyond.

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Andrew Usyk is Vice President of Government Affairs for AHLA.