Maryland hotels are bracing themselves for the impact, which could be positive or negative depending on their location, as the federal government considers the room rates it pays for federal employees.
The General Services Administration has been mulling several options for its per diem rates, according to HotelNewsNow.com, a division of STR Global. These options range from freezing current rates through fiscal 2013 and eliminating a 25 percent flexibility for federal employees who cannot find a per diem-rate room, to changing how it determines rates by eliminating upscale hotels from the equation.
Changing the methodology is causing particular concern for hoteliers in Montgomery County and near Baltimore-Washington International Thurgood Marshall Airport, where many higher-end hotels cater to traveling government employees.
“You’re going to have a situation that’s going to cost people,” said Michael Dickens, president of Hospitality Partners in Bethesda. “For the government employees, it’ll cost them time and travel in finding a room. For the hotels, it’ll cost them revenues and possibly employees.
“How that makes sense in this economic environment is beyond me,” Dickens said.
Hospitality Partners manages 10 hotels in the Washington, D.C., metropolitan region, including a Courtyard by Marriott in Chevy Chase.
For the past several years, the GSA has determined per diem rates by calculating the average rate of hotels in an area — minus luxury and economy hotels — via STR Global data. The agency then substracts 5 percent from that average to decide the per diem rate.
“It was a pretty fair way of doing things,” Dickens said.
He emphasized that almost half of all hotels in the region are higher-end and would not be factored into the proposed methodology, thus skewing the new rates down.
“You are taking out half the hotels to determine the market,” Dickens said. “People will have their hours cut or lose their jobs. This is not fat cats. The federal travelers aren’t fat cats either. They stay at middle-market hotels.”
Per diem rates in Dickens’ region are about $169 this month and will reach $226 in September, according to the GSA. Rates near BWI are $116 through September.
“In a presentation to members of the hotel industry prepared by the GSA, an example of the new methodology showed the federal standard per diem rate decreasing from $136 to $107,” HotelNewsNow reported.
The GSA, recently caught up in scandals over lavish spending on agency conferences, said its wants to cut costs.
"No determination has been made yet on new per-diem rates,” GSA spokesman Dan Cruz said in a statement. “The GSA is reviewing per-diem rates for fiscal year 2013. The GSA will implement the directives in the Office of Management and Budget memorandum concerning agency travel and conferences. This includes decreasing spending on agency travel in fiscal year 2013 by 30 percent compared to fiscal year 2010. We will continue to engage our industry partners as we undertake this review of per-diem rates.”
Hotels near BWI could feel a big pinch, said Chuck Chandler.
“There are a lot of government contractors and subcontractors in the BWI area that pier diem rate changes may affect,” said Chandler, general manager at Embassy Suites Baltimore at BWI Airport.
He added that most hoteliers have written to their congressional and local GSA representatives, making their case against changing the rate system.
“We understand that GSA may exclude the fourth midscale tier, which would dramatically reduce the so-called ‘average’ and create an artificially low per diem rate,” David Reel, president and CEO of the Maryland Hotel & Lodging Association, wrote in an email to The Gazette. “An artificially low per diem rate would under-price federal travelers out from hotels where they have business.”
Reel said this could cause federal travelers on “mission-critical” trips to pay actual rack rates of up to 300 percent above the per diem rate.
“This will ultimately increase costs and reduce efficiency. That is certainly not good for anyone,” Reel said.
Bobby Shah agreed.“There’s already a lot of pressure,” said Shah, general manager of the Clarion Inn & Fundome in College Park. “We were hoping it would get raised in 2013, since everything has been increasing across the board, from utility costs to general expenses.”
If the per diem rate is lower for upper-scale hotels, it will put more pressure on smaller hotels to adjust their rates to say competitive, Shah said.
But other hoteliers say dropping per diem rates in the region can only help areas such as Prince George’s County.
If Washington hoteliers refuse to offer the lower per diem rates, it will push more government traveler business to Prince George’s, said Tyrone Ingram, director of sales at Radisson Hotel Largo.
Prince George’s historically has had an disadvantage in attracting corporate business compared with Washington and Montgomery County, Ingram said.
“I’d love it if they lowered the per diem for D.C.,” he said. “Drop it some more.”
Having worked in the Washington Marriott and Hilton hotel market, Ingram said he is familiar with how devastating low per diem rates can be for a hotel.