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by Cheryl-Anne Sturken | October 5, 2010

As if shrinking budgets and scarce resources weren't enough, government meeting planners will face other serious hurdle beginning this Oct. 1, when the new 2011 federal per diem rates go into effect. That's because in an unprecedented move, the U.S. General Services Administration cut lodging rates in 310 of the 378 markets (or 82 percent) where it set rates for federal travelers. The news could not be worse for the hotel industry, which is trying to recover from the most severe downturn in its recorded history.

"The declines are unprecedented," said Scott Lamb, treasurer of the 500-member Bethesda, Md.-based Society of Government Travel Professionals, who is also director of Hilton Hotels & Resorts' government division. "This is going to cause the hotel industry to close out federal travelers, because the market is trying to rebound and simply can't bear such low rates." The new rate in Chicago for high season fell 21 percent, from $205 to $173; New York City dropped 20.9 percent, to $269 from $340, while Boston fell 18 percent in high season, from $240 to $206. By comparison in 2010, per diem rates stayed the same or increased in 70 percent of the markets over the year before, and in 2009, that figure was 96 percent.

In setting the new rates, the GSA used a handful of metrics, including hotels' average daily rate for Monday through Thursday for the period April 2009 to March 2010. Unfortunately for hotels and federal travelers, that happened to be one of the industry's worst periods in recorded ADR.  During that time, according to Smith Travel Research, the average ADR dropped 7.3 percent, to $96.94.

Too bad the government looks backward when setting rates for the future, because all signs point for the industry to begin a sustained recovery by year's end. STR is projecting that the industry will end 2010 with occupancy up 4.4 percent and that rates will rebound 3.9 percent in 2011. Likewise, PKF is projecting that ADR will increase 3.8 percent in 2011. "It's not that the GSA's methodology was wrong," says Lamb. "It's just that these rates were based on the worst hotel market in 30 years. Hindsight is everything." One hotel in Baltimore estimates it stands to lose $200,000 from government bookings already on the books, because the business will have to be recalculated at the new per diem rate.

According to Lamb, the SGTP's board of directors is considering how to move forward on advising its members to file an appeal with the GSA, which has said it will review appeals made by federal agencies -- not hotel industry representatives -- received by the Dec. 31, 2010, deadline. Any resulting change in the per diem rate would take effect April 1, 2011.