Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / Why Government Travel Per Diems Cost You More Than You Think
Transcript
- Lucas: So the US federal government spent roughly $2.8 billion last year on employee travel. And buried inside that number is a seemingly small administrative figure that quietly dictates how much of that money actually gets spent: the per diem. Luna: Per diem — meaning 'per day' — the daily allowance for lodging, meals, and incidental expenses when you're on official travel. Lucas: Exactly. The General Services Administration, the GSA, sets these rates for every city and county in the country. And if you look at the standard rate for fiscal year 2026, it's $166 a night for lodging and $79 a day for meals and incidentals — that's about $245 total for most locations. Lucas: But then you get to high-cost areas like Washington DC, New York City, San Francisco, and the numbers jump. DC's current per diem for 2026 is $316 a day: $237 for lodging, $79 for meals. Luna: And that's the ceiling, right? Agencies are allowed to spend up to that amount without needing special approval. Lucas: That's the key. The per diem becomes a spending target, not a cap. A 2024 Government Accountability Office report looked at this and found that federal employees routinely claim the maximum per diem even when their actual costs are lower. The GAO estimated that if agencies simply reimbursed actual lodging costs instead of the flat per diem, they could save about $280 million a year. Luna: That's not nothing. But is it just about lodging? Lucas: No, meals are a bigger problem in some ways. The GAO also flagged that the meal per diem is essentially uncapped for most trips — you can claim the full $79 per day whether you ate at a food truck or a steakhouse. Their estimate: another $200 million in potential savings if meal reimbursement were tied to receipts. Luna: So we're talking close to half a billion dollars a year — just from two relatively small changes in how per diems are administered. Lucas: And that's before you get into the incentive structure. When an agency knows its travel budget is 'use it or lose it,' there's a strong motivation to send people to conferences, to book pricier hotels, to hit that per diem number. It's a classic example of Goodhart's Law: when a measure becomes a target, it ceases to be a good measure. Luna: I remember reading that the Department of Defense alone spent over $1 billion on travel in 2023, and a big chunk of that is per diem. Do they have different rules? Lucas: They use the same GSA rates, but they also have something called 'invitational travel authorities' that can bypass some of the standard limits. The Pentagon's travel budget has been a perennial audit headache — the 2023 audit found that something like 40% of travel transactions had insufficient documentation. Lucas: But let's bring this down to a concrete case. Take the Department of Energy's national labs — places like Lawrence Berkeley or Oak Ridge. Researchers there travel frequently for conferences and collaborations. Their per diem is the standard GSA rate. But because they're often going to places like Washington to brief policymakers, they're hitting that $316 a day regularly. Luna: And is that more or less generous than what private-sector researchers get? Lucas: That's a great comparison point. Most private companies I've looked at — Fortune 500 firms, consulting firms — they use a fixed per diem too, but it's usually lower. A 2023 survey by the Corporate Travel Association found that the average corporate per diem for high-cost cities was about $260 per day, which is roughly 20% below the federal rate. Luna: So the government is effectively paying a premium for its own employees' travel. And since it's the largest employer in the country, that adds up. Lucas: It does. And there's another layer: state and local governments set their own per diems, often pegged to the federal rate. California, for example, uses the GSA rates for travel within the state, but adds a separate 'incidentals' allowance that pushes the total higher. New York state has its own schedule that mirrors GSA but with higher lodging caps in Manhattan — up to $300 a night. Lucas: So the federal per diem becomes a benchmark that ripples through the entire public sector. When the GSA raises the rate by 2 or 3 percent — which they did this year for inflation — it increases travel spending at every level of government. Luna: One thing I find interesting: there's almost no public debate about per diem rates. It's a technocratic number set by career administrators. But it directly affects how much taxpayer money goes to hotels and restaurants in DC and other cities. Lucas: Right, and that's the policy angle that's underdiscussed. A small reform — say, moving from a flat per diem to a receipt-based system for lodging, or capping meal reimbursement at 75% of the current rate — could save billions over a decade without cutting a single program. Lucas: The GAO report from 2024 actually made three recommendations: require itemized receipts for lodging, tie meal reimbursement to actual spending, and conduct periodic audits of per diem claims. As of this year, none of those have been fully implemented. Luna: So there's a clear opportunity for fiscal improvement that's just sitting there. And it's almost invisible to most people. Lucas: Exactly. And I think that's the takeaway here: fiscal policy isn't just about big things like tax rates or Social Security. It's also about the administrative plumbing — the per diems, the travel reimbursement rules, the way we count things. Those small numbers add up to real money. Luna: It reminds me of something you said a few episodes ago about how the budget is full of these 'hidden dials' that policymakers rarely touch. Per diems seem like one of those. Lucas: They absolutely are. And if you start looking, you find them everywhere. The federal government spends about $100 billion a year on 'administrative expenses' — things like travel, supplies, IT contracts. Per diems are a slice of that, but a slice worth a few billion dollars. Lucas: And you know, it's funny — we talk about the deficit, we talk about debt to gdp, but the conversation rarely gets granular. Yet this is exactly the kind of thing that fiscal responsibility looks like at the ground level. Luna: We should also note that not everyone thinks per diems are too generous. Some argue that federal employees doing fieldwork in remote or expensive areas genuinely need the full rate. The issue is really about the administrative ease of claiming the maximum without proof. Lucas: That's a fair point. The GSA rate is designed to be a 'reasonable' reimbursement, not a windfall. The problem is when it becomes a default. If you're an employee and the system lets you claim the full amount with a single click, you probably will. Lucas: So the reform isn't about cutting the rate — it's about changing the default. Require receipts for anything above, say, 80% of the per diem. That alone would create a behavioral nudge. Luna: And that's a classic nudge idea: change the choice architecture, not the number. Lucas: Exactly. And the GAO's own analysis suggested that if you just switched to actual-expense reimbursement for lodging, the average claim would drop by about 15%. That's $280 million, as we said. Luna: Alright, so before we wrap up — you mentioned earlier that these per diem rates are set by the GSA. How often do they update them, and is there any political pressure? Lucas: They're updated annually, based on hotel cost data from a private company called the Smith Travel Research. There's usually no political drama — it's seen as a technical adjustment. But every few years, a senator or representative will propose a bill to freeze or cut per diems as part of a broader anti-waste push. None have passed recently. Lucas: Part of the reason is that the hotel industry lobbies to keep rates high, because a lot of that government travel goes to major hotel chains. It's a small but real interest group. Luna: So there are political economy forces at play, even in this obscure corner of the budget. Lucas: Absolutely. And that's what makes it a genuinely interesting fiscal policy question. You have a clear inefficiency, a clear reform that could save money, and yet nothing changes because the costs are diffuse and the benefits are concentrated. Lucas: And I think that's a theme we've touched on before — how the federal budget is full of these small, entrenched expenditures that no one has an incentive to touch. Luna: Well, and on that note — if you've enjoyed walking through the budget with us and having these kinds of conversations, you might appreciate that this show is completely free of ads. We don't run sponsors, no commercial breaks. Lucas: That's a deliberate choice. And the way we keep it that way is through listener support. If you find value in episodes like this one, you can contribute at buy me a coffee dot com slash fexingo. It's a simple, low-key way to help us stay independent. Luna: Every little bit helps, and we're grateful for those who do. But really, we just want to keep having these deep dives into fiscal policy. Lucas: So back to per diems — one last thought. I think the real lesson here is that fiscal transparency isn't just about publishing the budget online. It's about understanding how the machinery actually works. Per diems are a tiny gear, but they turn. Luna: And when you look closely, you see a lot of those gears. Maybe that's the first step toward turning some of them a little differently. Lucas: Yeah. Something to keep an eye on when the next GAO report comes out.