Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / The Hidden Billions in Government Travel Spending
Transcript
- Lucas: So Luna, quick question. When you think about the federal budget, what's the first thing that comes to mind? Luna: Defense, entitlements, maybe interest on the debt. Why? Lucas: Because today I want to talk about something much smaller, but it's one of those things that just keeps growing and nobody seems to be able to control it. Federal travel spending. Luna: You mean like government employees flying to conferences and staying in hotels? Lucas: Exactly. And it sounds trivial next to a trillion-dollar Pentagon budget. But the General Services Administration manages the federal travel program, and a few years ago they were booking over six million flights a year. We're talking about a $6 billion annual spend just on air travel for civilian agencies. And that's before you add hotels, meals, and rental cars. Luna: Six billion a year. But is that actually a problem, or is it just the cost of doing business across a huge country? Lucas: It's a problem when the Government Accountability Office keeps finding systematic waste. And the numbers are actually pretty glaring. For example, the GAO found that federal travelers were paying, on average, around $457 for a single airline ticket that, if bought through the contracts the government has with airlines, should have cost around $185. The difference is the 'service fee' charged by the travel management companies. Luna: Wait, so they're paying two and a half times more than they need to, and the extra goes to the middlemen? Lucas: That's a big part of it. The GSA negotiates discount fares with airlines through what's called the city-pair program. It locks in lower prices on hundreds of routes. But the travel management companies that process the bookings add their own fees, and those fees aren't always transparent. The GAO did a study and found that in one year, agencies paid over $170 million in these management fees, and that doesn't include the extra booking fees per transaction. Luna: So the government has a discount contract, but the fees eat the savings. That seems like a classic case of the right hand not knowing what the left hand is doing. Lucas: Right. And it's worse than that. The city-pair contract itself has been criticized because the GSA only negotiates on price, not on the total cost of the trip. So you could get a cheap base fare, but then you add the fees, the checked bag, the seat selection, and suddenly you're paying more than if you'd booked directly with the airline. Luna: And is anyone actually watching the total cost? Or do they just see the base fare and call it a day? Lucas: That's exactly the problem. The agencies are supposed to use the city-pair contracts, but there are exceptions. And when they do use them, they're not always looking at the total cost. The GAO also found that in one year, the government paid $18 million in 'unused ticket' fees — tickets that were bought and never used, and then penalties for changing them. That's another layer of waste. Luna: So we've got $6 billion a year, and we're paying fees that wipe out the savings, plus unused tickets. But is there a systemic reason why they can't just fix this? I mean, it seems like an easy cost-saving move. Lucas: You'd think. But the travel management companies are so embedded in the process. They have contracts that are years long, and they get a percentage of the bookings or a per-transaction fee. There's no incentive for them to find the cheapest flight, because their fee is tied to the number of transactions, not the savings. Luna: So the incentive is to book more flights, not cheaper ones. That's a perverse incentive if I've ever heard one. Lucas: And it's not just the booking side. Even the rules around reimbursement are outdated. The government has per diem rates for meals and lodging, but they're based on averages from a decade ago. In high-cost cities like New York or San Francisco, the per diem is often below what a hotel actually costs, so travelers end up paying out of pocket or staying further out and spending more on transportation. Luna: So the system is both overly complicated and outdated. Is there any good news here? Lucas: There's some. The GSA has been trying to modernize the travel program. They launched an initiative a few years ago to move to a 'dynamic pricing' model, where they use data to get better deals on flights, similar to what private companies do. They also started to crack down on the unused ticket problem by requiring travelers to cancel or use their tickets within a certain window. Luna: But has that actually saved money? Or is it just moving the deck chairs? Lucas: The GAO did a follow-up and found that the government saved about $40 million in one year from the new booking tool, but they also noted that the full savings were not realized because the agencies weren't using the tool consistently. So it's a step forward, but it's far from a fix. Luna: So we're talking about millions of dollars that could be saved, but the system is so fragmented that even the solutions are piecemeal. And this is just one area of government spending. Lucas: Exactly. And that's what makes it so fascinating to me. Travel spending is a microcosm of the entire federal procurement system. You have good intentions, but the rules are so complex, the incentives are misaligned, and the oversight is often reactive. Luna: And this is where I have to ask — and forgive me for getting a bit meta — but this is exactly why we do this show. We spend time digging into these quiet corners of the budget where billions hide in plain sight. And we can do that because we're independent and listener-supported. Lucas: That's right. We don't run ads, and we don't have a corporate sponsor telling us what to cover. It's just us, a microphone, and a deep curiosity about how the government actually spends your tax dollars. If you find this kind of analysis valuable and you want to help us keep doing it, you can support the show at buy me a coffee dot com slash fexingo. It's a small gesture, but it genuinely keeps us going. Luna: And we appreciate every single supporter. It makes a real difference. But back to the travel spend — because I want to dig into one more layer. What about the defense side? The Pentagon has its own travel budget, right? Lucas: Oh, it's massive. The Department of Defense spends around $10 billion a year on travel, and they have their own travel management system. The GAO has flagged similar issues there — they're paying fees on top of fees, and they have a huge number of unused tickets as well. Luna: So we're talking about potentially $16 billion combined just for air, hotel, and ground transportation. And the fixes are so obvious, yet they're not implemented. Lucas: And there's a deeper problem: the travel management companies are not the only ones profiting. There's also the issue of 'ancillary revenue' — the fees that airlines charge for baggage, seat selection, and changes. Those are not included in the negotiated fare, so the government pays those as well. The GAO estimated that these fees add up to hundreds of millions of dollars a year. Luna: And nobody is negotiating those? Because the airline says, 'Oh, that's a separate service.' And the government just says, 'Okay, whatever.' Lucas: That's exactly it. The city-pair contract only covers the base fare, not the extras. So you have federal travelers paying $50 for a checked bag that they could have avoided by booking a different fare class. But the rules often force them into the contract fare, which might not include baggage. Luna: So the system is so rigid that it prevents travelers from choosing the cheaper option, even when it's obvious. It's like the government is locked into a bad deal. Lucas: And that's the fundamental tension: the government wants to standardize and control costs, but by doing so, it creates inefficiencies. The GAO has recommended that the GSA revisit the city-pair contract to include ancillary fees, or at least give travelers more flexibility. But change is slow. Luna: And in the meantime, we have a national debt that's over $36 trillion. So every million counts, right? Lucas: Every billion counts, honestly. And this is a case where the savings are achievable without cutting services. It's about smart contracting and better incentives. The same could be said for a lot of government procurement, but travel is a visible, concrete place to start. Luna: So if you were the GSA administrator tomorrow, what's the first thing you'd do? Lucas: First, I'd renegotiate the city-pair contracts to include all mandatory fees. Second, I'd require agencies to use a single booking tool that automatically compares total trip costs. And third, I'd create a real incentive for travel managers to save money — maybe a bonus tied to the savings, which would change the behavior. Luna: And what about the travelers? Do they have any skin in the game, or is it just 'spend whatever'? Lucas: That's a great point. In the private sector, employees often have to justify their travel expenses, and companies have approval processes. The government has that too, but it's often bureaucratic and doesn't focus on cost. The GAO found that travel card misuse is also a problem — people buying personal items on their government travel card. That's another layer of waste. Luna: So it's a combination of misaligned incentives, lack of data, and human nature. And all of that is baked into the system. It's no wonder the GAO keeps flagging it. Lucas: And that's the takeaway, I think. The federal travel program is a perfect case study in how government spending gets out of control, not because of corruption, but because of complexity and inertia. The money is there, the fixes are known, but the political will to implement them is missing. Luna: So when you hear people say, 'The government can't even save a few billion on travel,' they're not wrong. But it's not for lack of trying — it's for lack of doing. Lucas: And that's the real lesson. It's not about the $6 billion or even the $16 billion. It's about what it represents: a system that is designed to spend, not to save. And that's a problem we can't just fly away from.