Limit Travel Reimbursements and Require Higher Education to Participate in State Travel Management Program

The Legislature should limit reimbursements for airfares and car rentals and require institutions of higher education to participate in the State Travel Management Program.


Background
During fiscal 1991, the State of Texas spent nearly $95 million on travel expenses of employees of state agencies and institutions of higher education. 1 This amount included expenditures for commercial air travel, mileage reimbursements for personal cars, auto rentals, per diem for meals and lodging, parking and other expenses. (Air travel provided by the Aircraft Po oling Board and expenses associated with agency-owned vehicles are excluded from this total.)

In Texas, state agencies have substantial control over their own travel expenditures, within limitations imposed by the GSC s State Travel Management Program (STMP). Created in 1988 to help state agencies control their travel expenditures, STMP staff monitor the state s travel and provide access to travel agency services, charge cards, discount travel rates and meeting and planning services.

Before 1991, the prog ram was available to state agencies and higher education institutions on a voluntary basis. In 1991, the Legislature required state agencies in the executive branch to participate, but exempted colleges and universities from participation in GSC s contracts for travel agency services.

As of September 1, 1992, all executive branch state agencies must participate in the travel agency component of STMP unless exempted by GSC. As of June 1992, 18 institutions of higher education had voluntarily participated i n the travel agency services. Some 47 colleges and universities do not participate, but benefit from discounted state rates negotiated with airlines, hotels and rental car companies. 2 During fiscal 1991, GSC estimated the program saved the state $5.6 million in airline fares, as compared to normal full-coach fares. 3

Until recently, GSC contracted with one travel agency, Scheduled Airline Ticket Offices, Inc. (SatoTravel), for reservations and tickets. In 1991, however, the Legislature authorized GSC to co ntract with more than one travel agency and on August 31, 1992, GSC awarded contracts to eight travel agencies.

Contracted travel agencies have several advantages. First, travel agents help travelers shop for alternate routes, carriers and the lowest airfares. Contracted travel agents are required to offer state travelers the lowest available airfare on the date of inquiry, which usually has flight restrictions concerning time of travel, advance purchase requirements and restrictions on refunds. If a st ate traveler declines the lowest available fare, the travel agent must give first preference to airlines with state contracts.

STMP negotiates state-contract fares with airlines each fiscal year. These fares do not have any flight restrictions and usually represent the lowest non-restricted fare available. According to GSC, Southwest Airlines is the only carrier that has negotiate d reduced airfares with the state for fiscal 1993. 4

Second, contracted travel agents also provide management reports that summ arize employee travel activity, document employee travel patterns for use in negotiating discounts with airlines, hotels and rental car companies and give information on employee compliance in purchasing the lowest-priced fares. These reports allow GSC to weigh the success of state government as a whole and that of individual agencies in saving money through reduced travel expenditures.

Third, contracted travel agencies save money through rebates. SatoTravel provided the state an average rebate of 2 perce nt of the dollar volume channeled through the travel agency; this money was deposited to the General Revenue Fund. During fiscal 1991, the state received more than $305,000 in rebates from SatoTravel. 5 The average rebate to be received from the new contracted travel agencies is 1.66 percent of the volume of sales. 6

Exempting higher education from the travel agency services portion of the program costs the state money because it cannot collect rebates on much of the higher-education travel. According to GS C, colleges and universities represent about 60 percent of the state s total travel expenditures. In fiscal 1991, higher-education travel expenditures accounted for only 14 percent of state travel spending from funds held in the State Treasury. The remaini ng higher-education travel expenditures were made from local or institutional funds held by the institutions.

Travel volume for higher education faculty is higher than the volume of state employees because faculty travel more frequently (usually out of state) to lecture or perform research.

These institutions benefit from the lower state rates negotiated by STMP, but most do not participate in the program itself. Texas Performance Review (TPR) found that the University of Texas at Austin uses state contract rates for airlines about 50 to 60 p ercent of the time. 7 However, colleges and universities that contract independently with travel agencies receive concession fees, rebates and other reimbursements credited to their own funding sources usually not general revenue which discourages them from joining STMP.

In addition to savings generated from travel agency rebates, TPR found that more travel savings could be achieved if tighter buying restrictions were applied to state agencies and higher education institutions. State agencies and institutions have substant ial latitude over their travel expenses and do not always use state contract rates for airfares and car rentals. Maximum travel reimbursement rates are not legislatively mandated for airfares or car r entals, but a $55 maximum reimbursement is mandated for hotels.

A recent sample of travel agency reservation information indicated that only 65 percent of car rental reimbursements were at the state contract rate, while 35 percent were at non-contract rental rates. Of the car rental days paid at non-contract rental rat es, 63 percent were at rates higher than the state contract rate. Using these higher, non-contract car rental fares costs the state an estimated $99,300 per year. 8 Similarly, airfare payment s on the most frequently traveled routes result in payments about $738,000 higher than those if state contract rates were used. 9

GSC s rules allow for some exceptions to the travel program for car rental and airfare rates. Such exceptions can result from timing requirements that do not fit with contract airfare schedules, the location of cheaper routes, concerns over disabilities an d safety and in the case of moving state prisoners. Other exceptions are made if state rental car contracts are not available or do not meet travelers needs or requirements. Also, as a general policy, many agencies, colleges and universities allow reimbursement rates higher than contract rates for both car rentals and airfares.

Although some flexibility in reimbursement is useful to cover exceptional cases, Texas pays a substantial premium for such a high degree of flexibility. In 1988, the University of Texas at Austin set a maximum reimbursement rate for car rentals. It establi shed a contract with one car rental company and ph ased in a limit equal to the contracted car rental rate for employee reimbursement. After educating faculty and staff, the limit was implemented with very few complaints. Savings were estimated at $20.15 per car rental, or an average 16 percent reduction i n car rental rates for fiscal 1989. 10

Tightening travel reimbursements also would increase the state s bargaining power in negotiating contracts for lower airfares and car rental rates. In the three-year history of Texas travel management program, this b argaining power has increased, but has yet to be maximized. Federal employee airfare rates, at an average 60 percent discount, continue to be substantially lower than state rates for the same routes. For example, one-way airfare from Houston to Austin for federal employees is $40, $69 for state employees and $79 for full-fare. The federal rate results from a much higher volume (100 times that of the state), a very tightly controlled buying system and a broad coverage of routes that allow an airline to offer lower rates on one route and charge higher prices on other routes. Along with these factors, the amount of competition on state routes determines the discounts offered to the state.

The airline industry s attitude toward these negotiations has hinged on the negotiator s ability to demonstrate a direct gain in market share for the airline and the route system served. In the most recent bidding cycle completed in September 1992, only Southwest Airlines submitted a bid. According to GSC, major carriers chos e not to participate because of industry-wide uncertainty over airline prices. Opportunities with these carriers will be pursued at a later date. However, this one bidder s prices have improved over the three years that bids have been taken with discounts from full-fares of 1 to 2 percent in the first year, 5 percent in the second, and 13 percent in the third. 11 This is attributable to airline experience with the state travel program and a tighter controlled buying system.

TPR also has found it is cheaper to rent a car under state contract for same-day business trips that exceed 165 miles instead of paying mileage reimbursements to employees who use their personal vehicles.

For example, it would cost the state $89.10 to reimburse an employee for driving a personal vehicle on a same-day trip from Austin to Houston (324 miles) at the current rate of 27.5 cents per mile, compared to $45 a savings of $44.10 to rent an economy or a compact car under the current state contract with Advantage Rent-A-Car ($30 per day) and pay the cost of fuel (about $15).


Recommendations
A. The Legislature should require institutions of higher education to participate in the contracted travel agency portion of the State Travel Management Program.

B. To maximize potential state travel discounts and minimize travel expenditures, the Legislature should limit, effective January 1, 1994, state employee travel reimbursement to the maximum rate paid for each route or service covered under state-negotiate d airfare and car rental contracts.

This limitation should cover all agencies and institutions required to participate in the state s travel management program. GSC should establish any rules for reasonable exceptions and educate state agencies and universities about the reimbursement limitation. Enforcement should be carried out by the Comptroller s office when processing payment vouchers and GSC and the Comptroller s office should coordinate implementation.

C. State agencies and institutions of higher education should consider the cost effectiveness of having employees rent cars for same-day business trips exceeding 165 miles rather than reimbursing employees for personal mileage.


Implications
State government loses rebate revenues because higher education has been unwilling to participate in the state s contracted travel agency services. The addition of higher education would enable the state to negotiate lower contract rates and higher rebates. A maximum reimbursement rate for airfare and car rental will help minimize travel expenditures of state agencies and institutions of higher education.


Fiscal Impact
The average rebate for the current travel agency contracts is 1.66 percent of air volume sales. According to the GSC, this rebate percentage would increase to 1.68 percent if higher education air travel was added to the contracts.

Based on the volume of air travel in fiscal 1991 ($10.9 million for executive branch agencies and $15.6 million for institutions of higher education), GSC estimates that STMP could generate an additional $264,000 annually for the General Revenue Fund in travel agency rebates by including institutions of higher education in the travel agency services portion of STMP.

Moreover, even higher rebate percentages may be realized from the added travel volume generated by higher education when the current travel agency contracts are renewed or rebid at the beginning of fiscal 1996. GSC estimates the additional rebate percentag e could be as high as 1 percent above current levels. 12

The additional revenue from collecting rebates on higher education travel volume is estimated as follows:

Fiscal Gain to the Change in
Year General Revenue Fund 001 FTEs

1994 $264,000 0
1995 264,000 0
1996 529,000 0
1997 529,000 0
1998 529,000 0

Colleges and universities would lose the amount of rebates received on independently obtained travel agency services and airfares; however, this amount could not be estimated.

Based on 1992 data, limiting airfare and car rental reimbursements, assuming a January 1, 1994, implementation date, would provide the following savings to state agencies and universities currently using the state s contracted travel agencies: 13 These savings could be achieved only by reducing the budgets of the affected agencies and institutions of higher education proportionally.

Gain to the Gain to the Gain to All
Fiscal General Revenue Other Dedicated Dedicated Accouts Change
Year Fund 001 Accounts or Funds or Funds in FTEs

1994 $216,000 $244,000 $460,000 0
1995 324,000 366,000 690,000 0
1996 324,000 366,000 690,000 0
1997 324,000 366,000 690,000 0
1998 324,000 366,000 690,000 0

The travel savings that may result from employees using rental cars instead of personal vehicles for certain trips cannot be estimated.

The following table summarizes the fiscal impact of all the travel recommendations:

Gain to the Gain to the Gain to All
Fiscal General Revenue Other Dedicated Dedicated Accouts Change
Year Fund 001 Accouts or Funds or Funds in FTEs

1994 $480,000 $244,000 $ 724,000 0
1995 588,000 366,000 954,000 0
1996 853,000 366,000 1,219,000 0
1997 853,000 366,000 1,219,000 0
1998 853,000 366,000 1,219,000 0


Endnotes
1 Comptroller of Public Accounts, Texas 1991 Annual Cash Report, Volume 2 (Austin, Texas, 1991), p. 68.
2 General Services Commission, State Travel Management Program, State Agency List (June 17, 1992).
3 General Services Commission, State Travel Management Program, Monthly Travel Report, (June 16, 1992).
4 Interview with Diane Harker, General Services Commission, Travel and Transportation Division (Austin, Texas, December 2, 1992).
5 General Services Commission, Monthly Travel Report (June 16, 1992).
6 General Services Commission, State Travel Management Program, Total Travel Program Participation by Higher Education (November 9, 1992).
7 Interview with Charles Perrone, Director, Business and Administrative Services, The University of Texas System (July 16, 1992).
8 General Services Commission, Travel and Transportation Division, Estimated Rental Car Savings Based on Limited Reimbursement to Contract Rates (November 20, 1992), p. 2. (Sample summary)
9 General Services Commission, Travel and Transportation Division, Savings with Current Air Fare Contracts (November 20, 1992), p. 3. (Computer printout)
10 Letter from Sandra Barrett, Travel Coordinator, Travel Management Services, The University of Texas at Austin (December 1, 1992).
11 Interview with Mike Powers, Division Director, Travel and Transportation Division, General Services Commission (Austin, Texas, October 14, 1992).
12 General Services Commission, Travel Participation by Higher Education (November 9, 1992).
13 General Services Commission, Estimated Rental Car Savings Based on Limited Reimbursement to Contract Rates, p. 2, and Savings with Current Air Fare Contracts, p. 3.