By Emily Stephenson
(Reuters) - The fallout from the General Services Administration's headline-grabbing Las Vegas convention scandal is rippling through the travel and conference industries, who say their nascent recovery is being jeopardized by increasing scrutiny on government travel spending.
Those industries predict that a recent Obama administration directive to federal agencies to slash travel budgets, and congressional proposals to further cap agency spending and travel, could hurt hotels, conference centers, rental car agencies and other private companies.
The U.S. Travel Association said hotel chains have reported that spending trims and extra scrutiny of travel have already contributed to millions of dollars in cancellations across the country.
The manager of a Leesburg, Va., conference center that caters to government agencies said between cancellations, fewer attendees and lower-than-usual bookings for conferences and training sessions, he may have to lay off workers.
And leaders of trade associations and industry groups said less participation in conferences and annual meetings will leave government out of touch with the industries it regulates.
"It's difficult to understand the program that you're in unless you can hear from the people who have to live with your rules," said Larry Anderson, who recently retired from the federal government after more than 30 years at the rural housing service at the U.S. Department of Agriculture.
"There's just absolutely no way to establish that kind of relationship with a phone call," he said.
The convention industry lost business after the recession and earlier scandals, such as AIG's 2008 luxury resort conference after receiving a taxpayer bailout. These groups fear government spending cuts could impede the recovery, said Erik Hansen, domestic policy director for the U.S. Travel Association.
Agency spending was already under scrutiny by some officials seeking to slash the size of government. More attention came in the wake of the scandal that erupted when the General Services Administration's inspector general revealed this spring that the agency spent more than $800,000 on a lavish 2010 conference in Las Vegas.
The four-day event for about 300 employees featured private parties, expensive food, a mind reader and clown, and other expenses.
Videos and photos from the event went viral, prompting lawmakers to hold several hearings. Both the Senate and House of Representatives have since approved caps on agency spending and travel, though neither plan has become law.
The Obama administration issued a directive in May to federal agencies to reduce travel budgets by 30 percent in fiscal year 2013 and implement new rules for conference spending. The memo said the cuts would build on ongoing efforts to reduce administrative spending.
Travel and convention groups have noticed changes in conference participation already as agencies try to be more frugal.
The National Park Service and other agencies pulled about a dozen employees just a few days before they were scheduled to attend an international wetlands conference in early June, according to conference planners.
Business was booming at the National Conference Center in Virginia before the GSA scandal broke. Kurt Krause, the general manager, said the facility lost almost $1 million in May alone through cancellations and poor attendance.
About two-thirds of his business is with the federal government and military, and Krause said the conferences and training events are far from lavish. "We're a distraction-free learning environment...there's no golf course, there's no spa. You're here to learn," he said.
Lately, cancellations have cropped up across the country, in vacation hot spots and less exciting locales, Hansen said.
He said the full impact has not emerged yet because his group is hearing that uncertainty around questions such as what steps Congress might take to further curb agency travel has practically ground government-related conference planning to a halt.
"We might not see some of this impact for another couple of months," Hansen said.
The uncertainty comes at a still-fragile time for the conference and travel industry.
Group hotel demand, which is an indicator of conference-related bookings, fell slightly in 2007 and 2008 before tumbling 15 percent in 2009. Despite growth in 2010 and 2011, group hotel demand still has not reached pre-recession levels, according to data from Smith Travel Research.
MORE CUTS TO COME?
Jereon Brown, a spokesman for the Department of Housing and Urban Development, said the department is trying to take a common-sense approach to travel changes, adding extra layers of scrutiny to employee requests to attend conferences.
And officials believe they can replace some of that interaction by doubling up on virtual meetings - Skype chats, teleconferences, etc. They are also trying to train more employees in-house to cut costs, Brown said.
"No federal employee wants to be thought of as wasting money at a conference," he said. "There's extra caution in, 'Do I need to go to this conference? Is there another way of getting this training?'"
Federal agencies may have to dig even deeper if Congress moves forward with tougher conference spending rules.
The Senate approved an amendment to U.S. Postal Service legislation that would block agencies from sponsoring more than one conference a year, cap the number of employees who can attend overseas conferences and require more reporting about travel spending. The House attached the amendment to a government transparency bill.
Neither the transparency bill nor the postal bill have yet passed both sides of Congress.
Senator Tom Coburn, the Republican who offered the plan, said at the time that the changes would protect the federal government from unnecessary travel and prevent future scandals.
Trade associations and other groups asked lawmakers to delete portions of the amendment they believe would unnecessarily hurt industry conferences.
The American Society of Association Executives said in a letter to Congress that the broad one-per-year language could mean if employees of an agency attended a conference, no other agency employees could attend conferences that year.
"The overly restrictive policies are just bad for everybody," Hansen said. "We have confidence that if these measures were brought up for a vote again, slightly removed from the crisis, that members would take a more level-headed approach."
(Reporting By Emily Stephenson; editing by M.D. Golan)