DEFENSE PRODUCTION ACT AMENDMENTS OF 1951

WEDNESDAY, JUNE 6, 1951

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

(The committee met at 10 a. m., the Honorable Brent Spence, Chairman, presiding.)

Members present: Messrs. Spence, Brown, Patman, Multer, Deane, McKinnon, Addonizio, Dollinger, Bolling, Burton, Kluczynski, Wolcott, Talle, Cole, Nicholson, and Betts.

The CHAIRMAN. The committee will be in order.

The clerk will call the first witness.

Mr. HALLAHAN. The first witness will be Glenwood J. Sherrard, representing the American Hotel Association.

The CHAIRMAN. Mr. Sherrard, you may proceed.

STATEMENT OF GLENWOOD J. SHERRARD, REPRESENTING AMERICAN HOTEL ASSOCIATION

Mr. SHERRARD. Mr. Chairman, and gentlemen, I am Glenwood J. Sherrard, president of the Parker House in Boston, and chairman of the governmental affairs committee of the American Hotel Association.

As a representative of that association I appear before you to urge that any extension of rent control, either by extension of the present Housing and Rent Act, or by broadening the Defense Production Act, should continue the present exemption of hotels. There have been no facts presented to your committee which would justify the reimposition of rent control in hotels.

Hotel room rates in all parts of the country (except in resort hotels) were subject to control between various dates in 1942 or 1943 and June 30, 1947. The facts which justified Congress in decontrolling hotel rates in 1947 are still present today, and are even more conclusive.

What are the facts which were taken into account in 1947, and which can be reexamined at this time? First and foremost is the fact that hotel occupancy in nearly all parts of the country had started to decline in 1947, and has continued to decline in an unbroken curve since then. Horwath & Horwath, and Harris, Kerr, Forster & Co., the two leading firms of certified public accountants which specialize in hotel operations, have figures which I think you will find interesting. For many years, these firms have developed statistics based upon daily and monthly reports for hundreds of hotels throughout the country. Their figures are used by Federal agencies as official Government data, and have been proven accurate and reliable. The figures as to average occupancies during the years 1946-50, which have been compiled

independently, and which appear in their published reports analyzing the hotel business, are as follows:

These figures are further confirmed by a Nation-wide survey recently made by the American Hotel Association, which showed an occupancy figure for January 1951 of 79 percent, which, you will see, is slightly under the average for the year 1950, as computed by the accounting firms.

The reports for the first quarter of 1951 made by the accounting firms show a drop of two points in occupancy percentages as compared with the first quarter of 1950, so it is clear that the decline is continuing

this year.

The latest occupancy figures in various cities, States, and regions, as they appear for the month of March 1951, are as follows:

It will be seen from this tabulation that with the sole exception of Washington, D., C., which has a separate rent law, the occupancy figures are far below the 90 percent average which prevailed in 1947 when Congress decided that further control for hotels was unnecessary. The Housing Expediter himself testified before your committee last year that when vacancies in residential hotels ranged between 10 and 15 percent, the establishments should be free of controls.

Obviously, the rates charged for hotel rooms control themselves in the face of such constant declining business. Competition is still the great leveler in our industry.

I do not believe that anyone can contend that the national defense program has caused, or will cause, in the near future, any unusual and

undue demand for hotel rooms. The occupancy figures prove that there is an ample cushion for substantial expansion before occupancies reach the 90-percent level of 1947 and even at that level both the Housing Expediter and Congress then decided that further control was unnecessary. The Housing Expediter voluntarily decontrolled. transient rates on February 15 of that year in advance of the congressional action June 30.

The fact that hotel occupancies have continued to decline since June 1950 indicates clearly that defense activities alone do not crowd the hotels; it is only the mobilization and movement of large military numbers.

In World War II, the defense program started as early as 1940, and yet it was not until 1942 that any number of military personnel and their families began to appear in hotels. Even in the year 1942 occupancies were only 73 percent, and it took three more years of a growing Military Establishment until the peak of over 90 percent was reached in 1945. As far as I know, there is no contemplated expansion of our military personnel to anything like the large numbers which were in service in World War II. Certainly if any such expansion is contemplated, it cannot be accomplished this year, or even next.

I believe that it is the policy of this committee to impose controls only in those cases where controls are required by social or economic necessity. There has been no impact upon hotels as a result of the mobilization program, nor can we foresee any, which would justify recontrolling hotels.

The occupancy figures clearly indicate that no one is being deprived of hotel accommodations because of a shortage of rooms. The decline in occupancy is also found in hotels which specialize in residential accommodations. This type of hotel is advertising extensively for permanent guests. Here is an exhibit from the Sunday papers of May 20 showing such advertisements.

And I present here for the record, papers from Akron, Seattle, Toledo, Los Angeles, Cleveland, Chicago, Cincinnati, Detroit, San Francisco.

One of the reasons which prompted Congress to decontrol hotels in 1947 was the fact that the hotels were then faced, as now, with rising labor and material costs which do not affect housing generally. These rising costs, combined with the decline in occupancy, convinced Congress that further control was unnecessary and the problem was best solved by decontrol. Experience has proven that this action was justified. The hotel industry is primarily a service industry. It is not a significant factor in community housing, nor the cost of living. Figures are not necessary to demonstrate that substantial increases in labor and material costs have taken place since 1947. We emphasize this point because 60 percent or more of hotel expenses are for services which are rendered only by hotels.

Some may say that these costs have been stabilized since January 1941 by action of the Federal Government. But, real-estate taxes, for example, are not subject to Federal stabilization. Nor do the wage-stabilization regulations prevent increases. General Regulation No. 6 of the Wage Stabilization Board permits an increase of 10 percent over January 1950. Notwithstanding that fact, the bill before you proposes to recontrol rates at levels which might be rollbacks as far as June 1950.

Obviously, a part of the 10-percent wage increase which is permitted either occurred after that date or will occur at some date in the near future.

Regulation No. 5 of the Wage Stabilization Board permits merit increases, length-of-service increases, and numerous other types of individual wage increases.

There are in fact 10 separate regulations of the Wage Stabilization Board which permit increases in one form or another, without special approval of the Board. In addition, special applications may be made to the Board. It is a matter of record that one such application affecting 45,000 hotel employees and retroactive to February 1, this year, is now pending before the Wage Stabilization Board.

All of this presents a picture of an industry in which business has declined since 1947, not only in the occupancy of hotel rooms as pointed out above, but in the food and beverage business of hotels.

The increases in hotel room rates have, by no means, kept pace with the increase in costs. The result has been a decline in net earnings average of hotels since 1946.

The increases in hotel room rates since 1947 have been modest and less than was warranted by the increasing costs.

The accountants have furnished us with figures which prove this. The average increases in room rates in hotels across the Nation are as follows:

Hotels were under strict rent control from 1942 to 1947 and no general increases were permitted. Therefore, when considering the increases we must take into account that these are the only increases for the past 10 years.

In sharp contrast to the moderate increase in hotel rates necessary to meet steadily rising costs, the prices of essential supplies and equipment used by hotels, such as linens, increased 212 percent, carpets 327 percent. The following table shows the percentage of increase of various supplies used by hotels from the prewar base to date.