Why is there need to provide the Labor Department with double damages for bringing such an action? The only conclusion we can make is that it is a less than subtle punitive provision. In recent discussions with the Wage and Hour Division of the Labor Department we were told that a very small percentage of cases brought are for deliberate violations of the law. The figure mentioned was well under 10 percent. If this is the case we must seriously question the need for this punitive provision.

If you have any questions of the panel members, we will do our best to answer them.

The CHAIRMAN. Thank you very much, Mr. Keeney.

I overlooked, Mr. McCarthy, to mention to you Senator Hughes' regret that he couldn't be here this morning. He wanted to be here personally to welcome you.

Mr. MCCARTHY. I can appreciate that, Senator. Thank you.

The CHAIRMAN. Now I have limited questions. It was very informative testimony, particularly persuasive. Mrs. Geerlofs, you did not testify 2 years ago, did you?

Mrs. GEERLOFS. No, sir.

The CHAIRMAN. In fact nobody represented the concern about that management-regular worker change. This is new testimony.

Mrs. GEERLOFS. Yes, sir.

The CHAIRMAN. We appreciate it. Let me get a picture of your situations, gentlemen, from Mr. McCarthy and Mr. Ramsey. Are your sales people on an hourly basis?

Mr. RAMSEY. Yes.

Mr. MCCARTHY. Yes.

The CHAIRMAN. What is the average now? What are the hourly rates in Tennessee, for example?

Mr. RAMSEY. We are running anywhere from $1.45 to $1.85 an hour. The CHAIRMAN. How about you?

Mr. MCCARTHY. Our average would be about $2.21, as an average. But this would start at $1.60 on up.

The CHAIRMAN. How long would a person coming in at $1.60 remain at $1.60?

Mr. McCARTHY. It would depend upon the area. Senator. This would also vary to a certain extent by parts of the State and somewhat on the nature of the size of the town that they would be located in. But it would be $1.60 probably for 6 months and then would move on up from there, because we review all our people annually, and many of them on a semiannual basis. And this would be based on productivity, in effect a merit increase.

The CHAIRMAN. You mentioned two stores that are marginal.
Mr. McCARTHY. Yes, sir.

The CHAIRMAN. That you operate, one in Tumbler and one in Oscaloosa. Are they located in the center city in both cases?

Mr. McCARTHY. Yes, Oscaloosa is a courthouse square type of town. It is a county seat town. Tumbler is in a center city, yes. But I actually indicated there are four stores that were marginal, two would be immediate prime targets for closing. We do feel-and these have been marginal for a while-but we do feel we have a responsibility to the community, and have felt through the years, to maintain these particular units. They are low-volume stores. But the question then boils

down to when the profits are so adversely affected something has to give.

The CHAIRMAN. On the enterprise test as it is, of $250,000, do not those stores qualify?

Mr. MCCARTHY. Neither one would qualify; no, sir. One would be a $325,000 volume approximately, the other would be $175,000 volume store. We have never asked for the $250,000. Obviously we wouldn't be able to qualify. But the fact that some stores are above the $250,000 base doesn't always make them profitable as such. I can attest to my own knowledge and belief-I cannot specify stores, but I have a feeling, knowing retailing in Iowa-I know one store that is probably doing $5 million, that if we have an immediate increase to $2 that this store will be very hard pressed to stay open. This is in a larger city in the State of Iowa.

The CHAIRMAN. Senator Taft.

Senator TAFT. I have no questions.

The CHAIRMAN. Thank you.

Now our second panel this morning, Mr. Arthur Packard, chairman of the government affairs committee, American Hotel & Motel Association, together with Mr. Albert L. McDermott, Washington representative of the American Hotel & Motel Association, and Mr. Robert Neville, Washington counsel, National Restaurant Association. This is a reunion for all of you, isn't it?

Mr. NEVILLE. No, sir, I have never appeared.

Mr. PACKARD. I have.

STATEMENT OF ARTHUR PACKARD, CHAIRMAN OF THE GOVERNMENT AFFAIRS COMMITTEE, AMERICAN HOTEL & MOTEL ASSOCIATION

Mr. PACKARD. Good morning, Mr. Chairman. For the record I am Mr. Arthur Packard, chairman of the Government Affairs Committee of the American Hotel & Motel Association, which is a federation of hotel and motel associations located in the 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands, having a a membership in excess of 7,950 hotels and motels containing in excess of 896,000 rentable rooms.

On the matter of the minimum wage, the latest available evidence shows that downward trends experienced in business activity by the innkeeping industry in 1970 continued through the calendar year 1971. The hotel-motel accounting firm of Harris, Kerr, Forster & Co., states that the operations of 800 hotels and motels during 1971 had a total revenue of $1.892 billion, $13 million lower than 1970. Operating costs and expenses continued to advance, however, and the 1971 year's total exceeded that of 1970 by $36 million. The net effect was a decrease of $49 million in the operating profit. The years 1970 and 1971 showed a reversal of the upward trend in profit yields which extended from 1964 through 1969, and the 1971 ratio was the lowest in 5 years. Figures are not yet available for 1972, but we are hopeful that we have reached the bottom and some slight improvement may be expected.

Many older hotels continue to be closed or phased out. Increased costs for construction, labor, and maintenance is seeing the industry to some extent, at least, turn to the construction of so-called budget

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properties. These properties, staffed by a minimum number of employees, afford few of the amenities of the larger hotel/motel properties. Legislation which substantially increases our labor costs will further reduce the number of job opportunities available in our industry.

S. 1861 and S. 1725 both recognize the need to give our industry a period of time in which to meet an increased Federal minimum wage. However, S. 1861 would increase our minimum wage over 12 percent on enactment, an additional 11 percent 1 year later, and an additional 10 percent an additional year later. In short, we believe increments averaging over 10 percent within a 3-year period are too much for us to absorb. We sincerely request that a greater stretchout be provided for our industry than is contained in that particular bill, 1861.

Our reason for this belief is supported by the fact that total sales in the lodging industry were no better in 1971 than in 1970.

According to Laventhol, Krekstein, Horwath & Horwath, room occupancies for hotels in 1971 was 55 percent, a decline from the previous year of 2 percentage points. This continued the downward trend that had prevailed with only a brief interruption in recent years. Net income before taxes dropped 51 percent on a per room basis. The median return on total assets was only two-tenths of 1 percent, down nearly 83 percent from 1970.

The picture was no better for motor hotels. Room occupancy was 65 percent in 1971, 5 percentage points below the preceding year and 10 points below 1969. In spite of a decline in sales, payroll and related expenses were up 5 percent. Net income before taxes dropped a shattering 69 percent, 7.1 percent of total sales in 1970 to 2.2 percent in 1971.

If further increases are going to be legislated by Congress and if our work force is to continue at its same level, then such increases must be offset by higher room, food, and beverage prices if hotels are to survive. However, there is a point of diminishing return based on customer resistance to increased prices. Further rate increases will undoubtedly drive occupancies downward, causing more losses. Already experiencing low return on investment ratios that would not be accepted in other industries, the hotel/motel business is caught in what we figure is an impossible bind.

At this point, it should be noted that while our occupancy levels in 1972 appear to show a slight upward trend, it is difficult for us now to believe that we will be able to maintain that ratio in view of the recent gasoline crisis. In fact, only a few weeks ago a leading brokerage house advised all its investors to stay clear of hotel/motel stocks because the economic analyst foresee a drop in our occupancy levels over the next couple years.

Before leaving our discussion of a mainland minimum wage figure, I wish to point out that while our minimum wage is now $1.60_per hour, the minimum wage in the Virgin Islands is $1.45 per hour. Yet, S. 1861 would not take this differential into consideration and would impose the same minimum wage rate for hotels, motels, restaurants, et cetera, in the Virgin Islands and Puerto Rico as exists in the United States. This would mean that hotel/motel employers in the Virgin Islands would have their minimum wage rate increased from its present base of $1.45 per hour to $1.80 per hour within 60 days of enactment of S. 1861, or an increase of approximately 25 percent. Once

those 60 days have tolled, the properties in the island will be faced with an increased minimum wage within an approximate 2-year period from $1.45 per hour to $2.20 per hour, or an increase of approximately 50 percent.

The Virgin Islands are hampered in their ability to compete with other Caribbean islands who have much lower wage scales. In addition, they have extremely high raw food costs due to the fact that nearly all the food is imported from the mainland and are continually faced with extremely high overhead costs including electrical, telephone, and in many instances even water must be brought in by barge. A too rapid increase in their minimum wage rate could bring a substantial adverse effect on the hotel/motel industry in the islands, increase unemployment, and stifle the economic growth.

S. 1725 offers a more desirable approach, in our opinion, recognizing the unusual conditions found in the islands, by amending section 6(c) of the Fair Labor Standards Act to raise the minimum wage in the Virgin Islands and Puerto Rico in three steps of 1212 percent each above the most recent rate established by the special industry committee for the hotel/motel industry.

Our ability, Mr. Chairman, to absorb past increases in the Federal minimum wage has been due in great part to the reasonableness and logic behind the 1966 amendments. The only way we have been able to meet our obligation under the law and still survive has been due to our tip credit, our exemption from overtime, and the reasonable credit provided in the law for meals and lodging. The continuation of these provisions in the law are extremely important if we are to successfully absorb any further minimum wage increases.

In our filed statement which you have our feelings regarding tipped employees are included, and they are part of the statement, so in the interest of time I will skip our opinions in that particular case. We know, and I am sure that the committee recognizes, that the tipped employee is the aristocrat of our business anyway.

But on the overtime provisions, we are disturbed to see section 6 of S. 1861, a provision designed to remove the "overtime exemption" for employees of the hotel or motel industry. We recognize and appreciate the fact that the chairman wishes to phase out our overtime exemption in steps, but we nonetheless feel that the reasons for providing us with our exemption in 1966 are still valid today.

We would like to point out to the subcommittee that hotels and motels are one of the very few businesses which are expected to remain open 168 hours per week. Based on a 40-hour week, this means more than four shifts of employees. One-half to two-thirds of employees' time is not productive because they must be on duty during hours of the day or night and on those days of the week when our properties are nearly empty. Congress has continually recognized the "difference" that exists in the work practices of our industry as compared with manufacturing and other types of industries; and we hope it will continue to do so.

Hotels and motels-particularly those in small towns-are idle Friday, Saturday, and Sunday, but our employees must be there just the same, so that the situation is different from that of a factory. Unlike the retailer, we cannot go "self-service" nor can we "close Wednesday afternoon" nor "open 10:30 a.m. on Monday." We cannot

tailor our schedules to fit the favorable hours and types of operation. We must operate all the time.

Quite frankly, a phaseout in the overtime exemption will strike hardest at teenage youth working in resorts who are using this opportunity to acquire money to either go to college or continue in college. We do not believe that the Congress would want to deprive that segment of society from the opportunity to acquire the maximum amount of money in the shortest amount of time.

The case of the tipped employee again presents a unique problem in respect to overtime. In the case of such an employee, the regular hourly rate of pay could lead to an impossible rate of pay for overtime. In certain cases, in our finest hotels, some tipped employees who now make more than the general manager receive substantial gratuities from well-to-do paying guests. Who will be required to pay the tips at the time-and-one-half rate for overtime in the case of a tipped employee so generously treated when the generous donor is no longer on the premises when payday arrives? The imposition of the hours provision of the FLSA on the hotel/motel industry would be catastrophic.

Therefore, before this subcommittee attempts to remove our exemption, we seriously believe it should accept the recommendations found in section 12 of S. 1725 wherein a comprehensive review of our overtime exemption would first have to be made.

And finally, S. 1861 would wipe out the $250,000 retail or service establishment exemption found in section 13 (a) (2). Regardless of the dollar volume of business conducted by a marginal hotel/motel property, that property would now be subject to coverage for the first time under the law if it were part of a "larger enterprise" even though the "larger enterprise" could be made up of only three small motels each doing less than $85,000 in sales per year. Small business, believe me, has enough problems as it is without casting this extra burden on it. It seems to me that this provision contained in S. 1861 could do much more to harm "true small business" than it might ever hope to accomplish in covering a small orphan of a large giant in the retail or service industry.

For the record also, I am accompanied by Mr. Albert McDermott, who is the Washington representative of the American Hotel and Motel Association.

The CHAIRMAN. Thank you very much, Mr. Packard. Now are there any other statements to go in, gentlemen?

Mr. PACKARD. That completes our statement.

The CHAIRMAN. I just wanted, before we get to that, Mr. Packard— these are separate. Do you remember Gabriel Heatter, the radio commentator?

Mr. PACKARD. Oh, yes. My wife makes me remember Gabriel Heatter. The CHAIRMAN. Well, we are in the same boat now-it was either good news or bad news every night. I want to tell you there's good news for you today, Mr. Packard. We don't phase out and we don't repeal the overtime in your area.

Mr. PACKARD. Thank you very much. That's the best news I have heard.

The CHAIRMAN. We do retain the tip credit as it was. This was all in response to the enlightening testimony of 2 years ago when the