Government employees should spend tax payer money carefully. I am not a government employee (never have), but I believe the per diem rates are meant to ensure that. The OP can't get reimbursed for more than $142/night in San Francisco. Doesn't sound unreasonable.

And as a shareholder of many public companies, I would expect the same from "my" employees. But from observation I know that many would pick the nicer/more luxurious hotel even if it meant a higher price with no advantage to the employer/shareholders.