Partners in progress
Your business is our business
Support of ALA these days is not
optional….it is necessary part of
your business and an investment
that returns many fold in many
ways.
Dynamic environment calls for
energized partnership










Publicly supported entities usually predictable
This has changed
Manufacturing, distribution, store support
Industry employment
Industry respects agency prerogatives
Stability and predictability key to cost control
Agency decisions reverberate across the chain
Industry can react and support with adequate notice
Advance notice avoids disruption of product flow
Cooperation and communication key in dynamic
environment
 Patron support is mutual bottom line
Your investment in ALA proved its
worth in 2014
 Support of ALA yields real, tangible benefits for your
business.
 Furloughs and closures averted by 11 days resulting in
hundreds of millions of dollars in sales that would not
have otherwise occurred.
 $200 million cut in 2015 would have resulted in $3
billion lost sales and $600 million cut in 2016 would
have resulted in $6 billion in lost sales.
 Averted major issues that could have impacted
exchange ability to earn revenue and contribute MWR
dividends. Averting hundreds of millions in lost sales.
Keep your seat at the table
 2015 is going to be a pivotal year
 Things are going to change and a lot of balls
are going to be thrown up in the air. Need
pull the cart where you want it to go instead
of getting dragged behind it.
 Active participation in ALA ensures that your
interests are represented in decisions that are
g0ing to be made
 Decisions on product availability reverberate
in commercial sector
Strength in Numbers
 Table is going to be set this coming
year.
 Help your Board of Directors reach out
to sign up companies in the
Association.
 Help demonstrate to policy-makers
that the power of industry is behind us.
American Logistics Association
 Logistics is our middle name
 Members have invested hundreds of millions of
dollars in systems, facilities and other programs to
support resale agencies
 Manufacturers, Distributors and Brokers represent
95 percent of the supply chain
 Have a stake, hand and a voice in what happens
 Can help agency partners get to where they need to
get
SITREP
 DoD is targeting the commissary
appropriation in its 2016 budget submission,
reducing $322 million of the $1.4 billion
annual appropriation, $1 billion in 2016,
leaving it with $400 million
 The proposal is direct reduction to military
compensation and is inciting fierce
opposition.
 On-base business model threatened
Saw storm clouds gathering five
years ago
 $1.4 trillion deficit
 Budget problems and the sequester
 Sprung into action
 Gathered data
 Mobilized key constituencies
 Created coalition to Save Our Shopping Benefit
 Educated allies
System is strong but fragile
and vulnerable
Convergence of factors all at
once could destroy it
Convergence of challenges
 Commissary funding & Title changes
 SDT and base operations funding
 Product and pricing restrictions—tobacco (CVS),




beverage alcohol
Wage hikes (minimum and SCA)
Shrinking force structure
Cross category encroachment (legislative proposal)
Off-base competition
• Initiated and launched the Coalition to Save our
Military Shopping Benefits to increase patronage
and galvanize affinity group and patron support
against threats.
• Worked to gain Authority in the NDAA to allow
exchanges to borrow from the Treasury to finance
operations.
• Worked with House Armed Services Committee,
Ways and Means, Senate Finance Committees to
repeal the 3 percent withholding requirement.
• Worked to get relief on interchange fees in the
Dodd-Frank bill.
• Protecting tax immunity
• Internet tax immunity
• Protecting FAR immunity & fighting
other restrictions
• Protecting MWR NAF siphoning to
support legitimate appropriated fund
requirements
• Protect private & public sector mix
•
•
•
•
•
•
Fighting for freedom of choice
Alcohol & Tobacco restrictions
Dietary supplements
Sugar
Fight supply chain impediments
Support open most efficient sourcing and
resist unreasonable local sourcing
• Support keeping commissaries open to
drive more exchange traffic
• Fighting the Bangladesh provision
• Protecting second destination
appropriations and appropriations in other
categories
• Advancing Federal Financing Bank
authority for exchange debt
• ASER relief
• Resisting outright privatization initiative
• Expanding patronage in cyber and brick
and mortar--Veterans
Worked to turn back and discredit:
The Congressional Budget Office recommendation on
consolidation of commissaries and exchanges, price increases,
and commercially redeemable vouchers. It also results in price
increases, primarily for retirees.
• Findings of the Bowles Simpson Deficit Reduction
Commission to reduce commissary and exchange funding and
raise prices to patrons.
• . S 277 as discharged by the full Senate Veterans Affairs
Committee to provide benefits for injured military personnel
at Camp Lejeune, North Carolina. The bill payer was the
commissary and exchange benefit.
• Senator Tom Coburn (R-WV) Back in Black report that
recommended consolidation of commissaries and exchanges
and price increases as part of a $9 trillion deficit reduction
proposal.
• An amendment proposed to the 2014 National Defense
Authorization Act to consolidate and increase prices.
•
•
•
•
Protecting status of NAF workforce
Protecting status of DeCA workforce
Health care, pensions, other benefits,
Portability
JCS Hearing
 “Cutting commissaries is a sore point for me…the
commissary issue is radioactive”—General Amos—
Marine Corps Commandant
 “$200 million initial impact will be modest”—Admiral
Winnefeld, Vice-Chairman, JCS
 “Difficult to understand the effect that a reduction in
the subsidy will have, until you make a decision to do
it.” -- General Dempsey, Chairman, Joint Chiefs of
Staff
 Private label can make up for support reduction.
Next move—DoD’s top line
 House and Senate working their budget blueprint this








week
Defense hawks want $561 B (President’s request)
$38 B above budget caps in BCA
HASC already marking above caps
SASC to Budget Committee—lift the caps
If caps busted for defense, others want it busted for
non-defense
Budget Committees indicate staying within BCA
Use OCO as an escape valve—go from $51 B to $90 B?
Raise defense and domestic caps by equal amounts?
Next move—DoD’s top line
• CHIMPS—Changes in Mandatory Spending—Money
Treasury is obligated to spend without going to
Congress every year—would enable shifting spending
to discretionary spending--Defense
• Point of Order – Senate—could block defense
spending hike
• Always defaults to appropriations committees
• Higher number provides flexibility for Congress to add
back DeCA cuts
State of play—FY 2015
 Administration recommended a $200 million cut for
Fiscal 15 that begins October 1.
 Congress pushed back. HASC and HAC only allowed a
$100 million cut.
 SASC and SAC said no cuts for 15 and asked to wait for
the Commission report and is seeking other
information, i.e., usage statistics. etc.
 Outcome—SAC fully restored commissary cuts
2016 Defense budget request
$322 million cut to DeCA
• $183 million in reduced
operating costs
• $139 million in “efficiencies”
2016 Defense budget request
 Scheduled store closures: $27.3M
 Labor reduction of 200 FTEs (10.9 percent of above
store level support): $18.8M
 Transportation efficiencies of fresh fruits and
vegetables to the Pacific: $40.8M (assumes contract
start date by January 1, 2016, but is subject to change
based on ACTUAL contract start date)
 Cancellation of case lot sales events: $900K
 Elimination of subsidy to six overseas NEXMARTs
(Navy Exchanges that sell specific lines of commissary
goods at cost): $3.0M
2016 Defense budget request
 Close stores on holidays: $4.5M
 Reduce operating hours: $29.5M
 Reduce days of operation (includes direct labor
and contract labor reductions): $58.2M
 Major impacts of reducing days and hours of
operation include:
 Reduction of 1,480 FTEs (in addition to the 200 above
store level FTEs set forth above)
 Reduces the average number of employees per store to
45 – a reduction of 6 per store
2016 Defense budget request
 Days of operation per week would be reduced at 183 stores: 30 stores would go
from being open 7 to 5 days per week; 47 stores would decrease from 7 to 6 days
a week; and 106 stores from 6 to 5 days a week. Examples of reduced hours and
days include:
 Kaneohe Bay Marine Corps Base Hawaii would have its weekly operating days and hours




reduced from 7 days and 60 hours per week to 5 days and 49 hours per week;
Fort Irwin, California, reduced from its current posture of 7 days and 62 hours per week to
5 days and 42 hours per week;
Minot Air Force Base, North Dakota, reduced from its current 6 days and 66 hours per
week to 5 days and 42 hours per week; and
Yokosuka Naval Fleet Activities, Japan, reduced from its current 7 days and 75 hours per
week to 5 days and 50 hours per week.
Second and third order of effects include:
 Larger crowds and longer checkout lines
 Potential decrease in exchange sales: According to the Army and Air Force
Exchange Service, approximately 20 to 30 percent of military exchange traffic is
directly tied to customers visiting the commissary
2016 Defense budget request
An additional $139M reduction.
 Including transportation of commissary
goods shipped overseas in the price of the
goods (second destination transportation
(SDT))--$100M
 Shifting the funding source for commissary
operating supplies from the Defense
Working Capital Fund (DWCF) to the
commissary surcharge. --$39 M
2016 Defense budget request
 Authorize collection of a fee for service for
value-added commercial practices (online
ordering/shopping and curb-side pickup).
 Authorize the collection of a fee for the use
of single-use plastic and paper.
 Authorize demonstration project to contract
out the operation of the produce
department
2016 Defense budget request
 Pursue a $1B reduction in appropriated fund support of
DeCA with more robust legislative relief to:
 Eliminate the current “sale-at-cost” model, allowing
items to be sold at a markup; and
 Enable additional revenue generation by authorizing
the sale of additional goods and services that are
commonly available in commercial grocery stores,
such as beer and wine, a variety of gift cards, greeting
cards, and seasonal items..
2016 Defense budget request
 Authorize markup of product and establish sales prices of products to





off-set appropriated fund operating costs.
Authorize the sale of all items (except distilled spirits), sold by
commercial supermarkets, to generate revenue.
Use “cost recovery” as a primary criteria in establishing and closing
commissaries in non-remote U.S. locations.
Authorize purchase of goods from whatever source has the best price.
Modify the Berry Amendment to authorize the purchase of operating
supplies necessary to process products (e.g., meat trays) and protective
clothing in overseas areas from non-U.S. sources.
Exempt the provision of goods and services for Defense Retail Systems
from the application of the Service Contract Act.
Economic Case
 70 percent increase in food stamp redemption
 Sunk costs – buying the car but not putting gas
in it
 Sales imperative—increase share of AD who
use benefit
 Tax savings alone justify benefit
 Family and Veteran employment
 Contribution to economy/balance of payments
Benevolence and Good Will
 Wounded Warriors
 Snowball Express
 Joining Forces
 Fisher House
 USO
 NMFA
 Cause promotions
 …and a multitude of others
ALA position on MCRMC and
Commissary proposals
 Budget proposal would destroy commissary benefit.
 Commission stands behind commissary benefit.
 Review of MCRMC must consider warnings from past studies.
 Don’t bank savings ahead of reality.
 Budget cuts wreck benefit before any savings proposals can be realized.
 Commissaries and exchanges rank at top of list for beneficiaries.
 Shell game stacked with illusory savings that transfer costs to
beneficiaries.
 Troops already have co-pays in resale—mark-ups and surcharge.
 $750 million of own capital financed by the troops.
ALA position on MCRMC and
Commissary proposals
 Shell game stacked with illusory “savings” that would
transfer costs to the exchanges and put the burden of
financing their own benefits squarely on the backs of the
troops.
 Cuts target those who need these programs the most—
military families with children and retired folks on fixed
incomes.
 The troops already have a co-pay that finances their own
commissary and exchange benefits through surcharges and
mark-ups on their purchases. Last year, nearly threequarters of a billion dollars of their own programs were
financed by the troops. DoD proposes to up this amount
by another $1 billion.
ALA position on MCRMC and
Commissary proposals
 The Commission cited surveys that showed 90 percent use these
benefits, and a host of other surveys show that commissary and
exchange benefits consistently rank at the top of the compensation
items that are provided to the military. Yet they cost less than one
percent of the total compensation cost of the military and less than
.3 percent of the DoD budget.
 Commissary benefit advocates were encouraged when the President
told Marines and families at Camp Pendleton that closing
commissaries…“is not how a great Nation should be treating its
military and military families.” It also was encouraging when the
White House publicly thanked the resale system and its supporting
industry for being the first to step forward to hire 25,000 veterans
and family members…the first major contribution to First Lady
Michelle Obama’s Joining Forces initiative, an initiative personally
launched by President and Mrs. Obama at Langley Air Force Base.
ALA position on MCRMC and
Commissary proposals
 Supports keeping protections in law for commissary
and exchange benefits in place until the Department
of Defense renders an objective report that documents
how DoD plans to achieve reductions to the
commissary appropriation without diminishing the
savings that are realized by commissaries and the
impact on exchange operations and patrons.
 Fair and objective process free of any pre-determined
budgetary constraints.
ALA position on MCRMC and
Commissary proposals
 Commissaries and exchanges have already taken out costs
over the years in excess of $1 billion a year. They stand as a
model for the rest of Government to emulate, not decimate
for short term-budget expediency. Consider facts, not
conjecture aimed at hitting a budgetary target regardless of
the risk to a system that has given and continues to give so
much to so many for so little.
 Congress and past Administrations have carefully designed
and crafted resale programs that provide the right balance
of taxpayer and patron support. Yes, they receive a level of
appropriations, but the benefits that military families,
DoD, and the Nation derives from these programs are way
out of proportion to their cost.
ALA position on MCRMC and
Commissary proposals
 This list is long, from financing on-base community
programs, providing subsistence to families trying to
make ends meet, providing healthy programs that
serve to reduce health care costs, to tens of thousands
of jobs for military families, to maintenance of a
stateside support base for overseas operations, a secure
source of products for military families in times of
danger and threat, and massive impact to exchange
operations from commissary cutbacks and closures
that will result in major reductions to exchange
earnings that are used to sustain vital military
community programs.
ALA position on MCRMC and
Commissary proposals
 Congress and the White House review must take great
care not to allow radical and irreversible changes to
these benefits that they will regret without looking at
the facts, assessing a broad range of unintended
consequences that will reverberate across the force,
the families, and the base support programs that
sustain the military community.
Obama at Pendleton-Aug 7, 2013
Closing commissaries
“Not how a great Nation
should treat it’s military
and military families”
Compensation Commission
Compensation Commission
• Talk of cost-cutting started in 2008—post-9/11 spending
•
•
•




spree
July 22, 2010 DBB Report “Reducing Overhead and
Improving DoD’s Business Operations”
Spend more on health care and benefits for former military
than on troops in uniform
Personnel costs unsustainable
Cost per person in active force increased 46 percent
75 percent of budget
At current growth rate, personnel costs will consume entire
defense budget by 2039
OK as long as budget rising—now it is colliding
Compensation Commission
 Retirement payments expected to double by 2035 to





$116.9 billion
By 2017, DoD plans to have 100,000 fewer troops but
spend as much as today on personnel
Army personnel costs grown by 50 percent over last
ten years
Health care costs up $30 billion over last decade
Iraq and Afghanistan health care bubble
80 percent say they would trade retirement policy
changes for a 1 percent increase in pay
Compensation Commission
 Included in 2013 NDAA
 “Military Compensation and Retirement




Modernization Commission”
Ensure long-term viability of all-volunteer force
Enabling high quality of life for military families
Achieving fiscal sustainability of compensation and
retirement systems
Examine all laws and policies affecting various
programs and benefits
Compensation Commission
 Added by conferees:
“Department of Defense morale, recreation, and welfare
programs, the resale programs (military exchanges and
commissaries) and dependent school system”
“Closely weigh its recommendations regarding the web
of interrelated programs supporting spouses and
families of members of the uniformed services, so that
changes in such programs do not adversely impact
decisions to remain in the uniformed services.”
Compensation Commission -exchanges
 $512 million in appropriations
 SDT--$188.2
 In theater support--$224.5
 Other--$99.8
 Sales--$13,379 million
 Earnings--$350 million
 MWR contributions--$320 million
Compensation Commission
Recommendation 9:
Protect both access to and savings at
Department of Defense commissaries
and exchanges by consolidating these
activities into a single defense resale
organization.
Compensation Commission
A single organization should be
established that consolidates DoD’s
commissaries and three exchange
systems into a single defense resale
system, herein referred to as the
Defense Resale Activity (DeRA).
Compensation Commission
• Would decrease DoD budgetary costs and Federal outlays by $1.0
billion during FY 2016–FY 2020 and result in annual steady-state
savings of $515 million by FY 2021.
• Reductions result from a series of efficiencies, primarily in
consolidating back office functions, logistics systems, and
staffing.
• Studies have projected that both financial savings and
nonfinancial benefits can be achieved through a consolidation of
the three exchanges. Including the commissaries in such a
consolidation increases potential efficiencies.
• Proposes a new defense resale executive team that would be
responsible for evaluating, selecting, and implementing these
potential efficiencies. Realized costs and savings therefore
depend upon the set of efficiencies selected for implementation.
Compensation Commission
 A DeRA Executive Director should be appointed who
reports to a consolidated and simplified BOD.
 The BOD should replace the boards that currently
oversee each of the separate exchange systems and
DeCA.
 The consolidated DeRA BOD should also assume the
responsibilities of the Executive Resale Board and the
Cooperative Efforts Board and should incorporate
expertise from private-sector retail.
Compensation Commission
 A DeRA executive team, along with operational advisors
from the current organizations, should immediately be
established to define the key attributes of the new
organization and plan the transition.
 Creation of a single organization should facilitate
consolidation of many back-end operation and support
functions, alignment of incentives and policies across
commissaries and exchanges, as well as consistent
implementation of best practices for aligning with the
needs of Service members and the Military Services.
Compensation Commission
 Core commissary and exchange benefits should be
maintained at military installations around the
world by continuing the sale of groceries and
essential items at cost (plus a surcharge) and
other merchandise at a discount.
 Some or all commissary staff could be converted
from APF to nonappropriated funds (NAF)
employees to reduce commissary employee costs.
Compensation Commission
• Branding of the current exchange systems and
commissaries initially should be retained.
• A director for each of these branded exchange systems
and the commissaries should be appointed under the
DeRA Executive Director. These directors should
oversee operation of these systems as needed to
represent the unique needs of each military service.
• Personnel evaluations for these executives should be
cosigned by the DeRA executive director and
appropriate Service representatives.
• Branding and organizational structure can be
modified over time by the BOD.
Compensation Commission
• DeRA should assume responsibility for the operation
of exchanges but not the other organizations currently
managed by NEXCOM and MCCS.
• If approved by the BOD, the current points of
integration and shared resources can be maintained
through liaison positions and formal memoranda of
agreement. For example, if it is mutually advantageous
to share support staff between DeRA and Marine
Corps MWR, options are available to continue the
arrangement that currently exists with the MCX.
Compensation Commission
Laws and policies should be updated to reflect this
consolidated structure and allow greater flexibility
related to how products are sourced, where they are
sold, and how they are priced:
 Allow the sale of convenience items in commissaries at a
profit, including products and services typically found in
commercial grocers. Food and other essential items should
continue to be sold at cost when sold in commissaries or
combined commissary and exchange stores (excluding
convenience stores). This expanded commissary product line
would include beer and wine.
Compensation Commission
 Allow for the payment of second destination
transportation costs with NAF. Allow significant
flexibility on local sourcing overseas, particularly when
it is beneficial to the Service member.
 Allow more flexibility in the creation of combined
stores, as currently controlled by Section 2488 of Title 10
of the U.S. Code.
 Allow the use of the commissary 5 percent surcharge for
similar expenses in the exchanges. Conversely, allow the
use of exchange profits to cover commissary costs
currently covered by the surcharge.
Compensation Commission
A portion of Military Service MWR
programs should continue to be funded
from DeRA profits. The BOD should
approve the amount of net revenue to be
contributed as MWR dividends and
should ensure an equitable distribution
among the Military Services.
Compensation Commission
 10 U.S.C. § 2481 should be amended to make clear that
commissary and exchange stores may be combined into single
stores, and that commissary stores or the commissary sections of
combined stores must still sell grocery items at reduced prices. It
should also state that the Secretary of Defense will designate the
defense resale system’s executive director and the DeRA BOD
described above.
 10 U.S.C. § 2483 should be amended to authorize the defense
resale system to receive appropriated and nonappropriated
funds, and to use nonappropriated funds generated by the
system to cover the expenses of operating the system.
Compensation Commission
 10 U.S.C. § 2483 should be amended to authorize the defense
resale system to receive appropriated and nonappropriated
funds, and to use nonappropriated funds generated by the
system to cover the expenses of operating the system.
 10 U.S.C. § 2484 should be amended to state that the
commissaries’ requirement to sell items at reduced prices should
be limited to the following categories of items: (A) Meat, poultry,
seafood, and fresh-water fish. (B) Nonalcoholic beverages. (C)
Produce. (D) Grocery food, whether stored chilled, frozen, or at
room temperature. (E) Dairy products. (F) Bakery and
delicatessen items. (G) Nonfood grocery items.
Compensation Commission
 10 U.S.C. § 2485 should be amended to establish the DeRA
BOD granting the Secretary of Defense the authority to
establish the board, which should include five voting
members—
 A senior representative from each Military
Service
 Under Secretary of Defense for Personnel and
Readiness
 Nonvoting members with experience related to
logistics military personnel and entitlements,
and other relevant areas.
Compensation Commission
 10 U.S.C. §2487 should be amended to eliminate
references to the separation of commissaries and
exchanges and disestablish the Defense
Commissary Agency.
• U.S.C. §2488, which sets forth limited
conditions under which commissary and
exchange stores may be combined, should be
repealed.
Boston Consulting Group Study
Determine the qualitative and quantitative effects of:
 Using variable pricing in commissary stores to reduce
the expenditure of appropriated funds to operate the
defense commissary system;
 Implementing a program to make available more
private label products in commissary stores;
 Converting the defense commissary system to a
nonappropriated fund instrumentality; and
 Eliminating or at least reducing second destination
funding.
Boston Consulting Group Study
 The impact of changes to the operation of the defense
commissary system on commissary patrons, in particular
junior enlisted members and junior officers and their
dependents, that would result from displacing current
value and name-brand products with private-label
products; and (B) reducing or eliminating financial
subsidies to the commissary system
 The sensitivity of commissary patrons, in particular junior
enlisted members and junior officers and their dependents,
to pricing changes that may result in reduced overall cost
savings for patrons.
Boston Consulting Group Study
 The feasibility of generating net revenue from pricing
and stock assortment changes
 The relationship of higher prices and reduced patron
savings to patron usage and accompanying sales, both
on a national and regional basis.
 The impact of changes to the operation of the defense
commissary system on industry support; such as
vendor stocking, promotions, discounts, and
merchandising activities and programs.
Boston Consulting Group Study
 The ability of the current commissary
management and information technology systems
to accommodate changes to the existing pricing
and management structure.
 The product category management systems and
expertise of the Defense Commissary Agency.
 The impact of changes to the operation of the
defense commissary system on military exchanges
and other morale, welfare, and recreation
programs for members of the Armed Forces.
Boston Consulting Group Study
 The identification of management and
legislative changes that would be required in
connection with changes to the defense
commissary system.
• An estimate of the time required to
implement recommended changes to the
current pricing and management model of
the defense commissary system.
• Report by September 1, 2015.
Defense Chief Management Office
Defense Chief Management Office
 Press report—April 23, 2015:
 Weighing plan to convert DeCA workforce to NAF.
 Align pay, benefits and job protection with NAF.
 Savings on personnel, standardized accounting,
joint contracts, combined supply operations.
 Argues that shift to NAF would allow considerable
savings on store operations while preserving
current business models for resale activities and
service-unique exchange operations.
Distract
and
Divide
ALA is mobilizing
Educating members of
Congress.
Putting data to use
Gathering more data
Outreach—don’t lobby ourselves












80 briefings to Senate and House
Economic report
More underway
Frame the argument and shape the debate
Blunt new normal
Support our friends, educate adversaries
Coalition and patron involvement
Energizing advocacy groups – Grass roots--Unions
Moving resale to top priority
Congressional Caucus
Messaging – economic, compassionate, mission
DoD outreach—military and civilian
Prevention
Pre-emption
Preservation
ALA positions on the budget
The Pentagon has a
budget problem but the
resale system is part of
the solution and not
part of the problem.
ALA positions on the budget and
the Commission
• Budget proposal will wreck cherished
benefits
• Budget is a shell game stacked with illusory
savings
• Hits those who need it most—families—
fixed income retirees
• Transfers costs to the exchanges.
Rand
 “raising overall price levels will not be a successful strategy
to cover shortfalls in costs caused by the elimination of the
annual Department of Defense appropriation.”
 Raising prices will also negatively affect servicemembers
and retirees who currently patronize the commissary
system through increased grocery bills…”
 “changes in commissary pricing may have negative
secondary and nonmarket effects, including effects on
retention and recruitment; reductions in contributions to
Morale, Well-Being, and Recreation programs; possible
demand reductions for military exchanges; and changes in
the calculated cost of living adjustment.”
BENS





“The benefit appears to have strong value.”
Makes up two percent of an active duty officer’s and four percent for active duty
enlistee's compensation while costing less than one percent of the military
compensation budget.
DeCA estimates military families are receiving $3 billion in annual savings for
DoD’s $1.3 billion dollar investment – more than a 2:1 return on investment.
Informal survey results from the Army Times and the Center for Strategic and
Budgetary Assessments indicate service members from all ranks and age groups
value the benefit more than it costs to provide.”
“Any increased cost of the program has largely been attributed to inflation,” BENS
found. “Numbers from the Department of Defense (DoD) in fact show that the
cost of the commissary system has steadily decreased or flattened since the
inception of DeCA in 1990 if cost is evaluated through constant dollars. The oft
cited rise in costs can therefore be misleading absent this perspective.”
BENS
 “there is intrinsic value in the military having a system of grocery
distribution in place, both domestically and especially
internationally.” Additionally, “since the subsidy covers the costs of
staffing the commissaries, not of buying the groceries, that subsidy
creates jobs, and 64% of those jobs are held by persons connected
to a military service member.”
 “If the commissaries were to close, the consequences would go
beyond increased food prices; the jobs of many spouses and youths
in military families would be eliminated.”

AFGE
 Commissaries and exchanges are an earned benefit
treasured by military families.
 Converting DeCA employees to NAF status will cause
significant hardship for the agency’s workforce.
 DeCA employees would face a significant reduction in pay.
 Highest paid NAF cashier makes 10 percent less and 23
percent less for highest paid cashiers.
 NAF-ing the DeCA workforce means a shopping pay cut for
employees doing the same work.
AFGE
 DeCA employees would face a reduction in benefits.
 NAF employees not eligible for Federal Employees Health




Benefits.
Lose civil service protections against job loss.
NAF employees are “at-will” employees subject to businessbased actions.
Exempt from 20 USC 2461 restricting outsourcing.
Working and middle class Americans who work for DeCA
are often military spouses.
AFGE
 Walmartizing the DeCA workforce in order to generate fake




and punitive economies at the expense of American
workers is wrong.
Savings from consolidation are illusory at best.
Commission acknowledged that DeCA and AAFES have
achieved significant savings on their own from
implementing better business practices.
No programs provide more bang for the buck.
Modest cost of providing military families with inexpensive
but essential goods and services is almost invisible to DoD’s
budget.
80 percent of all active duty, retirees, and
spouses ranked commissaries as a high or the
highest priority benefit, and the Defense
Manpower Data Center confirmed that
commissaries are used by 90 percent of
military service members.
“Tread lightly on merger”
 How to reconcile structural disparity could far more




complicated.
Potential minefield for the troops
Devil is in details
Congress must vet every last wrinkle to ensure beneficiaries
do not get shortchanged.
Very much an open question.
Army resiliency assessment
• Startling signs of problems
• Nutrition
• Scored well—14 %
• Scored borderline—30 %
• Scored poorly—56 %
Shareholders have a
voice
The system belongs
to the troops
ALA position on the budget and the
Commission findings
• Applaud the Commission for recognizing the value
of the benefits
• Keep protections and budget intact until proof is
presented
• If it ain’t broke, don’t break it
• Consequences will reverberate across the base
commerce ecology—MWR, exchanges, base
support services
ALA position
 Puts at risk $500 million in annual industry
support.
 Eliminates $300 million in patron co-pays
 Puts at risk $500 million in earnings and dividends
from exchanges to military community programs.
 Still requires DoD to underwrite overseas and
remote location operations but eliminates the
supply chain and economies of scale.
ALA position
 ½ percent of compensation costs
 1 fifth of a percent of tot DoD budget
 2 percent of the DoD’s health care budget.
 Yet one of the most valued benefits.
 Patrons have financed billions of dollars in
facilities.
 System is nearly fully capitalized.
 Helps keep cost of living allowance costs low.
ALA positions on budget




System has already cut no more cuts-inherently efficient
Stop irresponsible dialogue with facts—no more new normal
As a vital compensation program, should be exempt from cuts.
For Sequestration, these programs should not be cut
disproportionately beyond the minimum reductions that are
mandated by law.
 Certainly should not be singled out for major reductions or illadvised experimentation or reengineering
 The resale system is inherently efficient with DeCA alone
reducing its annual operating costs nearly $900 million a
year. These programs are part of the solution not part of the
problem as our report “Costs and Benefits of the Military Resale
System” demonstrates—their contribution to the Defense
Department far outweighs their costs by a factor of 6:1.
ALA positions on budget
 Nonappropriated funds and surcharge funds are
generated by charges to military personnel and their
families. These funds should not be siphoned off in a
convoluted shell game to pay for legitimate
appropriated fund obligations that have been set forth
by Congress over the years.
 NAF balance sheets should not be used to balance the
budget on the backs of the troops
ALA position on the budget
 There should be no commissary reductions beyond the
over $700 million a year in annual reductions that have
already been taken out of the commissary budget (includes
the $46 million in the just-passed Omnibus FY 2014
Appropriations Act, and the $500 million inventory savings
from outsourcing distribution.
 Commissaries are one of the few DoD programs that has
held costs constant; in FY92 constant dollars, commissary
appropriations have actually declined since 1992.
 The primary purpose military families use the commissary
is the savings offered, they will stop coming when the
savings go away.
ALA position on the budget
 This is an earned benefit, not just a store.
 Commissaries and exchanges are a community hub and




bring the military together.
Food inflation is expected to double this year.
Would greatly impact DoD’s efforts to promote healthy
lifestyles.
DoD may say the stores will remain open but the practical
effect of the appropriations reductions will be that the
stores in the U.S. will close.
Cutting commissaries is punishing success. These
operations have already cut spending while other Defense
programs continue to increase.
ALA position on the budget
 The cuts will reduce the current 30 percent savings to zero
and the stores in the U.S. would close.
 Economies of scale would be lost for remaining overseas
stores and costs and prices would rise.
 There are huge unknown consequences such as cascading
impact on military PX operations and on-base community
support programs, loss of U.S. supply infrastructure to
support remote and overseas operations.
 Commissary cuts would demoralize the military at a time
when there is so much uncertainty over the entire
compensation package and force structure cuts.
ALA position on the budget
 DoD says that commissaries will not have to pay rent
or taxes under their proposal. Commissaries should
not have to pay rent anyway on stores built and
maintained with patrons funds. The military is
already exempt from taxes under the Supremacy clause
of the Constitution.
 If you shut down the stateside hub stores, the supply
chain will lose economies of scale and prices overseas
will rise as well.
 Commissaries support the Defense mission including
DoD efforts to promote healthy lifestyles.
H.R. 1735—FY16 NATIONAL DEFENSE
AUTHORIZATION BILL CHAIRMAN’S MARK
Committee action, April 29, 2015
Section 4501, Title XLV—Other
Authorizations
Working
Capital
Fund,
DeCA

Request--$1,154 M
Committee recommendation--$1,476 M
Restoration of proposed efficiencies--$183 M
Restoration of Savings from Legislative
Proposals--$139 M
HASC provisions added last night
• By Walsh--to prevent any closures of commissaries until
reports are completed and assessed by Congress.
 By Hunter--amendment protecting the commissary
benefit by requiring a comprehensive review of the AsiaPacific produce supply before any harmful changes are
made to regional second destination policy.
 By Hunter--amendment upholds the commissary benefit
and military readiness by urging DoD to maintain existing
overseas transportation funding.
Rational Access
Military personnel are entitled
at least to the same rights and
privileges as the citizens they
are charged to defend.
Sectors have inherent challenges
Just in past year:
 Concessions
 Tobacco
 Alcohol
 Supplements
 Energy drinks
 Sugar
 Healthy foods
Hunter Amendment (Sec. 633)
The Secretary of Defense and the Secretaries of the
military departments may not take any action to
implement any new policy that would limit,
restrict, or ban the sale of any legal consumer
product category sold as of January 1, 2014, in the
defense commissary system or exchange stores
system on any military installation, domestically
or overseas, or on any Department of Defense
vessel at sea.
ALA position
 Military folks are entitled to the same shopping rights
and privileges as the citizens they are charged to
defend.
 Products that are legal in the general civilian market
should be available to military personnel.
 From a practical standpoint, we find that if legal
consumer products are regulated on base, it merely
forces the troops to go off base.
 If the military wants to control consumption of any
product, it has to be a behavioral change, not an access
change.
ALA position
 The debate over individual product categories such as
alcohol and tobacco (or any other product) should be
settled in the general American populace and
marketplace and not specifically targeted to military
personnel.
 Over the years, the oversight committees have adopted
this view and have judiciously and deliberately
expanded product availability through Title 10 and
review of the Armed Services Exchange
Regulations. By exercising this authority, the Defense
…
ALA position
 …authorizing committees have been able to monitor
and sometimes intervene when other members of
Congress or committees have attempted to regulate
product availability. The SASC and HASC viewpoint
generally reflected prevailing practices and product
availability in the civilian marketplace. Usually, the
Executive branch conforms to this philosophy but
Congress has occasionally stepped in when efforts have
been made to prejudice product availability.
ALA position
 The wide price disparity between off base and on base
for tobacco and alcohol has narrowed over the years to
the point where it is virtually even.
 The demographic has changed where most of the
military live off base and artificial market
manipulation merely serves to inconvenience those on
base.
 Manipulating the military marketplace for legal
products is a slippery slope that opens the door for
further sanctions on a wide range of other products
directed only at the military.
Durbin provision—SAC-D bill
SEC. 8068. The Secretary of Defense shall issue regulations to
prohibit the sale of any tobacco or tobacco-related
products in military resale outlets in the United States, its
territories and possessions at a price below the most
competitive price in the local community: Provided, That such
regulations shall direct that the prices of tobacco or tobaccorelated products in overseas military retail outlets shall be
within the range of prices established for military retail
system stores located in the United States.
Report language on Sec. 8068
 The Committee applauds these efforts and encourages the
Department to continue to advance rapidly toward a
tobacco-free military. In support of these goals, the
Committee includes a provision directing the elimination
of the price subsidy provided to tobacco products at
military exchanges. This reform directs the Department to
implement a consistent, verifiable price benchmark for
tobacco products at exchanges, as recent surveys by the
National Institutes of Health indicate that Army and Air
Force exchange prices for cigarettes in practice to be
between 14–25 percent lower than market price, despite
Department of Defense Instruction 1330.9, which allows
only a 5 percent discount.
ALA position on Veteran online
shopping
Support any effort to
open military resale
offerings to larger,
deserving audience.
2015 Timetable
 Budget Committees set top line number—March 20
 President’s Commission report to Congress—April 1 or may








be delayed to May 1 or later
HASC Mark-up of Defense bill—April 29
House floor action on Defense bill—May 13
ALA Congressional Caucus & Public Policy Forum-June 10
SASC Mark-up of Defense bill—June/July???
Senate floor action on Defense bill—September
BCG report to Congress—September 1 at latest
HASC/SASC conference—September-October
Appropriations bills—discharged from Committee in July
Appropriations bills floor action--September
2015 Congressional Caucus
 June
10
 Rayburn House Office Building
 The premiere event on the politics &
policy of resale
 Members of Congress
 Defense experts
 Pentagon and Administration Officials
Congressional Caucus
 Congressman Scott Rigell, Seapower and Projection
Forces Subcommittee, House Armed Services
Committee
 Steven Parker, Joining Forces Executive Director, The
White House
 Rory Brosius, Joining Forces Deputy Director, The
White House
 Congressman Sanford Bishop, Co-Chairman, Military
Family Caucus
Congressional Caucus
 Honorable John Conger, Deputy Under Secretary of Defense,







Installations and Environment
Mr. Charles Milam, Director, Military Family and Community
Policy
Steve Ham Defense Policy Advisor to Senator Barbara Mikulski,
Chairwoman, Senate Appropriations Committee
Ms. Joan Walters, Chief Operating Officer and Vice President for
Military Medical Research, Samueli Institute
Congressman Walter Jones, Personnel Subcommittee, House
Armed Services Committee
Senator Tim Kaine, Member, Senate Armed Services Committee
Congressman Robert Wittman, Chairman, Readiness
Subcommittee, House Armed Services Committee
Mr. Tom Philpott, Author, Military Update
Congressional Caucus
 Mr. John Kamensky, Senior Fellow, IBM Center for the Business of





Government
Congresswoman Susan Davis, Ranking Member, Personnel
Subcommittee, House Armed Services Committee
Mr. Russell Rumbaugh, Director, Budgeting for Foreign Affairs
and Defense, and Senior Associate, The Stimson Center
Congressman Randy Forbes, Chairman, Seapower and Projection
Forces Subcommittee, House Armed Services Committee
Congressman Joe Wilson, Chairman, Emerging Threats
Subcommittee, House Armed Services Committee
Congressman Buck McKeon, former Chairman, House Armed
Services Committee
ALA & Resale
Protecting the Benefit