CMSGT (RET.) JAMES E. LOKOVIC
DEPUTY EXECUTIVE DIRECTOR AND
DIRECTOR, MILITARY AND GOVERNMENT RELATIONS
AIR FORCE SERGEANTS ASSOCIATION
HOUSE ARMED SERVICE COMMITTEE
SUBCOMMITTEE ON TOTAL FORCE
REGARDING MILITARY RESALE AND
MORALE WELFARE AND RECREATION OVERVIEW
MARCH 3, 2004
The matters being addressed this afternoon concern central features of military life, for which full funding should not be debated. The programs with which this committee concerns itself are fundamental features of military life required to build a sense of shared community, to make available low-cost programs to promote military health and welfare, and to provide assistance and reassurance to military families while America's soldiers, sailors, airmen, and Marines protect this nation's vital interests.
Airmen know, for example, when they enter an airbase--whether stateside or overseas--they are, in a sense, home. They see the welcome sight of the familiar base commissary and exchange. They know that, despite the volatile foreign economy or the profit-driven stateside market that may exist outside of the base, there is a commissary where they and/or their families can continue to purchase reasonably priced food to which they, as Americans, are accustomed. They know that there will be a military exchange where they can find a variety of products to support their lifestyle and meet their family's needs at reasonable prices. They appreciate that this nation cares enough about them to provide programs to promote their morale, welfare, and physical well-being. As AFSA representatives visit dozens of bases around the world each year, we hear again and again how important commissaries, base exchanges, and MWR programs are to their lives. This nation should be proud to fully fund these programs and to avoid subjecting these programs to budget manipulation.
Especially today, in a period of war and of unprecedented global commitments these quality-of-life benefits are more important than ever, not only to the Active Duty, Guard and Reserve personnel serving our nation throughout the world but also their families and survivors. This is simply not a time to be sending a message to those who serve that government budget manipulators view these important programs as "fair game."I will address three basic areas in this statement: the commissary benefit, the military exchange system and, finally, the MWR programs we provide to military members and their families.
THE COMMISSARY BENEFIT
Military commissaries are an integral part of the total compensation package for service members and their families, producing an average savings of 32 percent over civilian markets. At a time when this nation is at war, we urge this committee to resist those who attempt to "reduce the bottom line" rather than to ask Congress for full funding of these programs. This is certainly not a time for budget manipulation plans such as privatization, variable pricing, and closing stores. Commissaries are not about profit; they are there as part of the military compensation package. In response to recent DoD initiatives, one would have to ask, "Why now? What is the compelling urgency to tinker with these benefits while we are fighting a worldwide war on terrorism?"
The commissary benefit is highly valued and widely recognized as one of the premier non-pay quality-of-life benefits for all beneficiaries--substantiated in numerous surveys to active duty, Guard and Reserve personnel, military retirees and their families. We are aware that this committee views the annual $1.2 billion taxpayer subsidy for military commissaries as money very, very well spent!
One great mission of commissaries and exchanges, though not often stated, is their incredibly positive impact on the ability of our troops and families to respond to the contingencies and missions of military life. Some call this concept "family readiness." Commissaries and base exchanges provide an important benefit for the military member, they provide sustenance to the families that support the military member at home, and they provide peace of mind and an economical place to purchase goods for family members who must go it alone while the member is deployed. Indeed, these facilities are instruments of readiness.
Just why are these stores so important to the military member as a non-pay benefit? Please consider the following facts: (1) Commissaries are a fundamental part of the military lifestyle, both for active duty and retired military members; (2) For enlisted members, who receive considerably lower compensation and benefits (and retired pay), commissaries provide a modest, though vital, supplemental financial benefit; (3) Commissaries are part of the military retirement package-- part of the promise; (4) Overseas, commissaries often serve as a lifeline; (5) These stores also have a military mission in that they more-closely adapt to the needs of their clientele (military members and their families) than commercial enterprises do. For example, in the commercial industry, the bottom line is "service" only when/if it translates into increased profits; that is why they use such practices as variable pricing; (6) Commissaries are, very simply, part of the price of defending this nation-a price that this nation should be proud to pay.
Access to any of the 276 commissaries on military bases around the world is very important to these service members. The benefit offers significant average savings to patrons, estimated at 32 percent over civilian, profit-driven markets. The Defense Commissary Agency (DeCA) has long maintained that it is able to provide this magnitude of benefit because it bases its prices on cost plus a surcharge (five percent today), and not on market forces and pricing schemes used by civilian grocery markets.
Frankly, those serving today have repeatedly communicated to AFSA a sense of resignation, frustration, and a belief that the benefits they now enjoy will most likely be reduced and/or eliminated in the future. Ironically, the agent of their unease is the very agency that should be championing full funding for these programs. Their trepidation comes about because of comments making the rounds that DoD believes that commissaries may not be desired or necessary. They are aware that service secretaries were notified toward the end of 2003 that DoD plans to close several commissaries and is considering closing several more. They have read about ongoing commissary privatization plans. They have seen actions to civilianize commissary management and, recently, plans to change the chairman of the military Commissary Operating Board to a civilian-rather than a person who has a stake in the future health and continuance of the commissary benefit. They question DoD plans at benefit value manipulation such as variable pricing that would, without a doubt, increase the costs for military beneficiaries and, thereby, decrease the value of the benefit. We have heard more than once the belief that DoD's efforts toward contracting, privatization, and outsourcing might eventually lead to replacing commissaries on base with a "contracted" on-base civilian supermarket of little financial benefit to military beneficiaries. It is no wonder that military members question the commitment of DoD to their benefit programs.
On the issue of "variable pricing," a practice used by civilian markets to increase profits, several questions arise. The current DoD variable pricing study-which this committee has told DoD is not necessary, and for which the American taxpayer is paying at least half-a-million dollars--is motivated by a stated desire to reduce/eliminate the $1.2 billion annual commissary subsidy. DoD would do this by raising the prices of some products and reducing the prices of others-a practice used by civilian markets. It is common practice in civilian markets to lower prices, i.e., take a loss, on some items ("loss leaders") to draw customers into the stores, only to raise the prices on other goods that the consumer normally buys. The end result is more money out of the pockets of average consumers-a game our military members and their families should not be forced to play on a military installation. DoD's investigation of variable pricing in commissaries can mean only this: DoD would shift the cost of the benefit from the American taxpayer to the significantly less than one-percent of the citizenry who put their lives on the line to protect this nation-the military patron. To claim otherwise would be disingenuous at best.
Discussions of the current commissary pricing method have always included the fact that producers routinely provide the commissary with good deals because they know that the prices are not subject to manipulation (such as through variable pricing). Additionally, commissaries provide a platform for producers to test the pricing of products; the pricing of which goes directly to the consumer without intervening, profit-driven manipulation. In the case of the commissaries, the market is driven by volume sales and, undoubtedly, the patriotism of some producers. AFSA fears that the institution of variable pricing at commissaries would drive these producers away, eliminate "good deals," and, in the process, might well actually destroy the commissary benefit as we know it today.
Some government functionaries assert that DeCA's claim to 32 percent savings for military beneficiaries is an "average" with some stores averaging 20 percent savings, and others 40 percent. They suggest that variable pricing could be used to level the playing field by ensuring that all beneficiaries get the same percentage of savings. One would have to question the sincerity of this "member-centered" desire to manipulate prices. It is important to keep in mind that the DeCA calculation of average savings is based on a "market basket" weighted toward items bought the most by military consumers. There is simply no need to manipulate the commissary market. Also, since the DoD motive is to skim off $1.2 billion and transfer that cost to military consumers, the "average" savings can't help but go down.
If the effort is fueled by a desire to lower the overall level of savings and, therefore, the value of the benefit for military members, one would have to ask, "Why?" Why not allow DeCA, through its proven management efforts, to try to increase the value of the benefit (savings for servicemembers) to the very highest levels that sound management practices can allow? Why limit the value of the benefit? AFSA would assert that increasing the value of this non-pay benefit as part of the overall compensation package reduces the need for increases in the military pay portion of the package. In that sense, why not allow DeCA to continue to work to increase the value of the benefit?
As stated, sound DeCA practices have brought the savings to approximately 32 percent over civilian, profit-driven markets. Is DoD asserting that this level of savings is too high? If so, what is the basis of determining an "acceptable" savings threshold?
AFSA maintains that the arguments stated above add up to this: Shifting the "burden" of operating commissaries to the military patron-the inescapable consequence of variable pricing-would impact their quality of life by reducing their disposable income. Additionally, it would be viewed by military members as the erosion of a highly valued benefit. Such a move simply doesn't make sense.
Over the years, there have been proposals to privatize commissaries or otherwise eliminate the system's appropriation-either of which would be greatly appreciated by the profit-driven, grocery industry. AFSA appreciates this subcommittee's historic strong opposition to these plans and asks for the distinguished Subcommittee to sustain this position. We believe that reform proposals have a common theme--saving money with scant regard for the impact of reductions on beneficiaries.
There is continued interest in privatizing the commissary benefit within the Department of Defense. This is reflected in past budget requests, congressional testimony and reference to the benefit and other programs as opportunities to privatize during press conferences and interviews.
Privatizing commissaries to reduce/eliminate the annual appropriation is to work toward getting DoD out of the commissary business and, in effect, eliminating the benefit-or significantly reducing the value of the benefit. Once again, one would have to ask, "Why?" What would be the long-term costs? In what ways would privatization serve the military member and his/her family better? Why fiddle with a workable, well-managed benefit? Additionally, one can only speculate the appropriated costs required to maintain overseas commissaries if they were privatized. We would imagine that the cost would be considerable. AFSA opposes privatization of the benefit because it is unnecessary and would most likely lead to the eventual demise of this important benefit.
Other Commissary Matters
Guard and Reserve Commissary Benefit. AFSA applauds this subcommittee's action last year to provide members of the Guard and Reserve with full commissary benefits. That effort was long overdue, and it further strengthens the clientele base for these important stores. It was a dramatic gesture on the part of this Congress for the men and women serving in the reserve component. Your actions demonstrated your appreciation of their instrumental role in the defense of this nation's vital national interests and your resolve to provide them with equitable earned benefits.
Employee Shopping Privilege. AFSA is also aware of a proposal under consideration within DoD to allow employees (regardless of military affiliation) who are employed by a commissary to shop in that commissary (with full savings). AFSA opposes this. We would simply note that the commissary is an "earned" benefit-earned by subjecting oneself to unlimited liability through military service. These men and women stand ready to sacrifice their lives. Additionally, the lives of their families are fraught with challenges, economic hardship, and uncertainty. Service members and their families have uniquely and singularly earned this benefit. AFSA believes that is reason enough to limit the benefit to military beneficiaries. We would also suspect that there might also be potentially strong (and continuing) opposition from food marketing organizations-an eventuality that is easily avoided by continuing to limit the benefit to those who have earned it.
Closures. With another round of base closures and realignments set for 2005, AFSA members are already expressing concerns about what the next round may mean to their access to commissaries. On top of that DoD has announced plans to close several stores and to consider closing quite a few more. Once again, AFSA questions the timing of these closures. They send to those who are serving a very negative message about the commitment of DoD to this benefit program.
This committee has a vitally important mission. You serve as the guardians of the commissary system. You have served the interests of military members and their families by protecting the military stores and various other activities that are so critical to them. As you go through your deliberations, markups, and resultant formulation of the FY 2005 Defense Authorization, we ask that this committee be a key player in ensuring the full funding of commissaries and that you resist budget manipulation schemes that can't help by reduce this important benefit.
Military exchanges are a long-standing tradition on our bases and posts -- both at standing military posts and bases and contingency locations. They originated in July 1895 with the War Department's General Order 46 which directed post commanders to establish exchanges at every post where practicable. Wherever American Army or Air Force members are stationed, the Army and Air Force Exchange Service (AAFES) sets up a store. AAFES provides service and support to 7.3 million customers worldwide. Today, AAFES operates more than 12,000 facilities worldwide, supporting 25 separate businesses in 30 countries and overseas areas, as well as in every state in the union. These include 1,423 retail facilities and close to 200 military clothing stores on Army and Air Force installations around the world. AAFES also runs 1,410 food facilities; mobile units; snack bars; name brand fast-food franchises and concession operations. Other AAFES activities include theaters, personal service concessions, vending centers, and Class Six stores. In addition, the AAFES overseas school lunch program serves approximately 27,000 lunches daily to Department of Defense Dependent School children (at 152 schools in 11 countries). AAFES was designated by the DoD to administer the overseas school lunch program on Army and Air Force installations and has supported the program since the 1960s. A non-appropriated fund activity of the Department of Defense, AAFES funds 98 percent of its operating budget (civilian employee salaries, inventory investments, utilities and capital investments for equipment, vehicles and facilities) from the sale of merchandise, food and services to customers. The only congressionally appropriated money spent on AAFES comes in the form of utilities and transportation of merchandise to overseas exchanges and for military salaries. The exchange system brings the American way of life to our military members who protect our interests around the world. Exchange facilities are an ingrained aspect of the military culture.
The AAFES contribution to MWR is significant. Each year, AAFES earns hundreds of millions of dollars from retail, food, service, mail order and concession sales based on sales of over $7 billion. MWR and services received enough to provide about $300 per capita for each active duty soldier and airman. In fact, while AAFES is charged with making a profit, it returns every cent of its earnings to its customers. More than 70 percent of AAFES earnings are paid to Morale, Welfare and Recreation (MWR) Programs. In the past 10 years, over $2.5 billion has been contributed by AAFES to the Army and Air Force to spend on quality-of-life improvements for soldiers, airmen and their families--libraries, sports programs, swimming pools, youth activities, tickets and tour services, bowling centers, hobby shops, music programs, outdoor facilities and unit functions. In that sense, military members who shop in exchanges do so knowing that they are helping to care for their own by helping fund activities that serve themselves. This AAFES contribution is important and spares the taxpayer from footing that portion of the MWR bill.
AAFES is also a major source of employment for family members of Army and Air Force personnel. Approximately 25 percent of the 52,400 AAFES associates are military family members. Many associates have worked for years with AAFES as they've moved from one installation to another with their military sponsors. Another 3 percent of associates are military members who work part time in exchanges during their off duty hours. These employment opportunities are crucial to the well-being of enlisted families, especially at overseas locations where such opportunities are relatively scarce.
One dynamic of the current force structure is the closure of military facilities, and we are keenly aware of another impending Base Realignment and Closure round scheduled for 2005. When a facility closes, military retirees often lose access to the exchange benefit. However, if a particular facility is "profitable," one plausible solution is to keep the facility open in combination in the form referred to as a "BX Mart," a combination exchange-commissary. While this approach is necessary in some areas, it should be avoided if both a full exchange and commissary would continue successfully. In reference to base exchanges, we ask that you continue to fully support the military exchange system, providing required funding to ensure the health of the facilities and the subsidy to maintain stateside-consistent pricing at overseas locations. Additionally, we recommend you support the BX Mart concept only when a stand-alone exchange and commissary are not feasible for a given location.
AFSA appreciates the need to achieve business efficiencies. However, there are currently three very viable military exchange systems that provide military members with a valuable benefit and generate millions of dollars which follow into MWR programs. The primary impetus of the DoD effort seems to be to eliminate redundancy in "back office" operations. While AFSA does not oppose common sense solutions, we strongly urge this committee to allow exchange consolidation only if it is absolutely necessary, if it will not serve as a step toward degradation of the benefit, if it would not increase prices at the register, and only if it would not reduce the MWR contribution to each service.
MORALE, WELFARE, AND RECREATION (MWR) PROGRAMS
MWR programs enhance the quality of life of service members, military retirees, their families, and survivors. MWR activities, together with base exchanges and commissaries, draw military members to the military base and are also a key part of military culture that serves to draw young civilians into military service. These activities are consistently ranked by military members as among their most valued benefits. Their family members depend on these programs for wholesome, affordable activities that demonstrate to them the government's concern for their wellbeing while the service member is away. Retirees view the availability of MWR programs as part of the benefit package provided them, their families, and survivors. In other words, MWR programs serve as a continuity from first enlistment, to career decision, and into retirement. They are an expression of a grateful nation for the selfless, at-risk national service provided by military members. As such, we urge this subcommittee to support full funding for these essential programs.
AFSA wants to stress the importance of funding for additional construction of up-to-date fitness centers. All of the services have realized that fitness is not just a desirable attribute of military members; it is absolutely necessary to carrying out the roles with which our military members are increasingly tasked. For example, in the Air Force, General Jumper's "Fit to Fight" philosophy can only be successful if the fitness centers on Air Force bases are fully supported. Additionally, it is cost-efficient in that it promotes the health of those serving, thereby reducing required health care costs dollars. At the many fitness facilities we visit around the Air Force, we find service members who are proud of and fully utilize upgraded fitness facilities. Many fitness centers also welcome retirees and family members; some even have convenient child play rooms on site so that parents can bring children along. The military services speak of the centers' importance in emphasizing an active lifestyle. The military members appreciate them, and appreciate the efforts of government decision-makers to provide full funding for these activities.
Child Care Centers
Military Child Development Centers are first-class facilities, with high rates of accreditation and well-trained staff. They are a testament to the priority given military child care by the Congress, DoD, and the services. This is especially important due to the increasing number of military-married to-military couples, and military-married to-civilian couples where both spouses work. AFSA thanks this committee for funding the construction of additional military child development centers each year and for the funding needed for DoD to maintain such a high quality program at a reasonable cost.
As we visit military bases, the criticisms of CDCs never center on the quality of the centers. Instead, they focus on some of the policies used to administer the programs. One fairly frequent request is that individual CDCs accommodate shift workers. This is becoming more prevalent as military members (due to undermanning and deployments) routinely work 16 and 18 hours a day. Unfortunately, most CDCs operate during specific hours and do not accommodate those who work longer than normal hours, or who work on revolving shifts. We believe those issues must be addressed within DoD itself. For this committee, we urge continued investment in these important facilities
As our partners in the Military Coalition (TMC) pointed out last year, "National Guard and Reserve members are essential to today's military mission. Concerns about finding and affording quality child care when called to active duty affect their mission readiness, just as they affect the ability of other active duty members. The child care needs of activated Guard and Reserve members must be calculated in DoD and service estimates of demand for child care services and assistance must be given to these families in accessing child care. This should start with referral services, but will probably also need to include subsidies for certain members. TMC encourages DoD and the services to make better use of the flexibility given them [by Congress] to partner with community-based child care companies, agencies, and local school districts to assist members of the Guard and Reserve called to active duty in meeting their child care needs."
AFSA urges this subcommittee to place the issue of child care among its priorities. Just as the demographics of those in the military have changed, so too must we adapt to the necessities of today's members.
Base recreational facilities such as bowling alleys, swimming pools, athletic fields, and golf courses continue to be important to the military community's quality of life. As indicated earlier, military communities are unique. Important parts of military culture are the support facilities to provide community interaction and wholesome, safe activities. MWR recreational activities on installations also draw service members, retirees, and their families and survivors who live off-base back to the installation. This reinforces the cohesion of the military community as a whole. Military MWR facilities must continue to be responsive to the entire community in order to provide the services needed at a competitive price. We appreciate the support of this committee in consistently acting to make that happen.
Military Club System
Patronage at clubs has continued to decline in many locations. Military members who have served for a number of years can remember when military clubs were a far greater part of the community activities, the recreation, and the quality of the lives of military members. They remember when government subsidies allowed for better entertainment, reduced prices, and more-varied programs. Over the years, appropriations have been removed or greatly reduced (a move toward making the facilities self-supporting), management has changed, and the offerings that drew people to the clubs have been summarily reduced or eliminated. At many locations, these clubs have been consolidated due to declining patronage. AFSA wants to point out that the reduced patronage is the end result of government actions and not the justification that precipitated the funding/management changes that were made. In fact, club efforts in some locations focus more on raising revenues by increasing facility use fees paid by military-related organizations such as units and spouses clubs. Discouraging community members from using community facilities is not an appropriate means of increasing profitability.
Mr. Chairman, the Air Force Sergeants Association is grateful to this distinguished subcommittee for its protection of the commissary benefit and its oversight and support of the military exchanges and MWR programs for the military community around the world. As we stated earlier, you have become recognized as the champion of such military benefit programs. The men and women who serve this nation need you to continue this advocacy.
The programs discussed in this testimonial statement are so very important. They bring a touch of home and provide resale items, recreation and education opportunities for deployed service members and for military families located far from home. On military installations, the commissary, exchange, and MWR programs provide a community focal point involving families, retirees, survivors, and single service members. We appreciate the need to apply quality standards to these programs-we owe the taxpayer no less. However, some budget items faced by Congress each year need to be treated as "must pay" items. AFSA would assert that the programs discussed this afternoon fall into that category. Again, thank you for your attention, and AFSA is ready to work with this committee on matters of mutual concern.
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