MILITARY UPDATE
Plans to merge military exchanges, cap commissary savings blasted
By Tom Philpott
Proposals by the Bush administration to merge the three military exchange systems, cap commissary-shopper savings at an average of 30 percent, and to test "variable pricing" as a way to reduce taxpayer support of commissaries drew sharp criticism during a recent House hearing.
Republican subcommittee chairman John McHugh of New York cited some evidence that Defense Department leaders view base stores, and Morale, Welfare and Recreational programs "as a drain on the budget and perhaps not worth their overall costs."
They are wrong, McHugh said.
Another Republican, Ed Schrock of Virginia, said administration initiatives on base stores "reflect the single-minded pursuit" of lowering government spending.
With "so many problems in this world right now that need attention from the Defense Department," said Schrock, "why in the name of common sense they're picking on these types of issues is a total mystery."
The criticism was leveled during a hearing Wednesday of the Total Force Subcommittee of the House Armed Services Committee.
Complaints were echoed by representatives of shoppers, product suppliers, and by exchange and commissary system commanders.
Taking the heat was Charles Abell, principal undersecretary of defense for personnel and readiness. He assured the subcommittee that the department views base stores "as core elements of non-pay compensation" and "crucial to quality of life of our military members" and their families.
But Abell also said the department seeks answers to tough questions regarding "realistic" military resale benefits.
"We're concerned about maintaining the balance between taxpayer and customer contributions to the commissary, exchange and MWR programs," he said.
Deputy Secretary of Defense Paul Wolfowitz in a memo last May directed Abell to form a task force to lead a merger of Army and Air Force Exchange Service with the Navy Exchange Service and the Marine Corps Exchange System.
"I have decided that a single optimized armed service exchange system would best serve the department and exchange patrons," Wolfowitz said.
Ten months later, driving toward that goal through the task force and its rigid set of deadlines, two of three exchange system commanders still think consolidation is probably a bad idea.
"I still have to be convinced," said Rear Adm. William Maguire, commander of the Navy Exchange Service Command. Maguire said he still hasn't seen "a very sound business case" to justify consolidation.
Retired Brig. Gen. Michael P. Downs, director of the Personnel and Family Readiness Division at U.S. Marine Corps Headquarters, said the services aren't being allowed enough time to integrate systems thoughtfully.
Still, Abell wants a merger plan to Congress by early 2005.
"If we're forced to meet deadlines we're going to forfeit quality," Downs warned. He also complained that too many key members of his staff are saddled with exchange integration milestones "when we are very busy taking care of Marines and families of Marines."
The services rely on profits from exchange sales to support MWR activities such as bowling alleys, libraries and gyms. But how will profits, or dividends, be distributed after an exchange system merger?
Downs said every draft plan he has seen shows the Marine Corps' share falling as much as 30 percent.
Air Force Maj. Gen. Kathryn Frost, commander of the Army and Air Force Exchange Service, was less critical of the Unified Exchange Task Force and its deadlines. But even Frost found tremendous risk in the scale of the merger, which must, in time, be addressed, she said.
At the hearing, Abell also defended the department's decision to contract for a study, due this month, on the feasibility of moving to variable pricing in commissaries.
Prices now are set at cost plus a 5 percent surcharge. Authority to vary prices, by store or geographic region, could make commissaries more competitive with commercial grocers, Abell said.
Variable pricing also could level patron savings at 30 percent in stateside commissaries.
Given that present average savings is 32 percent, Abell said it was fair to suggest that a 30-percent target, achieved through variable pricing, would allow cuts in the $1.1 billion annual commissary subsidy.
A 30-percent target also looks like a cap, McHugh said, which would mean slightly higher prices for patrons. Abell didn't disagree, but he said the target could be raised if Congress thought 30 percent too low.
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