Pentagon requests plan to close stateside commissaries 

November 21, 2013

by Tom Philpott

Tasked by Defense Secretary Chuck Hagel to find ways to preserve force readiness amid sharply falling budgets, his comptroller and the Joint Staff have asked the Defense Commissary Agency (DeCA) for a plan to close all stateside base grocery stores, say military resale community sources.

Time will tell if this is just the loudest warning shot yet fired by a department desperate for budget relief, or if stateside commissaries, still enormously popular with military families and retirees, are viewed by current military leaders as a costly relic burdening a financially stressed force.

Under Secretary of Defense Robert Hale, the department’s top financial adviser, and Air Force Lt. Gen. Mark F. Ramsay, director of force structure, resources and assessment for the Joint Staff, reportedly requested the plan in a meeting with military personnel policy and commissary officials.

It was to be briefed soon to Deputy Defense Secretary Ashton Carter and Adm. James Winnefeld, vice chairman of the Joint Chiefs of Staff.

Another high hurdle if the plan is to be included in the Obama administration’s fiscal 2015 defense budget request would be sign off by the Office of Management and Budget and the White House.  The military resale industry already has reminded Hagel in a letter that, at Camp Pendleton, Calif., Aug. 7, President Obama told Marines that closing commissaries is “not how a great nation should be treating its military and military families.”

Also, First Lady Michelle Obama and Jill Biden, the vice president’s wife, have for several years led a nationwide initiative in support of military families, called Joining Forces.  It is hard to imagine them staying silent as action is taken to end prized discounted grocery shopping on base.

Commissaries rely on taxpayer subsidies of $1.4 billion a year to operate 247 stores worldwide.  They now face their gravest threat in decades because of the budget sequestration tool formula in the 2011 Budget Control Act, and Congress’ failure to replace it with a balanced debt-reduction deal.

Military leaders have testified often this year that they can’t roll back weapon programs or shrink the force fast enough to absorb in balanced way $50 billion a year in cuts demanded from sequestration.  So operations, maintenance and modernization dollars are decimated to achieve near-term savings.  Training and readiness are plummeting, say the service chiefs.

In that environment, commissaries have become “ground zero” for deeper cuts, said an industry official. Those dollars are coveted to support other needs such as flying hours, ship streaming days and troop unit rotations to combat training centers.  Closing almost 180 stateside stores could free up $800 million to $900 million annually, by some estimates.

Asked to confirm if Hale requested a plan to close stateside commissaries, Navy Cmdr. Bill Urban, a DoD press officer, said Hagel “has made it clear on numerous occasions that all cost-cutting efforts need to be on the table for [DoD] to meet the spending caps associated with the 2011 Budget Control Act.  At this time, no final decisions have been made on the…fiscal 2015 budget submission.  Therefore, it would be inappropriate to discuss any specific budget decisions.”

At a hearing Wednesday of House armed services subcommittee on military personnel, its chairman, Rep. Joe Wilson (R-S.C.), asked DeCA Director Joseph H. Jeu about a directive the agency got from defense leaders last February ordering an independent study to cut commissary costs up to 28 percent.  Wilson, who promises to defend the benefit, asked when Congress could see the study.

“Due to sequestration,” Jeu said, “the department is reviewing all of its programs and nothing, including commissaries, is off the table.”

Jeu declined to discuss the directive or study further.  But another witness did, Thomas T. Gordy, president of the Armed Forces Marketing Council, which represents brokers doing business with military stores.

Gordy testified his group was encouraged over the summer to hear that the department was considering cuts for DeCA lower than 28 percent.

   “However,” he said, “in recent weeks we understand the Joint Staff has asked DeCA to look at cutting its budget 33 to 66 percent.”

Gordy revealed three ideas DeCA weighed in recent months that would lower patron savings but preserve stateside stores. One would double the patron surcharge, from five percent to 10 percent of the cost of goods sold.  A second would increase commissary prices worldwide by two to three percent, enough to cover agency costs for shipping goods to overseas stores.

A third is an “enhanced commissary” model that would allow stores to sell wine, beer and health and beauty products at a profit, to offset the cost of store operations.  Critics worry this one could endanger base exchanges or department stores, which operate for profit.  Some exchange profits fund morale, welfare and recreational facilities on bases.

With support from industry, commissaries have been shaped into a model of efficiency for the entire department, argued Patrick Nixon, president of the American Logistics Association, which represents manufacturers and vendors of products sold in base stores.

Though commissaries have shared in the pain of sequestration, including furloughs and hiring freezes, Nixon said, “that may not be enough to feed the budget beast.  Some defense planners want far more.  They seek to reduce the commissary budget far beyond that being asked for any other defense program.”

Commissaries save patrons more than 30 percent off supermarkets prices, Jeu testified, with average annual savings for a family of four of almost $4500. 

Rep. Joe Heck (R-Nev.) asked Jeu to react to the cost-saving ideas Gordy described and criticized.  Each would lower patron savings, Jeu said.

But Heck noted that doubling the surcharge, for example, would lower savings for a family of four by only $225 a year, to $4225, to help preserve the benefit. Given fiscal challenges, hard decisions are needed, Heck said.

“We have got to look at the cost-benefit of each one of these, and I would encourage you to take that kind of perspective,” he told Jeu.

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