A stronger case for protecting on-base shopping

January 3, 2013

By Tom Philpott

Base grocery and department stores provide military members, retirees and their families with shopping discounts worth $4.5 billion annually. But that’s just a fraction of the overall value these stores deliver to the military and the nation, a new study from American Logistics Association (ALA) argues in response to fresh threats on the shopping benefit.

Discounted shopping, for example, dampens the military’s need to pay members larger cost-of-living allowances overseas and in high-cost areas of the United States like Hawaii and Alaska, saving $738 million a year, the report claims. Also, base stores are the biggest employers of military family members with 50,000 spouses, dependent children, retirees and veterans on the payrolls, adding $884 million a year to military household incomes.

And roughly $545 million a year from store operations are reinvested in base infrastructure, from profits of military exchanges (base department stores) and from a five-percent surcharge collected at cash registers in commissaries (base grocery stores). These facilities and capital improvements become assets on the balance sheet of the U.S. government.

Commissary and exchange customers also avoid state sales tax on store purchases, saving them another $902 million a year. And while commercial retailers offer shopping alternatives outside most bases, DoD still would have to spend roughly $881 million a year to run stores overseas and in remote U.S. areas if the current military resale system didn’t exist.

These numbers and many more in the report Costs and Benefits of the Department of Defense Resale System strive to capture the full value of exchanges and commissaries, said Steve Rossetti, director of government affairs for ALA, which represents manufacturers, suppliers and vendors of goods sold in the military’s resale system.

"Rolling up all of these numbers,"Rossetti said, "there is a $6.20 return to the Department of Defense for every tax dollar invested"in exchanges and commissaries. That ratio when calculated for the nation as a whole jumps to 20-to-one, ALA reasons, when more arcane factors like balance of payments between nations are considered, Rossetti said.

"If these programs didn’t exist overseas, we wouldn’t be selling American products to the troops there. They would be buying foreign products,"he said.

The full report is online at: www.resaleresearch.org. Why prepare it now?

Rossetti notes that four times over the last few years, ideas have been floated to squeeze costs out of military stores or to reduce the $1.4 billion annual subsidy use to run base commissaries. These came from a prominent debt-reduction commission, congressional budget analysts, the Senate Veterans Affairs Committee, at least for a short while, and from Sen. Tom Coburn (R-Okla.), an outspoken hawk on curbing federal spending.

Coburn challenged the Defense Commissary Agency’s contention that base stores delivery more than two dollars in savings to patrons for every tax dollar spent on grocery store operations, saying that figure assumes military patrons wouldn’t shop for bargains the way other Americans do.

"By getting the Department of Defense out of the grocery business here in the United States, Congress could increase military pay across the board and allow military members to shop at the stores of their choice,"Coburn argues in his November 2012 report, Department of Everything.

Deepening the worry for military shoppers and their champions is the looming threat of budget sequestration on defense programs including base stores. That mechanism will deliver more than a $1 trillion in automatic cuts to federal programs over the next decade -- half from the Department of Defense -- if lawmakers can’t show the courage to adopt a replacement grand bargain of near equal impact on the nation’s mounting debt.

The last Congress voted Jan. 1 just to push the deadline for reaching a deal or imposing sequestration back two months, to March 1. This gives lawmakers and the Obama administration "more time to work out a permanent fix to the meat-ax approach of sequestration,"Rossetti said. But it also means that if no permanent deal is reached to stop sequestration, the same level of automatic defense cuts will have to taken across fewer months of 2013, "seriously compounding sequestration's impact,"he said.

Under the president's plan for handling sequestration, commissaries would see taxpayer support cut by about 10 percent in fiscal 2013 -- $130 million in operating funds and another $25 million in surcharge dollars. That would have "a tremendous impact on store operations including operating hours, product availability and store modernization,"said Rossetti.

Exchanges, unlike commissaries, earn profits, which then are used to fund base morale, welfare and recreation programs. Sequestration would crimp base operations and maintenance dollars, impacting transportation support to exchanges and MWR programs. Military departments then could be tempted to "use troop-generated exchange earnings and other non-appropriated-fund program earnings to make up the difference"for depleted operating dollars. This could slow exchange modernization plan and force members to pay more out of pocket for some base support service.　

"We agree that all defense programs should share in the effort to reduce costs,"Rossetti said. But "resale programs have done that already, cutting billions of dollars in operating costs through efficiency initiatives."The resale system "was practicing accountability and efficiency long before it was cool to do so,"he added. "It's in their DNA to be efficient because they operate like businesses and every decision made is business-based and aimed at lower prices to the troops."

Military resale is part of the solution to curbing defense spending problem, not part of the problem, Rossetti said.

"Cutting these programs would amount to eating the seed corn for a multitude of other benefits reaped by DoD and the taxpayer,"he said.

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