2 March 2004

The Honorable John McHugh
Chairman, Total Force Subcommittee
U.S. House of Representatives
2340 Rayburn Building
Washington, DC 20515

Dear Mr. Chairman:

In anticipation of your distinguished Subcommittee= s March 3rd hearing on the Military Resale System, the Fleet Reserve Association (FRA) wishes to advise you of several issues of importance to its membership.

During the past year, the Department of Defense announced plans to close a number of commissaries, replace the traditional three-star officer serving as chairman of the Commissary Operating Board (COB) with a political appointee, and require a study on instituting variable pricing for commissary products. These proposals are apparently intended to save money by reducing the annual appropriation supporting the Defense Commissary Agency (DeCA), which operates 275 commissaries worldwide. These actions are viewed as indicators of DoD= s ongoing interest in eventually privatizing the benefit to the detriment of all beneficiaries.

Our members are relieved that the COB recommendation was not implemented and that VADM Charles W. Moore, USN is the panel= s new chairman. This appointment is due in large part to your effective oversight and the 21 November 2003 letter you and Ranking Member Snyder sent to the Secretary of Defense on this issue and those referenced above.

FRA supports cost savings and effective oversight and management of the commissary and other benefits. However, the Association is concerned about the unrelenting pressure on DeCA to cut spending and squeeze additional efficiencies from its operations B despite years of effective reform initiatives and recognition of the agency for instituting improved business practices. As stated so well in your letter, DoD= s goal seems to be A achieving substantial savings in appropriated funding without apparent real concern for the impact on the quality of life of service members, retirees and their families.@

The ambitious plan to close a number of commissaries B including several in remote locations B detailed in a DoD memorandum of 29 August 2003 is based predominantly on sales while minimizing the impact on beneficiaries= quality of life. This is unacceptable and a blatant example of placing cost savings ahead of other more important concerns.

FRA is also concerned about the possibility of introducing variable pricing within the commissary system B a profit-based concept which DoD acknowledges is aimed at reducing appropriated funding. This can apparently only come at the expense of reducing benefits (i.e. increasing costs) for patrons while fundamentally changing the benefit and, according to experts, significantly altering DeCA= s relationships with its business partners.

The commissary is a highly valued quality of life benefit not quantifiable solely on a dollars appropriated basis. As it has consistently in the past, FRA opposes any efforts to privatize commissaries or reduce benefits to service members and retirees, and the Association strongly supports full funding of the benefit in FY 2005 and beyond.

Another area of concern is the proposed consolidation of AAFES, NEXCOM and MCX B astonishingly announced by DoD during a major war effort involving significant numbers of personnel from all services and the activation of tens of thousands of Guard and Reserve personnel.

Numerous studies on consolidation have been conducted during the past three decades and the most recent Price Waterhouse Coopers (PWC) study determined that significant savings could be achieved through collaborative efforts focused on A back office@ operations. The implementation of these combined functions is now achieving major cost reductions within the exchange system.

Priority concerns for FRA are sustaining Ships Stores so important to deployed personnel, and the significant impact integration would have on Marine Corps Community Service (MCCS). Because of its innovative and cost-effective structure, the service= s exchange and MWR programs (including Family Services, Child Development and Voluntary Education Programs) share overhead expenses and without exchange revenue, MCCS would be required to carry 100% of the overhead costs. Consequently, the potential impact of exchange integration would be significant for the Marine Corps given a projected reduction to the service= s MWR dividend plus a substantial cost increase to run its MWR programs.

Given this background, FRA understands that no compelling business case has been made for the consolidation that would either enhance the benefit and/or improve the dividend so important to maintaining vital MWR programs. The Association is also aware of questions about overly optimistic assumptions regarding projected reductions in exchange profitability and declining MWR dividends.

In conclusion, FRA salutes you and members of your distinguished Subcommittee for your effective oversight of these important programs and for your untiring commitment to the men and women serving our great Nation and those who= ve served in the past.

National Executive Secretary

cc: The Hon. Vic Snyder