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Editorial Comment —May 2015

Enough, Already! …

For a few days early this month, it almost seemed as if Chairmen Mac Thornberry of the House Armed Services Committee (HASC) and Joe Heck of its Military Personnel Subcommittee had made all the uncertainties and harassments that have plagued resale patrons regarding their benefits in the last few years disappear, at least for now.

The committee's stance supporting a strong commissary benefit in its markup of the 2016 National Defense Authorization Act was a breath of fresh air. Recognizing the importance of the exchange and commissary systems to the military, the report urged that the separate systems not be consolidated unless full and complete studies showed such a course was truly warranted.

So for a moment it seemed the resale market — and those patrons aware of how their benefits have been teetering on the brink — could all stop holding their collective breath.

That exhale did not last very long.

For no sooner had the full House taken up its bill, written with a clear understanding of the value and relevance of military resale to servicemembers and their families — and with full restoration of appropriated commissary funding — than the Senate Armed Services Committee (SASC) shocked the market by reviving a decades-old proposal to privatize the commissary system.

Last month, labeling it “unofficial,” SASC had presented the administration's proposed NDAA legislation, which adopted DoD's draft manifesto, “Statutory Streamlining to Enable Defense Commissary Agency to Become Partially Self-Sustaining.”

What this “streamlining” boils down to is abandoning the law codifying patron needs and savings and installing a “cost recovery” model — using profits made on patron purchases — ultimately to the tune of $1 billion taken from the patron's pocketbook. It's not surprising that the SASC would not want to put its stamp of approval on such an undignified piece of work.

We understand the economic and budget-induced need to shift military funding from behind-the-lines support to weapons, but this proposal would amount to a complete betrayal of the non-pay benefit. If the administration has its way, patrons will end up effectively paying for much of their own compensation — and in many cases, the salaries (reduced, of course) of their spouses as well.

There's a myth in DoD's explanation of its draft legislation that it would maximize savings. The question is, for whom? Certainly in the very short term, for the department and the overall budget. But not in the long term, when the cost to repair such a dire mistake comes due (in recruitment and retention of talent that is in increasingly short supply, reconstructing the system and rebuilding credibility with military personnel and their families).

What would this really result in? Higher prices on the core categories that military shoppers rely on for maximum savings — meat, produce, dairy. All other merchandise except that on promotion would become increasingly uncompetitive. Support from vendors who have helped sustain the benefit for a century and a half would disappear.

Privatization of the system would have much the same effect.

The greatest value of the commissary system is that for the $1.4 billion taxpayers spend to operate it, military shoppers receive almost twice that amount in buying power. Every year. This is the result of the at-cost pricing model inherent in the commissary mission. But the purpose of the commercial supermarket is not cost recovery; it is profit. It's difficult to imagine a scenario in which commissaries survive even modest variable price hikes, and the recent RAND study indicated that a 29 percent increase would be needed to eliminate $1 billion in funding — dramatically cutting into the shoppers' 30 percent savings.

Though the Senate proposal promises the military family no decrease in purchasing power — which implies an increase in pay or allowances to subsidize the loss of at-cost pricing — there is no guarantee that the patrons would spend any such allowance in the commissary.

As patrons begin to rely less and less on the system, prices inside would rise higher to cover an overhead that becomes ever more unsustainable.

In the 1980s, when the Army tested a similar concept, it was soon shelved because the results disappointed both the service and the contractor. Will this be a case of doing the same thing over again, hoping for different results?

Some supermarket chains would undoubtedly be eager to take on the chance of increasing revenues in one enormous chunk by taking on commissaries. But the grocery business is one of razor-thin margins. Even grocery distributors with national capabilities would find themselves picking up the pieces of a once $6-billion business reduced to a shambles and a fraction of its previous worth.

Once dismantled, the investment in the military resale ecosystem would be extremely difficult to reclaim and impossible to rebuild.

Exchanges would suffer collateral damage; they lose major foot traffic and significant business when the commissary closes or its patrons shop elsewhere — witness the government shutdown of 2013. Exchanges certainly don't deserve to be compromised by a decimated commissary system.

And all this to save two-1,000ths of the defense budget?

Meanwhile, with each passing day come fresh reports of governmental fraud, waste and abuse — billions of squandered dollars in contracting and procurement and a Defense bureaucracy that has grown in size despite all its talk of reductions, and which is ordering cuts and belt-tightening for everyone outside the Pentagon.

Thanks are due Sen. Jim Inhofe for trying to talk sense into his SASC colleagues, noting that commissaries are “the most utilized service the military offers its members.” Calling the privatization provision “one of my greatest disappointments” in an otherwise positive bill, he has vowed to introduce an amendment to reverse the provision when the full Senate takes up the bill.

Surely for-profit commissaries are a travesty that does not need to happen and which can be swiftly averted on the Senate floor or in conference, with no further taxpayer money — that could be better invested in the system — spent on additional surveys, studies, reports and pilot programs trying to come up with answers DoD, or OMB, or CBO wants to hear.

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