report - The American Logistics Association

Transcription

Costs and Benefits
of the
Department of Defense Resale System
December 2012
www.resaleresearch.org
BLANK
Notes
This report was completed in late November 2012, and the costs, benefits, estimates, and
findings shown throughout this report, including sections, appendixes, tables, figures
and boxes are based, except when otherwise noted, on information that was available by
that date.
Numbers in the text and tables may not add up to totals because of rounding.
Unless otherwise indicated, years referred to in this report are federal fiscal years (which
run from October 1 to September 30).
Apple users, specifically iPhones and iPads may observe problems viewing parts of this
report, including tables, figures and boxes. If you are unable to view this PDF clearly on
an Apple device, please try it on a PC.
The Military Resale and MWR Center for Research appreciates the assistance of the
Armed Forces Marketing Council and Executive Business Media for providing source
documents for this report.
Supplemental data for the analysis in this report are available on the Military Resale and
MWR Center for Research's website (www.resaleresearch.org)
BLANK
Preface
T
he military resale system has traditionally been defended along compassionate and
mission grounds. That is, these programs are essential to care for our military personnel and
their families and represent a reciprocal commitment on the part of the American people to
recognize the service of our men and women in uniform. Further, these programs are
integral to the Department of Defense mission, providing goods and services globally,
wherever military personnel serve, that directly contributes to National security mission
accomplishment along with being integral components of the military basing infrastructure.
Government program funding including the Defense budget is undergoing increasing
scrutiny. Federal programs are competing for resources. In order to defend programs in this
austere and competitive environment, these programs must be justified and presented on the
economic merits as well as on compassionate and mission-contribution merits.
This report demonstrates that the military resale system makes tremendous contributions to
service men and women and their families, the Department of Defense and the United States
of America on an economic basis as well as fulfilling a vital role in caring for our military
people and contributing the National security mission.
It is a system that works. It provides tremendous value to patrons and taxpayers alike and
demonstrates what can be done when the best of government comes together with the best of
the private sector to provide for the best people in the world—the United States military.
6
CONTENTS
Contents
Introduction ....................................................................................................................... 14
Executive Summary ................................................................................................. 14
1
System Scope and Contributions ....................................................................................... 17
2
Providing a Major Economic Return To The Nation and To DoD........................................ 33
The Military Resale System ..................................................................................... 18
Patronage .................................................................................................... 20
Commissaries .............................................................................................. 20
Inherently Efficient ...................................................................................... 22
DeCA Cost Cutting Initiatives ....................................................................... 23
Exchanges ............................................................................................................... 25
Major Contribution to National Security ................................................................. 26
Proportionality ........................................................................................................ 27
Budget Totals ......................................................................................................... 27
Ecology and Equilibrium .......................................................................................... 29
Shareholder Equity .................................................................................................. 31
Contrast In Federal Funding .................................................................................... 32
Summary................................................................................................................. 33
Consumer Savings ................................................................................................... 37
Patron Savings Computation Methodology .................................................. 37
SNAP and WIC ......................................................................................................... 38
Cost of Living Allowance Savings ............................................................................. 38
State, Local, Foreign Sales Taxes ............................................................................. 40
State Tax Benefits From DoD ....................................................................... 40
Resale System Salaries ............................................................................................ 42
Defense Transportation System .............................................................................. 43
Construction Jobs .................................................................................................... 43
Foreign Government Offsets ................................................................................... 44
Supporting Industry Jobs ......................................................................................... 44
Resale Employee Federal Income Tax ...................................................................... 44
The Military Resale and MWR Center For Research
7
CONTENTS
Industry Employee Federal Income Tax ................................................................... 45
Military Family Salaries ........................................................................................... 45
Export Value From Sale of U.S. Made Products Overseas ........................................ 45
Treasury Fund Balance ............................................................................................ 45
Surcharge Trust Fund .............................................................................................. 46
Support Services ..................................................................................................... 46
National Industries For The Blind & Ability One ....................................................... 46
Retirement Benefits ................................................................................................ 47
Health Care Benefits ............................................................................................... 47
Military Star Card .................................................................................................... 47
Losing Or Marginal Operations To Support Defense Mission ................................... 47
Contingency Operations .......................................................................................... 47
Contingency Telecommunications ........................................................................... 48
Community Support (MWR) Funding ...................................................................... 48
Community Support (MWR) Salaries ....................................................................... 49
Community Support (MWR) Construction Jobs ....................................................... 49
3
Accountability & Oversight ................................................................................................ 50
4
Socio-Economic & Human Capital Benefits ........................................................................ 52
Accountability ......................................................................................................... 50
Oversight ................................................................................................................ 50
Ability One .............................................................................................................. 52
Human Capital Retention Value & Impact on Military Pay Accounts ........................ 52
Retention Cost Model ............................................................................................. 54
Avoided Cost & Human Capital Retention Value Model ............................... 54
Veteran Hiring ......................................................................................................... 54
Diversity and Disability Hiring .................................................................................. 55
Green Initiatives ...................................................................................................... 55
Commissaries .............................................................................................. 55
Exchanges.................................................................................................... 56
NEXCOM...................................................................................................... 57
8
CONTENTS
A
B
C
D
E
Analysis of Impact of CBO Recommendation to Consolidate the Department of Defense's
Retail Activities and Provide a Grocery Allowance to Service Members ............................ 58
Summary................................................................................................................. 58
CBO Option 6 Effects ............................................................................................... 59
Service Members and Families .................................................................... 59
Department of Defense Impact of CBO Recommendation ........................... 61
National Impact of the CBO Recommendation ............................................ 62
Major Components of CBO Recommendation Impact ............................................. 64
Exchange Consolidation ............................................................................... 64
Commissary and Exchange Consolidation .................................................... 64
Improving Efficiency and Effectiveness of the Resale Authorities................. 65
Personnel Systems....................................................................................... 65
Commissary and Exchange Pricing ............................................................... 65
Commissary and Exchange Merchandise ..................................................... 65
Privatization / Contracting Out .................................................................... 67
Text of CBO Recommendation on Reducing The Deficit .................................................... 69
The Commissary Surcharge ................................................................................................ 71
Summary................................................................................................................. 71
Current Law Applicable to Surcharge ...................................................................... 72
Status of Non-Appropriated Fund Activities ...................................................................... 73
History ............................................................................................................................... 79
Exchanges ............................................................................................................... 79
Exchanges and Commissaries Share a Common Beginning ...................................... 80
AAFES...................................................................................................................... 82
NEXCOM & MCX ..................................................................................................... 83
Marine Corps .......................................................................................................... 84
Marine Corps Organizational Change........................................................... 85
MCX Since 2003 ........................................................................................... 86
9
CONTENTS
F
G
H
I
J
Appropriations Descriptions .............................................................................................. 87
State Taxation Tables ......................................................................................................... 88
Market Share Comparisons ................................................................................................ 94
Bibliography ....................................................................................................................... 97
Congressional Testimony ........................................................................................ 97
Congressional Studies ............................................................................................. 97
Applicable Federal Acquisition Regulations ............................................................. 97
Administrative Oversight....................................................................................... 101
Stewardship, Regulatory Compliance, Financial and Statutory .............................. 101
Stewardship and Regulatory Compliance .............................................................. 103
DoD Guidance ....................................................................................................... 103
Consolidation Studies ............................................................................................ 105
Other Documents & Sources ................................................................................. 105
Glossary ........................................................................................................................... 111
10 CONTENTS
Tables
Table 1-1. ................................................................................................................................................. 19
Force Structure of U.S. Armed Services
Table 1-2. ................................................................................................................................................. 20
DeCA Visits and Coupon Redemption
Table 1-3. ................................................................................................................................................. 22
Defense Commissary Agency (DeCA) Profile
Table 1-4. ................................................................................................................................................. 29
Resale System Relation to Department of Defense Budget
Top Line 2012 - $553 Billion Requested
Table 1-5. ................................................................................................................................................. 30
Military Family Support & Health Care Programs (in billions)
Table 1-6. ................................................................................................................................................. 32
Direct Resale System Employment
Table 1-7. ................................................................................................................................................. 31
Foreign National Severance Pay
Table 1-8. ................................................................................................................................................. 32
Residual Stakeholder Equity of Contributed Capital Sacrificed
Table 1-9. ................................................................................................................................................. 32
Residual Stakeholder Equity of Contributed Capital Required for New Construction to Accommodate
Realignments
Table 1-10. ............................................................................................................................................... 32
Federal Bailout Funding
Table 2-1. ................................................................................................................................................. 34
Benefits to Military Families, DoD, and the Nation
Table 2-2. ................................................................................................................................................. 35
Return On Investment To Personnel and Families
Table 2-3. ................................................................................................................................................. 36
Return On Investment To Department of Defense (DoD)
Table 2-4. ................................................................................................................................................. 37
Net Cash Requirements of Resale System
11 CONTENTS
Table 2-5. ................................................................................................................................................. 39
SNAP, WIC and Coupons Trends in Commissaries
Table 2-6. ................................................................................................................................................. 41
CONUS Locations With Highest Number of Active Duty Troops
Table 2-7. ................................................................................................................................................. 42
Tax Base
Table 2-8. ................................................................................................................................................. 44
Resale Employee Federal Income Tax
Table 4-1. ................................................................................................................................................. 52
Small Business Contracts
Table 4-2. ................................................................................................................................................. 54
Personnel Training & Acquisition Costs
Table A-1. ................................................................................................................................................ 60
Impact of CBO Option 6 on Service Members and Families
Table A-2. ................................................................................................................................................ 61
Impact of CBO Option 6 on Benefits to DoD
Table A-3. ................................................................................................................................................ 63
Impact of CBO Option 6 on the Nation
Table B-1. ................................................................................................................................................. 70
Discretionary Spending - Option 6
Table G-1. ................................................................................................................................................ 89
State Sales Tax Tables - Impact of Local Taxes & Tables
Table G-2. ................................................................................................................................................ 90
Alcohol State Sales Tax Table
Table G-3. ................................................................................................................................................ 91
Tobacco Products State Sales Tax Table
Table G-4. ................................................................................................................................................ 92
State Motor Fuels Tax Rates Table
Table G-5. ................................................................................................................................................ 93
State Income Tax Rate Table
Table H-1. ................................................................................................................................................ 94
Market Share - General Merchandisers 2011
12 CONTENTS
Table H-2. ................................................................................................................................................ 94
Food and Drug
Table H-3. ................................................................................................................................................ 95
Retailer and Wholesaler Rankings by Sales
Table H-4. ................................................................................................................................................ 96
Top 10 Specialty Retail (Known as category killers)
Table H-5. ................................................................................................................................................ 96
Specialty Retailers, Apparel
Figures
Figure 1-1. ................................................................................................................................................ 17
The Department of Defense (DoD) Resale Communit
Figure 1-2. ................................................................................................................................................ 18
Military Resale System Patronage
Figure 1-3. ................................................................................................................................................ 20
The Department of Defense (DoD) Resale Community
Figure 1-4. ................................................................................................................................................ 21
DeCA Appropriations including Stock Fund Support
Figure 1-5. ................................................................................................................................................ 21
DeCA Sales
Figure 1-6. ................................................................................................................................................ 23
DeCA Outsourced Distribution -Appropriated Stock Fund
Figure 1-7. ................................................................................................................................................ 24
DeCA Budget Trajectory With & Without Efficiency Initiatives
13 CONTENTS
Boxes
Box E-1. .................................................................................................................................................... 14
New Math
Box E-2. .................................................................................................................................................... 16
Military Resale and MWR Center for Research
Box 1-1..................................................................................................................................................... 28
Appropriation Descriptions, Obligation & Outlay Attributes
Box 2-1..................................................................................................................................................... 34
Cost Benefit Ratio - Return on Investment to the Nation
Box 2-2..................................................................................................................................................... 35
Cost Benefit Ratio - Return on Investment to Personnel and Families
Box 2-3..................................................................................................................................................... 36
Cost Benefit Ratio - Return on Investment to Department of Defense
Box D-1. ................................................................................................................................................... 74
Testimony - Louis Spector
14 EXECUTIVE SUMMARY
Introduction
Executive Summary
— the bottom line up front
T
he DOD resale system represents a blend of
public and private sector management practices.
The DoD operates hundreds of exchange and
commissary outlets at installations around the
globe producing $18 billion a year in revenue and
provides goods at affordable prices , no matter
where military personnel are stationed.
Appropriations are provided to support
transportation of products, provide base support
and, for commissaries, to pay for operating costs
so that products can be sold at cost to the patrons.
The resale system provides $23.689 billion in
economic benefit to the Nation or a $20.36 return
for every $1.00 of appropriations used.
This system produces $10.97 billion in economic
benefit to the Department of Defense for the
$1.757 billion provided in taxpayer support, a
$6.24 return for every $1.00 of appropriations
used.
This includes $10.51 billion in economic benefit
to military service members and families for a
$5.97 return for every dollar of appropriations
used.
When direct cash contributions by the system to
the Government are measured against the
appropriations spent, the system yields $373
million per year in proceeds to the Government.
Box E-1.
New Math
When it comes to funding, most government
programs know only how to add. The
military resale system is business-based
and commerce-oriented and therefore
knows how to subtract yet multiply while
doing more with less.
Military personnel are shareholders in their own
resale programs. A portion of their paid
transaction is allocated to recapitalization, saving
the taxpayer money and building military family
equity. Over the past 20 years, this investment in
facility and other capital investments has
amounted to $12.5 billion. The total amount of
shareholder equity in the system is estimated at
$6.5 billion.
Costs for these programs have been kept constant
or dropped in real terms in the past ten years
while costs of other DoD programs have doubled
and even tripled. Health care in DoD costs 28.8
times what the resale system costs taxpayers and
represents only 2.2 percent of expenditures for
health care and family support services. The
basic allowance for housing is 13 times higher
than the appropriation for the military resale
system. Yet, commissaries and
exchanges rank near the top for reasons military
personnel stay in the service.
A study by the Congressional Budget Office
concluded that DoD could realize an $9.1 billion
reduction over ten years through organizational
changes to the system including price increases
and providing an allowance to certain lower
ranking military personnel to compensate for the
loss of the commissary benefit. The CBO report
did not consider a number of factors including a
decreased baseline that greatly underestimates the
contribution that the resale system makes to the
Department of Defense, military personnel and
the Nation, and would force the DoD to forego
nearly $41 billion in benefits over the same ten
years while decreasing benefits to the Nation
accruing from the operation of these programs by
nearly $86 billion. An extensive discussion of the
impact of the CBO recommendations is at
Appendix A. Further, entire classes of
beneficiaries are excluded from this Department
of Defense benefit. No benefit would be provided
to retirees, Medal of Honor recipients, disabled
Veterans, and other current beneficiaries.
The resale system is the only benefit provided by
DoD to its personnel and their families wherein
costs to the Government decline the more it is
used due to economies of scale gained by this
increased usage.
Defense policy-makers would be well-advised to
carefully consider any reductions to this program
as it is the seed corn that sustains much of the
Defense personnel compensation package and the
base and logistics infrastructure.
Further, the resale system:
■ Is a powerful engine behind the U.S.
economy, providing nearly $18 billion in
Gross domestic product.
■ Ranks at the top in accountability to patrons
and the taxpayers.
■ Is the only benefit provided by DoD to its
personnel and their families where costs to the
Government decline the more it is used.
■ Is one of very few Defense programs that is
fully accountable and that has a clean audit.
■ Is the largest employer of military families in
the world.
■ Creates thousands of American jobs and
markets billions of dollars worth of Americanmade product overseas.
■ Is the leading employer in the Nation for
Veterans.
■ Supports a multitude of benevolent causes and
is a leader in the Nation in small business
usage and employing disadvantaged including
the blind and disabled.
■ Is a leader in socio-economic and green
initiatives in the Government.
Box E-2.
Military Resale and MWR Center for Research
The Military Resale and
MWR Center for Research
is an open resource center
focused on the military
resale business channel.
The center is an additional resource to the
portfolio of communication and outreach
tools. The goal of the center is to provide a
single trusted source for information, reports,
studies and overall research on topics that
address retail trends in general and in
particular studies that are specifically directed
at the military business channel.
Compassion—Taking care of military families
stressed by ten years of two wars wherever they
serve.
Mission—Performing vital services with 2
levels of necessity—direct mission support and
providing a valuable non-pay compensation
benefit that keeps good people in military
service.
Economic—Providing a tremendous return on
investment to the Department of Defense,
military families and the taxpayer and the
Nation.
17 CHAPTER 1 - SYSTEM SCOPE AND CONTRIBUTIONS
CHAPTER
1
System Scope and Contributions
Figure 1-1.
The Military Resale System
The Military Resale System, which traces its
origins to the Revolutionary War, is operated by
the Defense Commissary Agency (DeCA), Army
and Air Force Exchange Service (AAFES), Navy
Exchange Service Command (NEXCOM), and
Marine Corps Exchange (MCX). They also work
collaboratively with the Veterans Canteen Service
of the Department of Veterans Affairs and the
Department of Homeland Security’s Coast Guard
MWR and exchange programs.
The resale system provides non-pay commissary
and exchange benefits by selling below market
price goods and services to Active Duty, Reserve
Component and Guard members; retirees, and
their families. The beneficiaries consistently rate
the commissary and exchange as top tier benefits,
following only military health care. The FY 2011
Defense appropriation totals $1.75 billion to
operate the commissary ($1.377 billion) and the
exchange ($0.311 billion) systems.
Figure 1-2.
Military Resale System Patronage
(Criteria established by US Congress)
Source: Military Resale Activities
DeCA operates 248 commissaries on military
installations worldwide that sell $6.05 billion of
groceries in FY 2012 at cost plus a five percent
surcharge. The commissary system is operated
with $1.377 billion of appropriated funds (APF)
and purchases are not subject to state or local
taxes. Under this operating model, commissary
shoppers save an average 31.5%.
programs ($133 million) and morale, welfare, and
recreation (MWR) activities ($303 million).
The three independent exchange systems
(AAFES, NEXCOM, MCX) operate 281 main
stores and 4,801 retail outlets on military
installations and at forward-deployed locations
(including ships). Because exchanges draw
relatively little APF support ($380 million),
customers get an average 23% discount. The
$11.9 billion of exchange goods and services are
sold at an average of 22% above cost (gross
margin) in order to create “nonappropriated
funds” to support $1.1 billion of exchange
operating expenses, plus generate a surplus of
$436 million to support exchange capital
The existing commissary and exchange systems
operate under different funding mechanisms.
Exchanges include retail, food and automotive
outlets, personal services, laundry/dry cleaning,
amusement and vending centers, lodges, motion
picture theaters, credit cards, Internet offerings,
and critical combat support operations.
The three exchange systems have annual sales
totaling approximately $12 billion. Exchanges
receive little direct appropriation; they rely on
sales revenue to cover most of their costs. A
relatively small portion of their costs, such as
expenses for transporting merchandise overseas,
is paid from appropriations elsewhere in the
defense budget. Appropriations levels for
exchanges are $311 million.
Table 1-1.
Force Structure of U.S. Armed Services
Active Duty
Numbers
Officers
Flag Officer
Colonel /Captain (O6)
LT Col /Commander (O5)
Major/Lt Commander (O4)
Captain/ Lieutenant (O3)
Lieutenant (O2)
Lieutenant/Ensign (O1)
Warrant Officer (all)
Total Officers
Enlisted
E-9
E-8
E-7
E-6
E-5
E-4
E-3
E-2
E-1
Total Enlisted
Total Active Duty
975
12,223
29,127
46,244
73,414
30,573
23,791
19,706
236,053
10,219
26,684
96,687
169,428
243,070
287,816
222,639
65,195
38,873
1,160,611
1,396,664
Reserve and National Guard
1,100,000
Retired
2,076,987
Family Members
9,073,000
Total Force Structure
13,396,651
Source: Department of Defense
Note: Approximately 50% of service members are married, but the percentage varies both rank and being officer
or enlisted. Junior enlisted are least likely to be married. That starts to increase at the E-4 and E-5 level. Officers
are more likely to be married, and again this increases with rank. This greatly affects member’s use of the
commissary and exchange benefits. Junior enlisted make far more use of the exchange than commissaries while
married personnel use both commissaries and exchanges.
Figure 1-3.
The retail system has long history borne out of the
need to support the troops no matter where
stationed around the world. Key to the mission
and system success is a single global pricing
strategy and as much as possible global shopping
experience and product availability.
Patronage
Congress establishes broad criteria for patronage,
with a total market of roughly 13 million people.
Commissaries
■ 7.9 million shoppers visit each month
purchasing $487 million in goods.
■ Over 96 million customer visits were made to
the commissary last year.
■ Those military families redeemed coupons
worth $112.7 million, presented food-stamps
totaling $87.8 million, and another $30
million in Women’s, Infants and Children
(WIC) Program coupons.
Table 1-2.
DeCA Visits and Coupon Redemption
The Defense Commissary Agency (DeCA)
operates a worldwide enterprise of 248
commissary stores that sell brand name grocery
and household necessities to active duty military
personnel and their families. 2012 sales totaled
$6.05 billion. The commissary system is operated
entirely with appropriations, and goods are sold at
cost plus a 5 percent surcharge. This fiscal
structure is designed to save military families an
average of 30 percent below commercial grocery
chains and generates over $300 million annually
from customer surcharges to support capital
investment in store systems and shopping
facilities. In higher cost areas such as Hawaii,
savings average over 50 percent. The Defense
Commissary Agency at a glance:
Daily
Visits per Day
Sales per Day
Monthly
Shoppers per Month
Sales per Month
7,900,000
$487,000,000
Annual
Visits per Year
Coupons Redeemed
Food Stamps Redeemed
WIC Coupons Redeemed
96,000,000
$112,700,000
$87,800,000
$30,000,000
■ 260,000 patrons visit a commissary each day
buying over $16.5 million per day.
260,000
$16,500,000
Figure 1-4.
DeCA Appropriations
(millions of dollars)
Source: Defense Commissary Agency (DeCA)
Figure 1-5.
DeCA Sales
Table 1-3.
Defense Commissary Agency (DeCA) Profile
(Millions of dollars)
# of stores
% of
Stores
Estimated
sales
Estimated %
of sales
CONUS
# of stores
OCONUS
# of
stores
50 mil +
30-50 mil
10-30 mil
0-10 mill
34
43
93
78
13.7
17.3
37.5
31.4
1,934
1,720
1,860
390
28.6
28.8
31.2
6.5
29
34
71
44
5
9
22
34
TOTAL
248
178
70
Sales
5,904
Inherently Efficient
Because of budget pressure, no Defense
organization is immune from scrutiny and resale
agencies have already participated in these cost
reductions by greatly realized operating
efficiencies.
In austere budget times, it is imperative that every
aspect and entity of the Department of Defense be
managed in an efficient and effective manner.
The military resale system is inherently efficient
and every year steps forward with increased
efficiencies for the Department. These
operations are business-based with their supply
chain closely aligned with the private sector. This
supply chain therefore has efficient private sector
practices built in.
At every level, from the headquarters offices of
the resale agencies down to the store and
department level, management and employees are
held accountable and their decisions are designed
to produce maximum efficiency because their
report card is market-driven. , Examples of this
efficiency can be found throughout the resale
system. Exchanges have greatly reduced costs
and overhead and have been able to keep prices
low and earnings high while maintaining a
complex and difficult mission of meeting the
needs of millions of patrons at home and
abroad—and in many dangerous combat areas.
For example, in 1991, commissaries that were
operated by different branches of the Armed
Services were consolidated under the Defense
Commissary Agency, yielding hundreds of
millions of dollars in annual savings. Also, in
1994, distribution for commissaries was
outsourced to the private sector with nearly $500
million in appropriated funded stock funds being
returned to the Department of Defense supply
system of “Stock Funds”. Further, exchanges
have streamlined headquarters operations and
supply chain management though business-based
decisions on in sourcing and out-sourcing as
appropriate.
Figure 1-6.
DeCA Outsourced Distribution Appropriated Stock Fund Savings
(Inventory Requirements)
A key DOD personnel initiative is replace
military personnel whenever possible with
civilian personnel. DeCA and the exchanges have
been solid contributors to this process, with
savings estimated $36.6 million.
DeCA Cost Cutting Initiatives
If DeCA had not realized efficiencies, it’s
appropriation requirement trajectory would have
taken it over $2 billion. Instead, its costs are under
$1.4 billion.
Source: Military Resale Activities
As an organization, DeCA is a model of
departmental efficiencies and with a proven
history of taking cost out of the commissary
system without decreasing the value of the benefit
provided. Since its activation DeCA’s operating
costs have been reduced by over $700 million
annually and its workforce was reduced by over
6,600 full time equivalent positions. When
measured in constant dollars, DeCA’s operating
costs are only slightly more than one-half of what
they were when the Agency activated on October
1, 1991. DeCA’s efficiency track record continues
with an FY 2013 budget submission of $1,371.6
million, which is actually slightly lower, in real
dollars, than last year.
Most of these have an impact on annual costs.
DeCA went to its current full reliance on
commercial distributors in1997. This also saves
Treasury $10,000,000 per year in avoided interest
costs associated with financing the DeCA
inventory.
From the establishment of the Agency on October
1, 1991 DeCA has been and remains a good
steward of the taxpayers’ dollars. DeCA
continually strives to improve processes and
reduce costs while maintaining or improving the
benefit delivered to military service members and
their families. The creation of DeCA gave far
greater visibility to the cost of the commissary
system and therefore facilitating operating
improvements. A total operating cost savings of
$702M has been realized beginning in FY 1992
through FY 2012.
■ The consolidation of the four Services
commissary systems realized an immediate
savings of $50M in FY 1992.
■ Military billet to civilian employee
conversions have realized $36.6M in savings.
■ Reorganization efforts such as DeCA Region
restructuring from seven (7) regions to three
(3), consolidating support functions at HQ,
and reorganizing HQ staff resulted in savings
of $286.7M and 822 FTEs.
Figure 1-7.
DeCA Budget Trajectory With & Without Efficiency Initiatives
■ DeCA’s operating efficiencies and initiatives
such as the transfer of overseas distribution
and produce procurement functions from
Defense Logistics Agency (DLA); frequent
delivery systems and direct store delivery;
labor savings associated with a central meat
processing plant in Europe; second destination
transportation reductions; the standardization
of processes; case ready meat; delivery ticket
invoicing; and resale ordering agreements
produced cumulative savings of $152M.
■ Probably the biggest aspect of vendor support
is in the distribution system. In the
continental United States, DeCA uses
commercial distributors. Before consolidation
the individual Services used different systems,
including extensive DLA operations. As a
result of consolidation the Department has
shed the expense of owning its own
distribution system. This has allowed DLA
to: shrink its operations and permit a massive
$500,000,000 one-time reduction in inventory
investment which was returned to the Defense
Working Capital Fund (WCF). Thus the
commissaries adapted the best of commercial
supply chain systems. This inventory
reduction is a common supply chain
improvement, and positively affects the
balance sheet.
■ General and administration efficiencies reflect
cost reductions for base operating support and
monies paid for services to DLA, the Defense
Finance and Accounting Services (DFAS), the
Defense Information Services Agency
(DISA), and the Defense Transportation
System produced savings of $91.1M.
■ Workforce restructuring efforts such as A-76,
in-sourcing, store level most efficient
organization (MEO), store associates job
classification-workforce flexibility, and
business process reengineering of the resale
accounting function saved $76.1M.
■ As a result of the Secretary of Defense savings
initiative in FY 2011, DeCA reduced $10M
and 89 FTEs in savings, all above store level.
The highlight of this effort was the
reorganization of three store regions into one
Store Operations Group, further reducing
overhead management structure.
In addition to the efforts above, BRAC and other
store closures over the years have resulted in
reductions totaling $200.6M and 4,181 FTEs.
Adapting the common commercial practice of
Delivery Ticket Invoicing to reduce bill paying
costs and working with DFAS. Using the PPA
rules to reduce both DeCA’s and DFAS cost by
combining invoice line items with multiple
payment dates to use the earliest payment date
following guidance in 5 CFR 1315.
Other cost cutting measure include; a 2011
reorganization, using electronic shelf labels, and
using DLA to provide Human Resources support
instead of doing this in-house
DeCA streamlined its solid waste infrastructure at
91 commissaries in the United States by reducing
the number of refuse containers and the frequency
of pickups. Adding smaller stores to the
cardboard recycling program (in lieu of
compacting/disposing) saved $700,000 in disposal
cost.
Exchanges
The three separate exchange systems operate
retail, food and service facilities on installations in
the United States and 31 foreign countries. They
provide a full range of quality merchandise and
services at uniformly low prices to the military
community regardless of where they are stationed
throughout the world.
Worldwide exchange systems that operate 281
main retail stores, catalogs, and web sites that sell
a wide range of merchandise and services to the
military community. The exchanges also provide
resale activities to support military missions on
board 158 ships and in 73 contingency operations,
including deployed locations and disaster relief
areas. The Army and Air Force Exchange Service
(AAFES), the Navy Exchange Service Command
(NEXCOM), and the Marine Corps Exchange
(MCX) are operated predominantly with selfgenerated nonappropriated fund resources;
Military Service appropriations are only
authorized for limited purposes. The exchanges
this past year generated an average 24 percent
savings to the customer, excluding tax, and
produce earnings at a level set by their Military
Service. These earnings sustain exchange
capitalization requirements and last year also
provided over $300 million in dividends to help
finance Service MWR programs. The triad of
commissary, exchange and MWR programs
provides an array of valuable benefits at relatively
low costs to both the user and the American
taxpayer.
AAFES is a military organization with a retail
mission; responsible for more than 2,970 facilities
in 31 countries, 5 U.S. territories, and all 50
states. We operate 157 Main Stores and more
than 2,000 fast food restaurants, including 45
brand names and 8 in-house brands. AAFES also
provides military communities with Express
convenience stores, movie theaters, car care
centers, personal services (Beauty and Barber
shops), professional healthcare (optical and dental
services), specialty stores and Military Clothing
stores on installations worldwide.
For patrons off the installation, AAFES partners
with other popular retailers through online and
local concessions operations to provide many
additional products and services above and
beyond the traditional offerings.
Remote corners of the installation are served by
Troop Stores, which have a customized
assortment tailored with unique products to
support the local mission.
There are over 1,200 NEXCOM service
operations such as gas stations, food outlets,
laundry/dry cleaning, barber/beauty salons, flower
shops, tailor shops, optical and optometry services
and complete vending services.
The Marine Corps Exchange (MCX) is similar to
the other exchange systems in operations and nonappropriated funding. However, the construct of
the organization is unique to the Marine Corps.
AAFES and NEXCOM are independent
organizations that pay a dividend to MWR
programs. The MCX is part of a broader support
organization called Marine Corps Community
Services (MCCS), which includes the Marine
Corps Exchange, MWR, Family Services, and
Child Care, and revenues are retained at the
installations to support MCCS requirements. As a
consolidated organization, MCCS shares common
support operations in the areas of construction,
finance, IT, HR and procurement, leveraging
efficiencies and reducing redundancies.
MCX partners with AAFES to provide online
shopping via the Exchange Catalog Online.
Additionally, AAFES provides Exchange
Services to Marines and families in Okinawa,
Japan, paying MCX a dividend to support the
quality of life programs aboard the installations in
Okinawa. In theater, MCX operates Exchanges
utilizing the AAFES infrastructure to order
product.
Military exchanges are categorized as joint
military activities. They are predominantly selffunded and pay operating costs from revenues.
Exchanges return earnings to customers through
payments to MWR activities and investments in
new or renovated exchange facilities. Because
exchanges receive only a limited amount of
taxpayer dollars, they are listed as a
nonappropriated (NAF) fund activity; that is they
do not rely on taxpayer dollars for direct
operations. The subtle difference is that a different
set of laws and regulations govern their internal
operations. Exchange sales total about $12 billion.
When military members deploy to remote
locations around the world, the exchanges are
there with them offering products and services to
the troops. Only exchanges operate retail outlets
in deployed areas. The exchanges also manage the
sale of military clothing and the operations of
retail stores on ships afloat.
Sales pay for civilian employee salaries,
merchandise inventory investment, most
distribution and utility costs and capital
expenditures for equipment, vehicles and
facilities. The limited appropriated fund support
is received for paying some overseas
transportation costs; utilities overseas and in
remote areas along with common services such as
fire and police protection.
Major Contribution to National
Security
■ The military resale system is so ingrained in
OSD fabric and cannot be extricated without
a major cost.
■ It adapts to force structure and basing changes
to the military at a cost to the capital
investments that the patrons have made.
■ It underpins transportation system, aiding in
economies of scale for the shipment of all
DoD products to overseas locations.
■ The system helps military living off base to
maintain ties with installations.
■ The resale system support deployed forces,
often in forward combat areas with sites in
theater. Many workers in the resale system
have deployed in harm's way. This includes
tactical exchanges and ship stores ashore and
afloat for our forward deployed Navy folks.
■ The system has to be all things to all people
worldwide 24-7. It is a key element of
installation support and a focal point for
community well being.
■ The resale benefit helps keep good people in
the service aiding in retention—no small
contribution considering that it costs $150,000
to $200,000 to train a troop and over $1
million for pilots, doctors, and other
specialists.
Proportionality
Resale program appropriated fund expense is a
small fraction of the budget for military personnel
and the overall Defense budget.
The Department of Defense spends nearly
$141.8billion per year on personnel. This
includes base and incentive pay, health care,
retirement, housing allowances and other forms of
benefits and compensation to include
appropriations to support resale programs.
Defense health care costs $50.7 billion annually
or 37.8 times the DeCA appropriation of $1.377
billion , or 28.8 times what the resale system cost
at $1.757 billion (FY 2011). From 2008 to the
2012 enacted appropriations, Defense spending
has increased from $378.986 billion to $530.625
billion, or 42.6%. But there has been virtually no
growth in resale appropriations—in fact negative
growth considering inflation has occurred in the
same time frame.
Further, appropriations as an operating expense of
the resale system has decreased nearly 50 percent
over the past 10 years.
Of all these benefits, only the resale system costs
DoD less the more it is used and, in terms of
compensation, value to families and the taxpayer
actually increases with usage. The more the retail
system is used the broader the base to spread its
overhead costs versus simply growing in cost the
more it is used.
DeCA is only 0.3% of the overall DOD budget at
$1.37 billion.
■ Military Personnel-- This is the second
largest part of the DOD budget at $135.181
billion or about 25.7% of the DOD budget.
DeCA is just over $1.3 billion or about 1% of
this budget line item.
■ Family Support & Health Care Total-- These
have a total cost of $80.3 billion represent
15.26% of the DOD budget and larger than
Research, Development, Testing & Evaluation
(RDT&E). Commissaries are 1.62% of
military family and health support total. This
is 61.76 times more than DeCA. The retail
system, both commissaries and exchanges
would be equal about 2.2% of these items.
■ Basic Allowance for Housing (BAH)-- At
$19.7 billion, this equals just over 3.7% of the
DOD budget. DeCA is equal to 6.6% of this
item, which is roughly 15 times larger.
Budget Totals
■ Family Support Programs, cover a number of
programs vital to morale and welfare of
members and their families and is reflective of
an all volunteer force
■ Child Care and Youth Programs, covers both
child care and youth development such child
development centers.
■ Warfighter & Family Services, includes
funding Family Support Centers and
counseling for Active Duty, Guard and
Reserve members and their families..
■ Commissaries.
■ DOD Educational Activity (DODEA) is the
K-12 school system is run by DOD, primarily
in OCONUS locations. This also includes the
school lunch program which gets it
administrative support and some food items
from the Exchange syste
Box 1-1.
Appropriation Descriptions, Obligation & Outlay Attributes
■ Military Personnel - Includes base pay, special and incentive pays, housing and cost of living
allowances and Permanent Change of Station (PCS). Outlay attributes, the vast bulk of outlays
occur in current fiscal year. Some bonuses and Permanent Change of Station (PCS) moves tail
out over several years.
■ Operations & Maintenance (O&M) - This includes civilian salaries and benefits, regardless of
where employed, subsistence, fuel, base operations (utilities and building maintenance), very
fast outlay rate, must be obligated with current FY most outlays within the FY, most expended
quickly.
■ Procurement - This pays for major weapons systems (ships, planes, armored vehicles, radar and
missiles), other non-tactical equipment such as HUMMVE, equipment needed for base
operations and weapons repair.
■ Research, Development, Testing & Evaluation - Includes testing and evaluations of new
weapons and technologies.
■ Military Construction (MILCON) - This covers airfields, docks, barracks and other housing,
commissaries and maintenance facilities, and is paid out over several years reflecting the
lengthy construction process. The MilCon outlay rate is partially dependent on state of
economy, a poor economy accelerates the outlay rate as Government construction becomes a
bigger part of the market.
■ Procurement, RDT&E, Military Construction – All have the common attributes of taking
longer to obligate and have much longer outlay rates, generally many years.
DeCA is part of the revolving funds and is shown
at ‘gross cost” including transportation. It is only
0.3% of the overall DOD budget. For the
exchanges other support, such as transportation
and base operations is only a very small part of
Operations & Maintenance (O&M) accounts. The
actual payments to transportation service
providers for SDT are made by the Defense
Transportation System.
Medical care cuts across several budget
categories. It represents the Defense Health
program, Military personnel appropriation for
military medical staff, Military Construction for
new facilities and the Health Care Accrual for
accrual contribution for future Medicare eligible
personnel. Also included are salaries for civilian
doctors, nurses and other medical personnel,
medical equipment and supplies and even hospital
food.
Basic Allowance for Housing- US based
allowance prescribed by geographic duty station,
pay grade and dependency status. It provides
uniformed Service members equitable housing
compensation based on housing costs in local
civilian housing markets within the United States
when government quarters are not provided. A
uniformed service member stationed outside the
US, including US territories and possessions, not
furnished government housing is eligible for
Overseas Housing Allowance (OHA).
Another way to look at the retail system and its
cost is its relation to the DOD budget as whole,
and various military personnel and military family
related components of the budget. The more the
retail system is used the broader the base to
spread its overhead costs versus simply growing
in cost the more it is used.
Table 1-4.
Resale System Relation to
Department of Defense Budget
Top Line 2012 - $553 Billion
Requested
(Billions of dollars)
2012 Enacted
Military Personnel
O&M
Procurement
RDT&E
Military Construction
Family Housing
Revolving Funds
141,818.4
197,213.5
104,527.4
71,375.7
11,366.7
1,682.9
2,640.1
TOTAL
530,624.7
Resale System
% DOD Budget
1,757.3
0.3%
Unified Medical
% DOD Budget
52,800.0
9.95%
Source: DoD Comptrollers Budgets
Ecology and Equilibrium
Military resale programs are integral parts of the
military community support structure. In
domestic, overseas and forward deployed areas,
they are a vital part of the base infrastructure
footprint.
Over the past 150 years, equilibrium has been
established in the form of a shared partnership
between the taxpayer, the management, the
supporting industry and the patrons. This formula
has sustained the system and produced the
significant returns to the Department and the
Nation discussed in this report.
Further, there is a well-established synergy among
the components of the on-base military commerce
and community support structure with exchanges,
commissaries and morale, welfare and recreation
programs interacting with each other to provide
products and services and contribute and sustain
the base community support infrastructure and
forward deployed services. Commissaries attract
patrons, exchanges provide goods and services,
and morale, welfare and recreation program
benefit from this commerce and, in turn, yield
valuable returns to the taxpayers as well.
Military bases are consumers of resources and the
consumption of these resources yields a valuable
commodity—National defense. Yet, military
resale programs along with business-based
morale, welfare and recreation programs represent
the only programs on military bases where
commerce takes place—that is, consumers pay for
goods and services instead of goods and services
being financed totally by the taxpayer. This
commerce provides great relief to the DoD budget
as demonstrated in the high returns documented in
this report.
Table 1-5.
Military Family Support & Health Care Programs (in billions)
(billions of dollars)
FY 2010
FY 2011
Child care
MWR
War Fighter
Commissary (DeCA)
DODEA
Military Spouses
Sub-Total Family Support Programs
BAH
Family Housing
Unified Medical
1.1
1.8
1.2
1.3
2.1
0.1
7.6
19.0
2.3
48.5
1.1
1.8
1.5
1.3
2.3
0.1
8.1
19.7
1.8
50.7
TOTAL
77.4
80.3
Source: DOD Comptroller Budgets
Notes: The DOD budget total and all computations in this section are done without the Overseas Contingency
Operations (OCO) amounts added.
a. Family Support Programs, covers a number of programs vital to morale and welfare of members and their
families and is reflective of an all volunteer force
b. Child Care and Youth Programs, covers both child care and youth development such child development
centers.
c. Warfighter & Family Services, includes funding Family Support Centers and counseling for Active Duty,
Guard and Reserve members and their families..
d. Commissaries, this shows where DeCA fits within the larger budget picture.
e. DOD Educational Activity (DODEA) is the K-12 school system is run by DOD, primarily in OCONUS
locations. This also includes the school lunch program which gets it administrative support and some food items
from the Exchange system.
Further, stateside resale operations provide the
base for projecting products and services to
remote and overseas areas where there are no
affordable alternatives for military personnel and
families. This includes supply chain synergy and
continuity, economies of scale sustained by
stateside business volume, and a rotation base for
resale personnel so they do not have to spend their
entire careers in hardship areas.
It is a fragile formula that should not be tampered
with lightly. Drastic changes to one aspect,
appropriated fund support or outsourcing for
example, have major repercussions on the
systems’ ability to yield the economies that are so
vital to the Department of Defense and the Nation
as discussed in detail further in this report
Another key part of this equilibrium is the
philosophy and practice that has developed over
the years of a single global pricing strategy and
product availability strategy that has at it basic
tenet that name-brand recognizable Americanmade products are made available worldwide—
not matter where military people serve—and at
the same price. A Marine in Okinawa pays the
same for the same product as a Marine at Camp
Pendleton, Calif..
The ecology and equilibrium of the resale system
stems from its quasi-governmental nature wherein
it and enjoys the advantages of being inherently
governmental while employing business-based
best practices. This structure has been carefully
established over the years by Congress and the
Department of Defense through carefully
structured laws and regulations that have been
cited by the courts and have stood the test of time
as court challenges have yielded an affirmation of
this successful model.
Shareholder Equity
Military personnel are shareholders in their own
resale programs. A portion of their paid
transaction is allocated to recapitalization, saving
the taxpayer money and building military family
equity. Over the past 20 years, this investment in
facility and other capital investments has
amounted to $12.5 billion. The total amount of
shareholder equity in the system is estimated at
$6.5 billion.
And, although these facility investments become
assets of the U.S. Government upon completion,
the solider, airman, sailor and marine bears the
added burden of having to pay for the
depreciation of these assets and their replacement.
In many cases, they pay twice because facilities
are often forced to close at sites that have been
targeted for base closure for geo-strategic restationing.
Balance sheet type entries
■ Concomitant with the drawdown in forces
from overseas areas--a particularly heavy
burden with the collapse of the Soviet Union
and the relocation of forces from Europe—the
United States was obligated to pay severance
pay for foreign nationals who had been longtime employees of the nonappropriated fund
instrumentalities overseas. This cost was
borne by the shareholders of the system.
■ Value of construction and other assets over
the past 20 years. This includes buildings and
improvements, fixtures and equipment and
construction-in-progress. New construction
includes “green” design features, which will
reduce future operating costs.
Table 1-7 shows the costs of severance for foreign
nationals employed by exchanges.
Table 1-7.
Exchange Foreign National
Severance Cost
Exchanges
180,000,000
Table 1-6.
Direct Resale System Employment
TOTAL
Military Spouse
or Family
DeCA
AAFES
NEXCOM
MCX
TOTAL
15,276
34,723
14,000
3,508
67,507
4,125
(27%)
9,774
(28%)
3,640
(26%)
1,066
(30%)
18,605
(27%)
■ BRAC Related Impact. Table 1-8 shows the
financial contribution and impact of, both
closed but not fully depreciated facilities and
new or expanded facilities to reflect changed
deployment patterns. For example the new
exchange at Ft. Bliss cost about $100,000,000,
to accommodate a 60% population increase.
Source: DeCA & Exchange Reports
Table 1-10.
Federal Bailout Funding
Table 1-8.
Total Disbursement
Total Returned
Total Revenues *
Residual Stakeholder Equity of
Contributed Capital Sacrificed
TOTAL NET TO DATE
(November 2012)
DeCA
AAFES
NEXCOM
MCX
120.0
210.0
42.0
12.0
TOTAL
384.0
604.5
345.1
92.7
(166.8)
Notes: Total revenues from dividends, interest and
other fees.
Contrast In Federal Funding
Table 1-9.
Residual Stakeholder Equity of
Contributed Capital Required for
New Construction to Accommodate
Realignments
DeCA
Exchanges
84.0
184.8
TOTAL
268.8
Commissary, exchange and MWR facilities are
financed though contributions from the patrons
who pay a five percent surcharge at commissaries
and variable mark-ups at exchanges. The undepreciated value of these contributions is
approximately $6.5 billion.
By contrast, instead of contributing capital, many
U.S. businesses and Federal institutions such as
Fannie Mae and Freddie Mac were rewarded for
poor decisions by receiving funding to augment
shareholder equity. $604.5 billion was provided
to bailout the automobile and Federal and private
financial industry. As of November 12, 2012,
$166.8 billion was still owed to the U.S.
taxpayers.
33 CHAPTER 2 - PROVIDING A MAJOR ECONOMIC RETURN TO THE NATION AND TO DOD
CHAPTER
2
Providing a Major Economic Return To The Nation
and To DoD
Summary
T
he resale system makes many contributions
to the Department.
families for a $5.97 return for every dollar of
appropriations used.
economic benefit to the Department of Defense
for the $1.757 billion provided in taxpayer
support for a $6.24 return for every dollar of
appropriations used.
economic benefit to the Nation for a $20.36 return
for every dollar of appropriations used.
economic benefit to military service members and
When direct cash contributions by the system to
the Government are measured against the
appropriations spent, the system yields $373
million per year in proceeds in the form of
reduced outlays to the Government.
Table 2-1.
Benefits to Military Families, DoD, and the Nation
(Thousands of dollars)
Consumer Savings
SNAP & WIC
COLA Savings
State Sales Tax
Retail System Salaries
Industry Salaries
Federal Income Tax
Federal Income Tax Ind.
Export Value/IBP
DTS Savings
Construction
Foreign Government
Fund Balance
Surcharge Trust
Support Services
Military Star Card
Ability One
Retirement Benefits
Health Care
Loss/Marginal
Contingency Ops
Contingency Telcom
MWR Dividend
MWR Salaries
MWR Construction
TOTAL
Benefit
to
Families
4,583,967
37,669
738,848
902,055
884,310
750,000
0
0
0
0
0
0
0
0
0
400,000
0
0
89,000
881,000
0
250,000
330,000
660,000
0
Benefit
to
DoD
4,583,967
37,669
738,848
902,055
884,310
0
0
0
0
82,227
545,900
50,000
0
0
60,000
400,000
0
0
0
881,000
117,000
250,000
330,000
660,000
443,870
Benefit
to
Nation
4,583,967
37,669
738,848
902,055
4,630,000
1,450,000
333,090
261,000
3,736,203
82,227
1,856,060
50,000
198,551
350,000
60,000
400,000
129,000
130,000
89,000
881,000
117,000
250,000
330,000
1,650,000
443,870
10,506,849
10,966,846
23,689,540
Box 2-1.
Cost Benefit Ratio - Return on Investment to the Nation
≑
$23,689,540,000
$1,163,250,000
20.36 : 1
Table 2-2.
Return On Investment To Personnel and Families
(thousands of dollars)
Benefit to Members
and Families
DECA
AAFES
NEXCOM
MCX
TOTAL
Consumer Savings
SNAP & WIC
COLA Savings
State Sales Tax
Industry Salaries
Health Care
Military Star Card
Loss/Marginal
Contingency Telecom
MWR Dividend
MWR Salaries
1,906,240
37,669
180,000
212,000
396,890
246,750
0
0
420,000
0
0
0
1,978,560
0
449,940
508,000
350,500
345,000
61,143
400,000
354,000
250,000
261,100
453,420
553,900
0
100,780
138,475
123,920
116,250
20559
0
86,000
0
48,900
152,460
145,267
0
8,128
43,580
13,000
42,000
7298
0
21,000
0
20,000
54,120
4,583,967
37,669
738,848
902,055
884,310
750,000
89,000
400,000
881,000
250,000
330,000
660,000
TOTAL
3,399,549
5,411,663
1,341,244
354,393
10,506,849
Box 2-2.
Cost Benefit Ratio - Return on Investment to Personnel and Families
$10,506,849,000
$1,757,340,000
5.97 : 1
Table 2-3.
Return On Investment To Department of Defense (DoD)
Benefit to DoD
Consumer Savings
SNAP & WIC
COLA Savings
State Sales Tax
DTS Savings
Construction
Foreign Government
Support Services
Military Star Card
Loss/Marginal
Contingency Ops
Contingency Telecom
MWR Dividend
MWR Salaries
MWR Construction
TOTAL
DECA
AAFES
NEXCOM
MCX
TOTAL
1,906,240
37,669
180,000
212,000
396,890
33,500
200,000
50,000
0
0
420,000
0
0
0
0
0
1,978,560
0
449,940
508,000
350,500
34,500
300,000
0
60,000
400,000
354,000
117,000
250,000
261,100
453,420
360,740
553,900
0
100,780
138,475
123,920
14,227
18,000
0
0
0
86,000
0
0
48,900
152,460
83,130
145,267
0
8,128
43,580
13,000
0
27,900
0
0
0
21,000
0
0
20,000
54,120
0
4,583,967
37,669
738,848
902,055
884,310
82,227
545,900
50,000
60,000
400,000
881,000
117,000
250,000
330,000
660,000
443,870
3,436,299
5,877,760
1,319,792
332,995
10,966,846
Box 2-3.
Cost Benefit Ratio - Return on Investment to Department of Defense
$10,966,846,000
$1,757,340,000
6.24 : 1
Table 2-4.
Net Cash Requirements of Resale
System
COLA
Federal Income Tax Paid
MWR Dividend
Surcharge Trust Fund Balance
Contingency Operations
Total Cash Benefits
Retail System Appropriated Costs
Net Cash Benefit to Treasury
$738,848
594,090
330,000
350,000
117,000
$2,129,938
1,757,340
$372,598
Consumer Savings
$4,583,967,000
Military patrons save 32 percent at commissaries
and 24 percent at exchanges, according to
independent surveys and market basket analysis.
This equates to $4.584 billion per year in savings.
This is a direct compensation benefit to the
Department of Defense in that it extends the
household budgets of military, personnel, families
and retirees. If the benefit ceased to exist,
military total compensation would drop
correspondingly unless pay would be increased to
provide the funds needed to shop at more
expensive alternative sources.
These savings are particularly critical in high cost
areas such as overseas locations, Hawaii, Alaska,
and remote areas of the United States.
Patron Savings Computation
Methodology
Last fiscal year, the commissary provided direct
savings to commissary customers of $2.8 billion
dollars for a taxpayer cost of $1.34 billion. With
savings of 32 percent compared to civilian
supermarkets, patrons who consistently use their
commissary, can save nearly $4,500 per year for
an average family of four, over $2,800 for a
couple, and more than $1,500 for a single Service
member.
DeCA publishes savings annually based on the
annual Price Comparison Study computed each
September. DeCA uses a comprehensive
database of actual prices from commercial
grocery stores and commissaries to ascertain
savings for scannable items sold at locations
within the 48 contiguous states. This database
allows DeCA to compare prices of virtually every
item sold in all commissaries in the 48 contiguous
states to identical items sold in commercial
grocery stores (over 34,000 scanned grocery items
were used in the analysis). Tobacco products are
not included in this price comparison study.
Prices for all major supermarket chains and
certain supercenters are included in the scan data
comparison. As discount retailer data has not
been available in the food channel database,
DeCA has calculated a discount retailer factor to
capture impact on overall grocery industry
pricing.
For non-scannable items (fresh meat and fresh
produce) where it is not possible to use the
database described above, a price comparison is
obtained through a survey of the produce contract
core items and mandatory meat items at a
proportionate random sample of 30 commissaries
compared to two outside retailers for each
commissary location.
At locations in Alaska, Hawaii, Guam, Puerto
Rico, the Far East and Europe data for both
scannable and non-scannable items is collected
via a physical audit of over 200 items in Alaska
and Hawaii and over 180 items at 17
commissaries in the other areas. The physical
audit at the commissary and at local retailers near
selected commissaries is used because the
database for scannable items does not have
pricing for the retail stores in these areas.
The objective structure (how people spend their
money) of the "Market Basket" is taken from the
Consumer Expenditure Survey (CES), published
by the Bureau of Labor Statistics. DeCA uses the
necessary components of the latest published CES
survey to weight savings across seven major
categories; scan data categories include Dairy,
Grocery Food, Frozen Food, Grocery Non-food
and Health & Beauty Care. Non-scan categories
include fresh meat and produce.
Taxes for food and nonfood items are applied to
all retail sales prices; while surcharge is applied to
commissary prices. For scannable items an
average food and average nonfood sales tax rate
for the states/district in CONUS where there are
commissaries is used. For survey data the actual
state/country sales or value added tax is applied to
applicable retail store prices. DeCA’s sales
weightings by geographical areas are then
factored into the formula to arrive at a worldwide
savings percentage. As of September 2011
worldwide savings were calculated at 32 percent.
The exchanges employ an outside firm to conduct
a market basket survey to determine how much
money we are saving military families. The latest
results show customers save an average of 24
percent below commercial retail prices, not
including sales tax.
SNAP and WIC
$37,669,000
Supplemental Nutrition Assistance Program
(SNAP) and Women, Infants & Children (WIC)
are separate payment methods and part of DeCA’s
sales. The DeCA saving can be considered an
expansion of these vital programs. In 2011
redemptions totaled $117,716,020, thus with the
32% saving those programs had an additional
$37,669,126 in value to their beneficiaries.
There has been a near 300 percent increase in the
amount of food stamps that have been redeemed
at military commissaries since 2007. Military
families also qualify for Women, Infant and
Children subsidies.
Discount rates at military resale outlets greatly
extend the purchasing power of these programs as
patrons redeem these benefits at lower cost.
SNAP redemptions have greatly increased.
DeCA does not track who is using SNAP (Active,
Guard, Reserve or retired) but believes the affect
of the economy on active duty spouse losing a job
off base and the same is true for Guard, Reserve
and retired have caused the greatly increased
redemptions.
The exchanges do not qualify to accept SNAP or
WIC, as each authorized store for these programs
must have a recognized grocery department.
Cost of Living Allowance Savings
$738,848,000
The Overseas Cost of Living Allowance (COLA)
is a non-taxable allowance designed to offset the
higher overseas prices of non-housing goods and
services. It affects approximately 250,000
Service members at 600 locations overseas,
including Alaska and Hawaii. Approximately $2
billion is paid in Overseas Cost of Living
Allowances annually.
Overseas Cost of Living Allowances (COLA)
Savings. Retail prices are generally higher in
many countries where troops are stationed, and
most have significantly higher gasoline prices.
The installation is a dollar-based economy, thus
this has a positive effect on the international
balance of payments.
The Department of Defense calculates cost of
living allowances in high-cost and overseas areas
based on cost of living indexes. These cost of
living allowances are intended to compensate for
higher cost housing and every-day commodities
used by military households at these locations.
Table 2-5.
SNAP, WIC and Coupons Trends in Commissaries
SNAP
WIC
Coupons
Total
2007
24,851,516
29,266,430
98,835,469
152,955,422
2008
31,146,015
31,574,375
94,160,582
156,882,980
2009
52,954,938
30,209,689
105,198,170
188,364,806
2010
72,831,952
29,585,040
114,122,168
216,541,170
2011
87,837,643
29,878,377
112,703,419
230,421,450
Source: DeCA
Note: All three items are indicative system value.
The study examined the costs of shopping at offbase locations at COLA-eligible locations.
Savings from resale operations resulted in a cost
avoidance of $738,848,000 because DoD would
have to pay military personnel and their families
to compensate for higher costs if these lowerpriced outlets did not exist.
Overseas COLA is intended to equalize
purchasing power so that Service members can
purchase the same level of goods and services
overseas as they could if stationed in CONUS. It
is calculated by comparing the prices of goods
and services with average prices for equivalent
goods and services in CONUS. The result of the
comparison is an index that reflects a cost of
living. If prices in CONUS are rising at a greater
rate than the prices than those overseas, the
COLA will decrease. If prices overseas are rising
at a greater rate than those in CONUS COLA will
increase. Similarly, if prices overseas rise or fall
at the same rate as CONUS prices, COLA will
stay the same.
Overseas COLA is not a fixed amount. COLA
adjustments are either immediate or made
incrementally, depending on whether the payment
will increase or decrease, as well as whether the
change is based on currency or data. For COLA
changes based on data, increases are made
immediately, but COLA reductions based on data
are phased in at two points per month to help
minimize the impact. COLA changes based on
currency are effective immediately, both increase
and decreases to COLA. COLA reductions
become final following review and concurrence
by the Military Advisory Panel (MAP) and final
approval by the Per Diem Travel and
Transportation Allowance Committee (PDTTAC)
Principals, a group composed of Deputy Assistant
Secretaries and Directors representing each of the
services.
Two surveys determine the relative cost of living
overseas compared with CONUS. The Living
Pattern Survey (LPS), conducted every three
years, captures input from Service members and
their families to establish where and how they
purchase goods and services. The Retail Price
Schedule (RPS), conducted every year, collects
prices for a market basket of approximately 120
goods and services. Service members play a
critical role by participating in the surveys.
Location specific LPS and RPS data determine
Overseas COLA and directly influence the COLA
payments Service members receive. Rank years of
service and number of dependents determine the
COLA payment.
State, Local, Foreign Sales Taxes
$902,055,000
As Department of Defense programs, resale
systems are exempt from state and local sales
taxes. This indirectly supplements military pay
and other benefits that would otherwise need
adjustment to reflect a higher cost of living. The
value of these savings is $902,055,000 annually.
As federal instrumentalities, nonappropriated fund
activities are subject to and entitled to various
duties and privileges of the federal government.
One of these is the principle of sovereign
immunity:
Under the doctrine of sovereign immunity, the
federal government of the United States is
immune from taxation by the States; a principle
recognized by the Supreme Court in M’Culloch v.
Maryland, 17 U.S.(4 Wheat.) 316 (1819). This
constitutional immunity extends to protect federal
instrumentalities, including nonappropriated fund
instrumentalities. Standard Oil v. Johnson, 316
U.S. 481, 485 (1942). This immunity prohibits a
state taxing authority from imposing a markup on
the purchases of federal nonappropriated fund
instrumentalities. United States v. State Tax
Commission of the State of Mississippi, 421 U.S.
599, 604-05 (1975). This is so even where that
markup is not collected directly from the
nonappropriated fund instrumentality, but is
collected by suppliers.
The United States may consent to state taxation of
its instrumentalities. Under the HaydenCartwright Act, Congress permits collection of
state taxes on gasoline and other fuels sold
through post exchanges and other retail sales
agencies of the federal government on military
installations when such fuels are not for the
exclusive use of the United States. 4 U.S.C. § 104.
Under the Buck Amendment to the HaydenCartwright Act, Congress permitted states to levy
taxes within federal areas to the same extent as
though the area were not a federal area, with
certain exceptions not relevant here. 4 U.S.C. §
105-107.248.
The U.S. Constitution prescribes and the courts
have consistently provided exemption for the
Federal government from state and local sales
taxes This exemption applies to all installations,
organizations, activities, and personnel within the
United States and its territories.
State tax-free products are intended be sold only
to those individuals, organizations, and activities
entitled to privileges. Resale entities prescribe and
enforce necessary controls to ensure that no sales
are made to persons who lack prescribed
identification. Overseas, the existence of military
resale outlets allows military patrons to avoid
extremely high taxes on products purchased
including Value Added Tax (VAT).
Sales at exchange and commissaries are not
subject to state and local taxes. Patrons avoided
$902 million annually in state and local sales
taxes. Had military patrons been forced to shop
off-base, DoD would have foregone this amount.
It is, in effect, no cost DoD compensation to its
personnel.
State Tax Benefits From DoD
Many states are more reliant on income taxes than
sales taxes, as their largest revenue source.
Members of the uniformed services move about
the country and overseas. During their careers
members are likely to be assigned to a variety of
low, moderate and high cost locations and states
with vastly different approaches to taxation.
69% of military spouses work outside the home.
Increased family income means increased
purchasing power, much of which will occur off
base. That also means increased revenues for
both sales and income taxes.
Table 2-6.
CONUS Locations With Highest Number of Active Duty Troops
Texas
California
N. Carolina
Georgia
Virginia
Number
Troops
131,548
117,806
116,073
73,988
63,160
Total
US Average
Sales
Tax Rate
6.25
7.25
4.75
4.00
5.00
Per Capita
Burden
$1,630
$3,266
$2,320
$1,630
$2,150
% of State
Revenue
Sales Tax
50.5
30.4
27.6
31.7
19.9
% of State
Revenue
Income Tax
N/A
41.0
44.0
47.9
54.7
$2,330
31.5
33.9
502,575
Table 2-6 is based on the five states with the
highest numbers of active duty troops stationed in
CONUS. This represents about 46.2% of the
1,088,465 of troops in CONUS. Note that only
one state, Texas, with a high number of troops is
above the national average for reliance on sales
taxes as a revenue source, and it has no income
tax. Every state with an income tax in this group
is far more reliant on this revenue source than the
national average. Thus, for at least these states
lost resale system sales taxes are less relevant to
their financial status than income taxes generated
by military families.
Total state tax revenue in 2011 was
$763,669,000,000, according to the Federation of
Tax Administrators and U.S. Census Bureau. The
$902,000,000 in member sales tax savings
represent less than 0.0012% of all state tax
revenue. All states with sales taxes lose revenue
to internet and mail order sales, as there is no
nexus between the seller and buyer. Even in the
aggregate this has a truly minimal impact and
even less impact for any individual state.
For the table below (Table 2-7), the following
amounts come from the CBO report “Costs of
Military Pay and Benefits in the Defense Budget”
published November 2012.
■ Base Pay
■ Other Pay & Allowances- This includes Basic
Allowance for Housing (BAH) and other
allowances that are tax free.
■ Overseas Contingency Operations (OCO) For budget purposes OCO military pay is
treated separately than other military pay.
■ Retired Pay
■ DOD civilian salaries
■ Resale System & Industry Salaries- We have
added all resale system and related industry
income used elsewhere together for this line.
■ Net Resale System Sales- This is the net
CONUS resale system sales, as OCONUS
sales are not subject to any sales tax.
Table 2-7.
Tax Base
Military Pay
Basic Pay
Other Pay & Allowances
Overseas Contingency Operations
Total Military Compensation
$ 51.2
37.5
5.3
$ 94.0
DoD Salaries
Retired Pay
Resale System & Industry Salaries
DoD Civilian Salaries
Total DoD Salaries
$ 50.8
2.5
74.0
$ 221.3
CONUS Resale System Sales
Net Disposable Income
14.2
207.1
Taxes Generated
Military Salaries Income Tax
Retired Pay Income Tax
Resale Employee Income Tax
DOD Civilian Employee Income Tax
Real Estate Tax
Sales Tax
1.536
2.540
.125
3.700
.394
3.550
Gross State Tax Benefit
Resale System Sales Tax Savings
Net State Tax Benefit
Ratio of Total Taxes Generated
Versus Resale Sales Tax Savings
11.451
.902
10.549
11.69
■ Military Salaries Income Tax- a rate of 3%
was used to calculate state income tax of gross
base pay, excluding other allowances which
generally tax free. What is taxable varies
greatly, as many states have different rates or
treatment for what portion of military salaries
constitute taxable income versus other earned
income. An example is combat pay. Spousal
earned income is treated differently than
member income in some states.
■ Retired Pay Income Tax- An average rate of
5% was used for state income tax of gross
pay.
■ Resale system employee income tax-all resale
system and related industry income was used
to calculate state income taxes paid.
Concessionaire taxable income depends on the
tax status of the individual business at both the
state and Federal levels. But it is subject to
state income and/or corporate taxes,
depending on the state various other excise
and inventory taxes..
■ DOD civilian employee state income taxDOD civilians are subject to the state taxes of
their residence. This was calculated using an
average rate of 5%.
■ Real estate tax paid- This is calculated at 2%
of the gross BAH payment of $19.7 billion
■ Sales tax- This was calculated the base at 5
times resale system sales at the rate of 5%.
Resale System Salaries
$4,630,000,000
The DOD resale system creates both direct hire
jobs and indirect jobs in the private sector with
vendors, distributors and manufacturers who
support the system. The chart below shows the
jobs created directly the system. Many of these
jobs are held by military family members. This
not only helps family income, but creates job
opportunities for military spouses that might not
exist otherwise and helps make the military
lifestyle more attractive and improves retention.
It is estimated that there are about 58,000 indirect
jobs, largely with suppliers to the DOD retail.
Again this helps family income, and again creates
more job opportunities for military spouses that
might not exist otherwise and helps make the
military lifestyle viable. These jobs are an
indirect subsidy by industry as they do shelf
stocking and other needed work in the stores.
Spousal earnings are regular income for tax
purposes, thus the income tax withholding should
be considered an offset to program costs, as the
money flows back to Treasury.
Besides the $4.58 billion in annual savings off of
purchases made by military personnel and their
families, employment of military family members
greatly stretches the household income. Last
year, the value of salaries paid was $4.63 billion
by the resale system either by industry or by the
agencies when factored with the 2.5 multiplier
that is the norm when calculating economic
benefits of worker pay. Of this amount, some
$884 million represents that paid to military
family members. This directly increases military
household income and further reduces the
compensation burden to the Department of
Defense.
Much of the earnings of these family members is,
in turn, re-invested into the resale system when
they take their earnings and patronize the
commissaries and exchanges.
Defense Transportation System
$82,227,000
Economies of scale in the Defense Transportation
System (DTS) represent a benefit to the shipping
industry due to statutory requirements to use US
flagged vessels. This is done as an internal cash
transfer between agencies, governed by the
Treasury Fiscal Manual (TFM).
Overseas transportation of goods to commissaries
and exchanges on OCONUS bases helps maintain
a robust and ready lift capability, particularly in
peacetime. Without military resale, ships and
aircraft would be mothballed during times of
peace and would have to be brought back to a
ready state in times crisis. This process is very
costly, time consuming and limits our ability to
respond.
A significant part of the cargo shipped overseas
by the Department of Defense is destined for
resale entities abroad. The Jones Act requires that
all shipments to overseas areas by the Department
of Defense be on U.S. carriers. If these shipments
had not taken place and economies of scale were
lost, it is estimated that the increased cost for
other DoD cargo would have increased by
$82,227,000.
Construction Jobs
$1,856,060,000
Commissaries charge a five percent surcharge to
patrons when they check out at the cash register.
This surcharge is largely used to provide for the
construction of facilities and investment in capital
expenditures such as information technology
systems. Exchanges mark up products and this
mark up varies by commodity sold.
Together, the proceeds from these mark-ups are
used to build nearly $545 million worth of
facilities and other capital improvements. These
improvements become assets of the United States
Government upon completion and appear as an
asset on the balance sheet of the U.S.
Government.
In effect, patrons finance their own facilities and
then donate them to the taxpayer. As such, they
have voluntarily contributed equity that they have
established in the system to the taxpayer, further
strengthening the partnership between the
taxpayer and the patron in the provision of
facilities and programs beneficial to military
quality of life and defense of the Nation.
Using a multiplier of 3.4, which was provided by
the Associated General Contractors of America,
and is based on a study conducted by George
Mason University, the value of this construction
when factored by the construction multiplier is
$1.86 billion per year. All Marine Corp
construction for both the retail system and MWR
is included here, reflecting their organizational
structure. AAFES expects to spend $1.5 billion
on capital improvements for both new and
renovated facilities in the next five years, having a
total economic impact of $5.1 billion..
Foreign Government Offsets
$50,000,000
Under various status-of-forces and other
agreements including collective tariff agreements,
host governments contribute an offset to the cost
of US military presence in the form of payment of
some salaries and benefits for foreign national
employees under the labor cost-sharing program.
Also funded by host governments is construction
of facilities such as the Japanese Facilities
Investment Program or JFIP, the Combined
Defense Improvement Projects (CDIP) program
and the Republic of Korea Funded Construction
(ROKFC) programs in Korea. Other cost
sharing arrangements exist in Germany and the
United Kingdom. These offsets have averaged
$50 million per year for the military resale
system. Further, resale programs have had to
bear the burden of paying foreign national
severance pay and other termination costs as
military strategic decisions close bases. This was
particularly costly following 1991 as the U.S.
presence in Western Europe was greatly
diminished concomitant with the dissolution of
the Soviet Union and the Warsaw Pact threat.
Supporting Industry Jobs
$1,450,000,000
The resale system supply chain is supported by
American industry. These employees work in
manufacturing plants and in sales and supporting
activities in the resale stores such as shelf
stocking and other vendor support services. It is
estimated that salaries paid to industry workers
that support the resale system amount to $1.45
billion when factored with the 2.5 multiplier that
is the norm when calculating economic benefits of
worker pay. Additionally, industry provides inkind support with in-store promotions and labor
for shelf-stocking and other labor off-sets. This is
valued at $264 million per year.
Industry partners employ many military family
members, with one manufacturer’s representative
reporting up to 60 percent of their workforce
being from military families. In addition, the
American Logistics Association, on behalf of its
member companies, pledged to employ an
additional 25,000 spouses and veterans in support
of the President’s Joining Forces initiative.
Resale Employee
Federal Income Tax
$333,090,000
Taxes paid on all direct resale system employees
salaries can be considered a reduction in cost/cash
outlays and is an interagency transfer from the
agency to Treasury governed by the TFM,
reducing Treasury’s borrowing needs. When
combined with industry employees (discussed
below) the value of taxes paid by employees of
the resale system is $594 million per year. This
reduces the $1.757 billion appropriation and net
out flows from the Treasury to 1.163 billion.
Table 2-8.
Resale Employee Federal Income
Tax
Grand Total Resale System Costs
Federal Income Tax Paid Direct
Federal Income Tax Paid Industry
Total Federal Paid
Net Cash Outlay
Source: DeCA and Exchange Reports
1,757,340,000
(333,090,000)
(261,000,000)
594,090,000
1,163,250,000
Industry Employee Federal
Income Tax
$261,000,000
Taxes paid on industry employee salaries can also
be considered a reduction in program cost. The
value of these taxes paid in 2012 was $261
million.
Military Family Salaries
$884,000,000
Family income direct are salaries paid to family
members by the entire retail system. The amounts
to $884 million when calculated using the 2.5
multiplier that is the norm for calculating
economic impact of worker pay.
This large source of family member jobs and
income would be greatly reduced, if not entirely
eliminated. The positive benefits of a good, stable
family life would be lost to the Department and
retention would suffer and there would be more
need for other family support services. There are
thousands of military family members employed
by the retail system. In CONUS if the system
disappears most, if not virtually all of these jobs
would disappear. Also in CONUS, sales would
migrate off base, but there is no reason to think
that those jobs would migrate with the sales, as
for many retailers the sales increase is at the
margin. We have not attempted to monetize the
possible impact on morale and retention. This
was calculated on family income, but no
multiplier was used in this case.
of finding a new job for family members
transferring with an active duty member.
Exchanges also are a partner in the Department of
Defense Military Spouse Employment
Partnership.
Export Value From Sale of U.S.
Made Products Overseas
$3,736,203,000
Export Value/International Balance of payments
is based on cost of goods sold, using OCONUS
sales as percentage of overall sales times the
percentage of cost of goods sold to sales. Thus
the total export value is $3.74 billion. This has a
positive impact on the international balance of
payments versus money being spent by U.S.
military consumers in the host country.
Treasury Fund Balance
$198,551,000
This is float from sales and part of Government
cash management efforts before money is
disbursed for merchandise under the Working
Capital Fund (WCF). Sales deposits are made
under the TFM rules Volume 1, Federal Agencies,
Part 5 Deposit Regulations which also cover
credit and debit card sales and Electronic Benefit
Transfer cards (EBT) help improve cash
management. Treasury has the benefit of the float
from sales, which is basic cash management. The
value to the Government of holding this fund
balance is $199 million per year.
Of DeCA’s 15,000 U.S. civilian employees 62.4
percent are comprised of military spouses, family
members, military retirees, Guardsmen,
Reservists, or veterans.
Treasury benefits from the two very distinct cash
flows generated by commissary operations. They
are aware of this flow that has separate tracking in
the Government’s financial system.
Exchanges provide career opportunities for
military families.. Military family members
comprise 26-29 percent of the workforce.
Continuity of employment programs help ease the
stress of a military move by taking the worry out
Float from sales and compliance with
Government wide cash management efforts are an
interest free loan to Treasury. . DeCA annual
financial statements were used to determine the
value. Payments to vendors are subject to the
Prompt Payment Act.
beverage activities. This also benefits the balance
of payments by keeping those dollars within the
U.S. economy. This amounts to $60 million per
year.
Surcharge Trust Fund
$350,000,000
Exchanges offer military uniforms and
accessories, and operate uniform stores worldwide
The DeCA surcharge collections have a cash
balance with Treasury, representing the difference
between when funds are collected and when those
same funds are actually physically disbursed
(outlays). The surcharge is a separate cash flow
for cash management purposes. Outlay rates for
construction have a far longer time frame than the
WCF above for merchandise above. The outlay
rate is also affected by what is approved in the
Military construction program. For Treasury’s
purpose this is money they do not borrow and is
treated here as a cash injection into Treasury.
This amounts to $350 million. Were these funds
withdrawn from the Treasury, this would increase
the borrowing burden of the Federal Government.
Overseas, exchanges supporting the military
community health and food safety through the
operation of seven manufacturing plants
throughout the Pacific and Europe. These plants
include three water plants and one ice plant, all
servicing other federal organizations such as
DeCA, NEX, MCX, U.S. Army Installation
Management Command facilities, and DODEA.
AAFES bakeries are the only producer of Wonder
Bread outside the U.S., producing 6.2 million
fresh baked bread products (loaves, hamburger
and hotdog buns) to military families. AAFES
water plants provide 5.4 million gallons of
Culligan-branded drinking water annually.
Support Services
$60,000,000
Support Services include the school lunch
program are costs fronted by the exchange
systems and provided in DOD Educational
Activity (DODEA) schools around the world. .
As the designated school feeding authority for
both the Army and the Air Force, AAFES
provides lunches to school children in overseas
U.S. Military communities; 4.1 million lunches
are served each year in 89 school cafeterias across
nine countries. Parents put their children’s health
at the top of their concerns, and AAFES is proud
to provide these children with healthy and safe
food overseas.
Also Overseas, exchanges operate four bakeries,
ice cream and water plants that furnish bread,
rolls and bottled water among other products to
exchanges, commissaries, troop dining facilities,
military hospitals and other MWR food and
National Industries For The
Blind & Ability One
$129,000,000
These are contracts for both goods/supplies and
services such as shelf stocking to support the
commissaries. Ability One related workshops are
major employer of disabled individuals. Thus we
create gainful employment for a group that is
noted for chronically high, up to 70%,
unemployment rates. The contract face value of
these programs is $129 million per year.
Commissaries support the nation’s socioeconomic programs. Small and disadvantaged
businesses contracts amount to $571.6 million,
with another $129 million contracts for Ability
One programs. In addition, 2,000 disabled
individuals are employed and working within our
commissaries by virtue of these contracts. Ability
One earns another $21.6 million from products
purchased for resale in our stores. The small
business program enhances our ability to focus on
purchasing local products, for example, produce
and seafood, supporting the commissary’s effort
to aid in economic recovery of the country.
Retirement Benefits
$130,000,000
Commissary employees participate in the Federal
retirement program, either the Civil Service
Retirement System (CSRS) or the Federal
Employees Retirement System (FERS).
Exchanges manage and fund their own retirement
programs. The value of benefits paid to exchange
retiree annuitants is $130 million per year.
Health Care Benefits
$89,000,000
Commissary employees are eligible to participate
in the Federal Employee Health Benefits
Program. Exchanges manage and fund their own
retirement programs. These health programs
reduce the burden on the taxpayer for providing
health care, especially considering the mandates
under the Patient Protection and Affordable Care
Act (PPACA). The value of these health benefits
to the Nation is $130 million per year.
Military Star Card
$400,000,000
The Army and Air Force Exchange Service
operates a credit card program for all of the
military exchanges. The Military Star Card offers
reduced interest rates compared to commercial
retailer cards that are as low as 12.50 percent but
can reach 21percent or higher. Savings to
military consumers from lower interest rates and
elimination of fees is $400 million.
These cards are offered to military members
regardless of their credit rating. Further, there are
no annual fees, late fees or over-the-limit fees. In
addition, the Star card offers a deployment
protection policy that lowers the interest rate to 6
percent for those who deploy.
The Star card also offers free standard shipping on
purchases, as well as special promotions and
discounts, including a 10 percent discount on
everything you buy the first day that you shop.
Many other retail credit cards also offer some of
these benefits.
Losing Or Marginal Operations
To Support Defense Mission
$881,000,000
These are costs associated money losing or
marginal operations that are reflective of troop
deployments and the resale system purpose in
remote locations other than contingency
operations. However the cost of operating these
sites far exceed their revenue potential and they
generally have high transportation costs and
operating costs.
They provide school lunches to the DOD
Educational Activity (DODEA), provide
contingency communication services (keeping
families in touch), provide a significant number of
good jobs to family members and veterans,
provide restaurants and sell military uniforms. If
the existing retail structure did not exist, some
other organizational structure would have to be
created and funded. This would probably require
increased direct appropriations.
Contingency Operations
$117,000,000
Exchanges operate in forward deployed areas
such as Afghanistan, providing essential services
for military personnel. These tactical field
exchanges and ship stores ashore and afloat
provide basic goods, such as personal hygiene
products. The prices are kept at the same level
that exists at all regular exchange locations.
Were these services not offered by the exchanges,
they would have to be funded and operated by the
Government. The value of these operations to the
Department of Defense is $117 million per year.
Community Support (MWR)
Funding
$330,000,000
NEXCOM operates the afloat Ships Stores
Program at 155 locations and three ashore
locations, generating nearly $12 million in
earnings for these programs.
Military exchanges generate earnings from sales
revenue. These earning are used for two
purposes: (1) to fund vital military community
support functions; a direct savings to the taxpayer;
and (2) to fund internal capitalization including
construction of exchange facilities and
information technology. Dividends paid by
exchange systems to their respective Services to
support non-self sustaining MWR activities for
members and their families amounts to $330
million.
Resale programs took care of military personnel
during natural disasters such as the Japan
earthquake, tsunami and nuclear calamity.
Mobile field exchanges also have been deployed
to support North American recovery efforts such
as the Missouri flood disaster, the heartland
tornadoes, and the East Coast flash flooding.
Additionally, two MFE units deployed to Central
America during humanitarian missions in Haiti
and the Dominican Republic.
The Marine Corps exchanges also operate forward
deployed sites in Direct Operation Exchanges
Tactical at Camps Leatherneck and Dwyer, one
Tactical Field Exchange at Camp Delaram II, one
Impress Fund Site at Forward Operating Base
Edinburgh, and numerous Warfighter Express
Services Teams operating out of Camps
Leatherneck, Dwyer, and Forward Operating Base
Edinburgh.
Contingency
Telecommunications
$250,000,000
These are personal information services, primarily
internet connections, similar to the services a
person would subscribe to for use at home. This
also includes cell phone service in locations with
adequate local infrastructure. These services
greatly reduce the cost to military personnel for
making telephone calls home and for using the
Internet. In the Continental United States, this
may include basic land line service. The value of
these telecommunications services to the
Department of Defense and its personnel is $250
million per year.
The Exchange is charged with generating
reasonable earnings, but returns roughly twothirds of its net earnings to its customer base
through their respective MWR programs. The
only congressionally appropriated money spent in
the Exchange comes in the form of utilities and
transportation of merchandise to overseas
exchanges and for salaries of U.S. military
personnel assigned to the Exchange. A nonappropriated fund instrumentality (NAFI) of the
Department of Defense, the Exchange funds 98%
of its operating budget, including civilian
employee salaries, inventory investments, utilities
and capital investments for equipment, vehicles
and facilities, from the sale of merchandise, food
and services to customers.
Roughly 67% of the Exchange earnings are paid
to MWR programs. In the last 20 years, more than
$5 billion has been contributed by the Exchanges
to the military departments to spend on quality of
life improvements for soldiers, airmen, sailors,
and Marines and their families for youth Services,
Armed Forces Recreation Centers, arts and crafts,
aquatic centers, post functions and outdoor
recreation programs.
Salaries
$1,650,000,000
Construction Jobs
$443,870,000
Installations receive a portion of the dividends for
specific installation level MWR efforts and the
remaining funds are used for MWR capital
projects to improve facilities, enhancing local
recreation opportunities for sailors and their
families.
Earnings from exchanges are distributed to the
branches of the Armed Services to use in
supplementing funding in support of vital military
community programs. Much of this support takes
the form of construction of facilities for these
morale, welfare and recreation programs.
Earnings from exchanges are distributed to the
branches of the Armed Services to use in
supplementing funding in support of vital
military community programs. Much of this
support takes the form of workers in these morale,
welfare and recreation programs.
The value of this construction using the 3.4
multiplier that is the norm for computing
economic value of construction is $444 million.
The value of the salaries paid to these workers
using a 2.5 multiplier that is the norm for
computing economic value of salaries is $1.65
billion per year.
50 CHAPTER 3 - ACCOUNTABILITY & OVERSIGHT
CHAPTER
3
Accountability & Oversight
Accountability
DOD puts much emphasis on accountability and
has extensive regulatory guidance on all aspects
of its operations. Within this highly controlled
environment, the resale system leads in financial
accountability and audit compliance.
The Chief Financial Officer (CFO) Act of 1990,
P.L. 101-576 was passed to promote more
effective Federal financial management and
established specific audit requirements for DOD.
Resale entities have clean financial audits.
DeCA publishes a Performance and
Accountability Report that includes financial
controls, patron savings, customer satisfaction and
facilities condition. DeCA’s creation lead to
greater cost visibility and accountability, thus
leading to improved operations.
DeCA has enjoyed unqualified audit opinions for
ten years. For the fourth time, DeCA finished in
first place within the Department for
implementing the requirements of the Office of
Management and Budget Circular A-123,
Management’s Responsibility for Internal
Control, Appendix A. The effective linkage of
accountability and audit readiness to internal
controls over financial reporting has made DeCA
a model of Government efficiency. DeCA tied for
first place with U.S. Special Operations
Command and the Defense Logistics Agency for
the best FY 2010 Statement of Assurance.
The Department of Defense DOD is working
towards audit readiness, and the Secretary of
Defense has made this a top priority.
Exchanges fall under the direction of the DOD
Financial Management Regulation, Volume 13,
Non-Appropriated Funds Policy and Procedures.
The exchange systems are subject to further
guidance established at DOD instruction 1015.15,
Establishment, Management, and Control of
Nonappropriated Fund Instrumentalities and
Financial Management of Supporting Resources,
specifically Section 6, Procedures, part 6.8.2,
which establishes audit requirements. There is
also the accountability of the marketplace and
being responsive to customer needs.
Oversight
The Secretary of Defense assigns responsibility to
the Under Secretary of Defense for Personnel and
Readiness, USD(P&R), for overall supervision
and policy direction of the commissary and
exchange operations. The Military Departments,
through their representation on the DeCA Board
of Directors, advise the USD(P&R) on the
funding and operation of the commissary system,
and assist in the overall supervision of the
Defense Commissary Agency. The Military
Departments have fiduciary responsibility for
funding the three exchange systems and each
51 CHAPTER 3 - ACCOUNTABILITY & OVERSIGHT
Military Service supervises its exchange through a
Board of Directors. These boards represent the
stakeholders of the exchange systems—military
personnel and their families. Where commissary
and exchange interests intersect, DoD has
established the DoD Executive Resale Board.
The Commissary Operating Board has proven
effective in making recommendations that the
Military Services will support financially and
supervises DeCA’s performance. The Board
provides critical advice on the commissary stores
needed by the Military Services; management
initiatives to improve DeCA’s performance; and
priorities for investing in systems and
construction. It also has an important role in
continuously assessing and balancing the
Services’ proposals regarding commissary
operations and funding. Under the Board’s
supervision, DeCA's management has a proven
track record of achieving performance goals. Over
the past decade, DeCA increased sales, sustained
capital investment, and reduced costs through
business process improvements – all while
improving customer savings and satisfaction
ratings. The Board also provides critical advice
on commissaries needed by the military Services;
management initiatives to improve performance,
and priorities for investing.
The DoD Executive Resale Board advises the
Office of the Secretary of Defense on the
complementary operation of commissary and
exchange systems recommendations that the
Military Services will support. The Board also
explores areas of cooperation that will improve
the operations of both commissaries and
exchanges.
52 CHAPTER 4 - SOCIO-ECONOMIC & HUMAN CAPITAL BENEFITS
CHAPTER
4
Socio-Economic & Human Capital Benefits
Ability One
■ NISH: National Industries for the Severely
Handicapped. $97M annually for Services
(shelf stocking, custodial, etc.)
■ NIB: National Industries for the Blind - $32M
Supplies & Resale
■ Impacts approximately 2000 NIB & NISH
employees
■ 6th Largest Program Supporter behind the
Military Services & DLA
Small Business Contracts
(Millions of dollars)
Small Business Awards
Veteran Owned Small Business
Small Disadvantaged Business
Woman-Owned Small Business
Hubzone Small Business
Service Disabled Veteran
Source: DeCA & AAFES
Notes:
a. DoD Wide Goal - 22.8%
b. DeCA Achievement - 46.23%
The Military Personnel appropriation is about
$135 billion. For discussion purposes assume
half is base pay and related allowance or $67.5B,
thus every 1% increase is worth $675M. This is a
”hard” aspect, as there is a base to derive a cost.
The below are keyed to base pay and are not
targeted. For analytical purposes we used the
conservative 2.6% cost equal to appropriated
support to cost this item.
■ It would take a roughly 2.6% increase to equal
to all appropriated support to the retail system
Table 4-1.
Eligible For Small Business
Human Capital Retention Value
& Impact on Military Pay
Accounts
1,237.0
571.7
224.9
55.3
30.5
27.8
10.7
■ It would take a 1.34% increase just to offset
the estimated state sales tax exemption, and
■ It would take a 6.79% increase to offset the
patron savings
This looks at the avoided costs of improved
retention, by looking at an average acquisition and
training cost, regardless of military occupational
specialty or Service, and the impact of extending
an individual’s length of service. Length of
service includes some leaving active duty but
staying in the National Guard or Reserves where
the benefit of the training is retained and used.
The retention rate is based on the enlisted
percentage that stays for a full 20-year career.
Officers have a higher rate of staying for a full
career, so this is a conservative approach and does
not account for people who stay for a second tour,
but leave before serving a full twenty years.
The Eleventh Quadrennial Review of Military
Compensation (QRMC) listed six principles of the
military compensation system:
quality of life and compensation packages being
provided to Service members and their families.
Such a shift will also result in a gradual aging of
the Services as the technically skilled are given
incentives to remain in the military beyond when
they are leaving today, especially after the first
term. A more settled and mature patron base, with
somewhat different needs, will have to be catered
to by the commissary system.
■ Be integral to overall manpower management
■ Achieve economic and military efficiency
■ Achieve equity
■ Be effective in peace and war
■ Have sufficient flexibility
■ Provide sufficient motivation to the individual
To meet the goals stated above, the military pay
system has evolved into a very complex structure.
This is reflected in the DOD Financial
Management Regulation (FMR) Volume 7A,
Military Pay Policy & Procedures, which has 66
chapters, which address a variety of special pay
for both active and reserve, and officer and
enlisted.
The retail system supports these goals as part of
current compensation, under in-kind, non-cash
benefits.
A major part of manpower management is to have
the correct balance in the force structure. The
goal is to have the proper balance between officer
and enlisted, by rank, by experience and
occupation. Retention is keeping the skills and
experience, particularly in jobs where it takes
years to develop needed skill levels, such as pilots
or special operations forces. DoD also needs a
large pool of people from which to develop future
leaders, know as up or out.
Emphasis is expected to focus on retention as a
means of insuring a quality work force as
recruiting becomes more difficult in the years
ahead. This will require greater attention to
Their perceptions as to how well they live in
comparison to their civilian counterparts will be
an important determinant in their reenlistment
decision- and the commissary is a critical and cost
efficient entitlement that can favorably influence
their acceptance of the military way of life. The
retention rationale for preserving the commissary
entitlement will arguably be even stronger in the
years ahead. Efforts to improve service, therefore,
become even more critical than ever. If the peace
initiatives underway continue and military forces
overseas are gradually brought home, the focus of
support activities (such as the commissary) will
be more and more concentrated in the United
States.
According to the QRMC retention hotspots are
linguists/translators, mental health specialists,
remotely piloted vehicle operators and special
operations. These are occupations that require
extensive training. Other expensive personnel are
pilots and doctors, who receive specialty pay.
QRMC review gives a much different view of
retention and indirectly suggests a much different
direction of where to direct benefits that affect
retention. They did not give much discussion to
the resale benefit.
In the officer ranks retention at O-3 and O-4 level
has been a continuing issue. These grades are
filled with other expensive skills to train, and
these people highly value the commissary benefit.
Retention Cost Model
The basic manpower structure is 1,400,000 active
duty and 850,000 reserve forces. This 2,250,000
person force structure represents both officer and
enlisted personnel. About 17% of enlisted have a
full career and 49% of officers have a full career.
Certain occupations such as pilots cost over
$1,000,000 for training. Basic costs to obtain a
member and minimal training are $150-200,000.
So one way to look at what is cost effective is to
create a simple cost model:
■ Personnel replacement costs equals retail
program appropriated support ($1.76 Billion)
■ A model of this cost would look like the
following:
1,000 pilots @ $1,000,000
= $1,000,000,000
duty but staying in the National Guard or
Reserves where the benefit of the training is
retained and used. The retention rate is based on
the enlisted percentage that stay for a full 20 year
career. Officers have a much higher rate of
staying for a full career, so this is a conservative
approach and attempts to account for people who
stay for a second tour, but leave before serving a
full twenty years.
Table 4-2.
Personnel Training & Acquisition
Costs
Total Personnel
Active, Reserve, Guard
17% Retention past first tour
Average Training Cost
Total Training & Acquisition Costs
2,256,664
383,623
380,000
$14,578,049,440
+
2,000 other skills @ $380,000
= $760,000,000
=
3,000 personnel or retail program
appropriated support
= $1,760,000,000
As you can see above it only takes the added
retention of a fraction of a percent of the total
force to equal or more than offset the appropriated
support for retail activities, and thus be very cost
effective.
Avoided Cost & Human Capital
Retention Value Model
This looks at the avoided costs of improved
retention in a longer military career. This looks at
average acquisition and training cost, regardless
of military occupational specialty or Service, and
the impact of extending an individual’s length of
service. A longer career “avoids” recruiting and
training costs associated with higher turnover.
Length of service includes some leaving active
4 Year Career Amortization
Total
Per Year
$380,000
$95,000
8 Year Career Amortization
Total
Per Year
$380,000
$47,500
Veteran Hiring
All of the resale entities have active programs to
employ Veterans including participation in job
fairs focused on hiring Veterans with further
emphasis on hiring of Wounded Warriors.
Veterans account for 13-15 percent of the total
exchange workforce. Employment preference
and spouse continuity programs allow veterans,
retirees and the families of active-duty and
National Guard and Reserve families to build
careers with the exchange.
For example, AAFES’ Operation War Fighter
program provides internships designed for
wounded, ill and injured Service Members to
develop the skills needed for transition into the
civilian workforce while undergoing treatment. In
addition, the Wounded Warrior Hiring program
includes partnerships with the Wounded Warrior
Project as well as other military hiring agencies.
Our commitment to hiring current and former
military personnel and their families have brought
AAFES significant recognition: Military Spouse
Magazine’s “Top 10 Military Spouse Friendly
Employers,” G.I. Jobs magazine’s “Top 100
Military Friendly Employers,” and
CivilianJobs.com’s “Most Valuable Employers
for the Military,” to name a few.
Diversity and Disability Hiring
Exchanges and commissaries also are leaders in
diversity and inclusion. AAFES ranked #1 in the
DoD in hiring individuals with targeted
disabilities and Cornell University in Ithaca, New
York sought out AAFES to partner in the study of
employment opportunities for people with
disabilities. Funded by a grant from the U.S.
Department of Education, the research will
explore existing employment opportunities and
identify barriers and possible solutions for
individuals with disabilities.
DeCA also actively recruits people with
disabilities. DeCA’s track record in hiring people
with disabilities was recently recognized with the
Secretary of Defense’s 2011 Best Mid-Sized
Component Award for its performance in
employing individuals with targeted disabilities.
The commissary agency achieved Best Mid-Sized
honors for increasing the number of employees
with targeted disabilities on its rolls from 1.1
percent in fiscal 2010 to 1.51 percent in fiscal
2011. The DoD goal for hiring people with
targeted disabilities is 2 percent – the DoD-wide
average percentage is 0.77 and the federal-wide
average is 0.88. DeCA was also recognized by the
Paralyzed Veterans of America as the 2011
recipient of PVA’s Employable Award for
expanding employment opportunities to veterans.
Green Initiatives
The resale system has undertaken a number of
“green” initiatives appropriate for their
operations. These take many forms in terms of
store operations, store construction and patron
product offerings
Commissaries
DeCA implements all applicable federal mandates
regarding Energy & Water Efficiency, and
Renewable Energy Technologies through its
acquisition and facility maintenance programs.
All acquisitions incorporate contract clauses
promoting Bio based Products, Pollution
Prevention, and Energy Efficiency in EnergyConsuming Products, as applicable.
DeCA has implemented balanced scorecard
elements that measure progress with Energy and
Water Use Reduction, as well as Solid Waste
Disposal Reduction & Recycling Enhancement.
DeCA won a 2010 Department of Energy Federal
Energy and Water Management award, which
include renewable energy technologies. These
initiatives fall into three categories.
Store operations
DeCA has undertaken many green initiatives is
managing their facilities and cutting energy and
overall operating costs. They are:
■ Recycling plastic, wood and paper products
■ Energy management training at the store
level,.
■ Water use monitoring.
■ Starting November 2012, DeCA will use
waste and cardboard generated at Hickam
AFB Commissary, Hawaii, waste to produce
energy that will go back into the store. It is
being conducted with the National Renewable
Energy Laboratory the Department of the
Army
■ DeCA is testing dehydrators to minimize
disposal of solid waste at Twenty-nine Palms
Commissary, California.
■ DeCA streamlined its solid waste
infrastructure at 91 commissaries in the
United States by reducing the number of
refuse containers and the frequency of
pickups. Adding smaller stores to the
cardboard recycling program (in lieu of
compacting/disposing) saved $700,000 in
disposal cost.
■ Increase procurement of environmentally
friendly goods and services
To fulfill those goals AAFES has done the
following:
■ In 2010 the Exchange recycled and diverted
more than 16,000,000 pounds of trash from
landfills, generating $670,000 in revenue for
the bottom line.
■ The exchange increased recycling volume by
more than 60% from the prior year.
■ The exchange implemented a corporate-wide
recycling program at 152 stores in CONUS.
■ DeCA is implementing a worldwide system to
track all materials being recycled or diverted
from the waste stream.
■ Since 2007, AAFES has reduced annual water
usage by 15.3% with increased use of low
flow technology.
Store Construction
■ Building energy efficient stores
■ AAFES sells used cooking oil and grease
from 290 restaurants, thus recycling more than
2 million pounds of cooking oil.
Exchanges
■ AAFES uses bio-diesel fuel when available
and economically feasible
AAFES uses multiple Executive Orders and
policies as a basis to develop and continuously
improve sustainability initiatives. Since the
inception of the AAFES sustainability program in
2006, conservation efforts and employee
participation at AAFES facilities has become
increasingly visible.
Six main goals:
■ Reduce energy consumption
■ Reduce water consumption
■ Reduce waste
■ Reduce fleet dependency on fossil fuels
■ Increase sustainable buildings
■ The exchange offers a vast selection of
Energy Star products, such appliances
■ Since 2007, AAFES has reduced energy usage
by 5.5 %
■ In 2009 the Exchange rolled out a 5 cent
reusable bag credit that saved patrons nearly
$24,000.
■ Building green exchanges to Leadership in
Energy and Environmental Design (LEED)
standards that are registered with the US
Green Building Council.
■ AAFES has championed the use of light
emitting diode (LED) technology in all Army
gas station canopies.
■ The Exchange actively supports programs
centered on green initiatives.
AAFES Recognition
AAFES has received much recognition for its
efforts:
■ 2011 Secretary of Defense Environmental
Award
■ 2010 US Department of Energy Federal
Energy Management Award
■ 2010 Secretary of the Army Sustainability
Team Award
NEXCOM
NEXCOM continues to open E85 and other
alternative fuel facilities in its efforts to help DOD
and the Navy meet its objective of reducing the
reliance on petroleum and meet the requirements
under Executive Order 13514 and the Energy
Independence Security Act of 2007. E85 pumps
on Navy installations are available for use by
federal, state and local governments, military
exchange patrons and the general public. The
sixth E85 gas pump was opened at the Naval Air
Station Pensacola FL.
The Navy Lodge program began offering ecofriendly shampoo, conditioner and soap from the
Terra Green amenity line. These products are
made with organic ingredients and packaged in
100% recycled paper. The shampoo and
conditioner containers feature eco-friendly
additives that react to the combination of
oxidation and bio-degradation processes by
completely disintegrating the plastic into organic
compounds. In addition all of the printing used
on the Terra Green line consists of soy based ink.
The Marine Corps exchange system has a number
of Green initiatives from recycling and use of
recycled materials, fuel efficiency, and facility
energy efficiency.
58 APPENDIX A - ANALYSIS OF IMPACT OF CBO RECOMMENDATION TO CONSOLIDATE RETAIL ACTIVITIES
APPENDIX
A
Analysis of Impact of CBO Recommendation
to Consolidate the Department of Defense's
Retail Activities and Provide a Grocery
Allowance to Service Members
Summary
T
his report provided a model of the Benefits
to the Nation, to the Department of Defense, and
The Nation accruing from the military resale
system. This appendix quantifies the impact of
the CBO recommendation on the benefits model
The Congressional Budget Office (CBO)
regularly repeats budget options, first reported in
19971, for reducing the DoD budget outlays by
consolidating the exchange systems; merging the
exchange and commissary systems; contracting
out and subsidizing the systems; or offering a cash
allowance to active duty in lieu of the benefit.
The most recent CBO finding on the military
resale system was included in a March 2011
report, Reducing the Deficit: Spending and
Revenue Options (Discretionary Spending,
Defense Option 6, Consolidate the Department of
Defense’s Retail Activities and Provide a Grocery
Allowance to Service Members).
In 2011, CBO estimates an $8 billion reduction of
DoD budget outlays over ten years by merging the
exchange systems with the commissary system
and offering a tax-free grocery allowance to
active duty personnel. 2 The CBO report has been
cited in several recent recommendations to
drastically alter the system for providing resale
products and services on military bases. These
include:
■ Illustrative Savings in the Bowles Simpson
Deficit Reduction Report.
■ Basis for reductions associated with S. 277,
the Caring for Camp LeJeune Veterans Act of
2011.
■ Basis for an amendment proposed to the
Fiscal Year 2013 National Defense
Authorization Bill by Senator Tom Coburn
(R-Okla.)
■ Basis for finding included in a report ’Back in
Black” issued by Senator Tom Coburn in July
2011.
2
1
Congressional Budget Office, “The Costs and Benefits of
Retail Activities at Military Bases,” page 5, October 1997,
http://www.cbo.gov/ftpdocs/1xx/doc158/retail.pdf
CBO Report, “Reducing the Deficit: Spending and
Revenue Options,” Congressional Budget Options, March
2011, pages 84-85,
http://www.cbo.gov/ftpdocs/120xx/doc12085/03-10ReducingTheDeficit.pdf.
■ Basis for a finding included in a report
“Department of Everything” issued by Senator
Tom Coburn in November 2012.
■ $400 grocery allowance targeted to specific
pay grades with larger allowances to junior
enlisted.
The CBO finding says essentially:
■ Consolidated system better able to compete
with off-base enterprises.
■ Exchanges have more flexibility in
procurement and personnel practices than
DeCA.
■ Consolidate Exchanges and the Defense
Commissary Agency over 5 years.
■ Retirees would pay $325 more per year on
groceries.
CBO Option 6 Effects
■ Eliminate duplicative administration.
■ Convert commissary employees to
nonappropriated fund employees.
■ At year 6 budget authority lowered by $2
billion/year.
■ Return 1/3 of the $2 billion to active duty with
grocery allowance.
■ Grocery allowance phased in to coincide with
consolidation at each base.
■ Net annual savings by 2016 would be $1
billion.
■ Save $8 billion in outlays over next decade.
■ Charge 7 percent more for groceries.
■ Would cost active duty, retired and reserve
$1.4 billion annually.
■ Active duty would pay $400 more per year
offset by grocery allowance.
■ Families benefit from longer store hours, onestop shopping, access to private label
currently not authorized in DeCA.
■ Greater certainty in benefit not subject to
appropriations.
Service Members and Families
The CBO estimate of the amount of
appropriations used to support this system is $2
billion per year. This exceeds the estimate of the
baseline levels in this report of $1.757 billion by
$243 million.
The cost for the grocery allowance proposed by
CBO is $660 million per year and inflation would
push this cost in the tenth year to $765 million.
Further, the CBO estimate assumes that the
savings do not fully materialize until 2019,
escalating each year to $1.3 billion.
Moreover, the CBO estimate does not consider
force structure adjustments or savings accruing
from resale system downsizing associated with
corresponding reductions in domestic and
overseas bases. The CBO estimate does not
consider multiple other factors enumerated in the
tables below including impact on cost of living
allowances, family household income, sales
elasticity and concomitant loss of economies-ofscale, net Treasury outflow, and impact on
community support funding.
Using this report’s baseline level of
appropriations of $1.757 billion instead of the
CBO baseline of $2.0 billion and factoring in the
inflated cost of the grocery allowance, and
assuming the protracted escalation toward savings
outlined in the CBO recommendation—this report
estimates that the CBO estimate of savings over
ten years is significantly lower by $3.5 billion to
Table A-1.
Impact of CBO Option 6 on Service Members and Families
Consumer Savings
SNAP & WIC
COLA
State Sales Tax
Industry Salaries
Health Care
Military Star Card
Loss/Marginal
Contingency Telcom
MWR Dividend
MWR Salaries
Total
TOTAL
One-year CBO
Impact on
Benefits to
Members
Benefits to the
Members
2012 - 2021
CBO Impact on
Benefits to
Members
2012 - 2021
4,583,967
37,669
738,848
902,055
884,310
750,000
89,000
400,000
881,000
250,000
330,000
660,000
1,754,420
37,669
184,712
225,513
221,077
187,500
22,250
100,000
352,400
100,000
82,500
165,000
53,174,010
436,960
8,570,630
10,463,830
10,257,996
8,700,000
1,032,400
4,640,000
10,219,600
2,900,000
3,828,000
7,656,000
20,351,270
436,960
2,142,660
2,615,950
2,564,499
2,175,000
258,100
1,116,000
4,087,840
1,116,000
957,000
1,914,000
10,506,849
3,433,041
121,879,426
39,735,279
$4.0 billion. Further, when other costs are
considered as outlined in this report, the actual
cost to the DoD and the Nation of implementing
the CBO recommendation rises significantly and
real savings diminish correspondingly.
Direct costs to families can be viewed with a real
and immediate impact on family budgets. These
impacts can be in the form of lost income or
increased costs of living, such as lost consumer
savings. Other changes in the resale system will
have an indirect impact on families (such as
MWR) and their budgets.
The value of benefits to this population over ten
years is estimated at $121.87 million and the
negative impact of CBO’s recommendation on
this value is estimated at $39.73 million.
Department of Defense Impact of CBO Recommendation
This calculates the cash outlay or increased
appropriation impact on the DOD budget. The
benefit value of benefits to the Department of
Defense over ten years is estimated at $126.87
million.
The negative impact of CBO’s recommendation
on benefits to DoD is estimated at $40.97 million
net any savings accruing from implementation of
the CBO recommendation over the same ten-year
period.
Table A-2.
Impact of CBO Option 6 on Benefits to DoD
Consumer Savings
SNAP & WIC
COLA
State Sales Tax
DTS Savings
Construction
Foreign Government
Support Services
Military Star Card
Loss/Marginal
Contingency Ops
Contingency Telcom
MWR Dividend
MWR Salaries
MWR Construction
Total
TOTAL
One- year CBO
Impact on
Benefits to DoD
Benefits to
DoD
2012 - 2021
CBO Impact on
Benefits to DOD
2012 - 2021
4,583,967
37,669
738,848
902,055
884,310
82,227
545,900
50,000
60,000
400,000
881,000
117,000
250,000
330,000
660,000
443,870
1,754,420
37,669
184,712
225,513
221,077
20,556
136,475
0
15,000
100,000
352,400
29,250
100,000
82,500
165,000
110,967
53,174,010
436,960
8,570,630
10,463,830
10,257,996
953,830
6,332,440
0
696,000
4,640,000
10,219,600
1,357,200
2,900,000
3,828,000
7,656,000
5,148,890
20,351,270
436,960
2,142,660
2,615,950
2,564,499
238,450
1,583,110
0
174,000
1,116,000
4,087,840
339,300
1,160,000
957,000
1,914,000
1,287,223
10,966,846
3,535,539
126,635,386
40,968,262
National Impact of the CBO Recommendation
Table A-3 examines at the much larger lost
economic impact on the Nation versus a more
limited direct cash impact on families and/or
DOD. Thus here it is appropriate to use a
multiplier effect on MWR salaries and all
construction. Health care and retirement costs
would have to be absorbed in some manner if the
system did not exist. The benefit value of benefits
to the Nation over ten years is estimated at
$274.22 billion and the negative impact of CBO’s
recommendation on this value is estimated at
$85.73 billion net any savings accruing from
implementation of the CBO recommendation that
are estimated on the high end of under $5 billion
over the ten-year period.
The CBO estimated net outlay savings of $9.1
billion over ten years, but fails to consider a
myriad of other related costs listed in Table A-3.
This analysis shows that the real, full costs to the
Nation for implementing the CBO analysis would
be $68.87 billion over ten years and the cost to
DOD would be $40.96 billion over ten years.
When the cost of the $660 million grocery
allowance is added, the cost to the Nation rises to
$76.47 billion per year.
Table A-3.
Impact of CBO Option 6 on the Nation
Consumer Savings
SNAP & WIC
COLA Savings
State Sales Tax
Industry Salaries
Federal Income Tax
Federal Income Tax Ind.
Export Value/IBP
DTS Savings
Construction
Foreign Government
Fund Balance
Surcharge Trust
Support Services
Military Star Card
Ability One
Retirement Benefits
Health Care
Loss/Marginal
Contingency Ops
Contingency Telcom
MWR Dividend
MWR Salaries
MWR Construction
Total
TOTAL
4,583,967
37,669
738,848
902,055
4,630,000
1,450,000
333,090
261,000
3,736,203
82,227
1,856,060
50,000
198,551
350,000
60,000
400,000
129,000
130,000
89,000
881,000
117,000
250,000
330,000
1,650,000
443,870
One-year CBO
Impact on
Benefits to the
Nation
1,754,420
37,669
184,712
225,513
1,157,500
362,500
83,272
65,250
934,050
20,556
464,015
0
49,637
87,500
15,000
100,000
129,000
32,500
22,250
352,400
29,250
100,000
660,000
412,500
110,967
23,689,540
7,390,461
Benefits to the
Nation
2012 - 2021 *
53,174,010
436,960
8,570,630
10,463,830
53,708,000
16,820,000
3,863,840
3,027,600
43,339,950
953,830
21,530,300
0
2,303,190
4,060,000
696,000
4,640,000
1,496,400
1508,000
1,032,400
10,219,600
1,357,200
2,900,000
3,828,000
19,140,000
5,148,890
274,218,630
CBO Impact on
Benefits to the
Nation
2012 - 2021 *
20,351,270
436,960
2,142,660
2,615,959
13,427,000
4,205,000
965,950
756,900
10,834,980
238,450
5,382,570
0
575,579
1,015,000
174,000
1,160,000
1,496,400
377,000
258,100
4,087,840
339,300
1,160,000
7,656,000
4,785,000
1,287,223
85,729,141
Notes:
a. The two 2012-2021 columns were adjusted for inflation at a moderate of 1.5 percent compounded annually
b. Net effect of seven (7) percent price increase
(6,987,161)
c. Cost of grocery allowance
(660,000)
d. The grocery allowance would be $765,600,000 by the 10th year with 1.5% inflation.
■ Savings decrease from average of 28 percent
to 21 percent.
combining exchange overhead. Those
efficiencies offer only nonappropriated fund
savings; last estimated at $151 - $162M per
annum with $213-$216M total implementation
costs over the first three years of transition. Due
to Military Department concerns about risks and
rewards of consolidation to exchange
stakeholders, the USD (P&R) approved Military
Department plans for their Exchange Systems to
pursue independent and cooperative efforts. An
Exchange Cooperative Efforts Board oversees and
develops opportunities for cooperative efforts and
reports annually to DoD.
■ Price elasticity would result in sales decreases
of at least $3.06 billion, reducing system sales
from $18 billion to $15 billion, a 16 percent
reduction for a cumulative effect on patron
savings of $1.754 billion.
Commissary and Exchange
Consolidation
Major Components of CBO
Recommendation Impact
■ For the first time, entire classes of
beneficiaries are excluded from a Department
of Defense benefit with the grocery allowance
only allocated to junior ranking enlisted and
officers. No benefit would be provided to
retirees.
■ SNAP and WIC programs are eliminated as
exchanges assume operations and are
ineligible for these programs.
■ COLA savings are reduced 25 percent based
on sales decreases and price increases. Most
other categories reduced 25 percent.
■ Ability to finance support services,
contingency operations and losing and
marginal operations would be reduced by 40
percent.
■ MWR dividend would decrease by 40 percent
due to lost economies of scale from sales
decreases and reduced earnings with
corresponding decreases in MWR salaries and
MWR construction.
Exchange Consolidation
Since 1991, there have been four major and costly
DoD studies of the feasibility of consolidating the
three Military Exchange Services, with the most
recent study completed in 2006 concluding that
the risk of consolidation outweighs rewards. Each
study identified potential efficiencies from
The further consolidation of the three Exchange
Systems with DeCA, with combined sales nearing
$18B, also has been judged as too risky during
defense reform, quadrennial defense, OMB
performance, and defense efficiency reviews
conducted since 1997. The difficulties largely
center on the differences created because DeCA
resale stocks, personnel, and operations are
funded entirely with appropriations, while
exchanges are funded almost entirely with
nonappropriated funds. The concept of
combining operations as a means to lower
appropriated costs has been tested. For over ten
years, the exchanges operated four combined
commissary and exchange stores, with a 75% to
100% reduction of appropriated support to the
commissary. Without exception, the model
reduced commissary benefits (through higher
prices and limited selection) and negatively
impacted the exchange profits available to MWR
activities. The DeCA Board of Directors and
Executive Resale Board evaluated other “joint”
operating models, concluding that consolidation
would degrade the commissary and exchange
benefits and customer service, and disrupt
distribution and personnel systems.
Improving Efficiency and
Effectiveness of the Resale
Authorities
The 1997 CBO report suggested additional ways
to improve the efficiency and effectiveness of the
commissary and exchange benefits as part of the
military compensation package. The Department
has addressed each of those areas, as discussed
below.
Personnel Systems
Government personnel costs represent 62% of the
DeCA operating costs. A 2007 internal DoD
study of converting DeCA to the nonappropriated
personnel system determined significant
implementation risks and estimated that NAFI
costs would rise disproportionately to the
potential savings to DeCA. Instead, DeCA
implemented other adaptations to create personnel
management flexibility and lower costs.
Measuring Benefit Outcomes. Every two years,
the Defense Manpower Data Center (DMDC)
includes commissary and exchange benefits in
Status of the Force Surveys of Active Duty and
Reserve personnel. Measures of the benefits of
commissaries and exchanges are informed by a
common framework of critical, tangible outcomes
identified by patrons, leadership, and industry in a
2004 study: cost savings, convenience, source of
familiar brand name goods overseas, product
selection, product quality (commissary only), and
availability of “military unique” items (exchange
only). Work remains to refine the measures of
retention and readiness outcomes. Since 2002,
commissary and exchange customer satisfaction
has been measured annually through the
American Customer Satisfaction Index, which
tracks trends in customer satisfaction and is a tool
to perform strategic benchmarking and make
competitive comparisons to past performance,
other retailers, and industry. Each of the Resale
Activities developed extensive, customized
annual customer surveys as diagnostic tools to
measure and understand what drives customer
satisfaction in their stores.
Commissary and Exchange Pricing
Internal Department of Defense reviews have
improved the methodology and market baskets
utilized by DeCA and the exchanges, validating
the accuracy of saving estimates that CBO
criticized in 1997. However, comparisons of the
commissary and exchange savings must always
consider that the commissary includes the average
state and local sales tax of 2.82%, while
exchanges do not estimate sales tax savings. The
exchanges do not include alcohol or tobacco
products, which shall not be discounted more than
5 percent, in their savings calculations.
Commissary and Exchange
Merchandise
Only the exchanges are authorized to sell
packaged alcohol and tobacco products on
military installations. Studies show that
restrictions on the availability and pricing of
tobacco and alcohol support the Department’s
health promotion programs. In 2000, a
congressionally directed commercial survey of
eligible commissary patrons determined the items
and services that would most influence decisions
to shop at commissaries. Availability of beer,
wine, and tobacco ranked in the lowest quadrant
of merchandise. Follow-on studies of DeCA
selling beer and wine identified concerns with the
effects on exchange profits distributed to Army
and Air Force MWR programs; lack of
consistency with alcohol deglamorization
programs in the Department of the Navy; and
concerns about perceptions of taxpayer subsidy.
Pilot tests on adding other exchange merchandise
(film, phone cards, disposable cameras) to
commissary stock assortments have not proven
successful due to regulatory and statutory
constraints that preclude DeCA from
incorporating supply chain and operation
efficiencies. In 1999, DeCA tested and adopted a
Best Value Items program of brand name items
that are price-competitive with private or local
label brand items available in commercial
supermarkets. In 2002, GAO recommended that
DeCA lower prices and provide additional
opportunities to small business through private
label goods. A 2004 study of variable
pricing/private labels found that the practices
would not reduce DeCA’s APF costs while
sustaining 30% commissary savings, since
supplier prices (product costs to DeCA) are based
on discounts passing directly to customers. 3
The CBO recommendations would degrade the
commissary and exchange benefits and curtail
MWR programs supported by exchanges,
negatively impacting the total compensation
package and quality of life of military personnel
and their families, including those entitled to
retainer pay. There are further implications: the
commissary, exchange, and MWR programs are
important contributors to the enhanced quality of
life and well being of military families, which
correlates to retention and readiness.
CBO estimates that consolidation of commissary and
exchange systems will not produce sufficient
efficiencies to offset the elimination of appropriated
funding and would pass the remaining bill to military
families by increasing commissary and exchange
prices, thereby reducing savings provided to military
families as part of their non-pay compensation
benefits package. The CBO estimate is flawed: a 7
percent increase in prices will not generate sufficient
revenue to offset the loss of appropriated funds due to
adverse vendor and patron reactions. Customer
satisfaction, vendor promotions, and sales would
decline as rising prices erode customer savings.
Active Duty, Reserve Component and Guard
members; retirees; and their families consistently
rate the commissary and exchange as top tier nonpay military compensation benefits. Military
patrons rate savings as the most important aspect
of their commissary and exchange benefits in
Defense Manpower Data Center’s Status of the
Forces Surveys of Active Duty and Reserve
personnel. Further, commissary and exchange
customers are more price sensitive than the
average shopper, as measured annually through
3
“Variable Pricing Feasibility” Dove Consulting Willard
Bishop Consulting, Ltd, March 2004
the American Customer Satisfaction Index.
Patrons would be immediately aware of – and
highly sensitive to – price increases.
Appropriated funding and vendor support of the
military market, enable the commissary and
exchanges to set prices below commercial market
prices. Today, military families save an average
31.5 percent at the commissary and 24 percent at
exchanges. The $10.5 billion value of those
savings to military families far exceeds the $1.7
billion appropriations to operate the commissary
and exchange systems. As prices increase, there
is an impact on vendor support, customer savings,
and patron spending (units purchased) and dollar
sales revenues. A 2004 study of commissary
pricing estimated a 5% price increase would
reduce customer traffic by 17.1% and cause a
7.52% decrease in unit sales, and a 5.49%
decrease in dollar sales.
The CBO analysis overstates exchange
appropriated costs, omits implementation costs,
overstates efficiencies, overstates revenue – and
the price increase -- that would be required to
cover the costs of a consolidated system.
The exchanges price their goods to provide
savings to customers and to generate sufficient
“nonappropriated fund” profit margin to support
$1.5 billion of annual operating and capitalization
costs, and sustain distributions to MWR
programs. The exchanges draw relatively little
direct appropriated support ($216 million), mostly
used to transport U.S. goods to overseas
installations. However, the exchanges receive
approximately $310 million of indirect
installation support services and support of
exchange operations in combat and forward
deployed areas (including ships).
A 2006 DoD study concluded that the risk
outweighs the rewards of consolidating the three
Military Exchange Services. The study identified
potential efficiencies from combining exchange
overhead at $151 - $162M per annum, or 10 to 11
percent of total annual costs; plus, $213-$216M of
implementation costs over the first three years of
transition.
The further consolidation of the three Military
Exchange Services and the Defense Commissary
Agency (DeCA), with over 5,300 retail outlets
worldwide, also has been judged as too risky.
The concept of combining commissary and
exchange operations and raising prices as a means
to lower appropriated costs has been tested. For
over ten years, the exchanges operated four
combined commissary and exchange stores, with
a 75 percent to 100 percent reduction of
appropriated support to the commissary. Without
exception, the model reduced commissary
benefits (through higher prices and limited
selection) and substantially reduced the exchange
profits available to MWR activities.
Over sixty percent of DeCA’s annual appropriated
operating budget supports personnel-related costs.
The 78,000 commissary and exchange civilian
employees are under different personnel systems.
A 2003 study examined the feasibility of
converting DeCA personnel to the
nonappropriated personnel system used by the
exchanges and MWR programs. The study
determined significant implementation risks for
DeCA workforce stability and estimated that
revised wage surveys would escalate exchange
and MWR personnel costs $240 - $421 million
annually (a 9 to 16% increase).
The CBO did not identify costs to other DoD
programs such as the effects on the Cost of Living
Allowance (COLA), military MWR activities, and
Buy American and small business set-aside
programs.
Reduced commissary and exchange benefits may
increase the COLA to active duty personnel in
high cost areas. The COLA is reduced by the
value of savings from available commissary and
exchange benefits. In the continental United
States, the COLA bill is reduced by
approximately $1.5 billion annually for 38,000
active duty personnel. For the approximately
250,000 active duty personnel stationed in Alaska,
Hawaii and overseas, the COLA reduction varies
by location.
MWR programs depend on exchanges for over
$300 million of their annual funding. Exchanges
will not be able to sustain this level of support,
which is a secondary mission after providing
savings on exchange items. Military MWR
community activities (including youth programs,
outdoor recreation, and auto hobby shops) would
be curtailed, or military personnel and families
would be required to pay higher participation fees.
Conforming repeals to effect the CBO
recommendations did not specify 10 U.S.C.,
section 2483(b)(5) and section 2643, which
require that appropriations shall fund
transportation of U.S. goods shipped to
commissaries and exchanges outside the
continental United States. The appropriated
funding of transportation allows the commissaries
and exchanges to sell American-brand products at
stateside prices to military families stationed
overseas. If appropriations could no longer be
used for the transportation costs, the price and
availability of those items could be affected.
Small and disadvantaged businesses (including
Ability One) are awarded approximately $1.2
billion of contracts annually. The CBO
recommendations would create a consolidated,
nonappropriated fund entity, which would not be
required to participate in set-aside programs.
Privatization / Contracting Out
The FY 1997 Quadrennial Defense Review
concluded that no savings would result, and that
privatization would pose a significant threat to
quality of life. Defense reform, performance, and
efficiency reviews since 1997 determined that
privatization would not provide the same level of
access to commissary benefits (especially in
remote, isolated or small population areas), would
not sustain the level of benefit (selection, price),
and could not provide for safety and security
requirements, especially in overseas locations.
There would be effects on the Cost of Living
Allowance (COLA) to active duty personnel in
high cost areas, and this COLA is reduced by the
value of available commissary and exchange
benefits. In the continental United States, the
COLA bill is reduced by approximately $1.5
billion annually for 38,000 active duty personnel.
For the approximately 250,000 active duty
personnel stationed in Alaska, Hawaii and
overseas, the COLA reduction varies by location.
Estimated reductions include $5.6 billion for
Okinawa, Japan; $195 million for Oahu, HI; $193
million for Kaiserslautern Military Community
(KMC), Germany; $188 million for Vilseck /
Grafenwoehr, Germany; and $26 million for
Naples, Italy.
There would be lost income to military families
with dependents who work in the commissary and
exchange. The military resale system is one of
the largest employers of military family members,
with dependents representing approximately 40%
of the commissary workforce and 24% of the
exchange workforce. Further, there would be lost
trading partners support of military communities.
For example, DeCA industry partners provide
$244 million per annum through charitable
contributions, scholarships, contests, and special
events. Finally, there may be mission-related
considerations. DeCA and the exchanges are
significant shippers of military goods overseas
through the Defense Transportation System
(DTS), with FY 2010 transportation costs
overseas of $131.9 million and $353.1 million
respectively. Also, the Exchanges provide
essential health, comfort and convenience items to
military personnel in forward deployed and
combat areas.
Based on the reviews and to maximize defense
resources (appropriated, surcharge and NAF),
DeCA and the exchanges have expanded the use
of concession and other public-private ventures.
Since its formation in 1990, DeCA privatized its
distribution system, relying on a commercial
system of brokers and distributors to supply its
stores. DeCA contracts 31% of its store
operations, including the functions of receiving,
storage, shelf-stocking, and custodial duties.
Additionally, self-employed personnel perform
the bagging function in commissaries.
The exchanges have expansive programs for
concession and public-private partners that
provide over $2.2 billion in merchandise and
services and generate concession income of $275
million for the exchanges, while avoiding
facilities construction costs. DeCA operates
contracted deli-bakery operation in 163 stores, or
65% of its locations worldwide.
Small and disadvantaged businesses (including
Ability One) are awarded approximately $1.2
billion of contracts annually by DeCA, AAFES
and NEXCOM.
Cash Allowances. With savings estimated at
$2.69 billion for commissary shoppers and $3.5
billion for exchange shoppers, Defense and OMB
performance, budget and efficiency reviews
concluded that cash allowances for commissary
benefits would be more costly than the current
cost of operating the Resale system and would
adversely affect the 2.3 million retirees who do
not qualify for allowances. Most recently, the
10th Quadrennial Review for Military
Compensation (QRMC) evaluated whether the
value of commissary benefits could be more
efficiently provided as cash compensation, either
through the Basic Allowance for Subsistence or
vouchers for use at retail grocery stores. The
QRMC concluded that a direct compensation
scheme couldn’t account for variation in benefits
attributed to each member’s usage of the
commissary. The 10th QRMC also recommended
DoD develop relationships with commercial
grocery stores to provide discounts to Service
members, citing a brief (but unsuccessful) attempt
to test the concept near Naval Station Pascagoula,
MS in 1997.
69 APPENDIX B - TEXT OF CBO RECOMMENDATION ON REDUCING THE DEFICIT
APPENDIX
B
Text of CBO Recommendation on
Reducing The Deficit
Option 6
T
he Department of Defense (DoD) operates
four retail systems on military bases: a network
of grocery stores (commissaries) that serves all
branches of the armed forces and three chains of
general retail stores (exchanges). One system of
exchanges serves the Army and Air Force, a
second serves the Navy, and a third serves the
Marine Corps. The option would consolidate
those systems into a single retail system that
would operate more efficiently and without any
appropriated subsidy. Like the current separate
systems, the consolidated system would give
military personnel access to low-cost groceries
and other goods at all DoD installations including
those in isolated or overseas locations.
The existing commissary and exchange systems
operate under very different funding mechanisms.
The commissary system, which is run by the
Defense Commissary Agency (DeCA), has yearly
sales of about $6 billion, but it also receives an
annual appropriation of about $1.3 billion. The
three exchange systems have annual sales that
total about $12 billion. They receive no direct
appropriation; they rely on sales revenue to cover
most of their costs. A relatively small portion of
their costs, such as expenses for transporting
merchandise overseas, is paid from appropriations
elsewhere in the defense budget.
The exchanges can operate without appropriated
subsidy because they charge customers a higher
markup over wholesale prices than commissaries
do. Also the exchange systems are
nonappropriated-fund (NAF) entities- that is they
rely mostly on funds generated from sales to
finance their operations instead of appropriations
from the federal government- they have more
flexibility in business practices for personnel and
procurement. By contract, DeCA’s employees are
civil service personnel, and it must follow
standard federal procurement practices. This
option is based on the assumption that
consolidating the four retail systems would
eliminate duplicative functions and that DeCA’s
civil service employees would be converted to the
NAF workforce.
Under this option, the commissary and exchange
systems would be consolidated over a five-year
period. At the end of that period, the budget
authority required to operate the combined system
would be lower by almost $2 billion per year.
This option would return about a third of that
amount to active-duty service members through a
tax free grocery allowance to each of roughly 1.4
million active-duty service members. The grocery
allowance would be phased in to coincide with
consolidation of commissary and exchange stores
at each base.
70 APPENDIX B - TEXT OF CBO RECOMMENDATION ON REDUCING THE DEFICIT
Table B-1.
Discretionary Spending - Option 6
Function 050
Consolidate the Department of Defense's Retail Activities and Provide a Grocery
Allowance to Service Members
Source: Congressional Budget Office
The net annual saving in budget authority by 2016
would be a little over $1 billion. Outlay savings
to DoD over the next decade would total about $8
billion.
To operate within budget and without
appropriated funds, the consolidated system
would have to charge about 7 percent more for
groceries and other merchandise. At the current
volume of sales at the commissaries and
exchanges increase in prices would cost military
personnel—active-duty, reserve, and retired—and
their families and additional $1.4 billion annually.
Active-duty members and their families would
pay about $400 more per year, on average, but
that amount would be offset by the new grocery
allowance. Cash allowances would be
particularly attractive to personnel who lived off
base and could shop more conveniently near
home or on-line. All military families would
benefit from longer store hours, one-stop
shopping, access to private-label groceries (which
are not currently sold in commissaries), and the
greater certainty inherent in a military shopping
benefit hat did not depend on the annual
appropriation process. Another advantage is that
the $400 average grocery allowance could be
targeted towards specific pay grades or groups,
with larger allowances given to enhance retention
or to junior enlisted members with large families,
for example.
DoD’s retail system would benefit as well.
Commissaries and exchanges must now compete
with on-line retailers and the large discount chains
that have opened discount grocery and general
merchandise stores just outside the gates of many
military installations. Recent tightening of base
security procedures and changes in the civilian
retail industry have made it more difficult and
costly for DoD’s fragmented retail system to
provide those services. This option would allow a
consolidated system staffed by NAF to better
compete with civilian alternatives.
One argument against consolidation is that about
$750 million of the price increases would be
borne by the military retirees who shop in the
commissaries and exchanges but who, under the
option, would not receive grocery allowances.
The average family of a retired service member
would pay about $325 more per year for
groceries.
71 APPENDIX C - THE COMMISSARY SURCHARGE
APPENDIX
C
The Commissary Surcharge
Summary
M
odern shoppers at military commissaries
are able to save over 30 percent of what they
would spend at nearby civilian grocery stores.
This is possible because the Defense Commissary
Agency follows a long-standing policy, initiated
in 1825, of selling goods “at cost,” that is, with no
mark-up or profit to the commissary.
this by including transport and storage costs in the
price at the checkout. The word ‘surcharge’ was
never mentioned, but that’s what the price hike
constituted. It stopped in 1928, and there was no
talk at all of raising prices or using a surcharge
during the Great Depression (1929-1940) or
during World War II (1941-45).
Most commissary shoppers know that a 5 percent
surcharge is added at the checkout to their grocery
bill (the surcharge is calculated on the total before
coupons are deducted). But not all shoppers are
aware of how those funds are used. Simply put,
the surcharge collected at the register goes back
into the stores, paying for new store construction,
renovation, maintenance and repairs, equipment,
and store-level information technology systems,
such as checkout scanners. Appropriated fund
(tax) dollars are not used for these purposes, in
other words, taxpayers not eligible to shop in the
commissaries do not pay for commissary
construction.
The modern surcharge began in 1952, when
Congress decided commissaries needed to be
more self-supporting. Congress and the Defense
Department directed the Services to have their
commissaries add a 2 percent surcharge to the
price of goods to cover costs of purchasing and
maintaining equipment and supplies. This was
done, in part, to relieve some of the political
pressure placed on the stores by opponents who
wanted to close them completely.
The surcharge is not a recent innovation. In 1879,
to pay for spoilage and transportation costs, an
experimental surcharge of 10 percent was levied
on all commissary goods except tobacco.
Unpopular among enlisted men, who were paid
only $13 per month; it was repealed after 5 years.
Four decades later, from 1923 to 1927, Congress
asked the commissary customer to pay “the
customary overhead costs of freight, handling,
storage and delivery.” The stores accomplished
From the beginning, the Services followed
different paths in fulfilling the law. The Army and
the Air Force used a set surcharge that was added
to the total bill at checkout, whereas, the Navy
and Marines Corps employed a variable surcharge
that was more on some items, less on others, but
still averaged the prescribed 2 percent.
Throughout the next 20 years the rate fluctuated
and varied from Service to Service. It was usually
slightly higher at overseas locations; for example,
whatever the prevailing percentage rate was, the
Army charged an extra ½ percent at its overseas
stores.
72 APPENDIX C - THE COMMISSARY SURCHARGE
In 1974, to provide funds for construction and
improvements of store facilities, Congress fixed
the surcharge at Army and Air Force stores in the
United States at 3 percent (European stores were
½ percent more), with an automatic increase to 4
percent in 1976. Congress increased the amount
to 5 percent in April 1983. The Navy and
Marines continued to employ a variable surcharge
that averaged approximately the same percentage
amount as that being paid at Army and Air Force
stores. Today, the surcharge is a flat 5 percent on
every item sold at all DeCA stores, stateside and
overseas.
Some people erroneously describe the surcharge
as a “tax.” This generalization is unfair,
inaccurate, and really misses the point entirely.
Tax dollars would help finance multiple
government programs; surcharge dollars are spent
specifically on building, modernizing, and
maintaining commissary facilities–benefiting the
very people who have paid the surcharge, thus
helping preserve the benefit.
Current Law Applicable to
Surcharge
Since October 1, 2001, funds appropriated to the
Defense Working Capital Fund (DWCF4) are used
to pay operating expenses (i.e., salaries, utilities,
communications, operating supplies and services,
second destination transportation costs within and
outside the United States, and any costs relating to
above-store level management)(10 U.S.C. §
2483). Prior to that date approximately 25
percent of the store operating expenses were paid
from surcharge. The sources and uses of
surcharge are set by law.
Surcharge revenues are generated from a number
of sources. These include the 5 percent surcharge,
a rate which is set by statute (10 U.S.C. §
2484(d)), dishonored check collection fees (10
U.S.C. § 2485(g)), the sale of scanner data (10
U.S.C. § 2485(h)), sale of recyclables, sale of
excess and surplus property, license fees,
royalties, and business related management fees
(10 U.S.C. § 2484(h)(4)). In addition, the
Comptroller General has ruled that “discounts
earned” should be deposited to surcharge since
discounts are actually a return of a portion of the
amount the patron had already paid in purchasing
goods.
Since October 1, 2001, the surcharge may only be
used for construction, renovation, repair,
maintenance, and the purchase of equipment (both
installed and free standing) necessary to provide a
complete and usable commissary store or central
product processing facility (10 U.S.C. § 2484(h)).
Because Defense Agencies are prohibited from
owning property (10 U.S.C. § 2682), once the
construction project is completed, title is turned
over to the Military Service on whose installation
the commissary is situated.
Beginning December 28, 2001, the Military
Service involved is required to reimburse the
DeCA surcharge fund the depreciated value for
any former commissary facility, built, renovated,
or improved with surcharge dollars, that it
converts for any use other than to support
commissary operations (10 U.S.C. §2485 (e)).
The proceeds from the sale of any commissary
store or NAFI5facility as a result of a BRAC 6
action are deposited in a separate Treasury reserve
account. Without reference to their source (i.e.,
commissary or NAFI) these funds can be used to
construct, renovate, or improve stores.
5
4
DWCF—Defense Working Capital Fund
6
NAFI—Nonappropriated Funds Instrumentalities
BRAC—Base Realignment and Closure
73 APPENDIX D - STATUS OF NON-APPROPRIATED FUND ACTIVITIES
APPENDIX
D
Status of Non-Appropriated Fund
Activities
Summary
T
raditionally, since nonappropriated fund
activities were generally created by agencies,
those agencies also provided for their operations
and carried out their oversight by regulation. As
with other issues involving nonappropriated fund
activities, the Department of Defense’s extensive
regulations are the best examples of this process
of administrative regulation and oversight. These
regulations cover everything from the creation of
nonappropriated fund activities, their purpose,
funding, contracting, employment, audits,
financial management, property management, to
their dissolution.
Congress has also approved regulations of
nonappropriated fund activities, required specific
departments to regulate such entities and imposed
specific requirements by statute. For example,
by Act of March 2, 1821, 3 Stat. 615, Congress
approved the General Regulations for the Army
which contained specific regulations regarding
Sutlers. Under 10 U.S.C. § 2783, the Secretary of
Defense is required to establish regulations for
nonappropriated fund instrumentalities governing
the purposes for which nonappropriated funds
may be expended and the financial management
of such funds to prevent, waste, loss or
unauthorized use. Section 2783 also establishes
penalties for violations of the financial
management regulations for civilian employees of
the Department of Defense and members of the
armed forces. Under 10 U.S.C. § 136, Congress
established the position of the Under Secretary of
Defense for Personnel and Readiness who is to
perform duties which include exchange,
commissary and nonappropriated fund activities.
There are certain items and services that
employees and officers of the United States
government need to carry out government
business. Office supplies, telephones, and
computers come to mind. There are other items
and services that support the efforts of
government employees and officers to carry out
the government’s business by fulfilling their
morale, welfare and recreation needs
(commonly referred to as MWR).
While the private sector can provide some of
these MWR needs, it has been unable or
unwilling to meet all MWR needs at every
location. Thus, the government has turned to
other sources, such as non-appropriated fund
instrumentalities or activities, to supply MWR
items and services.
Box D-1.
Testimony - Louis Spector
“Their birth is funded by the Government. The seed money for their creation came from the
Government. They are managed by Government people who are paid Government salaries.
They usually occupy Government facilities, perhaps on some cost-reimbursable arrangement,
but on Government real estate, using Government facilities. They perform essentially a
morale-building function for Government personnel, which the Government would otherwise
have to appropriate funds for if it weren’t having it done in this manner. There is a very close
identity between them and the Government people with whom they are working every day.
They are providing service to Government people engaged in a Government mission.
Testimony of Louis Spector, Commissioner of the Court of Claims on nonappropriated fund
instrumentalities. Jurisdiction of U.S. Courts, Nonappropriated Fund Activities: Hearings on S.
980 Before Subcommittee No. 4 of the House Committee on Judiciary, 91 st Cong., 1st Sess. 9
(1969)
Although non-appropriated fund instrumentalities
or NAFIs, as they are commonly referred to, are
related to the government and provide a wide
range of government- related services and
activities, they occupy a unique legal status.
The need to provide services and items to fulfill
the morale, welfare and recreational needs of
officers and employees originated long before the
establishment of the United States Government
and far from our shores. Persons providing such
support have existed since the times of the Roman
Legions. “Caesar alludes to the itinerant
merchants who followed the legions, selling items
not considered necessaries by quartermasters.”
From the time of the Roman Legions to the
European armies and navies of the 17th and 18th
centuries, these men, known as Sutlers, followed
armies and met ships in port in order to supply the
soldiers and sailors with provisions and
contraband. Due to the monopolistic prices
charged by Sutlers, sailors organized their own
ship cooperatives called “slop chests.”
The United States Government has, at times,
directly provided items and services to meet the
morale, welfare, and recreational needs of its
officers and employees while, at other times, it
has relied upon private sources, albeit under
governmental control, to provide such goods and
services. Beginning with the American Articles of
War of 1775, Sutlers, itinerant or camp-following
merchants, were authorized to sell to the troops
items not provided by the Government such as
“victuals, liquors, or other necessaries of life” for
the use of soldiers. The American Articles of War
of 1775 also regulated the Sutlers’ conduct, hours,
and quality of items sold.
For example, although Sutlers were not a
component part of the Army, they were subject to
the orders and regulations of the Continental
Army and later the United States Army and local
commanders. Sutlers were not permitted
to sell liquor, victuals or provide entertainment
after nine at night, before the beating of the
reveilles, or during Sunday religious services.
Commanding officers had duties relating to
suttling which required them to see that Sutlers
supplied soldiers with good and wholesome
provisions at a reasonable price. Commanding
officers were prohibited from charging exorbitant
prices for houses or stalls let out to Sutlers or
charging any duty upon sales or having any
financial interest in sales. The American Articles
of War of 1775 also established a fund for fines
collected from soldiers and officers for behaving
indecently or irreverently during religious
services. The fund was to be used to aid sick
soldiers of the troop or company to which the
offenders belonged. This is the first record we
have of a United States Government
nonappropriated fund activity.
The Sutlers were assessed fees for the privilege of
doing business. The fees were based upon the
average number of soldiers in a unit. Fines were
assessed for violation of regulations. Both were
deposited into the “post fund” administered by a
group of officers, known as the “Council of
Administration,” along with the post commander.
Kovar, supra note 216, at 97. The post fund,
analogous to what we now call a NAFI, was used
to aid indigent widows or children of deceased
soldiers, disabled soldiers discharged without
pensions, to buy books and periodicals for the
post library, and to support the post school and
band. In 1835, company funds, subject to the
control of the post commander, were authorized
by Army regulations to derive income from rental
of billiard tables, the sale of grease from the
company mess and savings from the economical
use of food.
Sutlers were permitted to sell to the soldiers on
credit and the paymaster could deduct the amount
from the soldier’s pay and pay the Sutler directly.
In 1847, Congress abolished Sutlers’ rights to
have such a lien on a soldier’s pay. Act of March
3, 1847, 9 Stat. 185. Congress reinstated and
abolished the Sutlers’ right to have a lien on a
soldier’s pay several times throughout the next
decades. In 1862, Congress enacted a bill which
provided for the appointment of Sutlers in the
Volunteer Service, set out their duties, and
authorized Sutlers to have a lien on part of a
soldier’s pay. Act of March 19, 1862, 12 Stat.
371. This act established guidelines for the
activities and service of Sutlers to the Army and
their regulation by the War Department. The
commanding officer of each brigade was required
to have the commissioned officers of each
regiment in the brigade select a Sutler for their
regiment, who would be the sole Sutler for that
regiment.
The Sutler system was subject to many abuses;
soldiers were cheated, charged usurious interest,
and military officials and the merchants were
involved in fraud and corruption. Appropriated
Fund Support for Nonappropriated Fund and
Related Activities in the Department of Defense,
GAO/FPCD-77-58, 4 (August 31, 1977). In 1866,
Congress responded to these abuses by abolishing
the office of Sutler effective July 1, 1867..; 14
Stat. 328, 336 (1866). With the abolishment of
Sutlers, Congress required the subsistence
department of the Army to sell articles, designated
by the inspectors general, at cost. 14 Stat. 328,
336 (1866). In 1867, Congress authorized the
Commanding General of the Army to permit the
establishment of trading posts on certain military
posts. Joint Resolution of 30 March 1867, 15 Stat.
29. Where the commissary department was
prepared to supply stores to soldiers (in
compliance with the 1866 act, 14 Stat. 328),
traders were not permitted to remain at such posts
or sell any goods kept by the commissary
department.
The act listed specific articles that Sutlers could
sell to soldiers including food, toiletries, reading
materials, tobacco, stationery and other items
which in the judgment of the inspectors general
were for the good of the service. However, the
sale of liquor was prohibited.
In 1870, Congress repealed the Joint Resolution
of March 30, 1867, and enacted legislation which
authorized the establishment of post traders in
certain locations to be under the protection and
control of the military as camp followers
and subject to the War Department’s regulations.
Act of July 15, 1870, 16 Stat. 315, 319-20. The
War Department established general policies
regulating the post traders which were carried out
by a council of administration for the post. Kovar,
supra note 216, at 100 n.28. Unlike the Sutlers
before them, the post traders did not have the right
to a lien on a soldier’s pay.
The Secretary of War did not appoint a post trader
at all military posts. Kovar supra note 216, at 101.
At posts where there were no post traders,
commanders were authorized to establish
canteens to supply troops with articles for their
entertainment and comfort at moderate prices.
The following year, in 1890, all posts were
authorized to establish canteens. Post
commanders were permitted to make government
buildings available to house canteens and its
activities. An officer “in charge of canteen”
managed the canteen assisted by a “canteen
council” and its profits were distributed among
the participating companies. A canteen was
established either on credit or from funds of the
companies benefiting from the canteen. To
promote and expand canteens, the War
Department prohibited company fund activities
from selling any item sold by the canteen.
Canteens were authorized to use profits to
purchase sporting equipment and any items that
would contribute to the “rational enjoyment and
contentment of the soldiers.”
Canteens evolved into the post exchanges which
performed essentially the same functions. Kovar,
supra note 216, at 102; Noone, supra note 213, at
365. By 1893, the post exchange had taken over
the services provided by the post trader and
Congress prohibited the Secretary of War from
making further appointments of post traders or
from filling vacancies. Act of January 28, 1893,
27 Stat. 426. In 1895, the War Department
established post exchanges at all military posts.
Kovar, supra note 216, at 102, citing General
Order No. 46, July 25, 1895. The post exchanges
were to provide a reading and recreation room, a
store, a restaurant, and other facilities to supply at
reasonable prices, articles (not supplied by the
Government) for rational recreation and
amusement. Post exchanges were authorized to
use government buildings and were managed by
an “officer in charge” and a council which
reported to the post commander.
Although the Army regulated post exchanges and
provided direct support through free government
space and the use of military officers to manage
their operations, the post exchanges were not
considered to be an agency or instrumentality of
the United States. Noone, supra note 213, at 365.
The Judge Advocate General of the Army
described the legal status of the post exchange in
an 1893 opinion:
“Now the Post Exchange is not a United States
institution or branch of the United States
military establishment, but a trading store
permitted to be kept at a military post for the
convenience of the soldiers. It is set up and
stocked, not by means of an appropriation of
public moneys, but by means of the funds of
companies, etc.; the officers ordering the
purchases [are] responsible for the payment,
not the Government.”
Noone, supra note 213, at 365, citing 61 JAG
Record Book, 1882-1895, 479 (1893).
Congress limited the aid that the Army could
provide to the post exchanges in the Army’s
Appropriations Act for Fiscal Year 1893 as
follows:
“And provided further, That hereafter no money
appropriated for the support of the Army shall
be expended for post gardens or exchanges, but
this proviso shall not be construed to prohibit
the use by post exchanges of public buildings or
public transportation when, in the opinion of the
Quartermaster-General, not required for other
purposes.”
Act of July 16, 1892, 27 Stat. 174, 178.228
The post exchange and post and company funds
continued to carry out MWR functions until after
World War I. Kovar, supra note 216, at 102. After
World War I, the War Department created and
expanded organizations and functions to provide
services such as motion pictures and
library facilities, recreation centers and programs,
child care centers, restaurants and other services
for both service members and their family
members. Castlen, supra note, at 8; Kovar, supra
note 216, at 102-103. The War Department
established a Morale Branch in 1941 to provide
MWR services. During World War II, the post
exchanges were reorganized into a central
organization known as the Army Exchange
Service (currently in operation and now known as
the Army and Air Force Exchange Service or
AAFES) within the Morale Branch of the War
Department.
The military nonappropriated fund activities have
grown in size and complexity. There are also
nonappropriated fund activities serving civilian
officers and employees of the government.
However, their basic purpose is the same; to
provide for the morale, welfare and recreation of
government officers and employees.
The Department of Defense defines a
nonappropriated fund instrumentality as:
“An integral DoD organizational entity that
performs an essential government function. It
acts in its own name to provide or assist other
DoD organizations in providing MWR
programs for military personnel and authorized
civilians. It is established and maintained
individually or jointly by the Heads of DoD
Components. As a fiscal entity, it maintains
custody of and control over its NAFs
[nonappropriated funds]. It is also responsible
for the exercise of reasonable care to
administer, safeguard, preserve, and maintain
prudently those appropriated fund resources
made available to carry out its function. It
contributes, with its NAFs to the MWR
programs of other authorized organizational
entities, when so authorized. It is not
incorporated under the laws of any state or the
District of Columbia and it enjoys the legal
status of an instrumentality of the United
States.” “Establishment, Management, and
Control of Nonappropriated Fund
Instrumentalities,”
Department of Defense Directive 1015.1, Encl.
2, ¶ 2, August 19, 1981 (hereafter DoDI
1015.1).
One court described NAFIs as follows:
"A non-appropriated fund activity is one to
which the government has initially provided
funds to permit it to begin operation. The
governmental loan is repaid out of the profits
earned by the activity. Thus, the activity is
created by the government with governmental
funds for governmental personnel, and is
administered by governmental employees for the
use and benefit of the United States."
Bowen v.Culotta, 294 F. Supp. 183, 185 (E.D.
Va. 1968).
One important characteristic that defines NAFIs,
and also distinguishes them from federal agencies
or private commercial enterprises is the purposes
for which they are created. That is, to meet the
morale, welfare and recreational needs of
government officers and employees. DoD
articulates the importance of MWR programs,
many of which are carried out by NAFIs, as
follows:
“MWR programs are vital to mission
accomplishment and form an integral part of the
non pay compensation system. These programs
provide a sense of community among patrons
and provide support services commonly
furnished by other employers, or other State and
local governments to their employees and
citizens. MWR programs encourage positive
individual values, and aid in the recruitment
and retention of personnel. They provide for the
physical, cultural, and social needs and general
well-being of Service members and their
families, providing community support systems
that make DoD bases temporary hometowns for
a mobile military population.”
“Morale, Welfare, and Recreation (MWR),
DOD Instruction No. 1015.10” ¶ 4.2, November
3, 1995.
While many MWR needs are met by profitable
commercial-type operations, such as the post
exchanges, child care centers, golf courses,
restaurants, and gyms, profits are not the
overriding goal. Although they are defined as
using nonappropriated funds, in cases where
NAFIs have not been profitable or self-sustaining,
the Government has subsidized their operations
with appropriated funds in order to ensure the
MWR needs are met. Where profitable, the
disposition of NAFI profits also differs from
typical commercial enterprises which would
normally benefit owners or stockholders. For
example, DoD NAFIs use their profits to support
MWR programs.
Although some are capable of providing services
or goods needed by the Government, the
Comptroller General has held that as a general
rule, nonappropriated fund activities “are not in
the business of supplying the Government with its
procurement needs,” unless there are exigent
circumstances or situations where it is
impracticable to obtain services from others. 58
Comp. Gen. 94, 98 (1978).
Serving the needs of government officers and
employees with goods and merchandise
purchased through NAFIs is not limitless. NAFIs
provide government officers and employees with
items and services for their personal consumption,
not for their business, profit making motives.
Covill v. United States, 959 F.2d 58 (6th Cir.
1992) (Coast Guard Warrant Officer received a
punitive letter of reprimand because he purchased
merchandise from a NAFI purportedly for
personal use, but instead, used the merchandise in
his restaurant where he sold it at retail to the
general public.)
MWR is a military acronym that stands for
Morale, Welfare and Recreation. The term is
given to a complete range of community support
and quality of life programs for members of the
Armed Forces, their families, and retirees at more
than 2,000 facilities on U.S. military bases
throughout the world. MWR facilities
encompasses a wide variety of services, including
sports and physical fitness centers, food and
beverage outlets, lodging programs, child
development, youth activities, entertainment,
travel and leisure. The MWR programs operated
by each branch of the military contribute to the
retention, readiness, mental, physical and
emotional well-being of the U.S. Armed Forces
and their family’s sales totaling more than $3.6
billion in 2002, each military service has its own
MWR program. MWR activities are categorized
as both appropriated funded (taxpayer) and
nonappropriated funded (self generated) activities.
ALA understands the nuances of this marketplace
and can assist members as needed.
Source: General Accountability Office
79 APPENDIX E - HISTORY
APPENDIX
E
History
T
he evolution and history of the resale system
is as old as the country itself, starting General
Washington and the Continental Army. It has
evolved reflecting the growth of the military
structure and ever changing member and family
needs.
labor pool simultaneously with increasing
requirements for a more technical work force.
Retention will be the key to the success of the
military.
The system plays an increasingly important role
in key quality of life and retention issues. The
Commissary benefit has traditionally been the
most important non-pay benefit next to medical
care, and it is a significant contributor to
retention. If this benefit is to be fully exploited,
commissary levels of support must continue to
meet the demands of the military community as
defined in the mission statement. An increase in
service, however, requires additional revenue.
The source of this revenue has traditionally been
through the appropriation process. The Jones
Commission found, however, that industry has
experienced many of the same revenue constraints
currently facing the military commissary system.
Successful companies in the grocery industry
have maintained profit levels and market share by
improving productivity rather than increasing
selling prices. The commission focused on the
commercial grocery industry's most successful
organizations, policies and procedures for
potential application to military commissaries.
Exchanges
The demographics point to a continuing shift in
the military from single Service members to
married Service members with working spouses.
The military will also experience a shrinking
The military exchange history in the United States
dates back to 1776, when Congress authorized
civilian sales concessions to be established so
General Washington’s Continental Army could
purchase items for personal use such as tobacco,
soap and razors, as discussed above. Because of
corruption, these concessionaires, or “Sutlers” as
they were more popularly called, were replaced in
1867 by post traders. The War Department
contracted with these traders to sell non-issue
items to service members on military installations.
The early post exchanges were a combination of
club, grocery store, and department store; and
were operated by Service members or Army
officers. The abuses which plagued the early
frontier soldier and hampered the Army from
fulfilling its mission were finally overcome
through the establishment of the military retail
system and control of the functions by the
military. The commissary system supplied the
soldier with quality food at below market prices;
the PX provided those items necessary for morale
and entertainment.
With westward expansion, Army personnel
formed social clubs called “canteens”, which sold
ordinary items without profit. In 1889 the War
Department published rules and regulations for
the operation of post canteens, thus putting post
traders out of business. Then on July 26, 1895,
the War Department published General Order No.
46, setting the standard for the concept and
mission of the modern exchange service.
Within the Army, exchange operations were
established at the various posts with little or no
direction from higher headquarters. Post
commanders decided how earnings were spent.
This system remained unchanged until 1941,
when the Army Exchange Service was established
to provide broad policy guidance for worldwide
operations.
After the Department of the Air Force was
established in 1947, the exchange became a joint
operation. The Army Exchange Service was redesignated Army and Air Force Exchange Service
in 1948. In 1972, the CONUS and overseas
exchange operations were integrated into today’s
worldwide command.
Exchanges and Commissaries
Share a Common Beginning
The modem military resale system did not begin
overnight; it was the result of a long, slow
evolution that had its beginnings during the
revolutionary war. Ever since the inception of the
Continental Army in 1775, it was apparent that
the United States Government could not provide
fully for the soldier's dietary needs. Basic military
diets consisted of scant, low-quality rations; and
the soldiers went hungry much of the time. This
situation seriously impacted upon the Continental
Army's morale and readiness, thus causing
General George Washington to seek a remedy to
supplying the soldiers with a steady ration in the
field.
This bleak situation forced by necessity a system
of supplying the Army by contracts with local
civilian suppliers. These suppliers charged
exorbitant prices, frequently five times the value
of the items sold. This method left the burden of
delivery and distribution of supplies with the
suppliers which proved quite satisfactory, though
expensive. However, during the post-war years,
the contract system was characterized by greed,
embezzlement, and fraud. Supplies were not
delivered in a timely manner and spoilage of
foodstuffs resulted.
The suppliers known as Sutlers, quick to assess
the monetary worth of the government's inability
to supply the Army, greatly inflated their prices
and charged a "risk" premium when selling
rations to troops, on credit. The risk premium was
applied to recoup losses from death, desertion, or
unwillingness to pay and greatly contributed to
increased cost. Soon, every regiment, garrison,
and camp had at least one Sutler, and the local
merchants did a landslide business with the
troops. However, while soldiers could now
depend on a steady supply of food, many
problems emerged. Generally, Sutlers took
advantage of the soldier's dependence on them for
food; and, in addition to charging high prices,
they cheated on the weights and even set up their
own monetary systems by using chits or notes that
could be redeemed only at particular sites.
Finally, military commanders and government
officials began to recognize the inadequacies of
supplying the Army with provisions and
discussed several options for rectifying the
situation. Proposals included licensing and
regulating the Sutlers, creating military agents,
and establishing post traders. Other considerations
were joint military-civilian operations, contract
systems patterned after methods used by
European armies and autonomous military
operations.
In 1818, after considerable debate on the subject,
the Secretary of War, John C. Calhoun,
established the Military Subsistence Department,
and the military became responsible for
the procurement and issuance of provisions. In
1826, the Congress authorized the Army to sell
food and other items at cost to officers stationed
at isolated areas, thus establishing the first Army
commissary store system. The War Department
order establishing commissaries read as follows:
"Purchase reasonable quantities of the articles
usually required for the subsistence of an officer,
and cause the same to be forwarded to posts and
stations remote from markets, where officers are
mainly dependent upon the Subsistence
Department for supplies, or where they cannot
purchase groceries at reasonable prices."
Sutlers came back into prominence during the
Civil War. Despite hundreds of pricing abuses,
they provided the valuable service of selling
soldiers goods that would otherwise have been
totally unavailable to them. The approved ration
was still Spartan and unhealthy, but
knowledgeable officers procured canned milk,
beans, fruit, and vegetables for their men. This
time, lessons learned about subsistence during the
war remained clear: a year after the war ended,
Congress formally abolished Sutlers and allowed
enlisted men at remote posts to purchase goods
from the commissary department. In 1867, the
Army built its first commissary 'stores,' which
were similar to the general stores of the period,
Though the stores had limited hours and carried
only 200-300 items, high patronage enabled the
idea to spread.
A variety of new ideas came to the forefront
starting in 1876, when the Army contracted with
"post traders" to sell goods not provided through
the official ration to soldiers at remote posts on a
'cost-price' basis, with the "trader" paid according
to the number of patrons he served. Three years
later, Congress experimented with a ten percent
surcharge on all commissary items except tobacco
in order to help defray spoilage and transportation
costs. Improved rail transport enabled the idea to
be abandoned in 1884. In 1889, post canteens,
soldiers' social clubs that had developed on an
informal basis, became officially recognized
organizations, a development that prompted
Congress to abolish the post trader system in 1893
and officially establish the first post exchanges
in1895. The order authorizing the post exchanges
read as follows: "Exchanges will be operated at
military posts to supply the troops, at reasonable
prices, the articles of ordinary use, wear and
consumption not supplied by the Government-and to afford them a rational means of
entertainment."
clubs, grocery stores, and department stores; and
and entertainment.
The commissary system, a direct result of
mobilization during World Wars I and II, greatly
expanded during the first half of the twentieth
century with the Marine Corps opening its first
commissary in 1909, the Navy in 1910, and the
Air Force in 1947. In 1943 women were allowed
shopping privileges to the commissary when their
husbands were away at war, and perishable
subsistence was added in 1945. This expansion, in
consonance with the construction of new military
installations, eventually resulted in commissaries
being built throughout the United States; and their
importance to the military Services for retention,
recruitment, and economic benefit became key
issues. The importance and commitment of the
military Services towards supporting
commissaries can best be illustrated by the words
of the Secretary of Defense, Caspar W.
Weinberger, in his March 1984 rebuttal to the
Grace Commission report on privatizing or
eliminating commissaries; "Military personnel are
entitled to enjoy modem on-base community
facilities offering the same services available on
the streets of their hometown. To us,
commissaries are more than just grocery stores."
Studies of the commissary systems have occurred
frequently since 1815, and the best
means of supplying rations has been an object of
debate since 1775. The most recent noteworthy
studies occurred in 1967 (the "Hubbell Study"),
1969 (the "Momyer Investigation"), 1970 and
1972 (reports by a special HASC subcommittee),
1975 (the '"Bowers Study"), 1979-80 (a report by
the General Accounting Office), and the 1983 (the
Grace Commission). The major recommendation
of the Bowers Commission was to centralize
command and control. The structure of
commissaries under a central organization in the
Army, Air Force, and Marines is a direct result of
this study. The improvements in level of service,
facilities construction and maintenance,
commitment to training, career progression, and
professional management have been extremely
noticeable compared to the benign neglect of the
previous century and a half.
Today military commissaries are located
throughout the world. Nearly everywhere
American Service members and their families are
stationed, military commissaries are close by.
They have become an essential entitlement for
enlisted personnel, officers, and their families,
perceived by Service members as their most
important benefit second only to military medical
benefits.
The concept of consolidation was studied by the
DOD Study On Commissaries (Jones
Commission), which recognized there would still
be appropriated support. The goals were
uniformity of operations, better service and lower
costs. DeCA was established in October 1991 by
consolidating the four prior separate Service
commissary systems, one each for the Army,
Navy Air Force and Marine Corp. Each system
used a different payment system and had different
levels of centralization.
In May 1990 the Department of Defense allocated
$3 million to the Assistant Secretary of Defense
for Production and Logistics, who had oversight
of the provisional consolidated commissary
agency, for initial operations and maintenance
resources for the transition period.
The vendor pay system collapsed shortly after the
DeCA start up. To help cure the problem support
came from DFAS Columbus, providing additional
voucher examiners. DFAS-HQ provided other
help. There were significant Prompt Payment Act
costs when the system collapsed, as payments
slowed to a trickle, causing financial hardship to
many vendors. At great expense, DeCA and
DFAS used many temporary employees to
process payments and eliminate the backlog.
There were related contract numbering problems.
There was a monthly tracking of payment backlog
by DeCA, and DFAS for Congress.
Cost of DeCA consolidation, significant systems
failures due to lack of testing etc with vendor
payment operations, started almost immediately
after stand up and continued for some time. This
shows the need for extensive planning and is very
costly. Work with OPM on employee issues.
There is also a need for industry to have a long
lead time.
AAFES
The military exchange history in the United States
dates back to 1776, when Congress authorized
civilian sales concessions to be established so
General Washington’s Continental Army could
purchase items for personal use such as tobacco,
soap and razors. Because of corruption, these
concessionaires, or “Sutlers” as they were more
popularly called, were replaced in 1867 by post
traders. The War Department contracted with
these traders to sell non-issue items to service
members on military installations.
A variety of new ideas came to the forefront
starting in 1876, when the Army contracted with
"post traders" to sell goods not provided through
the official ration to soldiers at remote posts on a
'cost-price' basis, with the "trader" paid according
to the number of patrons he served. Three years
later, Congress experimented with a ten percent
surcharge on all commissary items except tobacco
in order to help defray spoilage and
transportation costs. Improved rail transport
enabled the idea to be abandoned in 1884. In
1889, post canteens, soldiers' social clubs that had
developed on an informal basis, became officially
recognized organizations, a development that
prompted Congress to abolish the post trader
system in 1893 and officially establish the first
post exchanges in 1895. The order authorizing the
post exchanges read as follows: "Exchanges will
be operated at military posts to supply the troops,
at reasonable prices, the articles of ordinary use,
wear and consumption not supplied by the
Government--and to afford them a rational means
of entertainment."
club, grocery store, and department store; and
and entertainment.
With westward expansion, Army personnel
formed social clubs called “canteens”, which sold
ordinary items without profit. In 1889 the War
Department published rules and regulations for
the operation of post canteens, thus putting post
traders out of business. Then on July 26, 1895,
the War Department published General Order No.
46, setting the standard for the concept and
mission of the modern exchange service.
Within the Army, exchange operations were
established at the various posts with little or no
direction from higher headquarters. Post
commanders decided how earnings were spent.
This system remained unchanged until 1941,
when the Army Exchange Service was established
to provide broad policy guidance for worldwide
operations.
After the Department of the Air Force was
established in 1947, the exchange became a joint
operation. The Army Exchange Service was redesignated Army and Air Force Exchange Service
in 1948. In 1972, the CONUS and overseas
exchange operations were integrated into today’s
worldwide command.
NEXCOM & MCX
Navy and Marine Corps exchange followed a
similar evolutionary path to the Army, which
dates back to the time the Navy itself was
established. In the early days, no means were
available for providing sailors with basic personal
necessities incident to living aboard ship. Instead,
they had to make do with two poor sources of
merchandise—bumboats and canteens. Bumboats
were small vessels that came alongside the Navy
ships and exchanged their merchandise by means
of pails lowered over the side by the crew.
Canteens on the other hand, were cooperative
ventures, financed by the crew of each ship,
which carried tobacco and other items the crew
desired to purchase.
In the mid 1800s, the Navy migrated from a
sailing Navy to a steam Navy, and coaling
stations were established at all major ports. With
this development, shore-based exchanges were
soon operating at major bases in the United States
and overseas.
The Navy Resale System was created in 1946 to
manage all the resale programs – Navy
Exchanges, commissaries and ships stores afloat.
Today Navy exchanges have progressed
substantially, and now include modern shopping
malls, franchised and direct food activities,
personal services and convenience stores.
Prior to 1985, unlike commissaries, Navy
exchanges were not centrally commanded by
NAVRESSO. While NAVRESSO did provide
technical support to exchanges in the areas of
procurement, pricing, personnel management,
accounting, data processing, etc.,
exchanges were under the control of the
commanding officers of the installations on which
they were located.
In 1985, the Chief of Naval Operations (CNO)
authorized a reorganization which brought both
the Navy exchange and commissary at each
installation under the umbrella of a Navy Resale
Activity, headed by a military Officer in Charge
(OIC). Both components of the Resale Activity
were kept separate to ensure proper accountability
of appropriated and nonappropriated funds. This
OIC of Resale reported to NAVRESSO for
primary duty, through a NAVRESSO Field
Support Office (FSO) or directly if not under the
cognizance of a NAVRESSOFSO or another
resale activity.
In 1987, however, in order to strengthen the
authority and responsibility of installation
commanding officers to enhance support to the
fleet and to military members and their families,
CNO approved a second realignment which
placed resale activities under the base
commanding officers. Now, commanding officers
exercise command control of both commissaries
and exchanges on their installations; NAVRESSO
is still responsible for technical control, operating
policies and procedures and retail management of
commissaries and exchanges.
Of the four DOD commissary systems, the Navy
was unique in its organizational yoking of the two
major resale programs. At each level of
NAVRESSOs organizational structure
(NAVRESSO Headquarters, NAVRESSO Field
Support Office, local command Resale Activity),
the organizational entity was comprised of two
major components: one responsible for
commissary operations and the other for exchange
operations.
The system evolved after commissary
consolidation and the Navy Exchange Service
Command was created.
Marine Corps
With Marines serving as part of the ship’s
company and guarding Naval installation, the
wants and needs of Marines were initially served
by the Navy. Because of increased size of the
Marine Corps by 1897, however, separate Marine
Corps exchanges were authorized and
established, the first being at Marine Barracks
Boston. The Marine Corps exchange
organization, designed to provide exchanges for
combat units, successfully activated and used
exchanges during all military conflicts to support
assigned personnel.
MCX really starts its evolution in 1806 with the
first official record of a “Post Trader” at a Marine
Corps Post operated by Lt John Johnson,
Commanding Officer of the Marine Detachment
at the Navy Yard, New York.
Concessionaires were abolished from Army posts
in 1866 because of bad practices such as charging
exorbitant prices for goods, instituting usurious
credit practices and providing inadequate services.
1895 saw the Army set up a system of officially
recognized Post Exchanges and provided detailed
explanations on the establishment and operation
of these exchanges.
Theodore Roosevelt, then the Acting Secretary of
the Navy approved the establishment of the first
Marine Corps Exchange at Marine Barracks,
Boston, Mass in 1897.
Following the Spanish-American War in 1900 the
first overseas Marine Corps Exchanges opened at
the Marine Barracks in Cavite and Olongapo in
the Philippines. The MCX’s open in the United
States included Boston, MA, Newport, RI, League
Island, PA, Annapolis, MD, Norfolk, VA, Port
Royal, SC and Bremerton, WA. The Corps also
had Post Traders at Portsmouth, NH, New York,
NY, and Washington, DC.
Eventually the Commandant of the Marine Corps
recommended that every post in the Marine Corps
be authorized to have a Post Exchange in lieu of
the Post Traders store. The Assistant Secretary of
the Navy approved this change on 20 June 1904
and the change from Post Trader to Post
Exchange was slowly made until 1912.
Commandant Major General W. P. Biddle issued
definitive Post Exchange regulations in 1912.
These regulations set forth the primary and
secondary missions of the Exchanges which are
followed in the same general form today.
Little information remains but we know the
Marine Corps did utilize Exchanges in France
during World War I. Many MCX’s were
activated during World War II, following their
global deployment. Following WW II, the
Marine Corps Exchange system had 52
Exchanges in operation by 1950.
During the Cold War era, exchange Marines were
deployed with the Fleet Marine Force (FMF) and
landed with the expeditionary unit in the
Dominican Republic in 1965 where they establish
the main Exchange in a hotel and two mobile
units to support outlying troops.
Exchange Marines, trained to support combat
units, deployed to Vietnam starting in 1967 and
under a joint agreement with AAFES operated
AAFES Exchanges in the sectors where the
Marines had primary responsibility. At one time,
Marines operated 27 exchange outlets. The post
Vietnam era saw the MCX with twenty five
Exchanges in operation
The consolidation of the Marine Corps Exchange
and Morale Support programs into Marine Corps
MWR were done 1988. By joining these
activities, which had the common mission to
support Marines quality of life, it gave
Commanders a single point of contact for those
activities on an installation – the MWR Director.
This is in contrast to how the other components
operate programs.
With Operation Desert Shield/Dessert Storm in
1990-1991 again 80 Exchange Marines were
deployed to operate tactical field exchanges in
Saudi Arabia, following the patterns of prior wars.
Exchanges were operated under the most austere
conditions – in tents, shipping containers and out
of five-ton trucks, always as right alongside the
Force.
Marine Corps Organizational
Change
1993 brought organizational change to the Marine
Corps Exchanges when they began ordering
merchandise from both AAFES and NEX
distribution centers which enabled the MCX to
reduce prices on these goods between six and
fifteen percent. Also that year once more
Exchange Marines deployed to support Operation
Restore Hope with tactical field exchanges in
Somalia.
Keeping current with modern merchandising
practices, the MCX introduced a Price Match
Guarantee Program in 1995.
In 1997 the MCX celebrated 100th anniversary.
MCX had its first million dollar sales day, at a
single store, at Henderson Hall. The next several
years saw a variety of changes to reflect changing
business practices and deployment patterns. For
example 1998 saw centralized buying initiated at
the first MCX, which was Albany, Ga. Miramar
NEX becomes MCX Miramar in 2001, reflecting
deployment changes. Also that year the MCX
launched the Super Star Student program with
support from our key vendors. First item UPC
scanned on new MCX merchandise system at
Elmore MCX in 2002.
Again in support of deployed forces MCX enters
into an MOU with AAFES to support tactical
field exchanges in Iraq in 2002. AAFES provides
product and Exchange Marines operate.
MCX Since 2003
The years following 2003 again saw changes in
business practices to keep MCX in front of its
patrons needs. First MCX launched a new
branding campaign with the help of the
advertising agency J. Walter Thompson. The
new MCX logo appeared for the first time in the
2003 MCX Anniversary advertisement. The
MCX private label “1775” is launched in 2004
and is a huge success. The Headquarters’
centralized buying team is fully established.
2005 was a busy year for the MCX. Again
following the long history of serving the Force the
first Civilian Marines deployed to Iraq to augment
the Exchange Marines. Having Civilian Marines
operate the DOX-T’s allows our Exchange
Marines to operate TFEs and WES teams at our
forward operating bases. This is also the year the
MCX introduced MCX gift cards. We also had
the grand opening of our Elmore Exchange which
incorporated our new branding guidelines.
MCX was the recipient of the DBIA design award
for design of the Elmore Exchange in 2006.
MCX celebrated the grand opening of three “large
format” MCX main stores in fourth quarter of
2007 after complete remodels, the stores are MCX
Miramar, MCX Cherry Point and MCX Quantico.
The exchange continues to grow and evolve into
the premier retail organization that it is today, one
serving thousands of patrons in many different
countries, every day. With your support and a
firm vision towards the future, the MCX will
continue to grow and support the very best
customers in the world... The United Stated
Marine Corps.
87 APPENDIX F - APPROPRIATIONS DESCRIPTIONS
APPENDIX
F
Appropriations Descriptions
■ Military Personnel - Includes base pay, special and incentive pays, cost of living allowances and
Permanent change of station. Outlay attributes, the vast bulk of outlays occur in current fiscal year.
Some bonuses and Permanent Change of Station (PCS) moves tails out over several years.
■ Operations & Maintenance (O&M) - This includes civilian salaries regardless of where employed and
benefits, subsistence, fuel base operations (utilities and building maintenance, very fast outlay rate, must
be obligated with current FY most outlays within the FY, must expended quickly
■ Procurement - This pays for major weapons systems (ships planes, armored vehicles and missiles),
other non-tactical equipment such as HUMMVES, equipment needed for base operations and weapons
repair.
■ Research, Development, Testing & Evaluation (RDT&E) - Includes testing and evaluations of new
weapons and technologies.
■ Military Construction (MILCON) - This covers airfields, docks barracks and other housing,
commissaries and maintenance facilities, and is paid out over several years reflecting the lengthy
construction process. Major commissaries are included in this appropriation even though they are
financed by the 5% commissary surcharge trust fund. The Mil Con outlay rate partially dependent on
state of economy, a poor economy accelerates the outlay rate as Government construction becomes a
bigger part of the market.
■ Procurement, RDT&E,& MICON – All have the common traits of taking longer to obligate and much
longer outlay rates, generally many years.
88 APPENDIX G - STATE TAXATION TABLES
APPENDIX
G
State Taxation Tables
T
here is a large benefit to Service members and their families of not being subject to various state sales
and use taxes when using the commissaries or exchanges. This is a particularly useful non-cash benefit in
states with high sales taxes. Taxes vary by state, however these tables do not capture various additional
local taxes, such as local (county or city) add-on sales taxes, amusement or restaurant taxes. Only Illinois
taxes prescription drugs (1%). Several taxes have sales holidays for going back to school. These are
sourced from the Federation of Tax Administrators.
Tables
■ State Sales Tax Table
■ Alcohol State Sales Tax Table
■ Tobacco Products Sales Tax Table
■ State Motor Fuels Tax Rates Table
■ State Income Tax Rates Table
Table G-1.
State Sales Tax Tables - Impact of Local Taxes & Tables
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Sales Rate
Percentage
Food Rate
Percentage
4
None
6.6
6
7.25
2.9
6.35
None
6
4
4
6
6.25
7
6
6.3
6
4
5
6
6.25
6
6.875
7
4.225
None
5.5
6.85
None
7
5.125
4
4.75
5
5.5
Source: Federation of Tax Administrators
1.5
1
1.225
1.225
State
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
District Of Columbia
Sales Rate
Percentage
4.5
None
6
7
6
4
7
6.25
5.95
6
5
6.5
6
5
4
6
Food Rate
Percentage
5.5
1.75
2.5
2
Table G-2.
Alcohol State Sales Tax Table
Excise Rate
State
Beer/Gal
Excise Rate
Distilled
Spirits/Gal
Wine/Gal
AL
AK
AZ
AR
CA
CO
CT
.53
1.07
.16
.23
.20
.08
.19
Y
DE
FL
GA
HI
ID
IL
.16
.48
.32
.93
.15
.235
IN
IA
KS
KY
LA
ME
.115
.19
.18
.08
.32
.35
Y
Y
MD
MA
MI
MN
MS
MO
MT
NE
NV
.09
.11
.20
.15
.4268
.06
.14
.31
.16
Y
Y
Y
NH
NJ
.30
.12
State
Beer/Gal
Y
Y
Y
Y
Y
1.70
2.50
.84
.75
.20
.28
.60
Y State stores
12.80
Y
3.00
Y
Y
3.30
Y
2.28
Y
4.50
Y NM
NY
Y NC
Y ND
Y OH
Y OK
Y OR
.41
.14
.53
.16
.18
.40
.08
Y
Y
Y
Y
Y
Y
Y
Y
.97
2.25
1.51
1.38
.45
1.39
5.46
Y
6.50
Y
3.79
Y
5.98
Y State stores
Y
8.55
Y
Y
Y
Y
PA
RI
SC
SD
TN
TX
.08
.10
.77
.27
.14
.20
Y
Y
Y
Y
Y
Y
.47
1.75
.30
.50
.11
.60
Y
2.68
Y State stores
2.50
Y
1.92
Y
2.50
Y State stores
Y UT
Y VT
VA
Y WA
Y WV
Y WI
.41
.265
.26
.261
.18
.06
Y
Y
Y
Y
Y
Y
.40
.55
.51
.30
.35
.30
1.06
.95
.70
State
stores
.875
Y
1.50
Y
4.05
Y State stores
5.03
Y State stores
Y
2.00
State stores
Y
3.75
Y
3.60
Y WY
Y DC
Y
.02
.09
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
State stores
5.50
Distilled
Spirits/Gal
Wine/Gal
Y
Y
1.70
.30
.79
.50
.30
.72
.67
State
stores
.60
.90
.93
1.21
.20
State
stores
.55
1.51
.87
1.00
.25
State
stores
.30
Y
6.06
Y
6.44
Y State stores
2.50
Y State stores
Y
5.56
State stores
Y
Y
Y
Y
Y
Y
Y
Y
State stores
3.75
2.72
3.93
4.40
2.40
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
State stores
State stores
State stores
State stores
State stores
3.25
Y
Y
Y
Y
Y
Y
Y State stores
Y
1.50
Y
Y
Y
Y
Y
Y
Y
Note: In addition most states apply sales (shown as a Y) or other retail taxes. There may also be local and/or
wholesale taxes. Several states control the sale of distilled spirits.
Y
Y
Y
Table G-3.
Tobacco Products State Sales Tax Table
State
Cigarette Rate
Cents Per Pack
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
42.5
200
200
115
87
84
340
160
133.9
37
320
57
98
99.5
136
79
60
36
200
200
251
200
123
68
17
170
Other
Tobacco
Products
Other
WP
Other
MP
WP
MP
WP
WP
WP
Other
WP
WP
WP
WP
WP
WP
WP
Other
Other
WP
WP
WP
WP
MP
MP
WP
State
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
District of Columbia
Cigarette Rate
Cents Per Pack
64
80
168
270
166
435
45
44
125
103
118
160
346
57
153
62
141
170
262
30
302.5
55
252
60
250
Other
Tobacco
Products
WP
WP
WP
WP
Other
WP
WP
Other
WP
Other
WP
WP
WP
MP
WP
WP
Other
MP
WP
MP
WP
WP
MP
WP
Other
Note:
WP = Wholesale Price
MP = Manufacturer Price
Some states may have additional local city or county cigarette sales taxes. Every state uses different methods to other
tobacco products, based on individual cigars, snuff or chewing tobacco (other), or the manufacturer’s price or a
wholesale price.
Table G-4.
State Motor Fuels Tax Rates Table
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
Gasoline
18
8
19
21.8
41.2
22
25
23
16.6
20.4
17
26
20.1
18
22
24
27.8
20
30
23.5
21
19
28.1
18.4
17.3
27
27.6
23.805
19.625
14.5
18.875
Diesel
19
8
27
22.8
38
20.5
46.2
22
30.5
21.8
17
26
22.6
16
23.5
26
24.8
20
31.2
24.25
21
15
28.1
18.4
17.3
27.75
27
27.75
19.625
17.50
22.875
Gasohol
18
8
19
21.8
41.2
22
25
23
16.6
20.4
17
26
20.1
18
20
24
27.8
20
30
23.5
21
19
28.1
18.4
17.3
27
27.6
23.805
19.625
14.5
18.875
State
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Gasoline
25.8
39.15
23
28
17
30
31.2
33
16.75
24
21.4
20
24.5
26.13
17.5
37.5
33.4
32.9
14
23.5
Diesel
24.05
39.15
23
28
14
30
38.1
33
16.75
24
18.4
20
24.5
29
17.5
37.5
33.4
32.9
14
23.5
Gasohol
25.8
39.15
23
28
17
30
31.2
33
16.75
22
21.4
20
24.5
26.13
17.5
37.5
33.4
32.9
14
23.5
Note: These are total taxes (cents) per gallon including excise taxes and additional fees and sales taxes may apply in
various states. This does not include Federal excise tax.
Table G-5.
State Income Tax Rate Table
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Tax Rate
(Low)
2
None
2.59
1.0
1.0
4.63
3.0
2.2
None
1.0
1.4
1.6
5.0
3.4
0.36
3.5
2.0
2.0
2.0
2.0
5.3
4.35
5.35
3.0
1.5
1.0
2.56
None
Div & Interest
1.4
1.7
4.0
6.0
1.51
0.587
0.5
5.0
3.07
3.75
0.0
None
Div & Interest
None
5.0 Flat
3.55
2.0
None
3.0
4.6
None
4.0
Tax Rate
(High)
5
Number of
Brackets
3
Income Bracket
(Low)
500
Income Bracket
(High)
3001
4.54
7.0
9.3
N/A
6.7
6.75
5
6
6
1
6
6
10,000
3,899
7,316
150,001
32,700
48,029
10,000
5,000
250,000
60,001
6.0
11.0
7.8
Flat Rate
Flat Rate
8.98
6.45
6.0
6.0
8.5
5.5
Flat Rate
Flat Rate
7.85
5.0
6.0
6.9
6.84
6
12
8
750
2,400
1,338
7001
200,001
26,760
9
3
6
3
4
7
1,469
15,000
3,000
12,500
5,100
1,000
66,105
30,001
75,001
50,001
20,350
500,001
3
3
10
7
4
23,670
5,000
1,000
77,731
10,001
9,001
8.97
4.9
8.82
7.75
3.99
5.925
5.25
9.9
6
4
8
3
5
9
7
4
5.99
7.0
3
6
2,800
14,000
8.95
5.75
5
4
35,350
3,000
388,350
17,001
6.5
7.75
5
5
10,000
10,570
60,000
232,660
8.95
4
10,000
350,000
Source: Federation of Tax Administrators. Note: 14 states have county or city level income taxes that are not reflected in this table or part of this study
X
94 APPENDIX H - MARKET SHARE COMPARISONS
APPENDIX
H
Market Share Comparisons
Commercial Market Share
Table H-1.
Market Share - General Merchandisers 2011
Wal-Mart
Target
Amazon
Sears Holdings
Macy’s
Kohl’s
JC Penny
Dollar General
Nordstrom's
Family Dollar
Fortune 500
Rank
2
38
48
65
110
146
153
183
242
301
Sales
(Billions)
446,950
69,865
48,077
41,567
26,405
18,804
17,260
14,807.2
10,877
8,547.8
Profits
15,699
2,929
631
(3,140)
1,256
1,167
(152)
766.7
683
388.4
Source: Information from Fortune Magazine, Fortune 500 listings and other sources
Note: Combined would be Commissaries and Exchanges as a single entity
Table H-2.
Food and Drug
CVS Caremark
Kroger
Walgreen
Safeway
Super Value
Publix
Rite Aid
Whole Foods
Great Atlantic & Pacific
Winn Dixie
Source: Fortune 500 Listings
Fortune 500
Rank
18
23
32
63
75
106
113
264
317
363
Sales
107,750
90,374
72,184
43,630
37,543
27,178.8
25,214.9
10,107.8
8,078.0
6,929.9
Table H-3.
Retailer and Wholesaler Rankings by Sales
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Sales
Wal-Mart
Kroger
Costco Wholesale
Target
Safeway
Supervalu
Loblan
Publix
Ahold USA
C&S Wholesale
Delhaize
7-Eleven
H.E. Butt
Sobeys
Dollar General
Meijer
Wakefern
BJ Wholesale Club
Metro Inc
Whole Foods
Giant Eagle
Trader Joe’s
Family Dollar
Associated Wholesale Grocers
Aldi
Hy-Vee Food Stores
Winn Dixie
A&P
Wegmans
DeCA
Winco
Source: Grocery 2012, source Supermarket News, Top Retailers and wholesalers
$90.4
76.2
70.0
43.6
36.1
30.6
29.9
25.1
20.4
19.2
18.2
18.0
15.5
14.7
14.2
12.8
11.3
11.1
10.1
9.3
9.0
8.5
7.6
7.3
7.3
7.1
6.7
6.2
5.9
5.2
Table H-4.
Top 10 Specialty Retail (Known as category killers)
COSTCO
Home Depot
Best Buy
Lowes
Staples
Toy “R” Us
Office Depot
Game Stop
Bed, Bath & Beyond
Auto Zone
Fortune 500
Rank
24
35
53
54
114
194
233
273
294
320
Sales
88,915
70,395
50,272
50,208
25,022
13,909
11,489
9,550
8,758
8,073
Table H-5.
Specialty Retailers, Apparel
TJX
GAP
Limited Brands
Ross Stores
Foot Locker
Dicks Sporting Goods
Big Lots
Fortune 500
Rank
125
185
256
299
435
466
467
Sales
23,191.5
14,549.0
10,364.0
8,603.3
5,523.0
5,211.0
5,202.3
97
APPENDIX I - BIBLIOGRAPHY
APPENDIX
I
Bibliography
Congressional Testimony
■ Mr. Patrick Nixon, President, American Logistics Association, Before the Subcommittee on
Military Personnel, Committee on Armed Services, United States House of Representatives, June 7,
2012
■ Mr Thomas T. Gordy, President, Armed Forces Marketing Council, Before the Subcommittee on
Military Personnel, Committee on Armed Services, United States House of Representatives, June 7,
2012
Congressional Studies
■ Senator Tom A. Coburn, M.D., (OK), "Department of Everything", November 2012, Pages 66-68,
footnotes 275-886, 288, 292, 293, 294
■ Congressional Budget Office, Federal Taxation of Tobacco, Alcoholic Beverages and Motor Fuels
■ Congressional Budget Office, Long Term Implications of the 2013 Future Years Defense Plan
■ Congressional Budget Office, Costs of Military Pay and Benefits in the Defense Budget
■ Congressional Budget Office Cost Estimate “S. 277 Caring for People Act of Fiscal Year 2011”,
July 25, 2011, http://www.cbo.gov/ftpdocs/123xx/doc12334/s277.pdf
Applicable Federal Acquisition Regulations
Part 4 Administrative Matters
■ Subpart 4.2, Contract Distribution: Lists who gets copies of the contract, including contractor,
paying office, and funding office—and if applicable, the office assigned for contract administration.
■ Subpart 4.5, Electronic Commerce in Contracting: States the federal government policy is to use
electronic commerce wherever possible. Other key items include using the existing infrastructure,
ensuring authentication and confidentiality, and accepting electronic signature.
98
■ Subpart 4.7 Contractor Records Retention: Policies and procedures for contractors. Records include
documents, either written or electronic, and accounting procedures. This subpart defines the length
of time that the contractor is required to hold various classes of records generally three years based
on the end of the contractor’s fiscal year) and what subcontractors are required to do. There are
separate requirements for payroll records.
■ Implementing clause: 52.215-2, Audit and Records—Negotiation.
■ Subpart 4.9, Taxpayer Identification Number Information: States that the TIN is required for each
certified voucher, and this information may also be used for debt collection. This implements
Internal Revenue Code sections 6041, 6041A and 6050M for 1099 MISC reporting requirements.
The TIN is also required for a CCR listing to be considered complete.
■ Subpart 4.10, Contract Line Items: Contracts may identify items or services to be acquired as
separately identified line items. Line items should provide a unit price for identifiable deliverables or
performance periods.
■ Subpart 4.11, Central Contractor Registration: Requires registration with only limited exceptions,
such as purchase cards, classified contracts, or work performed outside the United States. Also
requires notification of a name change, also see subpart 42.12 on innovation. Assignees must also
register, but this is not a substitute for a proper assignment of claims. Registrants will be given a
DUNS number if they do not have one. Proper registration is also a mandatory part of the contract
award process.
■ Implementing clauses:
-
52.204-3
52.204-6
52.204-7
Taxpayer Identification.
Data Universal Numbering System (DUNS) Number.
Central Contractor Registration.
Part 12 Acquisition of Commercial Items
■ Subpart 12.1 Acquisition of Commercial Items. Procedures for commercial items as defined in
subpart 2.101. This also applies to subcontractors. This does not apply to purchase card
transactions.
-
52.212-4 Contract Terms and Conditions- Commercial Items.
52.212-5 Contract Terms and Conditions Required to Implement Statutes or Executive
Orders- Commercial Items (Note: This clause incorporates many other
clauses by reference.)
Part 13 Simplified Acquisition Procedures
■ 13.4 Fast Payment Procedures
99
-
52.213-1
52.213-2
52.213-4
Invoices
Terms & Conditions- Simplified Acquisition (Other Than Commercial
Items) Note: This clause incorporates many other clauses by reference.
Part 22 Application of Labor Laws to Government Acquisitions
Various labor laws, such as Davis-Bacon, that affect compensation rates (overtime, prevailing wages etc.),
particularly for construction, and maintaining the related payroll records. Price adjustments discussed above
in Part 16 are also implemented here for construction.
Subpart 22.5 Use of Project Labor Agreements for Federal Construction Contracts
Subpart 22.14 Employment of Workers With Disabilities
■ Implementing contract clauses:
-
52.222-2
52.222-4
52.222-7
52.222-8
52.222-30
-
52.222-31
52.222-32
52.222-43
-
52.222-43
-
Payment for Overtime Premiums
Contract Work Hours and Safety Standards Act- Overtime Compensation.
Withholding of Funds. (Contracting officer or Department of Labor
request)
Payrolls and Basic Records.
Davis-Bacon Act Price Adjustments (None or Separately Specified
Method).
Davis-Bacon Act Price Adjustments (Percentage Method).
Davis-Bacon Act Price Adjustments (Actual Method).
Fair Labor Standards Act and Service Contract Act- Price Adjustment
Multiple Year and Option Contracts.
Fair Labor Standards Act and Service Contract Act- Price Adjustment.
Part 23 Environment, Energy Water Efficiency, Renewable Energy Technology,
Occupational Safety and Drug Free Work Place
Part 30 Cost Accounting Standards Administration
Policies and procedures for implementing the Cost Accounting Standards (CAS), 48 CFR Chapter 99.
Standards and implementing regulations are promulgated by the Cost Accounting Standards Board.
Contractors must consistently follow these practices. These apply to cost type contracts, but in some
circumstances these can apply to fixed price contracts. When there is non-compliance, the government can
withhold all or part of a payment.
■ Implementing solicitation and contract clauses:
-
52.230-1
52.230-2
Cost Accounting Standards, Notices and Certification.
Cost Accounting Standards.
100
-
52.230-3
52.230-5
52.230-6
Disclosure and Consistency of Cost Accounting Practices.
Cost Accounting Standards- Educational Institutions.
Administration of Cost Accounting Standards.
Part 31 Contract Cost Principles and Procedures
This part discusses allowable costs and defines the related terms.
Subpart 31.2, Contracts with Commercial Organizations
This addresses the standards for determining allowability, and specific cost items for commercial
organizations are individually addressed in sections 31.205-1 through 31.205-52.
Part 32 Contract Financing
This part covers several subjects related to the payment process and financial procedures. Topics include
interim and progress payments, payment procedures, assignment and EFT.
Subpart 32.9, Prompt Payment
This section implements within the contract itself the prompt payment regulations published at 5 CFR Part
1315, discussed in detail above.
-
52.232-25
52.232-26
52.232-27
Prompt Payment.
Prompt Payment- Fixed Price Architect Engineer Contracts.
Prompt Payment- for Construction Contracts.
Subpart 32.11, Electronic Funds Transfer
The mandatory payment method for Federal contractors and explains that PPA interest does not apply when
the contractor’s remittance data is incorrect.
-
52.232-33
52.232-35
Electronic Funds Transfer- Central Contractor Registration.
Designation of Office for Government Receipt of Electronic Funds Transfer
Information.
Part 33 Protests, Disputes and Appeals
Policies and procedures filing protests and for processing contract disputes and appeals, which are different
than equitable adjustments.
-
52.233-1
52.233-2
Disputes
Service of Protests
101
Part 36 Construction and Architect-Engineer
Supplemental policy on both construction and architect-engineer (A&E) contracts in addition to the basic
rules. There are additional definitions unique to this area and guidance on Government cost estimates,
project scope and statutory cost limitations. There are additional definitions unique to construction and
A&E. Note that Part 36 takes precedence in construction and A&E contracts where appropriate. Also see
Part 22 discussed above for related labor items. Subpart 36.5 describes the 23 implementing clauses versus
listing them in Part 52.
Part 47 Transportation
Guidance on Transportation contracts, definitions of related terms and solicitation provisions when freight
charges are paid as part of a contract. This covers transportation as part of supply contracts.
■ Subpart 47.5 Ocean Transportation by U.S. Flag Vessels,
■ Implementing contract clause 52.247-64
Administrative Oversight
■ Executive Order 13514, October 5, 2009 Federal Leadership in Environmental Energy and
Economic Performance
■ Service level regulations:
U.S. Army Regulation 60-10, Army Air Force Exchange Service Operating Policies
Navy
Air Force
Stewardship, Regulatory Compliance, Financial and Statutory
■ Tile 10, Armed Forces, United States Code (USC), multiple sections
Subtitle A, General Military Law
Chapter 54- Commissary and Exchange Benefits
Chapter 147- Commissary and Exchange and Other Morale, Welfare and Recreation
Activities, PL 107-314, Section 323, Uniform Funding Management
Chapter 157- Transportation, Section 2643,Commissary and Exchange Services:
Transportation Overseas, authorizes use of appropriated funds
■ 10 U.S.C. 2631-requires the use of US flag vessels ocean transportation of supplies
■ 46 U.S.C. 1101- United States policy to encourage the development and maintenance of its merchant
marine.
■ 46 U.S.C. 1241(b) Cargo Preference Act, ensure that at least 50% of cargo use U.S. flag vessels
■ 10 U.S.C. 2482(b) allows the commissaries to acquire services from other Federal agencies
102
■ U.S. Code, Title 10, Subtitle A, Part IV, Chapter 137, Section 2304
■ U.S. Code, Title 10, Subtitle A, Part IV, Chapter 147, Sections 2482, 2482a, 2482b, 2483, 2484,
2486, 2487, 2488, 2490a and 2492 and 2494
■ U.S. Code, Title 10, Subtitle A, Part IV, Chapter 159, Section 2685 (surcharge)
■ Debt Collection Improvement Act of 1996 (DCIA), Debt Collection Act of 1982 (DCA), and
Federal Claims Collection Act (FCCA). These acts govern the transfer of eligible, non-tax debt to
Treasury (FMS) for collection, who collects for all agencies. DCIA mandates both debt offset and
electronic funds transfer (EFT) and also requires a Tax Identification Number (TIN) before a
voucher can be certified for payment (31 U.S.C. 3325(d)). Debt collection is implemented at 31
U.S.C. 900-904. Electronic funds transfer is implemented at 31 CFR 208 and FAR contract clauses
52.232-33 and 52.232-34, which are also included by reference in clauses 52.212-4 and 52.212-5 for
commercial items.
■ Improper Payments Information Act of 2002 (P.L. 107-300). Improper payments are defined.
Agencies must identify improper payments: those that should not have been made or were for an
incorrect amount.
■ Improper Payments Elimination and Recovery Act of 2010 (IPERA) P.L. 111-204 Establishes new
risk estimating and reporting requirement on agencies and permits pilot recovery audit programs.
■ Prompt Payment Act (PPA). 31 United States Code (U.S.C.) 3901-3907, implemented by Office of
Management & Budget (OMB) at 5 Code of Federal Regulation (CFR) 1315, governs the payment
process and helps improve the government’s cash management. This regulation states the basic
requirement for timely payment and the requirement to pay interest for late payment. It also imposes
various requirements on both the government and contractors. It is also implemented in the FAR.
■ Contracts Disputes Act (CDA). 41 U.S.C. 601 et seq. Claims concerning disputes will be resolved
under the provisions of this Act. Disputes mainly cover contract performance issues but can include
payment disputes other than incorrect invoices and questions about PPA interest.
■ Chief Financial Officers Act of 1990- P.L. 101-576 This act is to promote more effective financial
management in the Federal Government and establishes various audit requirements and the
Performance & Accountability Report (PAR). Also created the CFO Council.
■ Federal Managers Financial Integrity Act of 1982 P.L. 97-255, 31 U.S.C. 3512. Creates a risk
model and requires certified systems to produce reliable financial reports.
■ Federal Financial Management Improvement Act of 1996, P.L. 104-208, 31 U.S.C. 3512
103
Stewardship and Regulatory Compliance
■ Performance & Accountability Act (PAR) required under the Chief Financial Officers Act (CFO)
Act
■ Office of Management and Budget Circular A-123, Management Responsibilities for Internal
Control
■ OMB Circular A-127, Implementation Guidance for the Federal Managers Financial Integrity Act
■ OMB Circular A-136, Financial Reporting
■ Balanced Score Card
■ Federal Financial Management Improvement Act
■ Federal Manager Financial Integrity Act
■ Treasury Financial Manual (TFM)
DoD Guidance
Various DOD regulations provide both financial and operational guidance for the commissaries and all
MWR activities, including exchanges.
■ Deputy Secretary of Defense memorandum “Consolidation of Military Commissary Systems,” April
12, 1990
■ The Jones Commission “DoD Study of the Military Commissary System”, December 18, 1989
■ The Jones II Commission “Exchange Study Report”, 1990
■ Army Air Force Exchange Service Annual Report, 2010
■ Article- Military Exchange Unification: The Strategic Case for Change, Professor Timothy Laseter,
Darden School, University of Virginia
■ Variable Pricing Feasibility Assessment for the Defense Commissary Agency, March 2004, Dove
Consulting, Boston MA
■ DoD Financial Management Regulation,
Volume 7A, Military Pay Policy and Procedures, Active Duty and Reserve Pay, Chapter 29,
Clothing Monetary Allowances
Volume 13, Non-appropriated Fund Policy and Procedure
104
■ DoD Instructions (DODI):
■ DODI 1015.10 Programs For Military Morale Welfare and Recreation (MWR)
■ DODI 1015.13 DOD Procedures for Implementing Public-Private Ventures (PPVs) for Morale,
Welfare and Recreation (MWR) and Armed Services Exchanges Category C Revenue Generating
Activities
■ DODI 1015.14 Establishment, Management and Control of Nonappropriated Fund Instrumentalities
and Financial Management of Supporting Resources
■ DoD Instruction (DODI) 1015.15 Establishment, Management, and Control of Non-appropriated
Fund Instrumentalities and Financial Management of Supporting Resources
■ DODI 1304.29 Administration of Enlistment Bonuses, Accession Bonuses for New Officers in
Critical Skills, Selective Reenlistment Bonuses, And Critical Skills Retention Bonuses for Active
Members
■ DODI 1330.09 Armed Forces Exchange Policy
■ DODI 1330.21 Armed Forces Exchange Regulation
■ DODI 1338.18 Armed Forces Clothing Monetary Allowance Procedures
■ DODI 4105.71 Non-appropriated Fund (NAF) Procurement Procedure
■ DODI 7000.14 DOD Financial Management Policy and Procedures
■ DODI 7600.6 Audit of Non-appropriated Instrumentalities and Related Activities
■ DODI 7700.18 Commissary Surcharge Non-appropriated Fund (NAF) and Privately Financed
Construction Reporting Procedures
Construction Policy
■ DoD Directive (DODD) 4105.67 Non-appropriated Fund (NAF) Procurement Policy
■ DODD 5105.55 Defense Commissary Agency (DeCA)
■ DODD 5120.42 Department of Defense Wage Fixing Authority Non-appropriated Fund
Compensation Programs
■ DODD 5124.02 Under Secretary of Defense Personnel & Readiness
■ DODD 1330.9 Armed Services Exchange Regulations
■ DODD 5515.6 Processing Claims Arising Out of Operations of Non Appropriated Fund Activities
105
Consolidation Studies
■ CBO Report Reducing the Deficit: Spending and Revenue Options
■ United Exchange Taskforce 2006
■ DoD Study of the Military Commissary System” 1989 (The Jones Commission I)
■ DoD Study of the Military Exchange System” 1989 (The Jones Commission II)
■ Deputy Secretary of Defense memorandum, “Consolidation of the Military Commissary Systems
April 1990
■ Logistics Management Institute “Towards a More Efficient Military Exchange System” 1991
■ Systems Research and Applications (SRA) International “Integrated Exchange System Task Force
Analysis” 1996
■ Price Waterhouse Coopers, “Joint Exchange Due Diligence”
■ CBO, The Costs and Benefits of Retail Activities at Military Bases, October 1997
Other Documents & Sources
■ Blumberg’s Laws, Getting Paid From Uncle Sam, William L. Blumberg 2007
■ Center for Strategic and Budgetary Assessment
■ Defense Commissary Agency Annual Report
■ Defense Commissary Agency Performance & Accountability Report
■ Defense Travel Management Office (BAH & COLAs)
■ DOD Budget 2008
■ DOD Budget 2009
■ DOD Budget 2010
■ DOD Budget 2011
■ DOD Budget 2012
■ Defense Reform Initiative Directive (DRID) 37, Commissary Operating Board
106
■ Food Marketing Institute
■ Fortune Magazine/Fortune 500 Lists
■ GAO guidance, Questions to Consider When Evaluating Proposals to Consolidate Physical
Infrastructure and Management Functions, May 2012
■ Military Spouse Magazine
■ OMB Circular A-123, Management’s Responsibility for Internal Control
■ Logistics Management Institute “Toward a More Efficient Military Exchange System”, 1991
(reviews the Jones II Commission)
■ 11th Quadrennial Review of Military Compensation (QRMC)
■ Systems Research and Applications (SRA) International “Integrated Exchange System Task Force
Analysis”, December 13, 1996
■ Price Waterhouse Coopers, “Joint Exchange Due Diligence Study” April 30, 1999
■ Unified Exchange Task Force, “Modified Business Case Analysis and Network Optimization
Study”, December 1, 2005
■ Measuring the Delivery of the Commissary and Exchange Benefit”, Caliber, June 2004
■ “Defense Commissary Patron Survey,” Market Facts, March 2000
■ Variable Pricing Feasibility” Dove Consulting Willard Bishop Consulting, Ltd, March 2004
■ The National Commission on Fiscal Responsibility & Reform (Simpson Bowles)
■ Census Bureau
■ PPSSCC- President’s Private Sector Survey on Cost Control (Grace Commission)
■ Super market News
■ www.taxadmin.org, Federation of Tax Administrators
■ www.mynavyexchange.com
■ www.shopmyexchange.com
■ www.commissaries.com
■ www.mymcx.com/index.cfm/about/history/
107
■ ACSI Special Segment Questionnaire/Study (2002 and 2003), Claes Fornell International Group and
the University of Michigan Business School
■ American Logistics Association, “Focus Group Learnings: Reasons for Use and Non-use of
Commissaries and Exchanges,” Conducted by Willard Bishop Consulting, June 1995
■ Banc of America Securities Equity Research, “Is the Price Right?” BAS Seven Marketing Pricing
Study: Second Quarter of 2003
■ Customer Service Evaluation System (CSES) Survey, 1999, 2003
■ DeCA Data Warehouse
■ DeCA, “Military Commissary Study”, Consumer Link 1998
■ DeCA Price Comparison Study, October 2003
■ DeCA, Operating and Capital Budget, February 2003
■ DeCA Patron Study Survey (2000), Market Facts, February 2000
■ Department of Defense Data- Supplied by DeCA (204)
■ DoD 1330.17-R Armed Services Commissary Regulation (ASCR)
■ DoD Financial Management Regulation,
Volume 7A, Military Pay Policy and Procedures, Active Duty and Reserve Pay,
Chapter 29, Clothing Monetary Allowances
Volume 13, Non-appropriated Fund Policy and Procedure
■ DOD Instruction (DODI) 1015.2, Military Morale Welfare and Recreation (MWR) (14 June 1995 –
Certified current as of November 2003).
■ DoD Instruction (DODI) 1015.10, Programs For Military Morale Welfare and Recreation (MWR) (3
November 1995, w/Change 1, October 1996, incorporating thru Change 2, 31 October 2007).
■ DODI 1015.13 DOD Procedures for Implementing Public-Private Ventures (PPVs) for Morale,
Welfare and Recreation (MWR) and Armed Services Exchanges Category C Revenue Generating
Activities
■ DODI 1015.14 Establishment, Management and Control of Nonappropriated Fund Instrumentalities
and Financial Management of Supporting Resources
■ DODI 1015.15 Establishment, Management, and Control of Non-appropriated Fund
Instrumentalities and Financial Management of Supporting Resources
■ DODI 1304.29 Administration of Enlistment Bonuses, Accession Bonuses for New Officers in
Critical Skills, Selective Reenlistment Bonuses, And Critical Skills Retention Bonuses for Active
Members
108
■ DODI 1330.09 Armed Forces Exchange Policy
■ DODI 1330.21 Armed Forces Exchange Regulation
■ DODI 1338.18 Armed Forces Clothing Monetary Allowance Procedures
■ DODI 4105.71 Non-appropriated Fund (NAF) Procurement Procedure
■ DODI 7000.14 DOD Financial Management Policy and Procedures
■ DODI 7600.6 Audit of Non-appropriated Instrumentalities and Related Activities
Construction Reporting Procedures
Construction Policy
■ DoD Directive (DODD) 4105.67 Non-appropriated Fund (NAF) Procurement Policy
■ DODD 5105.55 Defense Commissary Agency (DeCA)
■ DODD 5120.42 Department of Defense Wage Fixing Authority Non-appropriated Fund
Compensation Programs
■ DODD 5124.02 Under Secretary of Defense Personnel & Readiness
■ DODD 1330.9 Armed Services Exchange Regulations
■ DODD 5515.6 Processing Claims Arising Out of Operations of Non Appropriated Fund Activities
■ Food Marketing Institute, Supermarket Facts: Industry Overview 2002
■ Frito Lay, Inc, “Understanding the Commissary Shopper”, Qualitative Research Conducted by
Elrick & Lavidge, April 1994
■ Hoch, Stephen J., Xavier Dreze, Mary E. Purk (1994), EDLP, Hi-Lo and Margin Arithmetic,”
Journal of Marketing, April 1994
■ Hoch, Stephen J. and Leonard M. Lodish (1998), “Store Brands and Category Management,”
Wharton School, University of Pennsylvania
■ Kraft Foods, Military Business Topline Analysis 1996, based on Nielson Household Panel Data, 52
Weeks Ending 6/2/1996
■ Information Resources Inc., and DeCA Data Warehouse, Price/Volume Changes, 99 Weeks, April
2001-February 2003
109
■ Jones, Eugene (1997), “An Analysis of Consumer Food Shopping Behavior Using Supermarket
Scanning Data: Differences by Income and Location,” American Journal of Agricultural Economics,
December 1997.
■ Litvack, David S., Roger J. Calantone, Paul R. Warshaw (1985), “An Examination of Short-Term
Retail Grocery Price Effects,” Journal of Retailing, Fall 1985
■ Military Grocer 2003 Commissary Fact Book, September 2002.
■ Military Grocer 2004 Commissary Fact Book, September 2003.
■ Partners in Loyalty Marketing, Inc.
■ Private Label Manufacturers Association, PLMA’s 2003 Private Label Yearbook.
■ Willard Bishop Consulting, 2003 Store Format Report
■ Willard Bishop Consulting Retail Pricing Analyses, 2004
■ Willard Bishop Consulting Three-Chain Supermarket Database
■ 2002 Market Scope/ 2003 Market Scope, Trade Dimensions International, Inc.
■ Tile 10, Armed Forces, United States Code (USC), multiple sections
Subtitle A, General Military Law
Chapter 54- Commissary and Exchange Benefits
Chapter 147- Commissary and Exchange and Other Morale, Welfare and Recreation
Activities, PL 107-314, Section 323, Uniform Funding Management, new section 2494
Chapter 157- Transportation, Section 2643,Commissary and Exchange Services:
Transportation Overseas, authorizes use of appropriated funds
■ 10 U.S.C. 2631-requires the use of US flag vessels ocean transportation of supplies
■ 46 U.S.C. 1101- United States policy to encourage the development and maintenance of its merchant
marine
■ 46 U.S.C. 1241(b) Cargo Preference Act, ensure that at least 50% of cargo use U.S. flag vessels
■ U.S. Code, Title 10, Subtitle A, Part IV, Chapter 147, Sections 2482, 2482a, 2482b, 2483, 2484,
2486, 2487, 2488, 2490a and 2492
■ U.S. Army Regulation 60-10, Army Air Force Exchange Service Policies
■ Army: AR 215-1, Morale, Welfare, and Recreation Activities and Nonappropriated Fund
Instrumentalities (31 July 2007, Rapid Action Revision (RAR) issue date 6 October 2008).
110
■ Navy: SECNAV Instruction 1700.12A, Subject: Operation of Morale, Welfare and Recreation
Activities (15 July 2005).
■ Air Force: AFI 34-262, Subject: Air Force Community Service Programs and use Eligibility (27
June 2002).
■ USMC: MCO P1700.27B, Marine Corps Community Services Policy Manual, (9 March 2007).
■ Coast Guard: COMDTINSTM 1710.13B: Coast Guard Morale Well Being and Recreation Manual
(24 January 2005).
■ AR 60-10/AFR 147-7, Army and Air Force Exchange Service General Policies (17 June 1988); AR
60-20/AFR 147-14, Army and Air Force Exchange Service Operating Policies (15 December 1992).
■ DODFMR Volume 7A Military Pay Policy and Procedures, Clothing Monetary Allowances
■ Federal Acquisition Regulation
Part 12 Acquisition of Commercial Items
Part 13 Simplified Acquisition Procedures
13.4 Fast payment Procedures
Part 22 Application of Labor Laws to Government Acquisition
22.5 Use of Project Labor Agreements For Federal Construction Contracts
22.14 Employment of Workers With Disabilities
Part 23 Environment, Energy, Water Efficiency, Renewable Energy Technologies,
Occupational Safety and Drug Free Work Place
Part 47.5 Ocean Transportation by U.S. Flag Vessels, implementing clause at Part
52.247-64
■ Prompt Payment Act (PPA), 5 CFR 1315
■ Executive Order 13514, October 5, 2009 Federal Leadership in Environmental Energy and
Economic Performance
■ U.S. Army Family and Morale, Welfare, and Recreation Command (USAFMWRC)
(http://www.armymwr.com/).
■ The Judge Advocate General’s Legal Center and School July2009
■ Navy Morale, Welfare, and Recreation Division (http://www.mwr.navy.mil/).
■ Air Force Services Agency (http://www.afsv.af.mil/).
■ Marine Corps Community Services (MCCS) (http://www.usmc-mccs.org/).
■ Coast Guard (http://www.uscg.mil/mwr).
111 APPENDIX J - GLOSSARY
APPENDIX
J
Glossary
■ AAFES
Army Air Force Exchange Service
■ ADA
Americans with Disabilities Act
■ BAH
Basic Allowance for Housing
■ BCA
Budget Control Act
■ BLS
Bureau of Labor Statistics (Department of Labor)
■ BRAC
Base Realignment & Closure
■ CAS
Cost Accounting Standards
■ CBO
Congressional Budget Office
■ CFO
Chief Financial Officer
■ CFR
Code of Federal Regulations
■ CGX
Coast Guard Exchange Service
■ COLA
Cost of Living Allowance
■ CONUS
Continental United States
■ DeCA
Defense Commissary Agency
■ DFAS
Defense Finance & Accounting Service
■ DHS
Department of Homeland Security
■ DLA
Defense Logistics Agency
■ DOD
Department of Defense
■ DODD
Department of Defense Directive
■ DODEA
Department of Defense Educational Activity (schools)
■ DODFMR
DOD Financial Management Regulation
■ DODI
Department of Defense Instruction
■ DPSC
Defense Personnel Support Center
■ DTI
Delivery Ticket Invoice
■ DTMO
Defense Travel Management Office
■ DTS
Defense Transportation Service
■ EBT
Electronic Benefits Transfer
■ EEOC
Equal Employment Opportunity Commission
■ FAR
Federal Acquisition Regulation
■ FFB
Federal Financing Bank
■ FOB
Forward Operating Base
■ FNS
Food Nutrition Service
■ FTE
Full Time Equivalent (employee)
■ GAO
General Accountability Office
■ IBP
International Balance of Payments
■ LPS
Living Pattern Survey
■ MCCS
Marine Corps Community Services
■ MCX
Marine Corp Exchange
■ MEO
Most Efficient Organization
■ MWR
Morale, Welfare & Recreation
■ NAFI
Non Appropriated Fund Instrumentality
■ NAVSUP
Naval Supply System Command
■ NEXCOM
Navy Exchange Command
■ OCO
Overseas Contingency Operations
■ OCONUS
Outside the Continental United States
■ O&M
Operations & Maintenance
■ OMB
Office of Management & Budget
■ OPM
Office of Personnel Management
■ PAR
Performance & Accountability Report
■ PDTATAC
Per Diem Travel and Transportation Allowance Committee
■ PBO
Performance Based Organization
■ PCS
Permanent Change of Station
■ PPSSCC
President’s Private Sector Survey on Cost Control
■ QOL
Quality of Life
■ QRMC
Quadrennial Review of Military Compensation
■ SNAP
Supplemental Nutrition Assistance Program
■ SSBU
Shared Services Business Unit
■ TFM
Treasury Financial Manual
■ USC
United States Code
■ VAT
Value Added Tax
■ VCS
Veterans Canteen Service
■ WCF
Working Capital Fund
■ WIC
Women Infants Children

report - The American Logistics Association

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