Exchange service merger reviews mixed

Bush administration plans to merge the three military exchange systems, to cap commissary shopper savings at an average of 30 percent and to test “variable pricing” as a way to reduce commissary taxpayer support drew sharp criticism during a House hearing on Wednesday.

Republican subcommittee chairman John McHugh of New York cited “some evidence” that Defense Department leaders view base stores, and morale, welfare and recreational (MWR) programs “as a drain on the budget and perhaps not worth their overall costs.” They’re wrong, he said.

Another Republican, Ed Schrock of Virginia, said administration initiatives on base stores “reflect the single-minded pursuit” of lowering government spending.

With “so many problems in this world right now that need attention from the Defense Department,” said Schrock, “why in the name of common sense they’re picking on these types of issues is a total mystery.”

The criticism was leveled during a hearing of the Total Force Subcommittee of the House Armed Services Committee. Complaints were echoed by representatives of shoppers, product suppliers and, more surprisingly, by exchange and commissary system commanders.

Taking the heat was Charles Abell, principal under secretary of defense for personnel and readiness. He assured the subcommittee that the department views base stores “as core elements of non-pay compensation” and “crucial to quality of life of our military members” and their families.

But Abell also said the department seeks answers to “tough questions” regarding “realistic” military resale benefits.

“We’re concerned about maintaining the balance between taxpayer and customer contributions to the commissary, exchange and MWR programs,” he said.

Deputy Secretary of Defense Paul Wolfowitz last May directed Abell to form a task force to lead a merger of Army and Air Force Exchange Service with the Navy Exchange Service and the Marine Corps exchange system.

“I have decided that a single optimized Armed Service exchange system would best serve the Department and exchange patrons,” Wolfowitz said in a memo, leaving no room for negotiation.

Ten months later, driving toward that goal through the task force and its rigid set of deadlines, two of three exchange system commanders still think consolidation is probably a bad idea.

“I still have to be convinced,” said Rear Adm. William Maguire, commander of the Navy Exchange Service Command. He was set to retire today and still hadn’t seen “a very sound business case” to justify exchange consolidation, Maguire said.

Retired Brig. Gen. Michael P. Downs, director of Personnel and Family Readiness Division at U.S. Marine Corps Headquarters, said the services aren’t being allowed enough time to integrate systems thoughtfully.

Still, Abell wants a merger plan to Congress by early 2005.

“If we’re forced to meet deadlines we’re going to forfeit quality,” Downs warned.

“It sort of flames the notion amongst some of our staff that the process is a check-in-block activity (and) that exchange leaders and those working on the process are being used as cover, and the ‘to-be’ organizational plan already exists.”

Downs also complained that too many key members of his staff are saddled with exchange integration milestones “when we are very busy taking care of Marines and families of Marines.”

“The Marine Corps has always maintained there has not been a credible business case” for merging exchange systems, he said.

Yet the task force’s starting point was an assumption that combining more than 30 years of unpersuasive studies somehow makes “that credible business case.”

The services rely on profits from exchange sales to support base MWR activities such as bowling allies, libraries and gyms. But how will profits, or “dividends” be distributed after an exchange system merger?

Downs said every draft plan he has seen shows the Marine Corps’ share falling from 10 to 30 percent. “That’s devastating,” he said.

Air Force Major Gen. Kathryn Frost, commander of the Army and Air Force Exchange Service (AAFES), was less critical of the Unified Exchange Task Force and its deadlines.

“I have not heard from my people yet that they feel any arbitrary drive toward a target date,” she said. But even Frost found “tremendous risk” in the scale of the merger which must, in time, be addressed, she said.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:

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