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[H.A.S.C. No. 107–8]



FOR FISCAL YEAR 2002—H.R. 2586






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MARCH 29, 2001



ROSCOE G. BARTLETT, Maryland Chairman
JOHN M. McHUGH, New York
WALTER B. JONES, Jr., North Carolina
BOB RILEY, Alabama
ROBIN HAYES, North Carolina

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MARTIN T. MEEHAN, Massachusetts
SUSAN A. DAVIS, California

Thomas E. Hawley, Professional Staff
Dudley Tademy, Professional Staff
Christopher A. Kim, Staff Assistant

* Mr. Sisisky passed away March 29, 2001.





    Thursday, March 29, 2001, Fiscal Year 2002 National Defense Authorization Act—MWR Programs and Resale Activity Oversight

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    Thursday, March 29, 2001




    Bartlett, Hon. Roscoe G., a Representative from Maryland, Chairman, Special Oversight Panel On Morale, Welfare and Recreation

    Underwood, Hon. Robert A., a Representative from Guam, Ranking Member, Special Oversight Panel on Morale, Welfare and Recreation


    Amerault, Vice Adm. James F., USN, Deputy Chief of Naval Operations (Logistics)

    Barnes, Joseph L., Director of Legislative Programs, Fleet Reserve Association

    Courter, Maj. Gen. Robert J., USAF, Director, Defense Commissary Agency
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    Downs, Michael, (BG USMC, RET.), Director, Personal and Family Readiness Division, USMC

    Hogan, Frank J., Chairman of the Board, Armed Forces Marketing Council

    Klimp, Lt. Gen. Jack W., USMC, Deputy Chief of Staff for Manpower and Reserve Affairs

    Kulungowski, Meg, Senior Issues Specialist, National Military Family Association

    Loving, Walt, Vice President, Monarch Crown Company & Bristol Myers Squibb Company

    Maas, Rear Adm. Steven W., USN, Commander, Navy Exchange Service Command

    Mahan, Lt. Gen. Charles S., Jr., USA, Deputy Chief of Staff for Logistics

    McGinn, Gail H., Acting Assistant Secretary of Defense for Force Management Policy

    Raines, Boyd W., Chairman of the Board, American Logistics Association

    Ritchie, Ron, General Manager, MDV/Nash Finch Company
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    Rohrbough, Frank G., (Col. USAF, Ret), Deputy Director, Government Relations, The Retired Officers Association

    Wax, Maj. Gen. Charles J., USAF, Commander, Army and Air Force Exchange Service

    Zettler, Lt. Gen. Michael E., USAF, Deputy Chief of Staff for Installations and Logistics


[The Prepared Statements can be viewed in the hard copy.]

Amerault, Adm. James F.

Bartlett, Hon. Roscoe G.

Barnes, Joseph L.

Courter, Gen. Robert J., Jr.

Hogan, Frank J.

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Klimp, Gen. Jack W.

Kulungowski, Meg

Loving, Walt

Maas, Rear Adm. Steven W.

Mahan, Gen. Charles S., Jr.

McGinn, Gail H.

Raines, Boyd W.

Ritchie, Ron

Rohrbough, Frank G.

Underwood, Hon. Robert A.

Wax, Maj. Gen. Charles J.

Zettler, Lt. Gen. Michael E.

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[The Documents submitted can be viewed in the hard copy.]
Statement of the Military Coalition
Commissaries and Exchanges Quality-Of-Life Benefits

[The questions and answers can be viewed in the hard copy.]
Mr. Abercrombie

Mr. Andrews

Mr. Bartlett

Mr. Chambliss

Mr. McHugh

Mr. Underwood


House of Representatives,    
Committee on Armed Services,
Special Oversight Panel on Morale,
Welfare and Recreation,
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Washington, DC, Thursday, March 29, 2001.

    The panel met, pursuant to call, at 2:30 p.m. in room 2212, Rayburn House Office Building, Hon. Roscoe G. Bartlett (chairman of the panel) presiding.


    Mr. BARTLETT. Let me call our hearing to order. Let me first apologize for two things. One is the size of the room. Thank you all very much for your interest, and in the future maybe we can find larger accommodations. Traditionally, the panel meets here, and I am delighted that there is such interest that we have outgrown the size of the room here. Thank you for your interest.

    Second is an apology for trusting the judgment of those who told me how quickly they were going to vote on the floor because we might have had 10 minutes here before they called the votes, and I wish I had been here to welcome you and to get through the early, preliminary part of our hearing.

    It is with a very heavy heart and some indecision that we have this hearing because we have lost half of our institutional memory on this panel. When I accepted the chairmanship of this panel, I asked Norm Sisisky if he was going to be on it, and when he told me he was going to continue on the panel, I was comfortable that we had adequate institutional memory, and now, as I am sure most of you know by this time, we just recently lost Norm Sisisky. A great guy. I can't think of anybody in the Congress that I worked better with. Great sense of humor, great knowledge, great concern for our young men and women, and he is just an enormous guy whose shoes are not going to be filled, and we really miss him.
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    This is going to be a very emotional experience for me, and I am pleased that his name is still there for this hearing, and after I turn to my ranking member and ask him for his comments, I would like to have a moment of silence, a moment reflecting how thankful we are that we had the experience to know and serve with Norm Sisisky.


    Mr. UNDERWOOD. Thank you, Mr. Chairman. And as you have indicated, we have lost not only a great deal of institutional memory in the work of this particular panel, but in terms of the House Armed Services Committee. He was a champion for the military, he was knowledgeable, he was willing to share his knowledge. Those of us who came, when I came in 1993, he was a Member that was always willing to his share knowledge, sometimes in a little bit of a gruff fashion. But he certainly was a leading voice in the House Armed Services Committee, indeed in the House of Representatives. We are all going to miss him very much and especially on this panel.

    Thank you, Mr. Chairman.

    Mr. BARTLETT. Thank you. Let's now have a moment of silence in respect for Norm.

    [moment of silence.]

    Mr. BARTLETT. Amen. I welcome all members to our first meeting of the 107th Congress and particularly welcome our new and returning members. As you all know, Robert Underwood and I have been asked to take the helm of the panel of this Congress, succeeding our good friends and colleagues John McHugh and Marty Meehan. John and Marty have been wonderful stewards of the Morale, Welfare and Recreation (MWR) program for the past six years and I salute them.
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    We are also pleased to welcome several new members to the panel. They have not yet returned from the vote, but let me tell you who they are and you will see their names up here when they come. Ander Crenshaw of Florida, Mark Kirk of Illinois, Ed Schrock of Virginia, Susan Davis of California. And my good friend Neil Abercrombie was careful to remind us that he is not a new member but a returning member to the panel. I welcome all new and our returning members to the panel.

    I would like to open with a few words about my intentions as chairman.

    I assumed the chairmanship without any preconceived ideas of what should be done by the MWR Panel except that we should do whatever is best for our military. Like all members, I have some strongly held beliefs about our responsibilities to the young men and women who serve in our armed services. One of my convictions is that we serve at least to some degree as surrogate parents for the 18 and 19-year-old young troops who have been loaned to us by their families, who join our military. We have an obligation to return them to their hometowns and their families as better and more mature citizens than when they were loaned to us.

    In that regard, I worry when we tempt these young people unduly with products and services that are not good for them. Let me assure you all that I recognize that we have an obligation to offer our military members and their families the same range of legal products that are generally available in commercial retail and grocery stores so far as this is consistent with morale and good order and discipline in our services.

    I also recognize that there are legitimate differences of opinion concerning what is or is not good for the troops. Furthermore, I recently visited several exchanges and have been really very pleased with what I saw there. I just want all to understand my view that we shouldn't be promoting products and services with well-established ill effects.
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    With a new panel in place and a new Administration in place, I thought it best to start out with a broad-based hearing that reviews for all members and, frankly, for the new Administration, what exchanges and commissaries mean to our military families. With that thought, we have assembled quite an array of expertise on these programs. We will hear from policy makers, systems operators, the industry that supports resale, and the patrons of that resale system, and I urge all of our members of the panel to give full attention to each of these witness groups.

    Both the Congress and the Department of Defense (DOD) are reviewing all defense programs with a critical eye. While military resale activities are not the most expensive of Pentagon programs, they do consume significant resources. It is fair to ask if we are getting sufficient bang for the buck, if I can use that phrase in this context. While I know that some well-respected analysts in the past have criticized these programs, I believe that commissaries and exchanges are very important benefits that must be retained. Not only do they provide their products at a lower cost frequently than they can be obtained in the private sector, but they also contribute to something which I think is at least as important, and that is sense of community. And if that were the only contribution they make, I think it is worth the relatively small amounts of appropriated funds that they consume.

    As long as we have military bases, and despite continuous talk of base closures, there is no question that we will continue to have a large number of military bases, and as long as we have people in the military, and as far as I can tell the military will continue to need large numbers of young recruits for the foreseeable future, then we will need to provide a strong military community on base. This means continuing to provide for essential services such as commissaries, exchanges, health care and MWR programs. In short, my view that we serve as surrogate parents drives me to be supportive of this system.
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    While I retain an open mind on the details of the programs that may need adjustment, I am a strong supporter of the system at large. Similarly I am a steadfast supporter of a strong American military, though I will reserve judgment on which weapons systems we should buy for the future pending the present DOD strategic review.

    Given that view, I believe we should concentrate this year on the benefits of these programs and an oversight of recently enacted changes. I think we have an obligation to examine commissary funding in light of the changes we made last year as to how the surcharge fund may be expended. Our expectation is that we will have a healthier commissary construction request. I am interested in hearing about that and also hearing about how Defense Commissary Agency (DeCA), is driving down their need for appropriated funds.

    On the exchange side, I would like to review what effect last year's changes in armed services exchange regulations have had on both the exchanges and small businesses.

    A word to the business community. I am very supportive of business, and small business in particular. I was a small businessman in another life. I am one of perhaps 35 Members of the Congress that was an active member of the National Federation of Independent Business (NFIB) before I came to the Congress. So, from my own experience, I understand the concerns of small business.

    While I believe that the military resale system should make every effort to reach out to small business, I also believe the business community should be honored to have the opportunity to do business with the military and provide service to our fine young men and women in uniform. And to the extent that our resale functions on base compete with the private sector, I urge our business community to be proud of the fact that they can make this patriotic contribution to our national defense by providing for increased quality of life for our military people and our retired people through the resale system.
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    As I mentioned, I have already done some traveling in my short time as chairman and have been impressed by what I have seen so far. It is apparent that exchange and commissary operations are well-run operations, staffed by people committed to do the best they can for military families. It is also very clear that they need the full support of the business communities to provide this level of outstanding service.

    We have several distinguished panels of witnesses to hear from today, but before proceeding to our witnesses let me recognize the panel's ranking Democrat, Robert Underwood of Guam, for any opening remarks he would like to make, and I am very pleased that he is ranking member, and I look forward to a very effective working relationship. Robert.

    [The prepared statement of Mr. Bartlett can be viewed in the hard copy.]


    Mr. UNDERWOOD. Thank you very much, Mr. Chairman, and I join you in welcoming all of our new and returning panel members, and I look forward to the opportunity to work with you and the rest of our colleagues on the MWR Panel this session.

    While significant progress has been made in providing high quality resale opportunities for military communities, there is still much that remains to be done. I am confident that we will face a number of interesting MWR challenges that we will address in this 107th Congressional session.
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    At a minimum, the ongoing initiatives require nurturing and continuous oversight and support if they are to meet the espoused quality of life goals and objectives that we have outlined. I also take time to welcome all of our witnesses to the hearing. I will keep my statement short to provide more opportunity for them to present their testimony and respond to questions, but I do feel compelled to make a few remarks.

    There is no doubt that resale activities are important quality of life enhancers for our military personnel, both active and Reserve and their family members, and thereby contribute greatly to the total readiness of the force. Lest we forget, they are also have very important to our military retirees. For them it represents the practical side of promises made and promises kept.

    I have heard or seen no evidence of any lessening of enthusiasm or support for these programs. To the contrary, I am frequently reminded from a number of sources about the importance of protecting these benefits, not because they contribute so much to other MWR activities in the form of dividends, but because they each serve a particular individual need.

    Mr. Chairman, I understand the tensions and competing interests that exist between some of the products offered by the resale system and espouse prevention and equity goals. Making merchandise available to authorized patrons that other citizens would find available in the civilian marketplace is an important objective. At the same time we are aware of the implications of the abuse of alcohol and some other products that are legally and readily available for purchase.

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    While policies relating to this matter are not a specific resale activity responsibility, I am certain that the services recognize the inherent responsibility of encouraging responsible use and discouraging unhealthy and unproductive behaviors. The manner in which these tensions and conflicts are addressed and resolved will ultimately contribute to the perception of quality of life and ultimately the readiness of the force.

    Loss of life incidents like the terrorist attacks on Khobar Towers and the USS Cole, the rocket attack on the barracks during Desert Storm remind us that military personnel are treated as mature adults and are sometimes confronted with making the ultimate sacrifice in support of the national military strategy. We can ill afford to treat them less maturely.

    I do have some specific concerns that I would like the witnesses to address during the hearing. First, with the dynamic nonmilitary retail industry competition and the reduction in military force structure, what is the strategic planning process in place to assess the long-term demands on the retail activities by a diverse customer base? What new initiatives are planned or have recently been put in place to ensure that the resale activities have the appropriate capacity and present a competitive marketing aura? What are the major structural impediments that impact most on the implementation of best business practices?

    Mr. Chairman, I recognize the importance of dividends generated by parts of the resale system to the overall health of the MWR program, but in our enthusiasm for generating profits for dividends, I hope that the leadership will not lose sight of the need to remain first and foremost customer focused. And I agree with you that the importance of this panel is indicated by the overwhelming turnout here this afternoon, and I look forward to working with you and having vigorous hearings and discussions.
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    Thank you very much.

    [The prepared statement of Mr. Underwood can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much. Let me ask unanimous consent that any other members of the panel who have opening statements, that those opening statements may be made a part of the permanent record. Without objection, so ordered.

    Our first panel of witnesses are the Department of Defense's senior policy makers for military resale programs. They are Ms. Gail McGinn, Acting Assistant Secretary of Defense for Force Management Policy. Thank you very much for being with us.

    Lieutenant General Charles Mahan, Jr., Deputy Chief of Staff for Logistics, U.S. Army.

    Vice Admiral James F. Amerault, Deputy Chief of Naval Operations, Logistics.

    Lieutenant General Michael E. Zettler, Deputy Chief of Staff Installations and Logistics, U.S. Air Force.

    And Lieutenant General Jack W. Klimp, Deputy Secretary of Staff for Manpower and Reserve Affairs, U.S. Marine Corps.

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    Let me note for my colleagues that each of the four officers before us serve on the Commissary Operating Board as well as on their respective military exchange Board of Directors. They and Secretary McGinn are well placed to answer policy questions involving commissaries and exchanges.

    Let me note that without objection your full prepared statements will be made a part of the permanent record. If you could condense your verbal remarks to roughly five minutes, there would be more than ample time to amplify on any points that you wish to emphasize during the question and answer period.

    Secretary McGinn, you may proceed.


    Secretary MCGINN. Thank you, Mr. Chairman. I am honored to appear before you and the panel today to discuss the Department of Defense resale system. I know the panel has a lot of business to conduct, so my comments will be very brief, less than five minutes I think, but first I must say that I was stunned and saddened as well to hear of the passing of Congressman Sisisky. He was a long-standing strong supporter of our military personnel and our quality of life programs and he will be missed. I think I can speak on behalf of the men and women of the armed forces in passing along our heart felt appreciation for his service and condolences to his family.

    Mr. Chairman, as you well know, pay and quality of life are two major factors affecting our ability to recruit and retain a quality force. Our recent joint services personnel survey shows fitness centers, commissaries and exchanges as the most used community services. These nonpay benefits form the backbone of our military support system for young troops and families. By offering groceries and merchandise at significant savings, commissaries and exchanges add substantially to military families' standard of living around the world.
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    In addition to exchange and commissary stores on military installations, the exchanges support ships afloat and troops deployed around the globe. Collectively, the resale and MWR programs help form a community network that supports our service members and their families in these times of high personnel TEMPO and separation.

    Initiatives are underway that promise with the help of Congress to further build and sustain a strong resale benefit. Commissary sales have reached the $5 billion annual mark and the surcharge trust fund is on its way to financial recovery. Commissary savings have increased from 23 percent to 29 percent over the last 5 years, and exchanges report increases in sales and profits this year which in turn supports MWR programs. The exchanges are distributing $333 million to support those programs.

    Our collective plan is to continue this forward progress. Our plan is aggressive and we will continue to need your support. In this regard I would like to thank the panel for its support in spearheading change in the resale system. Your advocacy has delivered the authorities needed for the Department to become more effective in providing commissary and exchange benefits to improve the quality of life of our people.

    Mr. Chairman, this concludes my statement. I will be pleased the answer any questions that you and members of the panel may have.

    [The prepared statement of Secretary McGinn can be viewed in the hard copy.]

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    Mr. BARTLETT. Thank you very much. Lieutenant General Mahan.


    General MAHAN. Thank you, Mr. Chairman and honorable members of the panel. It is my pleasure to be here today to report to you on the military resale programs. I would like to congratulate you, Mr. Chairman, and Congressman Underwood on your appointments to the committee as its leadership. At the same time I would like to thank Congressman McHugh and Congressman Meehan for their leadership in the past, and I am pleased to see they will continue to serve as members on this important panel.

    I share the chairman's and panel's sense of loss regarding Congressman Sisisky. He was a true friend of the Department of Defense and all service members and their family members. He will be missed.

    I have submitted my full testimony in the interest of time. I will keep my comments short, to the point. First, I believe that the Army and Air Force Exchange Systems and the Defense Commissary Agency contribute significantly to our soldiers' and families' well-being.

    Second, both of these organizations ensure that the vital benefits that they provide are in fact provided worldwide to our deployed forces and family members, in sometimes very trying conditions. In that light our force's morale is heightened and welfare enhanced by those organizations' efforts.

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    I thank you for the opportunity to appear before you today, and I look forward to working with you all. I will be happy to take your questions at the appropriate time.

    [The prepared statement of General Mahan can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    Admiral Amerault.


    Admiral AMERAULT. Mr. Chairman and distinguished members of the panel, I thank you for the opportunity to appear before you again today. This is my third appearance to discuss the Navy's MWR and resale programs. As Deputy Chief of Naval Operations for Fleet Readiness and Logistics for the past three years, I have found my oversight role of these programs to be one of the most satisfying facets of my time in the Pentagon.

    I would like to recognize the panel's new chairman and ranking member and to thank all of the members of the panel for their continued interest and commitment to the well-being of our sailors, Marines and their families. People are our most important asset and they are the very reason we are successful in our worldwide mission.

    Our Chief of Naval Operations, Admiral Clark, has challenged Navy leadership to ensure that our people enjoy the quality of service; that is, the quality of life and the quality of the workplace, that they deserve in recognition of the demanding challenges that they face every day.
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    Finally, let me acknowledge the profound sense of loss that the Navy shares with the country at the passage of the distinguished member from Virginia and the tremendous supporter that he was of sailors and Marines everywhere. Mr. Sisisky will be missed by each and every one of them.

    I am open to your questions, sir.

    [The prepared statement of Admiral Amerault can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    General Zettler.


    General ZETTLER. Thank you, Mr. Chairman. First, on behalf of all the men and women of the armed services, we pay special regards to Congressman Sisisky. I remember, Mr. Chairman, last fall when I had as the Chairman of the Commissary Operating Board a delicate and difficult issue to work. The Congress was in recess, yet I found Mr. Sisisky and we spoke on the phone. We talked for about 30 minutes. His insight, his guidance, wisdom was very beneficial to resolving that difficult issue.
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    I learned from that experience with him how great a supporter of the men and women of the armed services that he is and how he will be dearly missed. We offer our sympathy and, most importantly, our prayers to his family.

    Mr. Chairman, let me congratulate you and the ranking member on your new positions. I look forward to working with you in your position as we support the men and women of the armed services. For Mr. McHugh and Mr. Meehan, thank you for the support they have given to us over the last years. I know that their leadership was valuable in making significant changes in the commissary area and supporting the Army and Air Force Exchange Service (AAFES) and the other exchanges.

    Quality of life in the armed forces has never been more important than it is today. Mr. Chairman, I have respectfully submitted my written testimony and I look forward to answering your questions as appropriate.

    [The prepared statement of General Zettler can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    General Klimp.

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    General KLIMP. Mr. Chairman, Mr. Underwood and distinguished members of the committee, to start with I would like to add the condolences of the United States Marines to the family and friends of Congressman Sisisky. The Marine Corps and all Marines have lost a true friend.

    Like my contemporaries up here, I have also submitted my written comments for the record and I would just like to take a minute or two to summarize those if I may.

    The Marine Corps is a unique organization in that we are the only service that combines the responsibilities for generation of revenue through the resale system with the execution of quality of life programs. Our bottom line is taking care of Marines. We do this via a new and unique organization, Marine Corps Community Services, an organization that is managed at the high end by a board of directors that includes members from our headquarters, our installation commanders and their customers, the force commanders and their Marines and families.

    This board oversees four committees that see to issues that cross installation boundaries. It does not directly operate the various programs. Our installation commanders are charged with that responsibility. We feel that that is important. Our belief is that the installation commander is best placed to determine the needs of his community and to respond to those needs.

    It is also important to note that the Marine Corps is a young force. Almost 70 percent of our Marines are first termers; 15 percent, or nearly 27,000 are teenagers. To a degree our installation commanders act in the role, as you said earlier, sir, of surrogate parents. They work to provide their Marines all they want and need while simultaneously counseling and/or protecting them from those things that could or might do them harm.
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    This is a reflection of our view that the Marine Corps does three things for country. It makes Marines, it wins battles, and it returns better and stronger citizens to the Nation.

    In closing, I would say that the Marine Corps is participating with the other services in some 38 cooperative efforts. These efforts are aimed at identifying and implementing best business practices. They lower our cost, retain installation commander involvement in the management of our Post Exchange (PXs), and improve the quality of the service that we are able to provide to our customers, who, as I said before, are our Marines and their families. We look forward to expanding those initiatives and opportunities.

    Sir, that completes my comments, and I am ready for your questions.

    [The prepared statement of General Klimp can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you. Thank you very much and thank you, panel, for being brief to give our members an opportunity to dialogue with you and ask questions.

    Secretary McGinn, I want to apologize for attempting to be politically correct. I was reading from my notes and designated you as Ms. McGinn. I see that your name plate in front of you is politically incorrect, as I usually am, and you are Mrs. McGinn. Thank you very much.

    Secretary MCGINN. No problem, sir.
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    Mr. BARTLETT. Let me turn now to my ranking member Mr. Underwood for his questions and comments.

    Mr. UNDERWOOD. Thank you very much, Mr. Chairman, and thank you very much, panel,for your expeditious testimonies. I think you will make the day go a little bit faster.

    Mrs. McGinn, you know we are all very conscious of the fact that those of us on the panel are very supportive of the commissary and exchange benefit and that is probably the main reason why we are on this panel, and we all know of the expressions of support that we constantly hear about how important this is. Could you characterize the new Administration's views, if any have emerged, on the importance of the commissary and exchange benefit?

    Secretary MCGINN. At this particular point in time, of course, the Department of Defense, I do not have the political leaders in place that would be responsible for this program. Historically this program has had strong support from the leadership of the Department of Defense and it is so important to our communities, to our people, to stretching the military paycheck and to the overall quality of life of our military personnel, that I would hope and suspect that a new Administration would be as supportive as past Administrations have been. But it would be, absent the political leadership, premature for me to characterize exactly what any position would be.

    Mr. UNDERWOOD. Well, you know I was at an event last night. I was hearing that the average value of this benefit to a family is around $2,000, and so it is a very important benefit, and I think it is important that we keep that in mind and continue to tell this story to everyone involved because it is my strong belief that this is not simply an adjunct of quality of life. It is central to quality of life issues.
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    At the same time, obviously, there is always issues and concerns. I wanted to ask each of the representatives of the services that the 1990 base closure law requires that funds equal to the residual value of the exchange and commissary facilities, that Base REalignment and Closure (BRAC), closed facilities be placed into a reserve fund. Maybe you could just give a brief statement as to what is the process or what is the progress of recovering funds from BRAC-affected facilities. Go left to right or right to left.

    General ZETTLER. I think that we have made some progress. We have recovered about $20 million. We have $50 million that we are getting close to, $50 million that we are getting close to recovering and we have about $40 million that we are uncertain as to how we will get. I think the bigger problem that we have is how you score, moving that money back into the replacement of facilities and the upgrade of the facilities for the increased work or sales, if you will, that go into where the population base has moved to.

    Unfortunately, the way it is scored today is it looks like an outlay, and we are always concerned about outlays. So what we need to do is a way to have that not counted as an outlay. I think that is very important because that money was troop money, if you will, that came from the surcharge, was laid into the facilities which are not fully depreciated, and that is how we talk about recoupment from those facilities.

    So we are working and we will work through the Department to seek relief there.

    Mr. UNDERWOOD. I personally want to see some mechanisms for all of your efforts, General Mahan.
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    General MAHAN. Mr. Chairman, I share my counterpart from the Air Force's concern that those facilities that because of the Base Realignment and Closure Act were in fact given back should in fact be replaced in kind. I also am concerned that the total number of dollars is there. We are certainly working with the Administration and certainly to identify that and to try to get that done. Where we are in that frankly, sir, I am not prepared to tell you today. I could get that information.

    Mr. UNDERWOOD. For the record.

    General MAHAN. For the Army, for the record.

    [The information referred to can be viewed in the hard copy.]

    Mr. UNDERWOOD. Admiral.

    Admiral AMERAULT. Yes, sir. Our concern is obviously similar. It is the fact that these are dollars in both cases that were taken out of the pockets of sailors and Marines. I don't have a figure for you, but I can get that for you. But we are interested and are working very diligently to get that, those dollars replaced.

    [The information referred to can be viewed in the hard copy.]

    Mr. UNDERWOOD. General Klimp.

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    General KLIMP. Sir, one of the benefits of being at the end of the table is I can probably just say ditto and leave it at that, but I would say that our one BRAC closure was El Toro and we have yet to recover any of the $8.3 million of undepreciated value of the PX there. And as my friends at the table said, that was Marine money.

    Mr. UNDERWOOD. Okay. Maybe we can start with you this time then. I notice, looking at the profit figures for several years is an interesting pattern in exchanges, and each year the Marine Exchange makes an eight to ten percent profit, whereas the Army and Air Force Exchange makes about five percent and Navy Exchange makes about three percent. So what is the general story on that? Are you overcharging or do you have, maybe you have better business practices and you can inform your colleagues about some of your secrets?

    General KLIMP. I think there is probably a number of things that I could say to answer that question. First, and particularly in relation to the Navy, our structure is more, I think, efficient because we are primarily a large store operation, where I know the Navy runs a lot of smaller stores. We have no stores in our program that do less than a million dollars worth of annual business, and we only have one store in our program that does less than $5 million worth of business in a given year. We also have a somewhat lower salary structure than either AAFES or Navy Exchange Service Command (NEXCOM), so I think that accounts for some of the profits. We have completed recently a market basket comparison between ourselves, NEXCOM and AAFES, and the indication that we got out of that is that we are pricing our goods at about the same level that everybody else is.

    I would say that our sales are up this year again, which would indicate that our people are using the PXs and that we are stocking it with the materials and things that they want to buy. We also do a routine survey of customer satisfaction. The last one was done, I believe, last fall or last summer and we showed a three percent increase in customer satisfaction. There will be another market basket comparison done this fall, sir, and we will look at how we price our goods in the PX in comparison to the other services.
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    Mr. UNDERWOOD. Just one more brief question, Mr. Chairman. General Zettler, the Chairman of the—you are Chairman of the Commissary Board, you are also Chairman of AAFES, right?

    General ZETTLER. Yes, sir.

    Mr. UNDERWOOD. Isn't the Chairman of the Commissary Board supposed to be rotated amongst the military services and the Air Force has had this position for several years? Are we going to look forward to seeing some of the other services get a crack at this?

    General ZETTLER. I think that you will. There was a large transition in the Department last year when General Handy was promoted to be the vice chief, and so I assumed in his place and with the changing Administration coming we elected to keep the chairmanship in the Air Force. I was willing to do that for a two-year period. Secretary de Leon appointed me, but at the end of my tenure I am sure we will turn it over to one of the distinguished gentlemen that is either seated next to me or takes one of the other two's place.

    Mr. UNDERWOOD. Thank you. Well, than you for your service. Thank you, Mr. Chairman.

    Mr. BARTLETT. Thank you very much. We are recognizing members in order of their appearance on the panel and so next is Mr. Andrews.

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    Mr. ANDREWS. Thank you, Mr. Chairman. I would like to thank the panel.

    Mr. ABERCROMBIE. Mr. Chairman, your comment I take it is on the numerical order of appearance and not necessarily a comment on fashion.

    Mr. ANDREWS. I don't know.

    Mr. BARTLETT. That is correct.

    Mr. ANDREWS. Thank you, Neil. I appreciate the brevity and clarity of the presentations. I will be brief with my questions for Mrs. McGinn and I would assume that because the political leadership is not yet in place that you have not been given direction on an answer, but I would like to get the question on the record.

    Ranking Member Skelton of the full committee did an analysis of the budget proposal that the House approved this week, and his conclusion was that after one accounts for inflationary increases as well as the TRICARE benefit, which must be funded out of appropriated funds in this fiscal year, that the increase in the top line is about $100 million. The record of this panel indicates that last spring we had testimony indicating that the increase in appropriated funds in this area would be about $90 million. That would be the need for fiscal year 2002.

    Do you know what the initial plans of the Administration are with respect to the amount of appropriated funds that we will see proposed for fiscal year 2002?
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    Secretary MCGINN. I have not seen the details of the 2002 budget. I think though that when we discussed it last year, it was not necessarily in the context of an increase in the top line but in the context of adjustments made within the budgets through the normal budgetary process. But I would have to take that one——

    Mr. ANDREWS. Would a billion dollars be sufficient appropriated funds?

    Secretary MCGINN. A billion.

    Mr. ANDREWS. Which I believe was the 2001 level.

    Secretary MCGINN. I am sorry, say again.

    Mr. ANDREWS. My understanding is the 2001 level of appropriated funds was a billion dollars. Is that a sufficient level for 2002?

    Secretary MCGINN. For what program?

    Mr. ANDREWS. For the DeCA funding.

    Secretary MCGINN. It would be close. I think General Courter could probably confirm that.

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    Mr. ANDREWS. I was going to ask him a similar question and I will when I get the opportunity.

    Secretary MCGINN. That is about what it costs the commissary.

    Mr. ANDREWS. I just want the record to show that I think the number one issue, one of the major issues in confronting the committee is retention of top flight personnel, and I think that one of a number of things we need to do to retain top flight personnel is to honor our compensation commitments. I consider what you all are involved in to be a compensation commitment, and I hope that the decision makers inside the Administration understand how strongly we feel about meeting that commitment.

    And I yield back.

    Mr. BARTLETT. Mr. Chambliss.

    Mr. CHAMBLISS. Thank you, Mr. Chairman. I should know the answer to this question, but I am drawing a blank. Do we accept food stamps at the commissary?

    Secretary MCGINN. Yes, we do.

    Mr. CHAMBLISS. We are making a real effort obviously to get our folks off of food stamps totally. We made some progress. I am just wondering if you all are seeing that progress. Are we getting smaller dollars of food stamps throughout the commissary system?

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    Secretary MCGINN. The number of individuals who are on food stamps has declined over the last few years. Of course last year the bill put in place the supplemental allowance to address the needs of some of our young people who are on food stamps, but not necessarily eligible for them. That goes into effect, I believe, in May and so we would not have seen the effects of that yet in the commissary. General Courter may have some specific data on that. I don't have any data. General Courter can answer that question.

    Mr. CHAMBLISS. Okay. The other thing, just following up on Bobby's (Mr. Andrew) question on BRAC, would each of you just give us in writing the dollar amount that you lost in BRAC and even if you could give us location on it, it would be better. We don't need it right away. If you could give us base-by-base or post-by-post what we lost in BRAC, what we have recuperated, what is still hanging out there, what is the prospect of recovery, just a general summary from each branch of the service, that would be very helpful as we look toward the potential for another round.

    That is all I have, Mr. Chairman.

    [The information referred to can be viewed in the hard copy.]

    Mr. BARTLETT. Mrs. Susan Davis.

    Mrs. DAVIS OF CALIFORNIA. Thank you. I am new so I have had an opportunity to go on to the bases and start talking to people, and it has been very interesting. One of the questions they often ask, especially if I end up in an elevator with one of the young enlisted persons, is where do you live because in San Diego they often have to live very, very far from the base and if they would tell me a little bit about some of their concerns, what they need to deal with. One question is how far some of them have to go to get to the commissaries, to get to the exchanges, and I appreciate the fact you mentioned that the Marines have one large store, perhaps the Navy has some smaller stores. What are we doing or is it efficient to have some smaller commissaries around that might be more convenient, but of course are not as perhaps cost effective? How does that work, how do you make those decisions?
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    Secretary MCGINN. We have various criteria by which we establish commissaries. The first criteria is overall quality of life consideration, which includes remote distance to other commissary facilities, distance to other shopping facilities, et cetera, and I would say that is the overriding concern. One of the criteria is, though, that we cannot consider having a commissary or closing a commissary if there is another one within a 20-mile distance. But we don't take each—the system is not set up such that if you miss one criteria you are out. We look at them all in aggregate, with the first one being the overall quality of life assessment.

    General Zettler may be able to add some to this because the Commissary Operating Board has had some discussions about this as well.

    General ZETTLER. We have had extensive discussions with regard to maintaining commissary benefits in areas where the military active duty population has declined. We have not probed into how to or should we go out and establish satellite commissaries, if you would, although there have been some superficial discussions on that. And our general sense as a board is that the members come to the base frequently enough on the daily basis for their work and generally live within a 30 minutes drive, maybe 45, a little more in your area, I imagine, and that allows them the opportunity. Given the level of funding that we have, it would be a real stretch, I think candidly, to go out and open satellite facilities at different areas of the country the accommodate that though.

    Mrs. DAVIS OF CALIFORNIA. I appreciate that. And I think what they have asked about is smaller maybe, you know the kind of 7-Elevens, that would serve communities in some parts. I appreciate your response. Thank you.
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    In terms of the kind of issues that you are the most concerned with, when it comes to the ability of people to access the services that you have to offer, where are the gaps? Where do you think we are kind of missing right now and what would you beef up?

    General ZETTLER. I will take that one first. I would tell you that the most significant challenge that we have is getting the young enlisted member into the stores to receive the benefit that is there for them. It seems to me and to many others that we have become a society of a quick stop at a fast food location or a 7-Eleven, not recognizing the benefit of some careful shopping that the commissary in its entirety affords, and it takes our basic training facilities to begin to teach that. It takes our senior Non-Commissioned Officers (NCO) to teach it and show it and it takes us as a senior leadership to market this benefit that we have and, as Congressman Underwood pointed out, about $2,300 savings a year for a family of four, and so with the mentorship that we have then the gap is getting them into the stores and letting them see that firsthand savings and what it will do for their pocketbook.

    We operate about 280 stores around the world. That is a very small number of stores when you put it in the context of many of the larger supermarket chains, but the stores that we operate are very high quality stores with excellent buys and provide that benefit. But the gap is getting them in there to use it.

    Mr. BARTLETT. Mr. McHugh, really happy that the former chairman chose to stay on this panel. Thank you very much, John.

    Mr. MCHUGH. Thank you. You show up late and right away somebody steals your chair. I wish you all the best, Mr. Chairman.
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    Let me first of all add my words of sadness and condolences to the family of Norm Sisisky, a great man who did so much for this panel and for the full committee and for Americans in uniform all across the planet. He will be sorely missed and I know many folks in this room worked with him personally and share that feeling of loss, and I understand you, Mr. Chairman, and others made that comment and I wanted to say that very briefly as well.

    Also, I do apologize for getting here late. I assume many of the things I would normally ask about have been covered and I don't want to subject folks to revisiting old topics, but let me just raise, first of all, a point that was a topic of discussion during our oversight hearing last year that had some personal interest. It came about because of my visit to Bosnia with the Chief of Staff of the Army during the time of change of command from the 10th Mountain Division, and one of the things we heard was a cutback in the entertainment, the traveling shows, and the panel that appeared last year admitted that funding problems had caused that to in fact be the case.

    I was just wondering what the status of those shows, which we were told are very important to the morale and the quality of life to our folks deployed, whether it be in Bosnia or anywhere else. Have we made a comeback on that, Mrs. McGinn, or are we still struggling?

    Secretary MCGINN. Mr. McHugh, I don't know exactly what is happening with the funding of the—you are speaking of the Armed Forces Professional Entertainment Organization. The Air Force took over as executive agent of that organization.

    Mr. MCHUGH. I was going to him next actually.
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    Secretary MCGINN. They have done an excellent job, and I don't know if General Zettler is prepared to answer that.

    General ZETTLER. I have some information. I don't have it available, and I will provide it to you, the specific funding streams that we have. But we made short-term recovery but this has been a difficult year as well. We have put together in the field some very excellent entertainer programs, but not nearly to the extent that the troops have clamored for, and rightfully so, those that are stationed in those locations. That is a funding issue.

    [The information referred to can be viewed in the hard copy.]

    Mr. MCHUGH. Would you say we are doing a little bit better? I understand it is not doing as well as we would all like, but is it better than what I was hearing at the time in Bosnia?

    General ZETTLER. I think you probably heard an accurate story. It is about the same.

    Secretary MCGINN. I just had a note passed to me. Apparently the funding has more than doubled, from $3.1 million to $7 million.

    General ZETTLER. That is 2001?

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    Secretary MCGINN. We think it is 2001. We will have to get you the exact number for the record. It appears to be a good news story.

    Mr. MCHUGH. I thank you. On another topic one of the things, Mr. Chairman, you will find that will capture your interest is the concept of exchange integration, for better or for worse, and it has been an issue that this panel has paid a great deal of attention to, but it is an issue that in large measure we have not dealt with because the Pentagon apparently continues to struggle as to how to go about that.

    My understanding is full integration has been set aside but there continue to be many, at least on this side of the river, who feel that there are savings to be realized, and I understand there is some talk of back office integration, et cetera.

    I wonder if you could give me an update on what, if anything, is occurring in the integration field and would this be an issue that the panel expects to have some formal proposal or request before it any time in the near future.

    Secretary MCGINN. If I could introduce it and then my colleagues, I think, should jump in on this question.

    Obviously, we spend a lot of time on that question and there have been a number of options explored in terms of exchange integration, increasing efficiency in exchanges. The final outcome of all of those discussions was not to go for a full exchange integration, but to instead seek to enhance our cooperative efforts among the exchanges and also to use some of the work that was done to identify best practices and ask each of the individual exchanges not only to join together in cooperative efforts, but also to identify things that they could do to save money through best practices, and they have identified some $28 million in total in that thus far.
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    There are some 30 cooperative efforts underway. I do not believe that the exchanges have engaged yet in an effort to identify new ones, although they have sent us a proposal for an oversight board comprised of the exchange commanders, who would work specifically on cooperative efforts.

    As you probably know, we have had some of those in the past that have been very successful: The Credit Card Program through the Air Force Exchange Services, the Star Program; the Internet Sales Program that they manage for us. So where we have done cooperative efforts they have paid off for us well, but I think it will be valuable to hear my colleagues also.

    Mr. MCHUGH. I would like that.

    General ZETTLER. Well, as the Chairman of the AAFES Board, I will take it first. The Board has struggled with this. The study has been out for over three years. We have looked hard at the estimated costs and had an awful lot of questions, frankly, as to whether those were accurate or whether it would cost us more. We looked at an awfully big bill to have a firm be our adviser, and that scared us and we saw savings that we weren't sure were going to materialize. Having said that, we believe that there was a need to go slow here and we based that some on some experience that some of us had with the commissaries, and the commissaries it has taken eight to ten years to get to, where we are starting to get comfortable with the way we brought the four service commissaries together.

    There is an awful lot of discussion that some would agree with and some wouldn't, but I think it is significant enough to give us caution, and that discussion was when we did the commissaries there was some fear about the benefit going away, but everybody called them the commissaries. So it is still the commissary. In the exchange system for as long as I have been in the Air Force, it has been the Army/Air Force Exchange System, it has been the Navy Exchange Service Command, it has been the Marine Corps Exchange System. There is a service culture there. How we do that or if you do it at all, you need to protect the culture and in the environment that we are, recruiting or retention is our number one challenge. We are awfully concerned about perception of the erosion of benefits, and so we believe that we can achieve significant savings by doing some of the things that Gail talked about, and that is going through the process of finding where we have common ground and putting that common ground in place to serve each other, and you said it very well in a behind the scenes fashion.
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    There are 37 or 38 specific areas that are at work today. The commanders of the exchange services had their first meeting of this board yesterday and they have got some real targets to work towards. As the Chair of the AAFES Board, we have given our commander some direct guidance to find every area that we can cooperate in and go cooperate. Obviously the savings are reducing our operating costs and paying us better dividends through the revenue that we gain. So I think we have an approach that says let's find a way to do the intent of the study, but we don't have to do exactly what the study said.

    Mr. MCHUGH. General.

    General MAHAN. Sir, as also a member of that same oversight committee for the Board itself, our exchange has performance metrics that have been developed that really get at best business practices and, as we look at the integration potential, we certainly want to derive best business practices across the services' exchange systems.

    We believe that there is opportunity to do so. As alluded to previously, the exchange chairmen have already agreed and the commanders of each of the exchange systems have met to determine where they can best follow that path. I think the study did point out some areas that are fertile for opportunities, and we have accommodated many of those, as has already been articulated, over 30 of those areas where we can demonstrate some efficiencies by that cooperative effort as we seek best business.

    So I would suggest, sir, that we are doing that, we are trying to execute the intent that I believe you wanted, and that is to accommodate as best we can best business while at the same time maintaining that cultural identity so that we do not detract from our soldiers, sailors, airmen and Marines' identity with their PX systems.
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    Admiral AMERAULT. Yes, sir. To tell you the truth, I think General Zettler put it very well. I agree completely from the standpoint of the Navy Exchange System with what he said about the Army and Air Force Exchange Systems' evaluation of the study. But let me emphasize that we also had some misgivings with regard to the suggested profitability that was there versus the cost of implementing and also the mechanism by which the implementer or the integrator might be chosen. So we looked at it with some skepticism and wanted to go slow as well.

    On the other hand, there was a valuable body of information with regard to best practices, best business practices in the private sector that we have tried to take advantage of and will continue to through the process that has been outlined, where we can consolidate back room or back shop activities while still maintaining the individual nature and front office or store front look of the service stores.

    The other thing that is very important for us is that we run a lot of remote stores, smaller stores, and in fact it is the answer to the profitability issue that Mr. Underwood brought up. Some 70 percent of our stores are small and remote and operate with very little revenue generated, whereas our larger stores generate almost 98 percent of our revenue. So we do that because we have sailors and their families in remote locations and we want to provide what we think is a benefit that is very important because the commissary and exchange benefits are very much of value to families in their decisions to stay with us. We don't want to take the risk of interfering with that prematurely.

    So we are looking at the back room integration, and I think there will be a lot of lessons learned from that that may show us the way to the future, whether we should at some point in some circumstances integrate the front room or not. But we do believe in going slowly with this and evaluating it very carefully.
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    Mr. MCHUGH. Thank you. General Klimp.

    General KLIMP. Sir, when the Marine Corps went into this, we played fully along with our fellow services. We went in with three goals or objectives, and that was that whatever came out of the proposal, whatever came out of the study would sustain the level of customer service that our Marines were accustomed to, that it would provide the same level of command influence in our PXs that we currently had. And that gets back to what I talked about earlier in my opening statement about the Marine Corps Community Services System and how we run all that thing and the role of the commander in identifying the needs of his community and in answering the needs of that community.

    And then also we believed that we wanted to have at least the same dividend, if not a better dividend come out of this. If those three objectives weren't met, then it was not to the benefit of Marines for us to get involved in the consolidation of the PX. When we saw the proposal that was put forward on the solution to consolidation of the PXs, we felt that every one of those three was at considerable risk.

    I would ditto my friends here again in saying that we felt that the savings were overstated, that the costs were overstated, that it would in fact require us to disestablish Marine Corps Community Services (MCCS), which has been incredibly successful for us in taking care of our Marines out there, and that gets to the General's comments about service culture.

    One size we did not feel fit all. Part of this thing and much of the cost of the thing was a huge Information Technology (IT), solution that we would all be driven to for our business practices. When we talked to the commercial companies out there that had in fact attempted portions of this same kind of IT solution, they all counseled caution. So for that reason we felt that a solution, as has been discussed here today, was the right way to go for our Marines.
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    As I said and as has been said here, we have in fact established an Executive Cooperative Efforts Board. I think that board meets again in the next week or two. The Marine Corps alone is participating in some 38 joint initiatives with the services here at the table. Again, we feel that that is the way to go and is the best way to care for our Marines.

    Mr. MCHUGH. Thank you. Mr. Chairman, if you would indulge me for 30 more seconds. I appreciate your answers. Under the heading of friendly advice, I am sure you understand that there are a lot of Members of this Congress who are very supportive, rightly or wrongly, of total integration. I think it would behoove all of us if you could as quickly as possible document these areas of cooperation, delineate where you have changed past practices based on the general concept of integration and help initially the panel and ultimately the full committee and the House recognize this going forward.

    In the ears of many when they hear the words ''service culture,'' they take that to be an excuse not to change. I don't agree with that position, but I think it would be naive of us to deny that it exists because it indeed does. It sounds here this afternoon as though you have made some progress in this area. I know we would all be interested in being kept apprised of that and fill in the blanks for us as you go along. Thank you all.

    Mr. Chairman, thank you and best wishes to you, sir.

    Mr. BARTLETT. Thank you very much. Mr. Abercrombie.

    Mr. ABERCROMBIE. Thank you very much, Mr. Chairman. Again, I am going to follow up on Mr. Andrews' line of questioning. If I don't go through this exactly in the same spirit in which he asked the question, I wouldn't mind having my question amended. I am a little disturbed by what I take to be the meaning of your answer. Now, I realize there is a transition in the Administration, but if I remember correctly, you said something, ''Well, I don't know what the budget is or I don't know what the numbers are.'' How could a decision be made without it coming from you? Regardless of whether you are in a transition phase. Who does have the budget, then? Where are the numbers coming from? How is it being dealt with if not you?
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    Secretary MCGINN. As you know, sir, the details of the budget haven't been set forth yet. And so the Secretary is conducting his review and we are awaiting the outcome of the review.

    Mr. ABERCROMBIE. I understand. But wouldn't a review be conducted with you? I mean on the assumption that you are a responsible person who wants to carry out her duties regardless of party or origin of appointment? Do I understand you correctly that you are not being consulted with or involved in reflection or questions coming to you, call-in response kind of thing?

    Secretary MCGINN. All I can say, I am glad to have the opportunity to clarify this from Mr. Underwood's previous question, too. The Secretary of Defense is concerned about and interested in support of quality of life issues. As you probably know, part of his review includes a review of quality of life concerns. Obviously when we developed the budget last year and we were looking at all of the budget issues with the previous Administration, we were all very involved in that. The Secretary is currently undergoing this overall review, and what we had set forth has not yet been sent forward.

    I think it is the right way to say it, pending the results of his review and any changes that might need to be made, and therefore I can't speak authoritatively to what you would see in the 2002 budget. I would assume, sir, that at the point where the reviews are completed and the budget adjustments start to be made that we would again—we would know what those adjustments were and we would participate in that process. But at this particular point in time, that is not visible to us.
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    Mr. ABERCROMBIE. Doesn't that leave this committee at a bit of a disadvantage? How are we supposed to proceed?

    Secretary MCGINN. Sir, all I can say is that this is not unique to this committee.

    Mr. ABERCROMBIE. Let me ask you this, then. That may be. I have my reservations about a lot of things as a result. All I am driving at, unless—these issues are well known. I haven't heard anything today that is so esoteric as to strike me—obviously it hasn't struck me dumb. Except in a figurative sense. I am going to choose another word. Speechless. In all seriousness, though, particularly because they are quality of life issues, what I am driving at, has there been any feedback or is there any feedback, and perhaps I can urge upon you then the idea that the suggestion be made that some feedback or exchange might be in order in case there are some philosophical diversions or something that would have an impact. I presume you put forward proposals, budgetary and otherwise, that could be stated to us now and have been in your testimony, et cetera. But I think it is fair for us or me to ask you, do you have any indication that what has been put forward will somehow go in another direction in some radical way?

    Secretary MCGINN. No, I don't. I have not heard anything that would lead me to believe that the plans that we have made are going to be dramatically altered by the budget. But I do have to say that I haven't seen the outcome of it, as many others haven't seen the outcome of it, and so I have to caveat my remarks with that.

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    Mr. ABERCROMBIE. I appreciate that. Thank you very much, Mr. Chairman.

    Mr. BARTLETT. Thank you very much.

    Mr. Jones.

    Mr. JONES. Mr. Chairman, thank you very much. I want to thank the panel for being here. I missed your presentation. My question deals more with the local issue in Jacksonville, North Carolina, General, but I think it has certainly got ramifications throughout this country and some towns are obviously larger than others. Cities, towns. But in the town of Jacksonville, Mr. Chairman, I think in your opening remarks I have heard Mr. McHugh before stressing the need for balance when possible between the private sector and the military. I am sorry I missed your opening remarks. Let me just give you an example. Jacksonville, North Carolina is the home of Camp Lejeune and the people of Onslow County love the Marines. There is no question about it. New River is in Onslow County, also. But we constantly run into a situation which now General Richard very kindly, one of the finest gentlemen I have ever met, called me a few weeks ago and said we are going to expand our furniture sales to assembled furniture. When this happens, all of a sudden, not all of a sudden, excuse me, but the phones start ringing.

    I want to read you just a couple of comments from two letters and I want to make a point. Then I would like maybe to ask you, Mrs. McGinn, or maybe General Klimp and I hope we as a committee—it is not always easy to find a balance and I am not sure we can find a balance, but when you are taking a county that per capita income is very low, they do provide services to the children of the military, social service calls on base when there is a domestic violence problem, children that are being educated. Yet the county commissioners see the expansion of these sales maybe costing the county $1 million. That is a lot of money when your sales tax rate is about 6.5 percent, I believe it is. That is a lot of money coming out of the county's coffers.
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    Let me just read you two letters, I am not going to read them all but just parts of them. This is from a furniture owner in Jacksonville, North Carolina. It says:

    ''As a retail furniture dealer in this area since January 1952, the news of the Marine Corps Exchange selling furniture does not seem fair for those of us who make our livelihood from retail furniture. The following reasons will explain very quickly. The playing field would not be level. The Federal Government can purchase furniture from manufacturers at volume prices that the individual merchant cannot receive. There would be no sales tax collected by the Federal Government, so we would automatically be six percent higher.'' He goes on.

    This one again I want to read very quickly, just two or three sentences. It says:

    ''Dear Congressman Jones, I feel compelled to bring something to your attention. Sir, I have been in business for over 42 years here in Jacksonville, North Carolina.''

    I am skipping part.

    ''I have literally been working all my life. I had to work to help my family as a young boy, and I am almost 70 years old. I have worked 15 to 16 hours a day 6 days a week. To my dismay I had to get out of the electronics business because I cannot compete with the government exchanges at Camp Lejeune.''

    Let me go a little bit further.
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    ''There is no way that a small businessman can borrow money to buy merchandise. I cannot stay in business and compete with the U.S. Government.''

    The last sentence, ''I just don't want life as I know it for me and my family to come to an end. The government needs to allow the little man to survive and not take away my livelihood.''

    What I cannot quite—and I have been on this panel for about, I guess seven years now, and there is no easy answer to this, but I look at how the exchanges—I have Seymour Johnson Air Force Base in the district. We are very proud to have all these bases; Cherry Point, the Coast Guard Base up in Elizabeth City. We love our men and women in uniform. In my opinion you cannot do enough for them, quite frankly. But also we have got to consider that businessman that not only is competing with the exchange, but he is having to compete with the bigger chains that are coming into his area. But there to a lesser degree they are on equal footing because they do have to charge for sales tax and they have other charges that are very similar.

    What I am going to be compelled to do is to write the Commandant and ask for some type of impact study as to how this loss of $1 million in sales is going to impact on Onslow County and ask him to please hold up a final decision until we can see the negative impact. Again, I don't know what the answer is. I guess I have said that four times now. But there is a problem that has got to be addressed because these counties do provide services to many of those in uniform, and they want to provide those services but what is beginning to happen, if they don't have the revenue, then they have got to cut services.
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    I would like to get a response from you. I know you don't have the answer. No one seems to. I certainly don't—and then from General Klimp if I could.

    Secretary MCGINN. I think it is a very difficult thing to balance, and I think one of the values of this panel has been in helping the Department figure out how to strike that balance. I do not have an answer for you, but I do have one more piece of information to throw into the quagmire, which makes it even more complex.

    One of the largest expenses that our young families have as they set up their families is expenses for furniture and they very often arrive without any and need to furnish their flats, furnish their apartments or wherever they happen to be living. And so we do know that that is an issue for them. So that need plus all of the other things that you have mentioned, those are the kinds of things that go into having to balance this whole issue of what we sell and what we don't sell in our exchanges.

    I am hoping General Klimp can help me with some specific information about Camp Lejeune here.

    Mr. JONES. Mrs. McGinn, I must add to this, I will never forget, I don't know which Member it was but when they started selling Waterford china and Godiva chocolates, I think that young Marine or young airman, whatever, I am not sure that is at the first year of marriage to buy Waterford china or Godiva chocolates. I am not sure that is really that important.

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    Secretary MCGINN. I agree with you, sir, but furniture has emerged as one of the——

    Mr. JONES. I agree with the furniture, but again I still say that if you are going to look at a county that is going to provide services, then I think you have got to be more sensitive, not talking about you individually, but you have got to be more sensitive to the impact that you are going to have on that county. Because there will come a time that that child, that Marine that maybe is looking or that wife who is battered might be looking for help and it is not going to be there.

    Secretary MCGINN. Yes, sir.

    General KLIMP. Sir, Mrs. McGinn I think is right on the money when she says, and you have said as well, sir, that it is a difficult balancing act between the needs of our service members, many of whom are young families, for example, who are on food stamps and the needs of the community and the needs of the small businessmen out there. General Richard is in fact looking at the idea of selling assembled furniture in his PX out there. Before we do that, we will comply with the requirements of Armed Services Exchange Regulation (ASER). By that, I mean he will consult and is in fact already consulting with the Chamber of Commerce there outside of Camp Lejeune. He will identify with the Chamber of Commerce where it may have an impact on the local businessmen and that impact will be forwarded to the Office of the Secretary of Defense and then from there to the Congress for review.

    I think you have hit the numbers pretty much right on the head, sir. We expect that if we do this, the PX will do about a million dollars worth of business. We think about $1.1 million. We believe that in that county in the last year, there was about $46.8 million worth of furniture sold. So our $1.1 million represents about 2 percent of the total sales that might take place in Onslow County. What that will do for us and for our Marines is provide about, we think, $400,000 per year that will go directly into quality of life programs for the young Marines that Mrs. McGinn was talking about.
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    General Richard has in fact and continues to encourage the local businessmen who sell furniture down there, and in particular the ones who are the smaller operators, to partner with us and come aboard the base to sell their furniture aboard the base. We have in fact had at least one of those businessmen who has indicated an interest to do that.

    Sir, I share your concern. We are concerned about those small businessmen out there, but we are also concerned about our Marines and before we do this, we will look at it very, very carefully and we will ensure that you have the opportunity to do so as well.

    Mr. JONES. General, thank you. Mr. Chairman, I again would like to say that I hope again we can look at some way in this year to come to see if there is any way on some of this expansion that the Congress could somehow take a second look before a final decision is made. Again I don't know what the answer is, but it is a problem. Thank you for your answers.

    Mr. BARTLETT. Thank you for your concern. We will come back to that in a few moments. Mr. Schrock.

    Mr. SCHROCK. Thank you, Mr. Chairman. First of all, let me apologize for being late. My colleagues and I from the Virginia delegation, as you probably know, were on the floor remembering Congressman Norm Sisisky, who, if you don't know, passed away earlier today. We feel that loss greatly. I can assure you he was a vital member of the House Armed Services Committee and I can assure you I will miss him because as a new member he was giving me some great advice and I was heeding it.
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    I am concerned too about the exchanges. I am one of those who was privileged to serve in the Navy for 24 years. My wife and I lived at the commissary, we lived at the exchange, and we still do. I see some of the items there and wonder, gee, that is kind of nice they are having them there. I remember when I was in the Navy everything we did—I was a public affairs officer. Several of the jobs I had we had to make sure that it was not in competition with commercial enterprise.

    There is a fine line there. I don't know what the line is. I understand exactly what Congressman Jones is saying. I don't think it has a big impact in Hampton Roads at all. I think they could sell anything they wanted in the commissaries and exchanges there and it wouldn't have an impact. But in the smaller areas I can understand that. That is something that I have been listening to. Some folks in the last couple of days have been talking to me about that. I am going to listen to that carefully and read as much as I can and count on you to advise me on that as well.

    Thanks for being here.

    Mr. BARTLETT. Thank you very much. One of the nice things about going last is that most of the questions that you thought needed to be asked have already been asked, and I want to thank my colleagues for their thorough probing of the important issues here. I have just a couple of brief comments and questions to ask.

    Mr. Jones had a question about this balance between resale and the local community. I couldn't be more supportive of our military young men and women—and some older men and women in the military—and our need to make sure that they have an optimum quality of life. I was a small businessman in another life. I am vice chair of the Small Business Committee of the Congress. I am very cognizant of the fact that we need to strike an appropriate balance here.
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    I don't know what the answer is. I think that this is like many things that we need to do, that the decision is difficult to make on a one size fits all, that this has to be done base by base, community by community, and if the legislation to permit that to happen is not now adequate, please help us to draft legislation that will be adequate.

    I have another thought; that is, to the extent that we increase our sales in our military stores to the benefit of our military people and have thus taken away the livelihood of small businesses on the outside, that we have in fact invoked the fifth amendment. The fifth amendment gives the government a right to do this. Ordinarily you think of the fifth and that you can't testify against yourself, but it is a bit longer than that. The last clause there says ''Nor shall private property be taken for public use without just compensation.'' If we in competition don't pay rent, we don't have to make a profit and if we want to sell cheaper than the private sector we can because it benefits our military. When we do that to that extent then we have taken, and I think that this really qualifies as a violation of the taking prohibition of the fifth amendment. We have every right to do that and I think in many instances we ought to do that. But then we need to recompense the private sector because we have taken their property.

    I would hope that we would look at that as inclusion in some legislation that tends to do on balance what is the best thing. I can envision there might be some communities where we need to have resale that will in fact grossly disadvantage the local community because the overriding consideration is benefiting our military community. But when we do that and have in fact violated the fifth amendment, then I think as responsible representatives of the people, we need to do what the fifth amendment says and to recompense them. If you can help us formulate such legislation, we would be very appreciative.
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    Second, I wanted to make a brief comment about General Zettler's observation that we need to protect the culture. This culture is enormously important in sense of community that I think is important in recruiting and even more important in retention, and you are going to find here a very strong proponent of sense of community. I don't know how you put a dollar value on that. And so if you think that is important, then you are going to find a big supporter here.

    Third, I have a quick question about BRAC bases and the authority that we gave you to kind of as a demonstration project put in place ten hybrid stores. I have a major concern that we are not keeping our promises to our retired military people, and implicit in our promises to them was that they could be a member of this community. Being a member of that community meant that they had to have access to our stores. You now have opted only four of those stores, I think, and my question is, are you anticipating others and have you a study that indicates the need, and not just for our enlisted, presently in-service personnel but for the retired community because I think that serving well that retired community serves well all of our military community, because how effective that service is in enticing young people to join us and young people to stay with us. What are the plans?

    Secretary MCGINN. Mr. Chairman, we just sent over to you our report on hybrid stores and how we would proceed there. Essentially what the report says is that as we look at commissaries and as we find that commissaries cannot be sustained because they are no longer meeting our criteria because of base closure, realignments, changes in mission, et cetera, that if the determination is made that we cannot have a commissary, that we look at the possibility of a combined store under those criteria that we have set out for combined stores, and that that recommendation would be worked with the military service and with the exchange service concerned and would be presented to the Commissary Operating Board for a recommendation to the Assistant Secretary of Defense for Force Management Policy.
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    We don't know that we are going to have a lot more of those stores come forward. I think our first choice is to maintain an independent commissary and exchange on bases where we can. But we have not foreclosed the possibility and as we have laid out in that report we will be considering it on a case-by-case basis. We don't have any particular study under way at this point. I believe we have committed to the committee that we would take another look at El Toro for a possible combined store under the new criteria and we are prepared to ask the Marine Corps to do that for us. That would be under consideration right now.

    Mr. BARTLETT. We don't want to impose on you the necessity for another study but to the extent that you can, drawing data from already completed studies that would provide data which are relevant to this, we would hope that you could let us know your assessment as to the need out there. I just want to make a comment or two and then ask a question about credit cards. We have our own card, the Star Card. I noted with some dismay that of those who get into trouble with credit, only three percent of their debt is represented by our Star Card.

    My question is, how can we better use our credit card to help our young people develop good management habits for credit cards? I was distressed that we don't have much leverage when only three percent of the debt for those who get into trouble is represented by our card, and what can we do so that we have more leverage, so that we can use this as a learning experience?

    Society in general has big problems with credit cards. I would like our young people when they go back to society to be better able to handle credit cards than the people who didn't join our military. What can we do to help?
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    Secretary MCGINN. That is a question I haven't considered, Mr. Chairman. We have under way right now a major review of the way we do personal financial management counseling and training in the military.

    Mr. BARTLETT. But we are doing that after the fact. When they are in trouble we counsel them. I would like to help them to not get in trouble.

    Secretary MCGINN. That is what we are doing, is looking at what we can do proactively so they understand the issues of credit and the kinds of financial issues.

    General ZETTLER. I think we are proactive there. I know for a fact that at our basic training in the Air Force, we have a block of instruction on finances and credit management and credit card operations. We show them in a very pointed fashion what the credit circumstances are. Many of these folks we wind up teaching how to use a checking account. So we relate that to our core value of integrity, how you manage your money and how you relate to as a good citizen. And we carry that on in their first assignment in their technical training. That is espoused there.

    With our credit card, it is a very go slow approach. I think you have seen that now with the Star Card. Thirty-five percent of them get turned down for credit, for the Star Card. We set a credit limit of $500 to keep them out of trouble. Commanders are engaged retroactively if there begins to be a problem, but we allow them to mature in this process.

    Mr. BARTLETT. But they aren't getting in trouble with our card.
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    General ZETTLER. No, sir. And so the problem is that they can go right down the street from any one of our installations and walk into a bank and, as you and I both know, they will give you a credit card and it has a modest limit by our standards, but a very high limit on it for them and they exceed in their first month or two of purchases what their basic pay is and their allotments and they are behind the power curve at a 17 or 18 percent interest rate.

    So what we believe we need to do is, as I said to Congresswoman Davis, to get them in our stores and have a range of merchandise which is suitable for them and which they need and will provide for their needs and allow them to use the Star Card to do that. We need your support on the Star Card. I don't think we see a way, frankly, to expand that Star Card out into the local community.

    Mr. BARTLETT. To what extent, considering that we ought to exercise tough love, can we limit their access to somebody else's credit card while they are learning good credit card habits with our credit card?

    General ZETTLER. I think we would all like to answer that with one word, but I think—we are pretty tough but it is retroactive. Commanders and first sergeants do not tolerate an individual with a propensity to rack up more debt than he is going to be able to pay back. We take credit cards away. We help them by taking them to banks and canceling those credit cards. But there is a limit to what you can say to one of these men and women who are in our service before they are in trouble with regard to their accessing credit.

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    Chuck, did you want to say something?

    General MAHAN. Mr. Chairman, if I could also add to that, soldiers, and I believe any service member, will carry a card that will be accepted across the spectrum. They don't want to have to carry a Star Card that is only accepted in our military organizations and establishments and then another card to go downtown. It makes it far more difficult. Until we can get acceptance of that Star Card, sir, I will submit to you that most people will carry a civilian card because when they go to a restaurant or go downtown, there is the disconnect.

    At some point without establishing a credible program across the other service organizations in America and other businesses that accept the Star Card, then I would submit we will never have a very large clientele carrying the Star Card other than those who wish and choose to go directly to our commissary or to our PX, our post exchange, and those limited number of facilities that we operate and that accept the Star Card.

    Admiral AMERAULT. Sir, if I might comment, there is an interesting set of countervailing principles here, too, I think to some degree. The very nature of our imposition of lower risk to our own organization with the Star Card is why it is so successful in, I think, its level of indebtedness being so low. Then there is the competition issue with banks that issue cards, the very issue we talked about with regard to selling furniture and so forth.

    There are a couple of things here. We do tend to basically try to teach them to manage credit in boot camp, in—our Navy-Marine Corps Relief Society, for instance, has volunteer counselors who talk about and teach how to manage debt, how to put people on budgets and so forth. So there is—I think you are right to say it is somewhat after the fact with regard to indebtedness if you don't get the picture in boot camp. So it is after the fact. But some of that after-the-fact counseling can be very, very good and sometimes it takes—like many things, it takes falling into that hole once to understand the very nature of it.
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    I think a lot of what we are saying is talking around the problem. I think we are pretty effective in giving them knowledge up front, but it does often take the effect of that tough first sergeant or chief petty officer when the event occurs.

    Mr. BARTLETT. I have noticed that my cows have to hit the electric fence at least once before they figure out that they probably shouldn't do that.

    Mr. SCHROCK. Mr. Chairman, let me tell you, if most young sailors and airman and soldiers and such are like my 19-year-old when he went to college, my son got credit cards sent to him at college unsolicited, more cards than I have ever had in my life. He was as happy as a clam until I found them. I said, what are you doing with those? He said, they sent them to me. We got rid of them.

    That is something we can't control, unfortunately. I think that does a disservice to people that age. It gets them into debt that sometimes they can never get out of.

    Admiral AMERAULT. When mine were in college, I cut them up and threw them away.

    General KLIMP. We have talked here this afternoon a lot about surrogate parenthood and how that applies to the Marine Corps in particular because of our 27,000, 28,000 teenagers that are out there. Surrogate parenthood is fine. I am a parent. I have two daughters. My oldest daughter Ashley is a freshman at Washington and Lee University. Kathy and I, my wife and I spent a lot of time working with her and talking to her about budgeting, about check writing, about credit cards and all that sort of thing, and you launch her off to school and you just hope and pray that it all took. Knock on wood, so far it has. At least the bills I have been receiving haven't come from strange credit cards down there.
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    I think that is true of our young Marines as well. We need to do two things and in the Marine Corps we need to do them better because we are not doing them well enough, although I think we are doing a pretty good job. We need to impress upon our young people in particular that if they are going to shop, to shop in the places that are good for them and take care of them. That is our PX and our commissary. We do that at boot camp and we do that all the way through their training and their careers in the Marine Corps. We need to teach them budgeting, check writing, checkbook balancing and all that sort of thing. Just because you have a check in the book doesn't mean there is money in the bank to cover that puppy.

    We do all of that. We have proactive and we have reactive programs out there. I will tell you in the Marine Corps they are not good enough and we know that and we are working very, very hard. We had a meeting, I think it was last week amongst all the players, our Training and Education Command, the Marine Corps Community Services folks, to talk about a consolidated and a cohesive program that will enable us to do a better job.

    But I think bottom line, being a parent and being a surrogate parent are the same. You teach them as best you can and then keep your fingers crossed. A few of them are going to get involved in drugs, a few of them are going to get involved in alcohol, a few of them are going to get caught in speeding traps and all that sort of thing. You just hope there are not that many of them, that you keep most of them out of that and that you can salvage the rest.

    Mr. BARTLETT. Having reared ten children, I can identify.

    General KLIMP. Sir, you are a better man than I.
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    Mr. BARTLETT. Mr. Underwood.

    Mr. UNDERWOOD. Thank you, Mr. Chairman. I too share your concern. We don't want to see any of our young people fall into problems with credit, of course. Most people who give them credit cards beyond the Star Card know that they have an additional guarantor in a first sergeant and in a commanding officer, so they are even freer to distribute credit cards to our people in uniform.

    I guess the question is, while you don't want to see any, no matter how small the number is, you don't want to see anybody fall into this trap, I am just wondering whether anyone has any statistics or perhaps someone could rustle up the statistics on basically how do our people in uniform who are our teenagers or someone in their early 20's compared to their age cohorts who aren't in uniform, whether their age cohorts are experiencing similar problems across the board in terms of their credit or whether in fact our people are doing better and that would give us some indicator as to how much education we need.

    I think as a preference we would rather do something that is more educational than coercive at this point but that might give you a little better insight into how deep this problem is. Thank you.

    Mr. BARTLETT. Thank you very much. Just one last, real quick question. When I came to office, I had two bases in the district I have the honor of representing, Fort Richie and Fort Detrick. They both had pretty sorry commissaries, so they decided they needed a new one and so they built a brand spanking new one, a very elegant one at Fort Richie. Within about a year or so, we decided we were going to BRAC Fort Richie. So that commissary now sits empty and we have a very sorry commissary at Fort Detrick, and we cannot serve our client base there and many of our people choose to go somewhere else because the store is too little and you can't can even find a parking place there.
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    My question is about this residual value. It hasn't benefited us one iota, and that is about five years into this process now. And so from my personal, provincial perspective, it ain't working. What do we need to do?

    Secretary MCGINN. One of the things that we could use some help with is in—there is about $28 million, I think, in the account set aside for BRAC recovery for nonappropriated funds.

    Mr. BARTLETT. How do we get at that money?

    Secretary MCGINN. It needs to be appropriated. To be appropriated, that means it needs to be included in the service budgets.

    Mr. BARTLETT. If it was our money to begin with, why did we want to give it back to the appropriators? There was obviously a deficiency in our original law, and I think we need to correct that. It is not the appropriators' money, it belongs to our young men and women, and some middle-aged men and women in the military. We shouldn't have given it back to the appropriators and we need to correct that, I think.

    Admiral AMERAULT. And some old people.

    General ZETTLER. It is our intent as we work our way into the 2002 budget that we will specifically outline for you, assuming that we can get it over here, how to pull that money out. That is our intent, to seek the legislative relief that we need.
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    Mr. BARTLETT. Unless my colleagues have additional questions or comments, I want to really thank this panel, and we will now excuse you and convene our second panel. Thank you very much.

    Let me welcome our second panel with the observation that our members are not always sure to which panel to ask questions and so we tend to ask questions whether they are relevant or not. Most of our questions get asked to the first panel. So traditionally the subsequent panels will have a lesser time in the chair than our first panel, and that is because we don't understand always who is the best source of answers for our questions and, if we have them, we are anxious to have them answered, so we ask them of the first panel.

    Our second panel of witnesses are our distinguished resale chiefs. The panel welcomes Major General Robert Courter, Director of the Defense Commissary Agency; Major General Charles Wax, Commander of the Army and Air Force Exchange Service; Rear Admiral Steve Maas, Commander, Navy Exchange Service Command; and Mr. Michael Downs, Director, Personnel and Family Readiness, U.S. Marine Corps.

    This year General Courter is the veteran. He has been here before. The other three witnesses are making their first appearance before the panel. Thank you and welcome to all of you. We are quite interested to hear how your commands are faring in today's competitive marketplace.

    General Courter, you may proceed.

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    General COURTER. Mr. Chairman and members of the panel, it is my pleasure to appear again to provide you an update on the Defense Commissary Agency. I would like to echo the regrets expressed at the loss of Congressman Sisisky. We lost a great friend and in our case a neighbor.

    I want to extend my thanks for your great support in general and especially extend my gratitude for the surcharge revitalization legislation passed last year. As I outlined in my statement for the record, this plan will enable us to properly use the surcharge funds for the upgrade, replacement and opening of commissary stores with no increase in the surcharge. It also sets the stage for improved savings to our customers, increased sales, and establishes the basis for reducing our costs of operation.

    In my statement I have provided an overview of our agency vision and objectives and then discussed the actions and how we have done to date. I thank you for your wonderful support of this important benefit. Our military members deserve nothing but the best, and that is clearly our focus. I will gladly address any questions you have.

    [The prepared statement of General Courter can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much. I failed to note that, without objection, your prepared statements will be a part of the permanent record, and thank you very much for condensing your remarks so that we will have an opportunity to dialogue with you through the questions and comments and answers.
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    General Wax.


    General WAX. Thank you, Mr. Chairman, honorable members of the panel, for this opportunity to report to you on the overall health and performance of the Army and Air Force Exchange Service for fiscal year 2000. Mr. Chairman and ranking member, we congratulate you on your appointments. We in AAFES look forward to working closely with you in the near future, and we also share with you the sorrow that we all felt at the loss of Mr. Sisisky.

    Sir, I stand ready to respond to your questions.

    [The prepared statement of General Wax can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    Admiral Maas.


    Admiral MAAS. Good afternoon, Mr. Chairman and distinguished members of this oversight panel. It is my privilege to address you today as Commander of the Navy Exchange Service Command and our 17,000 associates. We have experienced a great year and all indicators point to even better success in the years to come.
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    Admiral Clark, our Chief of Naval Operations, says we are in a war for people. We view ourselves as his foot soldiers in that battle. We save you money every day. It is not just our slogan at NEXCOM, it is our mission.

    Second only to providing quality products and services at a savings is delivering dividends to support morale, welfare and recreation activities. The Navy Exchange is a valuable form of nonpaid compensation for our families. Our customers have told us so, and we have stepped up to the plate to meet and exceed their expectations. Whether it is providing telephone service afloat or responding to our customers' routine needs, we deliver with excellence.

    Today's Navy is a mobile force, ready to deploy at a moment's notice to meet the Navy's requirements. Our sailors need to know that we at the Navy Exchange are taking care of the home front in providing a safe place for their families to work and shop. No matter where sailors may be serving throughout this world, NEXCOM is there meeting their needs and the needs of their families.

    We could not respond to their needs without your support and the support of our industry partners, our commissaries and our fellow service exchanges. We thank you for being our advocates.

    As someone who has spent one-third of my career and married life in southeast Virginia, I extend my sympathies to you and the families of Mr. Sisisky. Thank you very much.

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    [The prepared statement of Admiral Maas can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you. Mr. Downs, I know that there are no ex-Marines, so we welcome you as if you were still in uniform.


    Mr. DOWNS. Thank you very much, Mr. Chairman. It is indeed an honor for me to be able to appear before you, Congressman Underwood and members of this committee, to first thank you for all that you have done and continue to do to help us support Marines and families of Marines.

    The year 2000 was a good year for Marine resale. Our sales increased by 4.57 percent and satisfaction of our customers by 3. However, we are concerned with an increase in costs. As you know, we have a very limited potential to increase our market share. Thus, we are having to focus on other ways to manage costs. We are very supportive of the cooperative agreements that are being undertaken, and we look for every opportunity to leverage buying.

    The Marine Corps is aggressively pursuing modernization of our systems to help us better address costs. I at the appropriate time would be interested in adding some further perspectives perhaps on the Camp Lejeune furniture issue when the time comes. I appreciate the opportunity to be here today, and I am prepared to respond to questions.

    [The prepared statement of Mr. Downs can be viewed in the hard copy.]
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    Mr. BARTLETT. Thank you very much. Mr. Underwood.

    Mr. UNDERWOOD. Thank you very much, Mr. Chairman. Welcome to the committee. Thank you for the brevity of your testimonies this round. Also I just want to tell you, General Wax, that I certainly, when the chairman and I went down to AAFES, we very much enjoyed our time down there and I have a greater appreciation for your activities.

    There was a little bit of discussion earlier about exchange integration. One of the arguments that was presented was about military, the culture of each of the services. I think there is some—I think earlier Mr. McHugh, the previous Chair, was trying to indicate some caution about the use of that term. I find it very interesting. I used to teach educational anthropology, and I have seen the term ''culture'' used in every which way from every kind of—every human group now has a culture of their own and most of the time the term ''culture'' is used to indicate a unit that has a different set of values from other units and sometimes people suspect that what they mean by culture is quite something else, kind of an old guy network or something else entirely. I think that was the hesitancy of the use of the term.

    I appreciate very much the Chair's admonition, perhaps to use the word ''community'' or ''identity,'' or something along that line. After all, if those of us on the panel used as our excuse for anything we do as, well, it is part of our congressional culture, I think most people would find that humorous. The word ''culture'' is not exactly—maybe not on target on that issue.

    Having said that, I just wanted to ask a specific question about long distance telephone contracts. I know that recently—I believe that both AAFES and NEXCOM have recently negotiated some long distance telephone contracts and my understanding is that NEXCOM has chosen to provide sailors with long distance rates perhaps at the expense of profit as kind of a service to that. Is that correct, Admiral? And perhaps, General Wax, you would like to respond as to how AAFES did that as well.
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    Admiral MAAS. Yes, sir. Our contract with AT&T to provide phone service and phone cards that we sell in the exchanges, part of the arrangement was a roughly $23 million payment, a guaranteed payment to the service. At the same time when this was negotiated five years ago, phone rates and phone cards cost a lot more than they do today. Competition has driven that down. Our sailors felt that they were paying too much, and they were. They were paying more than the general public pays in their home for their phones in their barracks. And so we negotiated with AT&T to lower the price that is charged for sailors in the barracks and also for the phone cards that we sell in the exchange, from 15 cents a minute down to 10 cents a minute. Along with that, they negotiated a lower guaranteed payment to us. We estimate that the difference will be about the same, about $11 million less guaranteed payment to us, but at the same time the savings to sailors will be about $11.5 million of out-of-pocket cost. So it is a transfer of payments, if you will, from our coffers to sailors' pockets.

    General WAX. We are working on a similar size card, also with AT&T, that had a guaranteed $2 million a month payment back to AAFES. That is terminating at the conclusion of this month. That is something that will impact, frankly, direct dividend back into the services because of the loss of that payment. I have had contact today with both Army and Air Force about that reduction, still at the 10 cents a minute level, and we have—if you are of interest, we have a chart available of the 32 highest traffic locations overseas that provide that.

    I want to emphasize not only telephone cards, but then there is a second area that we also are working in, and that is the telephony as a whole, especially overseas, where cellular phone, wireless access, Internet access, all of those sorts of things need to be wound in because they are being treated today almost as a commodity by the soldier and the airman, not just telephone usage but all of the entire telephony spectrum. We are working in that area to provide that service in response to that need.
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    Mr. UNDERWOOD. Thank you very much. General Courter, there are always a lot of inquiries and advocates for authorizing commissary privileges for disabled veterans and perhaps to extend commissary, or more privileges for reservists.

    Mr. UNDERWOOD. Aside from greatly—increasing greatly authorized patronage, any such change will create a demand for commissary stores across the country. What would be the implications of such a change?

    General COURTER. We don't a see a big bounce if that happens. There is certainly some numbers there and costs per unit of sales that we are involved in. So some additional cost, but we can't think it is that big a cost. It is not that great an impact.

    Mr. BARTLETT. Thank you.

    The series of bells that you just heard is that we are moving from doing little on the floor to doing nothing.

    Mr. Andrews.

    Mr. ANDREWS. Thank you, Mr. Chairman, and I had the opportunity to read the testimony of the panel. I regret that I was personally not present for it. Thank you for it.

    General Courter, I want to commend you for your New Jersey roots. That distinguishes you in and of itself. And I would ask if you might comment on the appropriated funds question that I had raised earlier. I understand that it is not a call that you get to make, but we are very interested in finding out the status of the appropriated funds for 2002, and any light you can shed upon it would be all welcome.
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    General COURTER. This is all connected to the surcharge revitalization plan. When we instituted this plan, essentially what we did, we moved operating expenses from the surcharge to the appropriation. That enabled the surcharge to be used for revitalization of stores, which is what it ought to be used for. Keep in mind that until that point the backlog was exponentially growing in terms of work that had to be done on stores, and our costs weren't necessarily in control. So the same figure that you happen to have was the 90 million was moved from the surcharge to the appropriation.

    Now, that creates an imbalance, and what I mentioned last year as part of this plan was that the agency would undertake over a two-year period to reduce their unit cost of operation. In 2002 and 2003, there is, in fact, $90 million more on the appropriation side, but by 2004, our pledge is to reduce that amount to where we were before.

    Mr. ANDREWS. Are we on track to do that?

    General COURTER. Yes, we are. We just had a latest business meeting and a commissary operating board meeting, and in those meetings we have—we have actually a very grassroots approach to making sure that is going to happen. And I can go into detail on that, but it starts at the store level; it goes up through the regions and into the headquarters.

    Mr. ANDREWS. So we can say with confidence we are moving toward the day when that surcharge is going to be completely dedicated to improvements in the stores in which the consumers shop who generated it?
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    General COURTER. Yes, sir. That starts in 2002. Our position was that we needed to have those moneys covered in 2002 and 2003, and we think that is going to happen. In 2004, we are essentially going the take that bill away from the other sources that we got it from.

    Mr. ANDREWS. I appreciate that. Thank you.

    I yield back, Mr. Chairman.

    Mr. BARTLETT. Mr. Abercrombie.

    Mr. ABERCROMBIE. Thank you very much.

    General Courter, DeCA has a scholarship program for military dependents. Can you give me a background, fill me in, inasmuch as I am returning to the panel from previous service, and I don't recall this particular program and how it works, and I appreciate your explication.

    General COURTER. Yes, sir. This is called a Scholarships for Military Children, and it is administered by the Fisher House Foundation, and it was designed with humanitarian intentions and focused on providing educational opportunities for children of military families. We asked our industry partners to consider making contributions to this program instead of providing giveaway items.

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    From the very beginning of this program, though, we made three things clear: First, that a supplier's decision whether or not to participate in the program would not influence directly or indirectly the product selection or how—whether their products arrived in our stores; second, that we would not coerce or strong-arm anyone to participate in the scholarship program; and third, that we expected if a supplier participated, that was a corporate decision based on humanitarian intentions that I know would not increase the price of the product.

    The industry so far has supported us well with that. There is approximately $584,000. We are going to be awarding approximately 390 scholarships, about $1,500 apiece, and it is being professionally administered.

    Mr. ABERCROMBIE. Returns how much?

    General COURTER. About $1,500 apiece, and it is being professionally administered, and so is the selection process.

    Mr. ABERCROMBIE. How are they awarded? Is it on the basis of need, is it on the basis of a contest of some kind or a test?

    General COURTER. No, sir.

    Mr. ABERCROMBIE. Is it a needs test?

    General COURTER. No, sir. It is a stated academic set of accomplishments, and they are awarded to the best candidates.
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    Mr. ABERCROMBIE. How is that done? Is it done by a panel?

    General COURTER. We are having the Fisher House Foundation fund that. It is being administered through a professional selection company that does that.

    Mr. ABERCROMBIE. Is this what you expect to get, between 5- and $600,000 a year?

    General COURTER. Yes; yes, sir. I would say it may even grow more than that. This all started—there is a little story I can probably tell on this, but this all started because one day I was invited to call a winner of a Humvee, and it was $40,000 or a Humvee, and we said, you know, that could be a 2,000 or rather twenty $2,000 scholarships.

    Mr. ABERCROMBIE. You mean someone with whom you are doing business gave away a Humvee?

    General COURTER. That is right.

    Mr. ABERCROMBIE. What kind of an idiot would give away a Humvee?

    General COURTER. Well, you don't want me to answer that, do you? We thought a better use would be use of these promotional dollars.

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    Mr. ABERCROMBIE. So because some fool did this, everybody else is going to hit now for a good reason. I understand. I can see why you would have a reaction like that, but, okay, I am just interested because I am certainly not against it, Mr. Chairman, the idea of it, but by the same token, I am just wary. I mean, I know the scholarship thing is a tricky thing. All of us here have appointments, the academies, for example, and I know everybody handles them in different ways, but you can cause an awful lot of grief to people when you have to make sure that—all the things I am associated with, campaign finance reform and everything else, I worry less about than making absolutely sure that I have completely pristine procedures associated with who gets appointed or is eligible for academy appointments, and I am just a little concerned that the scholarship program, despite your best effort—and I have written it down here that no decision to participate has anything to do with product selection and no coercion or all the rest of it. But there is human frailties involved in all these things. How do you take that into account?

    General COURTER. We are not involved in the selection process. We are not, in our judgment, capable of doing that. That is why we turned to a professional organization do that.

    Mr. ABERCROMBIE. Well, how—I don't want to pursue it for too long, and maybe I will pursue it aside from the hearing itself a little, but I am a little concerned are there some people who contribute more than others?

    General COURTER. Yes.

    Mr. ABERCROMBIE. Well, I am sure you understand my concern that this could—it is a good deed, there is no question about that, and I am sure the recipients of—by the way, if you get the scholarship, are you eligible the next year, or is it a one-time only?
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    General COURTER. No. You would be eligible the next year, too.

    Mr. ABERCROMBIE. Compete over again?

    General COURTER. Yes.

    Mr. ABERCROMBIE. I am sorry, I interrupted you.

    General COURTER. Well, it is a—it has all the attributes of, I think, a better using—better using those moneys. I think we have gotten great support from the industry. When an award is made, it is made by the installation commander, by——

    Mr. ABERCROMBIE. I am sure about all of that. I am thinking about the company. Are you sure that the prices don't get raised in the process?

    General COURTER. I am sure.

    Mr. ABERCROMBIE. Okay.

    General COURTER. These are promotional dollars that are set aside anyway.

    Mr. ABERCROMBIE. That is the next thing I was going to ask you. Does this come out of people's advertising budgets maybe?
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    General COURTER. It comes out of various budgets, but it is separate from anything that they have with regard to offering us a price. These are promotional dollars. They either use them—they also get recognition when the scholarship is awarded.

    Mr. ABERCROMBIE. Okay. One last question, although there may be a couple of parts to it.

    Now, when this was initiated, how were people informed that were you were going to do the scholarships?

    General COURTER. This was announced six months in advance in every store, and it had wide circulation in magazines and newspapers and so on.

    Mr. ABERCROMBIE. Now, let me ask this: Do the people who then do contribute, do they get publicity in your various pronouncements and communications with the customers?

    General COURTER. Yes, they do. When the award is made, there is normally a company standing there or a representative, rather, that gets recognition.

    Mr. ABERCROMBIE. Okay. Thank you.

    May I ask one more, Mr. Chairman?

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    Actually, I think this would go to General Wax. Can you explain to me just a little better or bring me up to date on the exchange franchising operations in the sense of the DOD policy on private-sector franchising, and, again, this may be—if you will follow me, like with the scholarships, how are the choices made; if the private sector is going to, and concessions are involved, how is that done now? How does that policy manifest?

    General WAX. Are you talking primarily, sir, about fast-food operations?

    Mr. ABERCROMBIE. Well, I am not sure the extent, to tell you the truth, of what your franchising operations go into now. It could be dry cleaning, I don't know.

    General WAX. Let me kind of lay out a general overview, and then we can talk specifics in particular areas, and I will use fast food because that is probably the easiest to understand.

    Mr. ABERCROMBIE. Let me tell you why so you don't think—you may be searching in the back of your mind trying to figure out what is it all about. I am not a big fan of outsourcing A–76-type operations. I think they destroy morale, I think they get rid of institutional memory, et cetera, et cetera, and I just am very interested in how the franchising works. And it probably fits in a little bit with some of the questions that Representative Jones brought up to—you know, whether—when franchising actually becomes competition against business in the area, for example.

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    General WAX. If we—if you take a base, post or installation—and I am going to focus on food.

    Mr. ABERCROMBIE. Fine.

    General WAX. Right now, 70 cents of the food dollar is going off base, which means that we are not meeting the needs of our customers for food. We surveyed them to find out what kind of food they want. The leader is always hamburgers, always. Then you go to national chains that we would like to put a hamburger stand on this corner. Each of the national chains has their own encroachment criteria as to how far the next of that style is.

    The other thing that we try to do is meet a broad range of food needs in a food court style, with some of our own proprietary brands as well as a franchise. The franchise can then be operated either direct or by concession.

    Mr. ABERCROMBIE. That is what I am trying to get into. Can I interrupt just so that I make sure I am on line? I am trying to get exactly the difference between concession and franchise. Couldn't you have a local provider, you know, restaurants—I can use Hawaii. There are folks that have restaurants in Hawaii that—sometimes they have several restaurants in Hawaii. That may be where some of that 70 cents is going. Could they compete? I am thinking franchise; I think national. Could they compete as a concessionaire with them and succeed?

    General WAX. Absolutely, and we do have——

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    Mr. ABERCROMBIE. Would it be done on price, or is there a combination of best value?

    General WAX. We would make the decision on a business case what provides the best benefit to the soldier and the airman.

    Mr. ABERCROMBIE. Well, I may sound parochial, too, but I think best benefit would be that when businesses in a community support the armed services, trying to support those businesses there is a good policy, and the national franchises might not necessarily—you know, that money leaves the area maybe and goes to—a portion of it certainly goes to national headquarters or something.

    All I am driving at is—I will give you a name. Zippy's doesn't mean anything to you, but in Hawaii it does. In Oahu there are a whole bunch of restaurants there that are very, very popular in the area of fast food, but it is a little bit more personal, and it has got a local flavor, and so on and so forth. If the people associated with that corporation—what would be—like the RFP that went out for that, could they compete against McDonald's and Burger King and Jack in the Box?

    General WAX. Certainly. We would welcome their competition.

    Mr. ABERCROMBIE. Okay.

    General WAX. I don't know what kind of food Zippy sells.

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    Mr. ABERCROMBIE. Well, if you would like to come out and try some sometime, I will take you out there and do it.

    But anyway, Mr. Chairman, could I ask that——

    General WAX. Sir, can I add just one point? Zippy's is a waitress service?

    Mr. ABERCROMBIE. It does, but it has a combination. You can also go to a window and——

    General WAX. Super.

    Mr. ABERCROMBIE [continuing]. Pick off the wall.

    General WAX. One of the requirements in our limitations is the nonwaitress service fast food. Other than that we would welcome their competition.

    Mr. ABERCROMBIE. I am interested in this, what type of franchise activity and who operates the franchises. Is there a list or an outline of that available? You don't have to tell me now, but would that be given to the panel, if that is all right with you Mr. Chairman, just exactly who are we dealing with?

    General WAX. We deal with about 22 name brand food organizations across the country, and be happy to provide that to the panel.
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    Mr. ABERCROMBIE. And could you also give me then a list of those operations, concessions, et cetera, that are I am going to say local in origin; that is to say regional perhaps, or something of that nature?

    General WAX. Yes, sir.

    Mr. ABERCROMBIE. To differentiate them from the national.

    General WAX. Uh-huh.

    [The information referred to can be viewed in the hard copy.]

    Mr. ABERCROMBIE. Good. Thank you very much. I appreciate that.

    Thank you, Mr. Chairman. I appreciate your indulgence for this time.

    Mr. BARTLETT. Thank you for your concern. I am sure that others have similar questions, and we look forward to the information from the—from our witnesses so that we can better understand how this is done.

    Mr. Schrock.

    Mr. SCHROCK. Thank you, Mr. Chairman.

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    It is very difficult to follow Mr. Abercrombie because he always asks the most compelling questions.

    I welcome you all. I have not read your testimony. I can assure you I will. I have, however, had an opportunity to meet with Mr. Downs one evening and General Courter on several occasions. I look forward to getting to know you gentlemen. I have known Admiral Steven Maas for a long time. He and I were students together at the Naval War College in Newport. They wondered at the time if we would amount to anything. The jury is still out on that, I am sure.

    Mr. ABERCROMBIE. Unfortunately the answer is in, huh?

    Mr. SCHROCK. He did, and I didn't, right?

    Enough of that, I guess. I yield back.

    Mr. BARTLETT. Thank you very much.

    I would like to make this the appropriate time for Mr. Downs to comment on the Camp Lejeune problem.

    Mr. DOWNS. Thank you, Mr. Chairman.

    As some know, I had the privilege of commanding Camp Lejeune from 1990 to 1992, so I am quite familiar with the area, and I think that there is a perspective that was sort of missed, and that is a couple of perspectives. First is that the commanding general at Camp Lejeune has a significant responsibility to provide wholesome—a wide range of wholesome recreation and leisure activities for a substantial number of marines and their families. So it is not just the community. In fact, it is not even predominantly the community that supports marines and families. It is the base, and its means of doing that is from moneys generated through its revenue-generating activities. And Camp Lejeune, like anywhere else, is faced with rising costs, in some cases rising expectations of marines and their families, and at each location they always search for opportunities to produce revenue.
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    Another factor is that we often think of the impact that—the negative impact that an organization like Marine Corps Community Services (MCCS) might have on a community, and we forget the positive impact. That impact is that this is a large business. It employs nearly 2,000 people who are employed in Onslow County because of the MCCS operations at Camp Lejeune. They had a payroll, NAP, nonappropriated fund payroll, of $27.4 million in 2000. In addition to that, they purchase goods and services from a variety of sources. It just so happens in the year 2000 they purchased $6.6 million worth of goods and services from the city of Jacksonville and Onslow County. So it is not a one-way street. This is a two-way street.

    And the last point that I would make is it is very difficult for the commander at Camp Lejeune to explain to his marines and their families why of all the exchange services or exchanges that wish to sell finished furniture, it is only Camp Lejeune that cannot. Why is it that soldiers at Fort Bragg, North Carolina, airmen at Seymour Johnson and marines at Cherry Point can buy furniture in their exchange, but his marines and their families cannot? So that is just another perspective.

    Mr. BARTLETT. Well, thank you. I would just reiterate the comment I made to the previous panel. I can envision circumstances under which we need to really disadvantage the business community because we need to enhance the quality of life for our military personnel. I have no problem of us doing that if we are forced to do that in a small community. If that raises the kind of questions and concerns that Mr. Jones mentioned in those letters, then I think we ought to do that, but at the same time I think we need to recognize that this constitutes taking, and we need to compensate the private sector for what we have taken. This is not a big dollar value, by the way. This is a pretty small thing, and I think that in the grand scheme of things this would be a trifling few dollars, and I think that this would serve us very well if we had that kind of a policy, and the business community would really respect us for that.
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    Mr. DOWNS. And if I could add, sir, the real pressure in that area is perhaps from, again, the private industry. When I left in—when I took command in 1990, there was one K-Mart. When I left in 1992, there was a second K-Mart added, and there was a Wal-Mart. If you go outside Camp Lejeune today, you will find a larger Wal-Mart, you will find Best Buy, you will find Target, you will find Old Navy. And so the competition—the installation and the exchange also experiences this same kind of competition from a variety of businesses; that it is not just us that are putting pressure on small business people.

    Mr. BARTLETT. In terms of service to our personnel, isn't it true that we charge a lower interest rate than the usual store outside, in addition to perhaps lower prices?

    General WAX. Yes, sir.

    Admiral MAAS. Yes, sir.

    Mr. BARTLETT. I want to ask a question. I had a concern when I became Chairman. I was delighted to find that in what I have seen that I needn't have had a concern. I know that in the private sector every grocery store and every department store strives to make sure that the customer who comes in leaves with items that they never intended to buy when they came in, that they will regret having bought when they get home. And they hire—they hire behavioral psychologists, and they plant secret cameras, and they conspire in every conceivable way to make sure that you carry home things that you never intended to buy.

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    I was hoping that we didn't do this in our stores, and the stores that I visited—and maybe I am naive and don't know and I am being had, but in the stores I visited, I saw no evidence of this. Can you assure me that we aren't doing this?

    General WAX. Mr. Chairman, I don't know about the Navy and the Marine Corps, but we are not, sir. We are doing our best to meet their needs is what we are doing.

    Mr. BARTLETT. When I saw at the end of aisle was a best buy that might have been baby diapers, disposable diapers. I didn't see any of that. I would just like your assurance that you are not doing that.

    General WAX. You have it, sir.

    Mr. BARTLETT. I have it from everybody?

    Admiral MAAS. Yes, you do.

    Mr. BARTLETT. Okay. We will send some psychologists to check on you. Thank you very much.

    I would just like to—now, you were sitting there when we were asking questions of the previous panel that we probably should have been asking you. Do any of you have comments relative to questions that should have been yours that we made to the previous panel before we excuse you?

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    General COURTER. There was—I think, Congressman, you asked about if we take into account any kind of planning when we go and upgrade stores. You were asking about that, and you were looking at whether we take a look at the patron base and the store structure, and we do. That is one of the four factors that we look at when we plan an increase or a change in a store operation.

    Mr. UNDERWOOD. I just wanted to ask a question, too, about commissaries. Last year we authorized the sale of magazines at the register. So how is that plan coming along?

    General COURTER. Well, the plan itself is at the Office of the Secretary of Defense (OSD). We have put together a plan that implements the legislation. It essentially provides from a bank of about 40 selections of family-oriented and food-oriented-type magazines, and they will be located only at the checkouts, and there will be about 25 at each checkout. That has yet to be approved, though. We are able to implement probably May or June, assuming that is approved.

    Mr. UNDERWOOD. Will any of these magazines be the kinds of magazines that Bartlett is referring to, things that you regret buying?

    General COURTER. We did a touch test on that.

    Mr. ABERCROMBIE. We want to know magazines that when you get home, you didn't intend to buy them, but when you get home, you are also glad that you did.

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    Mr. BARTLETT. We already removed those.

    Does the—do the witnesses have other observations relative to questions that we might not have asked you, but asked the previous panel?

    Or—yes, sir.

    Admiral MAAS. I will make one comment, Mr. Chairman, and that is, one, we appreciate very much the lifting of the ASER restriction on television sets, and today we have sent about 115 questionnaires to local merchants and Chambers of Commerce and gotten no comments back saying we had any impact on their sales. And actually we have probably transferred the sale of 35-inch TVs to—now they are buying 36 instead of 35-inch TVs, but I think the important thing about that is that it is another demonstration to the people that shop in the Navy Exchange and in all the exchanges that the same items that are available to the outside are available to them in our exchanges, and we appreciate that very much.

    General WAX. But I wish to add a comment to that, sir. That is that the change from 35 to 36 inches was actually zero change for us. There were only two makers of 35-inch television sets; 36 inches, all we did was swap the sales of 35s for 36. Because of the existing restriction for projection televisions, we cannot sell beyond that. That is what is driving the home theater market today is projection TVs, and that is what that restriction needs to be lifted. That is what our young people want.

    Mr. BARTLETT. I would just like to note that we didn't do that. That was the other body.
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    General WAX. And we thank you for your support, Mr. Chairman.

    Mr. BARTLETT. We will hope to get it corrected this year for you. Thank you for your comments, and if there are no further questions from members of our panel, we will excuse this set of witnesses and welcome the next set.

    Let us reconvene our hearing. I would like to welcome our third panel of witnesses, representing the business community that provides goods and services to the exchanges and commissaries. They are Mr. Boyd Raines, chairman of the board, American Logistics Association; Mr. Frank Hogan, chairman of the board, Armed Forces Marketing Council; Mr. Walt Loving, vice president, Monarch Crown; and Mr. Ron Ritchie, general manager, MDV/Nash Finch.

    Welcome, and we will now give Mr. Boyd Raines the floor.


    Mr. RAINES. Thank you, Mr. Chairman. First let me say as a citizen of the great State of Virginia, that it is heart-warming to hear the expressions of condolences on the passing of Mr. Sisisky. He will long be remembered for his intellect, his charm and his wit on dealing on these and the many issues facing Congress. Most of all I think he will be remembered for his love of country and community and for his unwaivering support for our military families. Having had the opportunity within the last 24 hours to meet with each of the Members present and several of the other Members who are no longer present today, let me say that he would be proud of the way you are carrying forth the support for our military families. So in the tradition of Mr. Sisisky, I thank you.
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    Mr. Chairman, I will keep my remarks brief, recognizing the hour. It is an honor to be here as chairman of the board of the American Logistics Association, representing over 500 of American's leading manufacturers, over 100 brokers and distributors, and the more than 2,500 individual members of the association who are actively engaged in providing goods and services to the military resale and MWR community. But the most important thing I can do today is be a strong advocate for enhanced quality of life for our Nation's military families because they are important, and they are not second-class citizens. We think they deserve the best in terms of facilities, products and services that our exchanges, our commissaries and our MWR facilities can provide.

    Our association is very proud to be part of this industry. We are very proud to support our servicemembers, and we are very proud of the fine working relationship we have with the military services, and we look forward to continuing our dialogue with the services because we believe if we can continue to exchange ideas on how to make the system more efficient for both industry and the services, that the ultimate beneficiary is the patron, and that will enable us to provide better prices, better products and better services for that military servicemember.

    And as you have heard today, quality of life is essential to a strong military. We believe that commissaries, exchanges and MWR activities are essential components of quality of life and make a very significant contribution to the quality of life of our servicemembers. And it is those servicemembers who allow us to be us here today before you. It is our servicemembers that keep our country free, and we should take every opportunity to show our appreciation to them. Thank you, Mr. Chairman.
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    Mr. BARTLETT. Thank you. Thank you for the brevity of your remarks, and let me note again that without objection, all of your prepared statements will be a part of the permanent record.

    Thank you.

    [The prepared statement of Mr. Raines can be viewed in the hard copy.]

    Mr. BARTLETT. And now we turn to Mr. Hogan.


    Mr. HOGAN. Thank you very much, Mr. Chairman. Good afternoon, distinguished panel members. I echo sentiments expressed about the loss of Mr. Sisisky. My deepest condolences to the panel and all his colleagues in the Congress.

    I really appreciate the opportunity to be here today to offer some private-industry perspectives concerning the military resale systems and the role of manufacturer representatives in this market. I am chairman of Overseas Service Corporation, one such representative firm that has specialized in the military market since 1947. I am also currently chairman of the Armed Forces Marketing Council. The Council was incorporated in 1969 as a nonprofit business league. It is comprised of firms representing 330 manufacturers supplying consumer products to the military resale activities worldwide, and it was organized to promote a better understanding of the role of military representatives and also to champion continued support for the resale systems and other quality-of-life initiatives.
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    No one who has proudly the served the commissary and exchanges for as long as I have, and there are many of us, can help but be invested in their purpose and value. Neither can anyone with such a perspective help but marvel at how the commissaries and exchanges have evolved through the years to mirror the best practices of the commercial world. If someone really wishes to gain a full appreciation for what commissaries and exchanges are all about, a trip to some far-flung post is recommended. Incirlik Air Base in Adana, Turkey, is one such location that I had occasion to visit last year. It is just 6 minutes by jet from Iraq. Incirlik's serious purpose is suggested by the tight security that surrounds the base and the impressive military hardware that one glimpses when one is inside. However, in stark contrast to this backdrop, one also sees that a slice of America, a touch of home, has taken root there: a school, a residential community, MWR activities, and, yes, a commissary and exchange and food service operations.

    It is hard to visualize what life would be like for our servicemen and women at Incirlik if they did not have a commissary and exchange. Indeed, there are no other alternatives. Most impressive of all was the way that these stores fulfilled their missions. I found clean, attractive, well-lit stores staffed by people, including Turkish nationals, enthusiastically dedicated to their responsibilities; a broad array of American brand-name consumer products at the same great values found in commissaries and exchanges in the United States; fully stocked shelves and creative, well-merchandised displays.

    It was only later that the true wonder of what I saw hit home. These stores are 5,000 miles from our shores. The fact that military families can be so well served so far from home speaks volumes about the resale systems. It speaks to the strong leadership that they have enjoyed; to the professional buying staffs that are closely attuned to consumer needs; to refined logistic systems that are able to deliver products quickly and efficiently; to advanced business systems; and to store operators for whom customer service is a commitment, not just a slogan.
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    In a larger sense, though, it confirms the sound framework constructed by Congress and the wise policies implemented by DOD and the services. Finally, it testifies to the level of support and cooperation that the commissaries and exchanges receive from private industry. That is the genius of what has evolved over the last few decades, in my opinion: the dynamic, constructive interplay of all parties concerned to produce a first-rate resale system.

    I have singled out the stores at one base in Turkey where the need for commissaries is dramatically obvious to all. However, the resale systems are just as important in the United States. The ability of commissaries to sell at cost continues to make a crucial difference to military families, whose pay has lagged over the years. In very moving testimony family members have reminded this very panel how essential commissaries are to their daily well-being. The exchanges also deliver the right merchandise at excellent values.

    High scores on customer satisfaction surveys verify that the military community values its exchange privileges. One can only imagine what a boost to morale exchange facilities must be in a place like the Balkans. Exchanges also contribute hundreds of millions of dollars in profits year in and year out to other military quality-of-life programs. In short, military life wouldn't be the same without this funding.

    The bottom line for me is that commissaries and exchanges are efficient, well-run operations that are indispensable to military quality of life and contribute importantly to recruitment, retention and readiness. For all these reasons I believe that the resale systems continue to justify and merit the full support of Congress and the new Administration.

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    As stated earlier, part of the success of the resale systems derives from the great support traditionally provided by industry. We in industry who specialize in the resale market understand one fundamental proposition: We succeed to the extent that the commissaries and exchanges succeed. Therefore, much of our time and energy is expended in support of resale system goals and objectives. This leads me to a few brief comments in closing about the specific role of military representatives.

    We are an important link in the supply chain that brings quality products at the lowest possible prices to military families throughout the world. Military representatives came into existence in the 1930s, but really developed to full flower after World War II. For most American consumer goods companies, it was the easiest and fastest way to tap into a burgeoning market that few knew much about.

    Much has changed since those early days, but the role of military representative is as strong as ever. Often family-owned military representative firms have truly stood the test of time. Many of the same reasons that brought us into existence in the first place still prevail today. The worldwide military market with some 300 locations is difficult to cover. We provide a cost-effective solution. Cost is spread among a number of manufacturers. We understand the market's nuances and are able to give it singular focus. We are the ones who explain the opportunities, argue for the best prices, develop innovative solutions, and ensure that the resale systems are always top of the line with our manufacturers.

    Military representatives are not merely sales enterprises, they are equally service organizations. Most manufacturers are unable to match the range of services that we offer at an affordable cost. It is important to note that these services also supplement the work of the resale systems in valuable ways and help them deliver the benefit to their patrons.
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    Mr. Chairman, distinguished panel members, I thank you again for this opportunity and refer you to my written testimony for further details. I also thank you for the great support that you have given to the resale systems and in particular the surcharge revitalization, the most recent action. Thank you.

    Mr. BARTLETT. Thank you very much.

    [The prepared statement of Mr. Hogan can be viewed in the hard copy.]

    Mr. BARTLETT. Mr. Loving.


    Mr. LOVING. Yes, Mr. Chairman and members of the panel. Three quick things. I would like to say that Congressman Sisisky is a great loss both personally and professionally to our industry.

    I am pleased to have the opportunity to represent the manufacturers who supply products to the military marketplace, and I will abbreviate an already very condensed statement. Just a couple of quick points.

    My personal experience, the military marketplace goes back more than 33 years with three different manufacturers: Procter & Gamble Distributing Company, Sunshine Biscuits and now Bristol-Myers Squibb. And I can tell you that these three manufacturers and any other manufacturers that I have come into contact with feel very strongly about supporting their products in the military patron arena.
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    I am going to go through it quite rapidly. My reason for appearing here is I want to assure you that all the manufacturers, large and small, are very committed to top-quality merchandise at the best prices possible. We think that all of our soldiers, sailors, marines and airmen should have the right to find the same products in a commissary and exchange anywhere in the world they can find in a comparable retail outlet.

    I think I will sum it up. In conclusion, I would like to reiterate, although I didn't say it the first time, that the manufacturers selling into the system fully support the goals of the commissary and exchanges to provide quality, reasonably priced products to men and women serving in the armed forces around the world.

    I would also like to thank you, Mr. Chairman and the entire MWR Panel, for accepting responsibility of overseeing these very important programs, which are a major part of the total Department of Defense quality-of-life program.

    Mr. BARTLETT. Thank you very much.

    [The prepared statement of Mr. Loving can be viewed in the hard copy.]

    Mr. BARTLETT. Mr. Ritchie.


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    Mr. RITCHIE. Thank you. I guess it is good evening, Mr. Chairman and members of the panel. I have abbreviated my comments, but hope to address the questions raised in your opening remarks.

    Although I am the general manager of MDV/Nash Finch Distribution Center located in Baltimore, Maryland, I am here this afternoon representing military distributors and wholesale grocers who have been providing distribution services to the military resale systems for many decades.

    Let me pass along our sorrow at the loss of Congressman Sisisky, a good friend to our industry.

    MDV/Nash Finch has been a member of the American Logistics Association for over 30 years and was a founding member of the Coalition of Military Distributors in 1990. The distribution community enjoys a very positive and productive working relationship with DeCA and the exchange systems.

    DeCA relies on the private-sector delivery of products to its 182 stores in the continental United States as well as the 114 commissaries and distribution centers (DCs), located throughout Europe and the Far East. Military exchanges, however, operate their own distribution centers, but receive supplemental services from distributors for exchanges, Shoppettes and BXMarts. My comments will primarily address distribution to DeCA.

    DeCA's objectives and goals to reduce operating costs, increase sales, provide better services, employ sound management practices and, most importantly, to satisfy the customer are also the commitment of the distributors. There are approximately 35 distributors operating some 90 distribution centers dedicated to serve the military market, some of whom represent small business. Since the consolidation of military commissaries 11 years ago, the 23 central distribution centers in the United States which were owned and operated by the military services have been closed.
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    The commissary system is unique in that distributors initially purchase and take title to the inventory. Therefore, DeCA has no financial investment or obligation in its inventory until it is delivered to the stores.

    DeCA has adopted the retail industry state-of-the-art distribution model Just-in-Time-Inventory, usually referred to as FDS or Frequent Delivery. Frequent Delivery requires the delivery of the right product to the right place at the right time as frequently as required to meet the patrons' demands at the lowest possible cost. This business model affords DeCA and its patrons a greater variety of products purchased directly from the manufacturer, with the reduced handling and storage costs of truck-to-shelf ordering, while retaining the efficiencies of truckload deliveries and achieving higher in-stock rate. We believe the military commissary system is receiving the most efficient and cost-effective method of distribution at no additional cost to the United States Government, the taxpayer or the patron.

    We are dedicated to cooperate with and to support the goals and objectives of the military resale organizations. The resale operations provide military patrons with shopping experiences comparable to and in many cases superior to that of the private sector, with considerable savings. Those savings to many servicemembers' families are a necessary part of the institutional economic nonpay compensation for military service, both in times of peace as well as war, and are most critical to their quality of life.

    Thank you. I will be glad to respond to any questions.

    Mr. BARTLETT. Thank you very much.
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    [The prepared statement of Mr. Ritchie can be viewed in the hard copy.]

    Mr. BARTLETT. Mr. Underwood.

    Mr. UNDERWOOD. Thank you, Mr. Chairman.

    Just a general question, and I thank you all for your testimonies and understand your integral part to the resale system and to the commissary system and your efforts on behalf of our people in uniform.

    All of you can respond to this in a very general way. To the best of your knowledge, do manufacturers, in fact, offer the best possible prices to commissaries and exchanges, and what are the circumstances that lead manufacturers to offer favorable pricing on selected items?

    Mr. HOGAN. May I start?

    Mr. UNDERWOOD. Sure.

    Mr. HOGAN. Yes, they do offer the best prices. They are required by law to do so. Under agreement on the commissary side, they sign a resale order agreement that requires them to offer those best prices. They do, in fact, do that, and they run promotions similar to the promotions that they run outside the gate; that is, reduced price promotions, specials for limited periods of time that echo what they do in the commercial world, in the regular resale world, and it has been my experience over the years that these are the best prices.
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    Mr. RAINES. If I may respond, sir, I think that the exchanges and the commissaries have done a very good job of creating a fair and competitive environment within which the manufacturers and various suppliers from our community operate, and in that sense of competition we are certainly encouraged to bring forth our best price. There is hardly a day that goes by that we are not pounded by some buyer wanting the best price. So let me assure you that we are doing the best job on that, and it has been my experience—well, not as an entity that sets prices, but involved in a business that administers pricing, that the pricing seems to be at a very competitive level and, to my knowledge, the best price, and to the best of my knowledge, the manufacturers my firm represents adhere to the price warranty clauses in the certifications that they sign in order to do business with the commissaries and exchanges.

    Mr. LOVING. As a manufacturer I will say that they are both correct. We do offer the best prices to the military patrons. As far as how we do it and how we make sure of it, that varies from company to company. The standard prices are pretty simple because there is—normally any corporation has a standard pricing list that they use with the retail marketplace, so you know what that is. The key probably is in the promotional end of the pricing gamut. And each of the three companies that I mentioned that I worked for handle it in a different way, but I can assure you that, without going into the details, that when you get into the budget and you get into the comparisons, that manufacturers do, in fact, offer comparable and better pricing to the military patrons.

    Mr. UNDERWOOD. In your testimony you indicated that perhaps one to two percent of your total sales are to military resale, so how do manufacturers generally view this? I mean, is it—view the resale.
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    Mr. LOVING. Well, one to two percent of a manufacturer's business can be a significant amount of business, and I would be less than honest if I didn't tell you that there is some very sincere waving of the flag and apple pie within the corporate world. We are very proud to be of service and to be able to supply the products to the military personnel and retirees and Congressmen all over—anywhere in the United States. That is a very sincere comment.

    Mr. UNDERWOOD. Thank you.

    Mr. RAINES. Sir, following up my colleague's remarks, I think many of our manufacturers also find that this marketplace with the concentration of 18- to 34-year-olds who are forming their brand preferences, this is a very important market to a lot of manufacturers to make sure that their products are at least tried and made available to that age group that might form purchasing decisions later on in life based on positive experiences by purchasing these products through the commissaries and exchanges.

    Mr. HOGAN. And I would just add in respect to the one percent or two percent of a manufacturer's business, and sometimes, sir, it is more, there are people within those manufacturer companies that are assigned with that particular responsibility, and it is all that they do. So it is extremely important to them, and so they keep their companies focused on it.

    Mr. UNDERWOOD. Mr. Ritchie, do you have a comment to that?

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    Mr. RITCHIE. As the horse and wagon of the industry, we are not necessarily involved in the pricing of products, but I will tell you it is my personal observation and both my experience in the industry that we are getting the best prices for the resale system, especially the shopping experience you see. It is quite a bit less expensive in a commissary than a retail market.

    Mr. UNDERWOOD. Well, as the horse and wagon end of it, and perhaps all of you have had many years of experience with the commissaries and the military resale system, so if you could give perhaps one suggestion to the military resale system to provide greater value to their patrons, what would it be?

    You probably have a ton of suggestions.

    Mr. HOGAN. Sir, I would simply say that the course that all of the resale systems are on right now, which is to continue to understand their consumers better, what their consumers want, what their consumers need, is absolutely the right thing to do. I think that really does add value to the extent that they are able to do that, to improve their product assortments.

    In regard to the issue of the availability of products outside the gate that you may not find inside, I am one of those that is a strong advocate to have products available, like projection TV's, and I know this panel acted favorably on that issue. But I think it is important for military quality of life in categories like that, where the consumer preferences are swinging toward that kind of product, it is important I believe for our resale systems to have it. So I think they can add value, in specific response to your question, if they are able to keep up with some of the category trends on the outside and are not impeded by restrictions such as now prevail in certain categories.
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    Mr. RAINES. From a global industry standpoint, sir, we would encourage that the services continue their efforts to mirror best practices of leading commercial enterprises. We think the demands of today's modern military consumer are not unlike the demands of the consumers outside the gate. So in order to be successful in this environment, I think the services need to continue, as they are doing, to pursue decision support systems and category management applications, because these are essential tools of modern retail organizations.

    While there has been much done in these areas, there is always the next challenge. This is an evolution, it is not a foot race, it is a marathon, if you will. So I think the services are on the right track with those if they continue to follow best practices and category management and, above all, keep the patron's needs in mind when they are trying to reach a decision that the outcome will be favorable for the patron.

    Mr. LOVING. I believe Boyd just read the little notes that I made to myself.

    Mr. UNDERWOOD. Amazing how you think alike.

    Mr. RAINES. He has been covering for me a long time, Mr. Congressman. I appreciate it.

    Mr. LOVING. As far as one thing to change, I don't have any one thing, because I believe this marketplace is changing as we speak and it is doing it the way it should. It is evolving. So I think change is going on. We had a lot of discussion about the consolidation of the exchange systems. There are a lot of efficiencies that have been found, and the same thing is true within the commissary system.
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    The other word I wrote down was category management. I think that is one thing we have to really stay on top of and make sure we are doing the right thing in the right way for the patrons we are trying to serve in these businesses.

    Mr. UNDERWOOD. Thank you.

    Mr. BARTLETT. Thank you. Mr. Schrock.

    Mr. SCHROCK. Thank you, Mr. Chairman. I want to comment for a minute on what Mr. Underwood said, because I am a consumer and I can answer some of those questions. Before I do, let me welcome all of you here and thank Frank Hogan for having breakfast with me yesterday. I appreciated that. Boyd Raines, his family and he have lived across the street from my family and me for 15 years, and I frankly don't know which one of us has been disadvantaged the most by that. But I need to be careful what I say here today because I need to get home tonight.

    My wife and I are consumers, and I can tell you without question that there is value there and you do save money. As an example, Judy and I bought a place here when we came up here, we didn't want to, but it was cheaper than renting. We had to furnish it. Everything we have in there except the furniture has come from the exchange. The things we bought in there, the toasters and the pots and pans and all that stuff, saved us $557. That doesn't sound like a lot, but for a young family that can be an awfully lot of money. Every piece of food we have in there comes from the commissary because it is cheaper to buy it there and haul it here than buy it elsewhere. We are living examples it does work.
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    Mr. Underwood was asking if they could do things better. We can always do things better, but I can't imagine it. If you shop at the commissaries and exchanges we shop at, it doesn't get better than that. It is equal with those on the outside. I think the sailors that are stationed at the bases where my wife and I shop get good value every single day, and they will continue to, because of what these gentleman here do in their business.

    Thank you, Mr. Chairman.

    Mr. BARTLETT. Thank you very much. Mr. Raines mentioned that our military people were not second-class citizens, and that reminded me of a practice we have in the military that tells the world that our military people are second-class citizens, and I will tell you what that is in a moment.

    That reminded me of an exchange that happened on the floor, I was sitting beside Ron Paul from Texas, and my whip representative from the Whip Team came up and asked me where I was on a bill coming up. I said well, I am somewhere between leaning no and no; and Ron Paul said you can write me down as being somewhere between no and hell, no.

    So, you know, on this issue, I am where Ron Paul was on that bill. Let me tell you what the practice is. Our military people can live on a base for 50 or 100 years, their kids can play there and picnic there and the pay is quite good enough for them. But when it comes time to give that base away to the local community, we don't sell it to them. Most often we give it to them. Now that is not good enough to give to them; we have to clean it up with enormous expense to the taxpayer. I think that sends a clear message that we believe our military families are second-class citizens.
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    My response to that, and this has nothing to do with resale, but we need a chorus of voices saying not just no, but hell no, we are not going to do this any more. What I want is to tell the private sector that if it is not good enough for them to accept free, we will put a fence around it, plant trees on it, and come back in 50 years and harvest the trees. We are not spending a thin dime to clean this base up, which was quite good enough for our military people, to give it away to the private sector.

    I hope you will join me in that chorus of voices saying our military people are not second-class citizens and we are not going to send a message that they are. I see a lot of heads nodding in assent. Thank you very much. Please yell long and loud. You have an opportunity that this silly practice has got to stop.

    Let me invite you to do what I invited the second panel to do and that is respond to questions that we asked the other panels and maybe should have asked you if those questions were not adequately answered before. Do you have any comments?

    Mr. RAINES. I have one, relative not only to the particular issue, but in total, and it is a general comment. But I will relate it to exchange integration.

    While I am familiar with the PricewaterhouseCoopers study and some of the assumptions made in the study bearing on the question, but I didn't hear discussed today what is the benefit to the patron. I think if you are going to be faced with these tough questions in the future or the DOD is, if we start building a framework to address some of these questions from the standpoint what is best for its patron and what will yield further savings or what will yield an appropriate product assortment so they don't feel second class, I think that is the right direction to go in.
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    So I would make a sincere request for the panel to maintain its posture on always asking the question not only what is the best business practice, but what is best for the patron. I am a big proponent of best business practices, but sometimes when you are supporting a military family in Korea or Okinawa, sometimes you have to bite the bullet and do what is right for the patron and make the best business practice sometimes, unfortunately, second.

    The good news is you can make the best business practice applicable to most of the facilities and most of the bases, but also throw in a little bit of what is good for the patron. I think you will come up with a lot of the right answers on these very difficult and contentious issues you will be facing and we will all be grappling with over the coming years.

    Mr. BARTLETT. Those comments coming from the business panel are more relevant than if they came from the other panels. Thank you very much. Do others have comments, answers to questions we should have asked you but asked the previous panels?

    Mr. HOGAN. I would heartily endorse what Mr. Raines just said. It is very, very important to focus on the patrons.

    Mr. BARTLETT. If my colleagues have no further questions or comments, before I dismiss this panel, I have just been handed a note. The services for our friend Norm Sisisky will be held at 2 p.m. on Sunday, April 1st, at Temple Bethel, 3330 Grove Avenue, Richmond, Virginia and the telephone number is 804–355–3564 and the contact there is Carl Hazetette, for those who would like to attend.

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    Thank you. Let me adjourn this panel and convene our final panel.

    Let me welcome the most important panel, the customer. Thank you for sitting through all of the other panels. The other panels were here because of you. If it wasn't for you, we would not have needed any of the other panels. So you are certainly the most important panel we are convening this afternoon.

    Mr. Joseph Barnes, Fleet Reserve Association; Ms. Meg Kulungowski, National Military Family Association; and Mr. Frank Rohrbough, the Retired Officers Association, thank, you very much for being with us. Thank you for sitting through the three previous panels. We welcome your testimony today.


    Mr. BARTLETT. Mr. Barnes.

    Mr. BARNES. Thank you. Mr. Chairman and distinguished members of the panel, on behalf of The Military Coalition, we thank you for the opportunity to express our views concerning the commissary benefit and the military exchange system. We also express our condolences on the loss of Congressman Sisisky to his family, colleagues, and friends.

    Mr. Chairman and Congressman Underwood, congratulations on assuming the chairmanship and ranking member position on this important panel.

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    I am director of legislative programs for the Fleet Reserve Association and cochair of the coalition's military personnel compensation and commissaries committee. I also have the privilege of serving as a member of the Defense Commissary Agency's patron council.

    The Military Coalition is most grateful to this panel for its strong leadership in preserving and improving the commissary and exchange benefits. At the outset, the coalition wishes to reaffirm its strong commitment to maintaining the commissary benefit as an integral part of the total military compensation package and also its continuing support for maintaining a strong exchange program.

    I will briefly summarize several issues with regard to the commissary benefit. Then Meg Kulungowski from the National Military Family Association will speak about the benefits from the family perspective, and finally Frank Rohrbough from the Retired Officers Association will discuss the exchange system.

    The commissaries substantially impact the quality of life for the store's patrons and families, while contributing to the retention of highly skilled personnel and military readiness. The annual appropriation is a sound investment that pays valuable dividends while strengthening the sense of community within the services. The coalition salutes DeCA for its commitment to operating commissaries in a more businesslike manner and in its efforts to increase savings to shoppers, better control operating costs, and communicate with its patrons. As a result, sales have increased during the past two years.

    Members of our organizations consistently voice concerns about commissary closures. Six stores have been identified for closure, two as the result of BRAC initiatives and others because of size and/or age and reduced numbers of active duty customers. Several stores are near other commissaries. The coalition understands the challenges associated with BRAC closures, the value of improved business practices, and DeCA's commitment to delivering the benefit in a cost-effective and efficient manner. However, we must draw attention to the widespread perception that only active duty patrons are considered in the closure process. Guard and Reserve personnel and particularly military retirees believe they are neglected or of little regard in these decisions.
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    Each beneficiary category is important and the coalition urges balanced consideration of each patron group when considering commissary closures. The coalition values the retention of a partial resale benefit at BRAC sites. Hybrid stores and BXMarts provide a significant benefit when an area cannot support a full commissary. The coalition supports these facilities only at BRAC sites.

    Finally, the coalition supports lifting the limitation on annual commissary visits by Guard and Reserve personnel and gray area retirees. Eliminating this restriction will expand access to the benefit and result in savings of $2.5 million annually, costs associated with administering the commissary privilege card.

    Meg Kulungowski will now discuss the benefits from the military family perspective. Thank you.

    Mr. BARTLETT. Thank you very much.


    Ms. KULUNGOWSKI. Mr. Chairman and Congressman Underwood, thank you for the opportunity to appear before you today.

    We often focus on the savings achieved by shopping at the commissary and exchange. This is significant and should never be overlooked. However, a less tangible benefit that the commissary and exchange provide is the sense of home it provides, no matter where in the world you may be assigned. This is critically important for young families away from home. They need to be able to shop in an environment where they recognize the brands and can speak the language.
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    In the case of Guantanamo, Cuba, the Navy Exchange Mart (NEXMART) is the only place service members and their families can shop. They could not have the luxury to shop at stores off post. Likewise, the exchange on-line shopping capability is particularly valuable to our overseas families because we have heard complaints that other retailers will not ship to an APO address.

    The Defense Commissary Agency, DeCA, should be commended for their incredible outreach to all of their beneficiary groups. Not only is there a new patron council at the agency, but local consumer focus groups allow information exchange at each commissary. DeCA has responded to patron concerns with early-bird hours, short-term parking near the entrance, and extended hours at some stores. The introduction of the best-value items and management focus on produce have resulted in a quantum leap in value and quality.

    Like many civilian grocery stores, DeCA has introduced prepackaged items, pasta bars, and prepared foods to meet the demands of customers' busy lifestyles. DeCA is also working to reach the single soldiers and draw them into the stores. Many stores feature prepared sandwiches with drinks at the front of the store which provide a healthy inexpensive alternative to fast food. Additionally, single serving cuts of meat are often available.

    The recent off-site sales in Guard and Reserve communities were a great success as well as for the members who participated as well as the commissary. It was a wonderful way to demonstrate to our Reserve force the value of their benefit.

    The recent implementation of the Women, Infants and Children's (WIC) overseas program required tremendous coordination and cooperation between the TRICARE management activity, DeCA and NEXCOM. The WIC program is a Federal need-based nutrition counseling and food voucher program that is administered by the States. The new WIC Overseas Program allows similar vouchers to be used in overseas commissaries or NEXMARTs. We appreciate the effort it has taken to get the first sites operational and we are looking forward to the full implementation.
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    Both the commissary and exchange commands should also be recognized for their initiatives to promote the value of education to our military children. DeCA, in partnership with the Fisher House Foundation and corporate vendors, will be rewarding one $1,500 scholarship per store to a college-bound military child. AAFES also rewards good students with a coupon booklet worth $50 and a chance to win a U.S. savings bond.

    Commissaries and Exchanges are also valued as employers of military spouses. As of November 2000, DeCA employed over 7,400 military spouses worldwide, and recently created a special category within the DOD priority placement program to facilitate the continued employment of military family members as their military spouse changes station. The three exchange systems also employ nearly 19,000 spouses in non-appropriated fund positions. We encourage the exchange systems to develop a program that would allow spouses to move within the system and promote their career progression.

    I will conclude with the words of the Business Executives for National Security Tail-to-Tooth Commission. ''military compensation, it is about more than money.'' yes, it is. It is a total package which includes our commissaries and exchanges.

    Again, Mr. Chairman, I thank you for this opportunity. Frank Rohrbough will now discuss the military exchange system.

    [The prepared statement of Ms. Kulungowski can be viewed in the hard copy.]

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    Mr. BARTLETT. Thank you very much. Before recognizing Mr. Rohrbough, I would like to note it is a quarter of six, it is dinner time, and Admiral Maas is still here. Thank you very much. It speaks to your commitment to our patrons. Thank you all for staying through with us.


    Mr. ROHRABACHER. Mr. Chairman, Congressman Underwood, thank you for the opportunity to testify before this committee. We do appreciate the support this committee has given to the MWR program over the years and for recognizing its value to service members, active and retired.

    I serve as the coalition's cochair for the MWR Base Closure Committee. Let me also say that we are pleased that the commander of the AAFES system established the Retiree Advisory Council in 1998. This council, which meets semiannually, serves as a primary advisory body addressing retiree interests. I am pleased to serve as The Military Coalition's representative.

    These meetings have been very useful to us and to the commander and his staff. It led to the making of Retiree Appreciation Days over the past two years, which were quite successful, and a line of products using the logo, ''still serving,'' for our retirees.

    The exchanges not only provide essential goods and services, but generate vital funding for a variety of important MWR programs that are essential to maintaining the high quality of life for military families and their active duty personnel.
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    In terms of values, AAFES's earnings from 1990 through the year 2000 represent $2.4 billion that did not have to come from the taxpayers to supports the Army-Air Force MWR program. To individual service members, the exchange benefit is a tangible, non-cash portion of the total pay and benefit package to the service member. The coalition understands that there have been studies conducted on the consolidation merger of the three military exchanges. We understand that the services have opted to keep these operations separate while adopting resource sharing where efficiencies are viable.

    Simply stated, the military coalitions support that position. Our interest is to maintain and/or enhance exchange services for all service members, active, retired, Reserve, that best serve their needs. The coalition opposes any initiative that will compromise services to customers that are service-specific or that will increase the out-of-pocket cost to patrons.

    The coalition supports the current organizational arrangements and finds no compelling advantage on behalf of the patrons to consolidate these exchanges. We do agree that commanders and service leaders must seek opportunities to identify economies of scale to gain operating efficiencies and savings where possible. It is critical that customers not be put at risk of paying higher amounts for the food or the merchandise that they purchase. It is essential that the present funding of the MWR programs be maintained and not be subject to compromise in any way.

    Mr. Chairman, thank you again for the opportunity to address this committee. This concludes my verbal presentation. Thank you.

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    Mr. BARTLETT. Thank you all very much for your testimony.

    [The prepared statement of The Military Coalition can be viewed in the hard copy.]

    Mr. BARTLETT. Let me turn now to Mr. Underwood.

    Mr. UNDERWOOD. Thank you, Mr. Chairman. I wanted to thank you for your combined testimony.

    I know you have taken a strong stand on consolidation of exchanges, and you have outlined there, Mr. Rohrbough, the basis for that is the fear that prices may go up. I tend to agree with that position, but for the sake of argument, if a way was shown that in fact prices would not go up, would there be any other objections to a consolidation of the exchanges?

    Mr. ROHRABACHER. I think that that needs to be shown.

    Mr. UNDERWOOD. Other than military culture?

    Mr. ROHRABACHER. Yes, sir, I think that that needs to be shown. But I think the previous panels have pretty well articulated that view that they can bring about the savings necessary through the various consolidation of activities that are behind the scene, rather than the front office reorganization. We are not that capable, I guess, of going into those levels of details to ascertain whether those can be sustained, but I think we want to make sure that whatever that is, that those MWR funds are maintained and not lost and that the patrons themselves are not going to pay higher prices for what it is that they buy.
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    Mr. UNDERWOOD. Are all of you in favor of kind an open-ended extension of the benefit to retirees— excuse me, Guard and Reserves?

    Mr. BARNES. Yes, Congressman, that is a long-standing position within The Military Coalition.

    Mr. UNDERWOOD. I have no further questions.

    Mr. BARTLETT. Thank you. I would like to return for a moment to Mr. Underwood's last question. I had written down before you began testifying a note to ask you about the Guard and Reserve and today's seamless military with only 10 divisions in the Army and 13 air wings, the Guard and Reserve are essential in almost every deployment of any size at all. They are involved; they leave their work and families and go. They now have access 24 days a year. That is up from 12—24 visits a year, up from 12.

    I was going to ask you did we have it about right, but you answered my question, no, we don't, we need to lift that restriction. We appreciate your input on that. Thank you. Thank you very much.

    Let me ask you the same question. I am sure we have asked questions of previous panels that might have been better directed to you. I would like to give you an opportunity to make any comment or to answer any previous question that you wish.

    Mr. BARNES. I have no comments.
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    Mr. BARTLETT. The questions have been all asked and answered.

    Mr. BARNES. I would say, Mr. Chairman, it is very encouraging to hear strong support for the benefit today. And the issues that have been discussed here are very broad and have touched on many aspects of both the commissary and exchange benefits, and we appreciate your strong leadership.

    Mr. BARTLETT. Even if one didn't have an emotional commitment to improve quality of life as much as possible, and I certainly do, just the fact that the improvement of quality of life helps to retain people who we are having difficulty retaining. It helps us to recruit people because of word-of-mouth advertising. Just that practicality alone is enough to make you a strong advocate of quality of life. I have a strong emotional commitment to that.

    You all and those that went before you have put your life on the line for us. I will tell you, I really felt that when recently I attended the—oh, my, I am forgetting the term—the veterans—not disabled, but those—paralyzed veterans. That was a very emotional experience for me to go into that big room, it was in Cannon caucus, and a lot of people there, and recognize how close each one of them came to giving that last full measure of devotion, and how much we owe to them and their families.

    So in addition to this emotional commitment, there is just a practical observation, if we don't do a good job of this, we are not going to be able to recruit and retain.

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    Mr. BARNES. You are exactly right, Mr. Chairman, and we appreciate your commitment on that.

    Mr. ROHRBOUGH. Mr. Chairman, I have a supplemental comment I would like to make. As we look at the possibility of some base closures in the future again, in the last rounds, my particular focus and my background as a health care administrator was the health care benefit. Of course, this past year with the Congress passing the TRICARE For Life, that benefit is going to be there, whether a base is or is not in their community. But we are most pleased with the Congress' position on restoring this long-time promise of lifetime health care, and we are most grateful for that.

    As we look at other base closures, I think we need to be very sensitive, as Mr. Barnes has indicated, about the need for the continued benefit of the commissary and the BX as well as we also look and try to protect the interest of the Guard and Reserve folks in those same communities.

    Mr. BARTLETT. We have given the services the option of these stores which are both commissary and a PX. They have exercised four out of a possible ten options. We have encouraged them in a previous panel to make sure that there is not a need out there that is not being met. To the extent we do not provide adequate services to our retired people, we have recruit problems; and we have retention problems because they are our best recruiters. We take care good care of them, we won't have trouble recruiting.

    Mr. ROHRABACHER. You understand it well. Thank you for your service.
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    Mr. BARTLETT. Thank you all very much.

    Mr. UNDERWOOD. Mr. Chairman, I gave this opportunity to representatives of the industry, so I would like to extend it to you. What changes, if any, should be made to the military resale system? Is there any kind of burning issue, other than the ones you have outlined already?

    Mr. BARNES. I would reiterate the importance of the retired communities, and Mr. Chairman, to associate with your remarks, you are right on the mark there. There is a great deal of frustration within the retired community with regard to commitments that have not been fulfilled.

    Frank mentioned the health care issue. We have retirees that are so angry that they are picketing recruiting stations, they are working on putting up billboards around the country and what have you. And as the Chairman mentioned, there is a trickle-down effect there, that these frustrated retirees are expressing their frustration to their sons, daughters, grandchildren, friends, and what have you to not even consider a career in the military. So that is a very, very important point.

    Ms. KULUNGOWSKI. I would only suggest that we continue to be responsive to the patrons. DeCA particularly has done a wonderful job, particularly I think since General Courter came on board of really reaching out to all of their beneficiary groups, and I would just encourage the exchange systems to perhaps reenergize their already existing similar types of patron councils so that the systems can be as responsive as it appears that DeCA is.
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    Mr. ROHRABACHER. I would like to add also that we couldn't be more pleased with the leadership of the AAFES headquarters commander and the staff in recognizing the value of the retiree as a shopper. They are loyal shoppers, and they look to come back. And we are very, very pleased with their leadership role there and the services that they do provide.

    Mr. UNDERWOOD. Thank you. Thank you very much, Mr. Chairman. Great hearing.

    Mr. BARTLETT. Thank you very much for your testimony. Thank you for persevering so long. Thank all of those in the back of the room that stayed with us so long. Our hearing is now adjourned. Thank you.

    [Whereupon, at 6 o'clock p.m., the panel was adjourned.]