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[H.A.S.C. No. 106–43]



FOR FISCAL YEAR 2001—H.R. 4205






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MARCH 15, 2000




JOHN M. McHUGH, New York, Chairman
BOB STUMP, Arizona
J.C. WATTS, Jr., Oklahoma
WALTER B. JONES, Jr., North Carolina
BOB RILEY, Alabama
ROBIN HAYES, North Carolina

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MARTIN T. MEEHAN, Massachusetts

Thomas E. Hawley, Professional Staff
Dudley Tademy, Professional Staff
Chip Bernards, Staff Assistant





    Wednesday, March 15, 2000, Fiscal Year 2001 National Defense Authorization Act—MWR Programs and Resale Activity Oversight

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    Wednesday, March 15, 2000



    McHugh, Hon. John M., a Representative from New York, Chairman, Special Oversight Panel on Morale, Welfare and Recreation

    Meehan, Hon. Martin T., a Representative from Massachusetts, Ranking Member, Special Oversight Panel on Morale, Welfare and Recreation


    Amerault, Vice Adm. James F., Deputy Chief of Naval Operations, (Logistics), U.S. Navy

    Bates, Maj. Gen. Barry D., U.S. Army, Commander, Army and Air Force Exchange Service

    Courter, Maj. Gen. Robert J., Jr., U.S. Air Force, Director, Defense Commissary Agency
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    Ginman, Rear Adm. Richard T., Commander, Navy Exchange Service Command, U.S. Navy

    Handy, Lt. Gen. John W., Deputy Chief of Staff, Installations and Logistics, U.S. Air Force

    Hinkle, Rear Adm. James B., Commander, Navy Personnel Command

    Klimp, Lt. Gen. Jack W., Deputy Chief of Staff for Manpower and Reserve Affairs, U.S. Marine Corps

    Maldon, Hon. Alphonso Jr., Assistant Secretary of Defense, Force Management Policy

    Myers, Arthur J., Director of Air Force Services

    Short, Philip G., Director, Personal and Family Readiness Division, U.S. Marine CorpsL00, 00

    Van Antwerp, Maj. Gen. Robert L., Jr., Assistant Chief of Staff for Installation Management, U.S. Army

    Vasquez, Victor Jr., Deputy Assistant Secretary of Defense, (Personnel Support, Families and Education)
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    Whelden, Brig. Gen. Craig B., Commander, U.S. Army Community and Family Support Center


[The Prepared Statements submitted for the Record can be viewed in the hard copy.]
Amerault, Vice Adm. James F.
Bates, Maj. Gen. Barry D.
Courter, Maj. Gen. Robert J., Jr.
Gallagher, Art, Director of Retail Business Development, TV Guide Distribution, Inc.
Ginman, Rear Adm. Richard T.
Handy, Lt. Gen. John W.
Hinkle, Rear Adm. James B.
Klimp, Lt. Gen. Jack W.
Maldon, Hon. Alphonso Jr.
McHugh, Hon. John M.
Myers, Arthur J.
Short, Philip G.
Staton, James D., CMS, U.S. Air Force (Ret.), Executive Director, Air Force Sergeants Association
Van Antwerp, Maj. Gen. Robert L., Jr.
Vasquez, Victor Jr.
Whelden, Brig. Gen. Craig B.

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[There were no Documents submitted for the Record.]

[The Questions and Answers can be viewed in the hard copy.]
Mr. McHugh
Mr. Meehan
Mr. Ortiz


House of Representatives,    
Committee on Armed Services,
Special Oversight Panel on Morale,
Welfare and Recreation,
Washington, DC, Wednesday, March 15, 2000.

    The Special Panel met, pursuant to call, at 1:06 p.m., in room 2212, Rayburn House Office Building, Hon. John M. McHugh (Chairman of the Panel) presiding.


    Mr. MCHUGH. Good afternoon. I apologize for the temperature in the room, although I have no responsibility in it, but for those who are uncomfortable, if you want to dress down, you are certainly not going to offend me. I can't speak for the rest of the esteemed members. But we are going to try to see if we can get some circulation going here. Perhaps if you applaud after—or perhaps not. I will tell you gentlemen, that the gentleman from Virginia just said it is liable to get warmer.
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    Let me begin by welcoming you all, and of course the members, to our first meeting in the Second Session of the 106th Congress. Certainly everyone on this side of the room understands we are operating on a very constrained timetable, so this hearing may in fact be our only meeting this year besides the mark-up.

    And in that regard, let me say it is sort of a bittersweet occasion, in that two-thirds of our very active—and stress very active—panel members from the great State of Virginia are embarking on their last term here in the Congress and their last days of service here on the Panel, our good friends and colleagues, Herb Bateman and Owen Pickett. They are choosing to go on to other challenges in life, and I just want to state for the record how much we will all miss their meritorious service and their absolutely incredible commitment to this Panel and to, more importantly, the interests of the men and women in uniform through the MWR activities, but through their service on the full committee, as well.

    Gentlemen, you will be missed as colleagues and as friends, and we wish you both all the best in the future, certainly. We thank you for that service to the Panel and to our military families.

    Today we are going to hear testimony concerning service morale, welfare and recreation programs and resale activities, and each year seems to bring a new and a particularly high profile challenge before us, and this year is no exception. This year, in my opinion, the most serious problem we face is that of finding a way to make the commissary surcharge fund solvent.

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    As all of us know, the surcharge is a five percent fee that is added at the register, and by law that money is spent on operating expenses such as utilities and paper bags. But, more importantly, that fund is the Defense Commissary Agency's (DeCA) sole source of funds to renovate and build new commissary stores.

    Since DeCA was first formed in the early 1990s, Dick Beale worked aggressively to modernize those facilities. Unfortunately, the money ran out before the job was done, and to be sure replacement and maintenance of almost 300 retail facilities throughout the world requires a continuous stream of income, and at the current level of sales and expenditures, a five percent surcharge simply will not allow us to keep up with the demand.

    Last year the Panel requested the Department's views on the best way to fix the surcharge fund, and to my knowledge, that report has not yet been received, and I am disappointed that that is the case and that the material is unavailable, because this Panel, I feel very certain, is not just willing but anxious to help. In our view, the commissary benefit is the cornerstone of Morale, Welfare, and Recreation (MWR) programs. The lure of low commissary prices draws customers to posts and bases, generating exchange sales, which result in profits that ultimately support all MWR programs.

    But, as serious as that situation is, I don't expect we will consider raising the percentage charged to the customer. I understand the Department is working on a solution that would shift some of the items currently paid to the surcharge fund to the appropriated fund side of the equation, and I think I can speak for all members when we say the Panel is interested in anything that the Department may have in mind, since we intend to act this year to preserve this benefit well into the future.
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    I should note that after years of asking questions, and I emphasize questions, the military services at last appear to be moving in the right direction regarding appropriated fund support of MWR activities. In response to the report that the Panel directed in last year's bill, the Department of Defense (DOD) tells us that all of the services, with the exception of the Marine Corps, have finally reached the minimum required level of appropriated fund support to these vital programs.

    Congratulations, and please, please keep it up. Someday maybe you will all have standards in place to measure your progress against, like the approach the Army is so diligently pursuing. We certainly hope so.

    We understand, as well, that the Department may request that the Panel review restrictions on what exchanges may sell, particularly the restrictions on televisions with larger screens than 35 inches. As I think the Panel has demonstrated in the recent past, we will listen intently to any such proposals, and we are certainly interested in the Department's views with respect to the expected effect on sales and, equally important, the views and the impact on local businesses.

    And, last, we had hoped to be able to examine the Department's plan to integrate the exchange services, because almost any integration plan that I can conceive of will require legislative authority. Before the Panel agrees to any such approval, I believe we should have the opportunity to carefully consider the Department's plan and have a hearing devoted to the examination of that proposal. Since we do not now have a plan in hand, and since we expect to begin the mark-up process soon, I find it hard to envision moving legislation on exchange integration this year in our bill.
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    Our witnesses today will address, hopefully, these and other issues facing MWR. The Panel will hear from the Department of Defense, the service policy chiefs in MWR and resale, as well as the DOD and service operators of MWR programs and resale programs. All the Department's key leaders for MWR programs are here today to provide us their expertise, and we welcome them and thank them for their presence.

    Each year of the six years that I have had the honor and privilege of serving as Chairman, this Panel has attempted and I think has sent a clear message. We are solidly behind morale, welfare and recreation programs and the system that it represents. I am sorry if I am repetitious, but programs in Washington, I believe need continuous, publicly expressed support from all concerned parties to survive the very tough budget wars that we traditionally face.

    And in that regard, I would encourage all here today—defense leaders, military families, industry—to speak up in support of this very, very important system when those challenges present themselves. We intend to work on the surcharge fund this year, so let's see if we can all agree on a solution.

    Before we proceed to our distinguished first panel, let me now yield to and recognize the Panel's ranking member, the gentleman from Massachusetts, Mr. Meehan, who I want to say as well has been a staunch supporter and an ally in this collective fight. We thank him for that, and we welcome him here today and look forward to any comments he may wish to make. Marty?

    [The prepared statement of Mr. McHugh can be found in the Appendix.]

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    Mr. MEEHAN. Thank you, John. I want to join Chairman McHugh in welcoming all of our distinguished witnesses to the MWR Panel hearing today, especially those of you who are appearing for the first time. I know that we have a full agenda this afternoon, and given that this will be the only hearing that we have before the defense authorization mark-up, I will keep my remarks brief.

    I think the Chairman said it well, and I think I speak for all of my colleagues on the Panel and on the House Armed Services Committee when I say that the strong support for MWR programs remains unwavering, despite the fact that we are having just the one hearing before the defense authorization bill.

    I also want to take this opportunity to express my appreciation to my friends and colleagues, Owen Pickett and Herb Bateman, for not only their years of service but especially their dedication to the mission of the MWR Panel. Service members and their families have been well served by their dedicated service, and we will certainly miss both of them on this Panel and on the full committee.

    Today we have the opportunity to understand more about the drivers of the MWR in resale activities: the policies, current funding priorities, the vision of responsible personnel. In general, the feedback that I get is that the system is working well.

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    One issue that concerns me, Mr. Chairman, is the exchange integration due diligence study. I believe that we may be missing an opportunity to provide better service to our customers by delaying the consideration of the recommendations in this study. It does not require a great deal of imagination to visualize some combination of reduced costs for merchandise, increased services, improved infrastructure, for larger contributions in the form of dividends.

    That being said, I understand the complexity of mergers and the specific cultural issues associated with the service prerogatives as they relate to the exchanges. I do not want to suggest that the integration effort should proceed without an understanding of those consequences, but exchange integration has been on the table for a significant amount of time, starting with the 1968 Logistics Management Institute study, so I hope that we will receive some of the current recommendations.

    With that, Mr. Chairman, I look forward to the hearing, and I would yield back the balance of my time.

    Mr. MCHUGH. I thank the gentleman for his leadership and his active, always active participation.

    I would say to the members, we certainly don't want to defer any courtesy of opening remarks to anyone who may choose to make them. We do have three panels, and it is very warm in here, but I would be happy to yield to any other member and I would say particularly to our retiring members, Mr. Bateman and Mr. Pickett, if they wish to make a few valedictory comments, if they wish.

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    Mr. BATEMAN. Thank you, Mr. Chairman, for the opportunity, but I am in my listening mode today and so I will await the testimony of the witnesses.

    Mr. MCHUGH. That is why he has had such a great career.

    Mr. PICKETT. Mr. Chairman.

    Mr. MCHUGH. Owen.

    Mr. PICKETT. I am going to join my colleague in his approach to the meeting today, and so just thank you for this opportunity and appreciate you having this hearing.

    Mr. MCHUGH. We are going to miss you guys.

    Mr. SISISKY. Mr. Chairman.

    Mr. MCHUGH. Yes, I knew it. Go ahead.

    Mr. SISISKY. I just want to assure you, I am the one-third of the two-thirds. I am not ready to retire yet.

    Mr. MCHUGH. Well, we checked that very carefully, made sure we knew who was staying. Delighted you are here.

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    Mr. SISISKY. Thank you.

    Mr. MCHUGH. Our first panel of witnesses are the Department of Defense's senior policymakers for military MWR programs and resale matters, and they are the Honorable Alphonso Maldon, Assistant Secretary of Defense for Force Management Policy. Mr. Secretary, welcome.

    Vice Admiral James Amerault, who is Deputy Chief of Naval Operations. Lieutenant General John Handy, who is Deputy Chief of Staff, Installations and Logistics, for the U.S. Air Force. Lieutenant General Jack Klimp, Deputy Chief of Staff for Manpower and Reserve Affairs for the United States Marine Corps. And Major General Robert Van Antwerp, Jr., Assistant Chief of Staff for Installation Management, United States Army.

    This is Secretary Maldon's first appearance before the Panel, and we welcome him here today warmly. This may be General Handy's last appearance, as well, as he has been selected as the next Vice Chief of Staff of the Air Force and promotion to four stars, and we congratulate him on that and wish him all the best, certainly.

    So with that, Secretary Maldon, we would be happy to start with you, and we are, as Mr. Bateman said, in our listening mode.


    Secretary MALDON. Thank you, Mr. Chairman. Mr. Chairman, thank you for acknowledging that it is a little warm in here, because I thought it was me, because it is my first time before this committee, and I thought it was because I am sitting where I am, the reason it was so hot.
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    Mr. Chairman and members of the Panel, I welcome this opportunity to appear before you today. This is my very first time, and I am here to discuss the Department of Defense resale and morale, welfare, and recreation programs. I would like to express the Department's appreciation for this Panel's continuous hard work in support of these important quality of life programs. You recognize, as we do, Mr. Chairman, that the commissary, exchange and MWR programs are crucial to recruiting and retaining high quality armed forces.

    Although I have only been in this position for several months, I have visited many installations to assess what is most important to our troops and their families' quality of life. Without a doubt, commissaries, exchanges and MWR programs contribute substantially to their standard of living. With our current challenges in recruiting and retention, it is even more critical that we pay close attention to these quality of life programs.

    Last year the Congress enacted an impressive package of pay and retirement reforms, and I thank you for your leadership and support. In my visits, the troops universally expressed their thanks as well. These reforms will help us to meet our recruiting and retention goals, but I don't think they will be sufficient by themselves. We need continuous attention to quality of life concerns, and we need to continually improve the military lifestyle in order to compete with the force of a strong economy, low unemployment rates, the pull of a college education, and employment opportunities in the private sector.

    Our MWR and resale activities operate at over 300 locations around the world and sell nearly 270 million a week in products and services. In many ways they form the backbone of our military quality of life infrastructure, and they are all linked together. Our commissaries draw authorized patrons to the installations. While there, they often stop by the exchange, and as you know, Mr. Chairman, the exchanges designate about 70 percent of their profits to morale, welfare and recreation programs.
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    In the last decade the military resale system rose to the challenges of downsizing, restructuring, and budget reduction. With your help, we have sustained these programs as important nonpay compensation. I believe we have done a good job, but our work isn't done. Today I am prepared to report to you on issues that are still working, and in particular those that you have directed us to do.

    The Commissary Operating Board, under the excellent leadership of General Handy, is actively reviewing the commissaries' operation and providing first class recommendations for improvement in services. Perhaps the toughest aspect of that review, as you have already acknowledged, is to design the management plan to restore the surcharge trust fund. This is a difficult matter, Mr. Chairman, and we are waiting for the Board's recommendation on the best strategy to bring forward to you.

    We have completed the patron survey you asked us to undertake. As I note in my written statement, there is good news in the survey about DeCA. We have had the opportunity of a first look, and we will be providing you with the results within the next two weeks.

    We are pleased to have met the congressional mandate to establish a uniform nonappropriated fund health plan. Enrollments are up, and many employees have better coverage with lower premiums. We will be watching the program closely over the next two years for any necessary modification.

    We thank you for your support for combined commissary and exchange hybrid stores at locations closed under base realignment and closure (BRAC). I am aware that we still owe you a report on this matter. However, I believe it is important that we carefully consider the situations under which we establish our hybrid stores. The Commissary Operating Board will need another 90 days to do a thorough review, and we will report the results to you after we have the benefit of their recommendations. However, the store at Fort McClellan has already been approved and is due to start operations in fiscal year 2001.
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    We continue to make progress towards meeting our established funding metrics for the MWR program. All services except the Marine Corps should be operating at these levels in this fiscal year. The Marine Corps is on track to ramp up to required levels in fiscal year 2004. In my view of this issue, I believe we need to put in place a better system for tracking our progress towards financial goals. I intend to work on that in the next year.

    Our program standards for fitness and libraries have allowed us to measure the quality of programs and provide a blueprint for improvements that need to be made. These standards, combined with those established with the military services, should do much to improve the modernized MWR program for the long term.

    We have successfully tested the Uniform Resource Demonstration project, and we look forward to working with you on needed legislation, which will allow the services to adopt this management practice. In that process, we are mindful of the need to protect current employees and to guard against erosion of appropriated fund support.

    We are also currently reviewing the effects of merchandise restriction on our ability to provide the items that our service families would like to see in their exchanges. We will forward our recommendations to you by May 1st, as you requested. At this time we know there is little interest in lifting restrictions on televisions, computers, and furniture, but we are waiting for the input from the military departments.

    Finally, Mr. Chairman, my written statement indicates our intention to bring you a recommendation for adjusting prices of alcohol and tobacco. Upon a much closer review since submitting my written statement, we will not be pursuing restrictions on beer and wine discounts.
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    Mr. Chairman, as I close my statement today, I would like to acknowledge the retirement of Congressman Herb Bateman as well as Congressman Owen Pickett from the Commonwealth of Virginia. These gentlemen have been longstanding supporters of the military MWR and resale system. Their efforts on behalf of these programs have greatly improved the quality of life of our service members and their families. Congressmen, on behalf of the Department of Defense, I sincerely thank you for your leadership.

    Mr. Chairman, this concludes my statement. I thank you for the opportunity to appear before you today, and I stand ready to answer your questions.

    [The prepared statement of Mr. Maldon can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, Mr. Secretary. As a means of edification on procedure, we generally go through the entire panel and then come back for general questions, so thank you.

    Secretary MALDON. Thank you, Mr. Chairman.

    Mr. MCHUGH. Next, not in the order in which we introduced him but in the order of the general rankings of the services—not rankings, but the senior, you know how that works—Major General Robert Van Antwerp, as I said, Assistant Chief of Staff for Installation Management of the United States Army.

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    General VAN ANTWERP. I thought you were going to say take the youngest member here. We are the oldest service and the youngest member.

    Sir, it is great to be here with you today and just to be able to address you and the Panel. I just want to cover just a few issues in a very short time and then be open for questions.

    First of all, in fiscal year (FY) 1999 it was a terrific year, and we are on the same azimuth for FY 2000. We had, our net income before depreciation (NIBD) was up 34 percent from 1998 in 1999, which is a great success. We are able to reduce our overhead costs by about 20 percent. This increase from 1998 to 1999 was about 11 percent in revenue, as opposed to the goal of 8 percent, so it is a great new story. And for one of the first times in my memory, all Major Army Commands (MACOMS) came in and were at a profitable level.

    The second subject I would like to touch on briefly is the support of the great Americans out there in the MWR community that are supporting contingency operations. We have just had a great group that have gone out to Kosovo and Bosnia. We have 20 professionals there now, and since 1995 have had about 162 MWR professionals to go out there and give of their time and talents and efforts to make sure our deployed troops are well taken care of in the MWR community.

    Sir, you alluded to the standards. We now have in place standards, both financial standards and standards for facilities and standards for services in the MWR community. These standards are producing for us a very honed-in knowledge of what our requirements are, and we just think we are absolutely on the right road for determining, first, what the standards should be, what the services should be, and then what the cost is to move those standards to the level that our troops expect. And so I just would, I would welcome any questions on that as we get into the next period.
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    Finally, I would like to just talk about our crown jewels, really, our Armed Forces Recreation Centers. We have plans for the Hale Koa over the next five years, to renovate the tower, the first tower that is 27 years old. We have an expansion going over in Korea at the Dragon Hill for a 95-room expansion, should be done in October of this year. And we are developing a plan for both Shades of Green and the Armed Forces Recreation Center of Europe: Shades of Green, to about double the number of rooms to another 300 rooms, and for Armed Forces Recreation Center-Europe, to build a new hotel.

    And so we really think that this is the way that we ought to go for the future. It is exciting. These are things that our soldiers need and deserve. Sir, that concludes my opening statement, and I would be glad to take your questions at the appropriate time.

    [The prepared statement of General Van Antwerp can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, General.

    In service seniority, we next go to Vice Admiral James Amerault, Deputy Chief of Naval Operations.


    Admiral AMERAULT. Mr. Chairman and distinguished members of the Panel, thank you for the opportunity to appear before you once again, and also for the important work you do in supporting the quality of life of all of our service members.
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    I have submitted a written statement for the record, but I would like to recognize today the outstanding service and leadership of Congressman Bateman and Congressman Pickett. You gentlemen will be missed, particularly by our sailors and their families. You have done much to improve their lives. I thank you.

    I feel privileged also personally to have worked with both of you on other important subject matter, which has been the business of the full committee, that has benefited the Navy and benefited the Nation, and I thank you very much. Best wishes to you and your families in your future undertakings.

    Thank you, sir.

    [The prepared statement of Admiral Amerault can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, Admiral.

    We next go to Lieutenant General Jack Klimp, Deputy Chief of Staff for Manpower and Reserve of the United States Marine Corps.


    General KLIMP. Mr. Chairman and members of the committee, as my predecessors have said, it is an honor to be back here again appearing before you, and I too want to thank you, the committee and the Congress as a whole for all you have done and all you continue to do for Marines and their families. Congressional support has helped us directly attack the issue of quality of life for our Marines and improving that quality of life.
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    I have submitted a formal statement for the record, so I will try to keep this very, very short.

    In 1995 we did a quality of life survey of our Marines, and we asked them, How is it out there? What is your quality of life like? What do you like, what you don't like? The results of that survey enabled us to go back and directly attack those things that they weren't terribly happy with, primarily with funding of the programs that they felt weren't supporting them as well as they could.

    In 1998 we ran another study to see how we had been doing. The results of that survey tell us a number of things. One, those areas that we attacked, we showed improvement in. Beyond that, Marines are happy being Marines, they like being Marines, they like the Corps, they like what they do, they feel good about their leadership and they feel good about their quality of life.

    So we have improved and we will continue to improve. We aren't there yet, as was mentioned earlier, but we are working hard to get there and we will be there. And I look forward to answering your questions.

    [The prepared statement of General Klimp can be found in the Appendix.]

    Mr. MCHUGH. Thank you, General.

    Next, we have Lieutenant General John Handy, Deputy Chief of Staff, Installations and Logistics, United States Air Force.
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    General HANDY. Thank you, Mr. Chairman, and certainly not wanting to break with my tradition of brevity in this hearing, with one exception, I certainly want to thank both Congressman Bateman and Congressman Pickett, professionally and personally, for all that you and the rest of the members of the Panel have done, and the years of support of not only the Air Force, but in the last two years the concept of the Commissary Operating Board and what we have tried to do. My sincere thanks to both of you.

    And I stand ready for your questions.

    [The prepared statement of General Handy can be found in the Appendix.]

    Mr. MCHUGH. Well, gentlemen, I think we have set a record, and we thank you.

    We do have, of course, your written statements. They will be entered into the record in their entirety. Your brevity is both appreciated but presents a challenge, in that we do have some issues to discuss that are indeed in large measure touched upon in your written statements, but I think it is important that we pursue them in a somewhat more public forum right at this moment.

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    Secretary Maldon, you mentioned the upcoming report on steps to ensure the solvency of the surcharge fund. I would imagine by my opening comments you deduce the importance that we place on that. And certainly we are not interested in shortstopping the report itself and its impact, but I think the Panel members and certainly I would like to hear from you and the other members here today as to what direction you are looking at in terms of the report itself.

    You heard, I believe, my comments about certainly my personal reservations on increasing the five percent charge as a means by which to fix that. That may not be in concert with your thoughts, however, and I don't want to prejudice any direction in which you may be going.

    So I was hopeful you could, without committing yourself vis-a-vis the upcoming report, talk about what you are looking at, how you view the scope of the challenge and, most importantly, what is your opinion and how you view the prospects of doing something to face what most of us view the number one challenge facing the program today.

    Secretary MALDON. Mr. Chairman, as you have already indicated, I believe that it would be a mistake to increase the surcharge. I believe that it would have an adverse impact on our patrons, and we don't think that is the right way to go.

    The Defense Commissary Agency has established a plan. I understand that plan is now with the Commissary Operating Board. The Department will be looking at and considering these recommendations that the Commissary Operating Board will be making, and once we have had the opportunity to look at those, obviously we want to be able to come and talk to you about that.

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    I expect that, as I think I indicated earlier, we should have that report to you by the end of this month. As a general rule, some of the information so far that we have picked up from just a quick look at this is that, as you have already indicated, that I believe that there is some proposal to perhaps transfer some of the operating expenses over to the appropriated fund and use the surcharge to take care of whatever construction, maintenance and repair costs that needs to be done.

    So those are some of the thinking, but again, I think it is premature for me to say more than that at this point in time. But I think, Mr. Chairman, that we are moving in the right direction on this. I look forward to entertaining those recommendations from the Commissary Operating Board, and hopefully we will have an opportunity to discuss it at length with you at a later time.

    Mr. MCHUGH. Oh, I hope so. Let me ask you a procedural question. When you receive this report from the Operating Board, is the practice to pass it through and accept it, or do you scrub it in your office and perhaps reject it as unworkable, or how do you envision bringing that up to the Hill?

    Secretary MALDON. Mr. Chairman, I think we will, we will certainly give a lot of very close looks at this. We won't just put a rubber stamp on it and send it forward. We will take a hard look at it. We will look at the recommendations that are being made. We will have a number of people within the building department take a complete look at it, we will look at it with a focus on the budget implications and so forth, before we actually send it forward. So by the time you get it, you will have a very thorough review of the department.

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    Mr. MCHUGH. And we expect to receive that here when?

    Secretary MALDON. I expect that we should probably have it to you by the end of the month. That is my hope, Mr. Chairman.

    Mr. MCHUGH. The end of this month?

    Secretary MALDON. Yes, sir.

    Mr. MCHUGH. Well, that is a quick, thorough scrub, it seems. We are in the middle of the month. Well, this is, and I understand you share the concern, this is a pressing issue, and we I think would not be well served by any substantial delay in getting that up to us, because we want to work with you cooperatively on it, and I know you understand that.

    Let me go to the Chairman, General Handy, for comments, perhaps your perspective. You are not going to be here. You are going to be doing something else. But what are your thoughts, General?

    General HANDY. Well, I can't leave any business undone, either, so I can provide some insights into perhaps a little more of what has happened.

    First off, the five percent is in our view, and I speak for the Commissary Operating Board, is a sacrosanct figure. We appreciate your support in that endeavor of making that the absolute top side, so five percent or less.

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    It was pretty apparent to us as we started our work that the surcharge was being depleted over time for a variety of reasons. The one that we zeroed in on was the lack of definition, very specific and surgical definition, of what the surcharge could be spent upon.

    And so the first task to DeCA was to identify clearly, in their view, how should you execute the surcharge, what charges should it cover, and then provide the Commissary Operating Board with a recommendation delineating those charges, which by its definition would move perhaps some items into the appropriated fund and leave others in the surcharge.

    They briefed the Commissary Operating Board the first of this month. Each of the service representatives took a task back to their services to get service chop on those recommendations. Because the implications could mean some appropriated bills to the services, we need to get consensus from the services. That is the job that we are about right now, and the end game is to come to you with a definition of the surcharge that we would appreciate your support on, and then get on about our business of executing that over time.

    Mr. MCHUGH. Do you share the Secretary's calendar? Do you think we can have that by the end of this month?

    General HANDY. Well, I—

    Mr. MCHUGH. Thought I would ask.

    General HANDY. In all honesty, and that is absolutely what I am here for, I would be very surprised if we can meet the Secretary's goal of by the end of the month. In all fairness to the services, we have worked this issue very, very hard. It is a very tough issue, and speed is of the essence, but I don't want to move so fast that we screw this one up. This is something we have to get right, and we ought to make it right for a long time to come, and that is the attempt the Board is trying to get to you.
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    Mr. MCHUGH. I don't find that statement objectionable at all. I agree with you, this is big business and important business.

    Mr. PICKETT. Mr. Chairman.

    Mr. MCHUGH. Yes?

    Mr. PICKETT. Would you yield for just a moment?

    Mr. MCHUGH. Certainly. I would be happy to yield to the gentleman.

    Mr. PICKETT. Will that report include the financial status of the surcharge account?

    General HANDY. Absolutely. Yes, sir.

    Mr. PICKETT. Thank you.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank you for your straightforward answer.

    General Van Antwerp, commissary is the number one benefit, ranked by your soldiers. Got any thoughts on where we ought to be headed on this?
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    General VAN ANTWERP. I would agree with what I have heard. We don't in any way support raising the surcharge above the five percent. We will have to strongly look at what is moved over into that appropriated fund category, but we are prepared to line up with the rest of my brethren here and do this right. We just don't feel we can pass any more on to the soldiers, so we are firm at holding that line.

    Mr. MCHUGH. Admiral.

    Admiral AMERAULT. Yes, sir. I believe that my leadership, and I have spoken with them, my senior leadership, is in favor of using the surcharge appropriately, and that is for property repair and capitalization, and that it shouldn't be raised. Five percent is enough.

    Of course, those charges that will be put in the appropriated fund account then create a challenge in these days of readiness problems, but that is what we need to look at, and I think we can. I think we are up to that challenge, and that is what we would like to address and take the time to do it right, as the General says.

    Mr. MCHUGH. Thank you.

    General Klimp.

    General KLIMP. I would just say ''ditto'', in the interests of keeping this short still this morning.
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    Mr. MCHUGH. Okay. Thank you. Well, there are a number of other areas that I wish to cover, but we have other members here who are very patient and want to get to their questions, so at this point I would be happy to yield to the ranking member.

    Mr. MEEHAN. Thank you, Mr. Chairman. A question for the Secretary or any of the Panel members. In general, the MWR activities are frequently forced to compete for resources with other high priority activities in the Department, and at the same time we know that long-term implications of not sustaining the viability of the MWR program and the effect it potentially has on morale. I am concerned about the process where a lot of the MWR initiatives are explored and resourcing decisions made.

    In light of all the attention given to the shortfall in available dollars for defense, what steps are being taken to reassure military personnel and their families that the department isn't attempting to use the interest in balancing budget concerns and the need to get dollars for modernization, to renege on the perceived commitments that have been made to servicemen and women when they committed for their active duty? How are these challenges being worked out, from a budgetary perspective?

    Secretary MALDON. Mr. Chairman, excuse me, Mr. Meehan, as—

    Mr. MEEHAN. And actually how are the servicemen and women involved in how these decisions are made?

    Secretary MALDON. How are the service members involved in how decisions are made?
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    Mr. MEEHAN. Yes. What kind of discussion?

    Secretary MALDON. There are a number of ways, Congressman. One of the things that happened, I chair the Executive Quality of Life Committee, and at that committee we have representatives from each of the services, senior leaders from each of the services. They bring forth a number of issues every time we meet, of the concerns that the men and women have in each of their services. We address those issues at that point, and it is a good exchange. It is give-and-take.

    There are things that we, when we want to put information out in terms of policy, we discuss it with them in that meeting but they also bring to that meeting a number of concerns that the men and women in uniform are interested in, so we address them at that time. That is one of the forums at the department level, and I am sure that the services have a number of other ways of addressing it.

    But we have other meetings that we do as well within the Department, where we are meeting with, I am meeting with the Assistant Secretaries of the services. We have meetings with the Deputy Chief of Staff for Personnel (DCSPERS), where they meet and discuss those and then we all meet together. So we have a number of forums within the building that we discuss these issues.

    I would certainly be happy to defer to other members of the Panel here, too, that may be able to speak to that from their services.

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    Mr. MEEHAN. Any other members?

    General KLIMP. Sir, I would just add that in the Marine Corps we have a Marine Corps Community Services Board of Directors. I sit on that board of directors. The chairman of the board of directors is also our director for P&R. The other members of that board are the base commanders of all of our bases, and a representative of each of the force commanders out there. And so that is kind of the major or principal way that the concerns of the individual Marine are reflected to the prioritization process.

    In addition to that, I mentioned the quality of life surveys that we conducted in 1995. That gave us tremendous and very, very useful feedback, as did the survey in 1998. And we used those, as I mentioned, to directly target those areas where the Marines felt we weren't doing very well.

    General HANDY. Sir, I have one comment but two points, that the Air Force has consistently exceeded the office of the Secretary of Defense (OSD) standards for funding for MWR activities. We continue to do that, and we continue to add money in every budget, directed primarily by our MWR Committee chaired by the Vice Chief of Staff of the Air Force, and we will continue that effort aggressively.

    General VAN ANTWERP. Just a quick comment from the Army. We also are committed to exceeding those goals, and in 2000 will be at 90, about 93 percent for Category A and 67 percent for Category B, and throughout the Fiscal Year Defensse Plan (FYDP) fitup those are sustained at higher than the goal floor level, so we are committed.

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    Admiral AMERAULT. Yes, sir. And for the Navy, we have an MWR Directorate in the Bureau of Personnel, which receives its input from the regional shore commanders, MWR program managers, and that input is fed through a panel called the Flag Level Executive Committee on MWR, which then feeds that to the same four-star board of directors as the Air Force has, for appropriate funding and support of the MWR program.

    Mr. MEEHAN. Thank you, Mr. Chairman.

    Mr. MCHUGH. The gentleman from Virginia, Mr. Bateman.

    Mr. BATEMAN. Thank you, Mr. Chairman. Before asking a question, I want to make an observation for General Van Antwerp. You spoke of the rest and recreational facilities that you were very proud of. About two and a half weeks ago I was in Kosovo, and in Kosovo I was told that every three weeks the troops got R&R in Skopje, Macedonia. And I thought if there was ever an oxymoron, it is R&R in Skopje, Macedonia.

    General VAN ANTWERP. I agree, sir. I agree.

    Mr. BATEMAN. By direction of the Congress, you have gone ahead and selected a single health care plan for all nonappropriated fund employees. You chose to select a single plan and not to opt to have nonappropriated fund employees participate in the same Federal Health Employee Benefit Plan (FHEBP) as all other civil service employees. My understanding is, that was done because five of the six entities involved didn't want to do the Federal Health Employee Benefit Plan.

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    I wondered if you could just give me the rationale for why, if it didn't have any significant cost implications for the government or the employees, you didn't give to the nonappropriated fund employees the same options that all other civil service employees have? Mr. Secretary, are you conversant with that?

    Secretary MALDON. Let me give a response to that, Mr. Bateman, and then of course the other members of the Panel may respond to that as well.

    The Federal Employee Health Benefit Plan was among several of the health benefit options that were analyzed by the uniform program as we started taking a look at which one to use. There is an expert benefit consultant firm by the name of The Hay Group. They actually did some work on this for us and concluded that a modified version of the FEHBP, and the plan that we came up with, the Air Force and Army Exchange Services Program, were the best choice to use.

    And by using this program, we found out that over 40,000 employees and retirees who had been enrolled in the non appropriated funds health benefit plan (NAF HBP) medical plan, we found out there was a much greater number of people that could be enrolled into it. We found out that we could also reduce the premium for the people that were enrolled in it, and we could also increase the benefits of the people that were enrolled in this program.

    So it seemed that it was the right thing to do, and it also actually closed a gap between the treatment that was being given, between the nonappropriated fund employees and the appropriated fund employees. So we felt that it was the right thing to do.

    Mr. Chairman, we realize that we should continue to work with the non appropriated fund (NAF) employees. We plan to do that, and we think that if we give it about two years here to take a look at it, we will go back and we will evaluate it. We will continue to monitor it, as I mentioned in my opening statement, to see if we have got it right, and we will make whatever adjustments that need to be done, but we do believe that it is the right thing to do and we think that it is the most viable plan to have for our employees.
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    Mr. BATEMAN. Well, I thank you very much for that information. Looking at the information that I have before me, which comes from Dr. Diane Disney, the Deputy Assistant Secretary of Defense for Civilian Personnel Policy, it would appear to me that the Federal Employee Health Benefit Plan gives a variety of choices to the nonappropriated fund personnel, and that the cost impact to the government as the employer is no greater. And it just occurred to me that more choice is better than less choice, and one-program-fits-all is not as good a choice as giving people options, especially if it is not costing the government any more.

    So, while I am aware that the principal problem that my constituents in the Fredericksburg area, many of whom work at Quantico, their problem has essentially been solved, and I hope to their reasonable satisfaction, it just did seem strange to me that limited choice is better than broader choice, especially if the cost differential is not significant or meaningful. So perhaps it should be looked at some more.

    Thank you.

    Mr. MCHUGH. I thank the gentleman.

    Mr. Sisisky.

    Mr. SISISKY. Thank you, Mr. Chairman.

    Congratulations to you, General Handy. I know I will be seeing you on a certain airplane for a while.
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    A little over a year ago, actually I will go back about three years ago, and why I am going to miss Mr. Pickett and Mr. Bateman, Mr. Bateman, who was chairman of the Readiness Subcommittee, had the foresight to call a meeting to find out about the readiness of our military personnel. Everybody at the Pentagon said everything is fine.

    And it was about two hours into this meeting—I think which was at Langley, was the first meeting, we went to different places—we found out that there was a heck of a problem in readiness. I inquired to officials at the Pentagon, who said their matrix didn't show it. Of course, I kind of laughed, because some companies go by matrix but the real successful companies go by matrix and a gut feeling, and we had the gut feeling.

    And one of the aspects of it, and I am saying this for a reason, now, one of the aspects of what I am saying had to do with the quality of life. There were many issues on the quality of life.

    I went with the President, after Kosovo, and Secretary Maldon was on that trip, I believe, down to Norfolk. And the second thing the President did was meet privately with 25 dependent spouses, and little children running around, too, and the second person that spoke said, ''Why are our commissary privileges in jeopardy?'' And the President was taken aback. He didn't—so I spoke up. I said, ''Well, as long as there is a Congress, you are not in jeopardy.''

    And I say this for the press that is sitting there, because afterwards I talked to this young lady and I said, ''Where did you get that feeling that the commissary was in jeopardy?'' They said, ''Well, we read it in the press, that there was some dissention on the committee.'' And if you remember, it had to do with tobacco and the surcharge. It wasn't—everybody misunderstood what was happening at that time.
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    And I just say to the press now, people do read what you write, and you heard up here today the feeling that the five percent would stick. And I can assure you, I don't know, 90 percent it will stick there, but I guarantee it will stick in the Congress, the five percent, without a raise. So I would hope that you would report that and let our servicemen and women know that we will continue to not only do as well but do better.

    Now, having said that and being very nice, I have got to ask you another question that really bothers me. It started with the chairman asking you about a report, and as you know, the authorization bill last year legislated several reports: the patrons' survey of new items; the plan to correct surcharge, which you are talking about; and plans and feasibility of combined commissary/exchange stores. Some of these, they are not a new problem, and some of these requests are several years old, yet this Panel as far as I know has not seen these reports.

    Could you please tell us why DOD has not responded to the legislative mandates? And, specifically, will you inform this Panel why the reports have not been delivered in a timely manner as dictated by law? Just one of them, on alcohol, this is not a year-old problem, or two years; this is not a year-old problem, and we are still waiting for that. Would somebody tell me, number one, why? And are we going to get the reports?

    That is a mean question but it is an honest appraisal of what is happening, and I think you owe us that. Mr. Secretary, I can't blame you too much. You just came in, so you are off the hook now, but you won't be next year.

    General HANDY. Sir, I really agree the Commissary Operating Board is clearly the method by which these efforts are to be guarded and guided. There is no question about it. And whether or not the Secretary were appearing for the first time, I would still be compelled to raise my hand and say that I feel it is our obligation to comply precisely with your guidance, no question about that.
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    We have had some difficulty getting clear agreement. Our goals are to seek guidance from DeCA, provide that to the Commissary Operating Board, made up of all members of all the services, get their service understanding of those options, build that into a report and provide that to you. And that would include everything from the patron survey to the combined stores issues, as well as the surcharge and everything else we are talking about.

    Mr. SISISKY. You wanted DeCA to do those studies, General?

    General HANDY. No, sir. No, sir.

    Mr. SISISKY. I didn't think—

    General HANDY. No, sir. The studies—but a broad brush approach to solving it. Some of them are being done by outside agents. Some of them have been done, you know, with recommendations from DeCA after having read the reports. But all of those ultimately come to the Commissary Operating Board for our decision and recommendations to OSD, and many of those have now been done and they are in the process of being wrapped up as we speak.

    Mr. SISISKY. So we are to expect them very shortly?

    General HANDY. Yes, sir.

    Mr. SISISKY. And you will fulfill that legislative mandate?

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    General HANDY. Yes, sir. Absolutely.

    Mr. SISISKY. With that, Mr. Chairman, I relinquish my time.

    Mr. MCHUGH. I thank the gentleman.

    Mr. Bartlett.

    Mr. BARTLETT. Thank you very much. I want to thank you for your testimony. I want to thank you for your commitment to and your work for morale, recreation and welfare for our service people.

    Mr. Secretary, in the context of trying to be helpful rather than critical, I would like to ask you if you consider slot machines utilized by a military where a number of our young families are on food stamps is a proper source of nonappropriated funds?

    Secretary MALDON. Mr. Bartlett, I think that any time that there is an opportunity for any of our men and women in uniform to take advantage of some recreational activity that may be provided, we always run the risk of someone perhaps doing it in such a way that it may not be the way that it was intended for them to use it. I find, for one, that we do have people in the military who sometimes, for whatever reason, will use money unwisely.

    We are trying—the way we are attacking that is, from the department level, we are actually conducting financial management classes. We are trying to do this when the service members get to wherever they are. We are trying to do it now. We have got some initiatives in place to try to start addressing this problem when they first get at basic training; when they leave basic training and they go on to their next duty station, whatever that assignment might be, to have a systematic process in place through the family service centers so that we can provide financial counseling and financial management training for our men and women in uniform who might not be as sophisticated on the financial affairs matters as we would like.
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    But that is the way we are trying to address that problem with them, to make sure that we educate them and give them a lot more training and a lot more nurturing about how to spend wisely, and what it means if they can save their money as opposed to spending it unwisely.

    Mr. BARTLETT. Slot machines are not present in most of the places that I frequent, but the lottery is, and the people that I see playing the lottery shouldn't be playing the lottery; they can't afford it. My son is on the State Legislature, and that is a State tax, of course, and I ask him why they continue that. And he says, ''Oh, we have just got to have the money.'' And my response is, ''That is what every dope addict tells me: I've just got to have it.''

    A system that is dependent on money from this kind of a source, the lottery for the State, and slot machines for the military, I just think that the means—that the end does not justify the means. I think that it is inappropriate for us to have slot machines for our young families. I appreciate the counseling but, you know, you shouldn't have a glass of alcohol in front of your 12-year-old at the table and then counsel him that he shouldn't drink alcohol. I just hope that we will reevaluate what we are doing for our young people with this practice.

    Thank you very much, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

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    Mr. Pickett.

    Mr. PICKETT. Thank you, Mr. Chairman, and welcome to our witnesses today.

    General Handy, you mentioned the Commissary Operating Board several times, and I think in recent months there has been some—there has been a change in leadership of the DeCA, and in the course of that change you also changed the organization somewhat. Could you explain to us the new organization, the relationship between the Director, the Chief Executive Officer, and the Chief Operating Officer, and how that is intended to work as far as the new system is concerned?

    General HANDY. Yes, sir, and I can give you, at least from our perspective, the macro view, and perhaps when General Courter is here, he can give you any precise internal details. But the decision was made at the time we replaced General Beale, that we would, as we went through that process, we hired General Courter, you are certainly well aware of that, and we decided that one of the perhaps issues that we had not looked at in the organization of DeCA before was the subject of a Chief Operating Officer or a Chief Executive Officer.

    General Beale never had a real deputy, someone who could fill in in his absence, someone who could be as knowledgeable of the operation of the organization as he was, so he relied on subordinate staff to fill that role. We took the opportunity, as we replaced him, to further emphasize the role of the Director as well as a Chief Executive Officer and staff. And from the Commissary Operating Board (COB's) perspective, that was our goal, and supported by OSD.

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    Mr. PICKETT. Are there any further organizational changes in the works to be made?

    General HANDY. Not that I am aware of. And I can certainly, if you would agree, defer that to General Courter when he is before the Panel.

    Mr. PICKETT. All right. Just one other question, having to do with the oversight performed by the Commissary Operating Board. Do you all oversee all of the financial operations? In particular I am thinking about the travel expense that is incurred in the various conferences that employees of the commissary system participate in, this sort of thing. Do you all have oversight responsibility of that?

    And the other item I am concerned about is small business. Do you all set some policy to ensure that small businesses will continue to have an opportunity to do business with DeCA, that they won't be squeezed out? And I guess the particular reference there has to do with the fresh fruit and vegetable issue that has been on the radar screen here for the past several years.

    General HANDY. On the first issue, in the very macro sense, aware of conferences and discuss those with the director, with not just an eye towards temporary duty (TDY) expense but goals of a conference, issues to be accomplished and addressed, so a fairly substantial review of the major issues. To date, the Commissary Operating Board has provided no specific guidance on travel expenditures.

    We have also not addressed, in the specific sense, small business operations at the COB yet. Just aside from the major issue of fruits and vegetables as a broad subject area, no specific guidance has been addressed at the COB for small business.
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    Mr. PICKETT. I just would think that maybe this, the oversight responsibility of the board might be extended a little bit to look at some of these items and make sure there is a consistent policy that applies uniformly throughout your operation.

    General HANDY. Yes, sir.

    Mr. PICKETT. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    Mr. Jones.

    Mr. JONES. Mr. Chairman, thank you very much, and Mr. Secretary, it is nice to see you, and I am delighted to call you ''Mr. Secretary.'' And to the Panel, thank you very much for being with us and thank you for the service to our Nation.

    Mr. Secretary, I am going to direct these questions to you, and you certainly may defer, but it seems like—and I would like to know if you, I know you are new in this position, if you have any sensitivity as it relates to small businesses in and around military bases and their ability to survive as it relates to selling product, and then many times the exchange will be selling, you know, TVs at the large size, and then they will be selling Waterford china and things like this.
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    And many times—and I have three bases in my district, and I certainly support our men and women in uniform. As you know, I am fighting, promoting a bill to help those on food stamps, go on the floor once a week to remind the Republican leadership and the Democratic leadership that we do have men and women on food stamps serving our Nation.

    But let me get back to my point. In Jacksonville, a merchant sent this to me. It says that if you buy a TV from the exchange, we will deliver it anywhere in the Jacksonville area for $25. The merchant, who is in the TV business himself, continues to feel that he is competing with his own tax money, because obviously MWR and the exchanges are, you know, in business. And I don't mean that he is paying for that, but he is paying the men and women in uniform.

    Do you know, may I ask, if this is a national policy by the exchanges, that they will deliver off base?

    Secretary MALDON. Mr. Jones, I really can't speak to that. I am afraid I do not know the answer to that question, whether or not it is a policy that is consistent with all of the exchanges across all of the services or not. I may defer to General Handy, and I don't know if you, General Handy, if you can speak to that. I just don't have an answer for that question.

    General HANDY. I don't know about that. Certainly maybe General Klimp, from a Marine perspective, since it is Marine Corps Exchange (MCX) down there at Lejeune, but—and I don't want to pass the buck. I can tell you from Army and Air Force Exchange Services (AAFES), where I do have knowledge of business practices, that if you order something out of the catalog or off our web site, then you do not pay shipping. So from that perspective there is an issue over shipping.
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    What I don't know, and would ask the exchange commanders when they get in front of you, is perhaps each of them could tell you what the store policy at a local installation is.

    Mr. JONES. Well, I guess my point on that is, it seems that first of all you can buy, you know, on base, you don't pay sales tax and you are given certain consideration as it relates to credit, which I support that and understand.

    But it seems like many times that the independent small businessman in and around the bases is continually being in competition with the exchange and he can't compete, and each time there is another benefit added to entice that sale, that is another opportunity that is hurting that small businessman.

    And in all fairness, those counties, particularly like Onslow County, and they appreciate having the Marines there, I must say that. They appreciate very much, but obviously they lose a lot of tax revenue that doesn't come into the community to help pay for the schools, to help pay for the social service services and things like that.

    So I guess that I would maybe, Mr. Chairman, hold this question for the next panel, if that is where I am going to get this answer, but I would like to know where the authority comes that they can just start delivering off base, anywhere in an area. And maybe the authority is there, but I think again we have a responsibility, in my opinion, to not only help you and those in uniform but also to consider the small businesses paying the taxes for this country.
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    So if I might pick up on that again, that would be—

    Mr. MCHUGH. Absolutely.

    General KLIMP. Mr. Jones, if I may, I think that ball belongs on my end of the court. Jacksonville is right outside of Camp Lejeune.

    Mr. JONES. I believe it was passed to you.

    General KLIMP. Right. It did get around this court up here, didn't it.

    That is not a national or Marine Corps-wide policy. That apparently was a local Base Exchange (BX), what do you call it, one-time kind of deal. We have done, as you know, a number of tests where we have—I think the Congress allowed us to sell TVs here in the last year, and it did result in an increase in sales to our people.

    We went out, after we had done that, with something like 40 questionnaires around the bases where we conducted those studies and conducted that test, asking the local merchants, were we in fact impacting in a negative way on their business? We got two responses out of the 40 back, and both of them indicated sort of minimal impact on them at all.

    I think that was a one-time kind of thing. It does not, it is not reflective of Marine Corps-wide policy at all.
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    Mr. JONES. So it is not a continuing practice?

    General KLIMP. No, sir.

    Mr. JONES. Mr. Chairman, just a couple of other questions, if I may.

    Mr. MCHUGH. We are in a vote, so—

    Mr. JONES. Okay.

    Mr. MCHUGH. I am not trying to take away the gentleman's prerogative.

    Mr. JONES. Well, let me very quickly, because I think this is very important, and I ask each member for a yes or no. Have you heard that family members are having trouble with access to dental care by private providers off base? And I will start with you, sir.

    General HANDY. No, sir.

    Mr. JONES. Okay.

    General VAN ANTWERP. Not that I am aware of.
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    Mr. JONES. Okay.

    Secretary MALDON. I am not aware of it, either.

    Mr. JONES. Okay.

    Admiral AMERAULT. No, sir.

    General KLIMP. No, sir. With two teenage daughters, I use dentists all the time, and we are doing well, I think.

    Mr. JONES. Okay. Mr. Chairman, that answers my question on that issue, and I might with the second panel want to pursue that.

    Mr. MCHUGH. I appreciate that. Let me just quickly add on. Mr. Secretary, you I believe said in your opening comments that you understand there is no interest on the Panel to further expand the armed services exchange regulations (ASER) restrictions. I am not sure that is true or not.

     But, as I said in my comments, and I think as Mr. Jones has suggested, whatever report comes over, gentlemen, with respect to recommendations on that—and all of the service members here I believe mentioned it in a positive light in their comments, in their written statements—we do want to ensure there is a quantification both of the expected increased sales to the benefit of the service men and women and the fund and the MWR programs, as well as the impact on small businesses. The gentleman is absolutely correct. We have a two-part responsibility.
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    Let me go back to Mr. Pickett.

    Mr. PICKETT. Thank you, Mr. Chairman.

    Just very quickly, you gentlemen, I know we have talked about MWR, we have talked about a lot of things, what it means to the military members. One thing that never seems to get up to the level of much discussion at this point is that of parking for our individual military members. Being able to have an automobile and a place to park it becomes a very important issue, and I hope you all will put that on your list of things to be concerned about when you are talking about quality of life issues.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    We have a number of questions that we would ask you to consider as we put them to you for the record, issues dealing with your standards, issues dealing, I would say, General Handy, with respect to some information I received in Bosnia about the falling off of the shows that are available there and other questions specific to your services. So if you would consider those and give them back to us, we would appreciate it.

    We are going to run over for a vote now.

    Mr. BATEMAN. Mr. Chairman.
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    Mr. MCHUGH. Yes, of course, Mr. Bateman.

    Mr. BATEMAN. Before we run to vote, I want to add my congratulations to General Handy. I neglected to do that earlier. You do have my sincere congratulations.

    General HANDY. Thank you, sir.

    Mr. MCHUGH. As he does of all the Panel members, and we wish you all the best in that very important position. We thank you, Mr. Secretary, gentlemen, and we look forward to working with you on those reports that I know are on their way. I can hear them coming. Thank you. We will be back shortly.


    Mr. MCHUGH. Why don't we resume the hearing, and we of course have as that second panel our distinguished resale chiefs, and we welcome them all collectively. Individually, by way of introduction, Major General Robert Courter, Jr., Director, Defense Commissary Agency; Major General Barry Bates, Commander of the Army and Air Force Exchange Service; Rear Admiral Richard Ginman, Commander of Navy Exchange Service Command; and Mr. Phillip Short, Director of Personnel and Family Readiness, United States Marine Corps.

    The jobs in our resale organizations have undergone, I think it is fair to describe it as some turmoil. This is General Courter's first appearance before the Panel. General, welcome.
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    General COURTER. Thank you.

    Mr. MCHUGH. And the final appearance for Admiral Ginman and Mr. Short, and let me say to those two individuals, we appreciate your distinguished service to the troops, and of course we wish you well in all that lies ahead. You have each been a supporter, a staunch supporter of the benefit, and we trust that you will support that, continue that kind of support in the future.

    And with that, let me say, General Courter, you have the honors, I am told, so we will welcome your comments, sir.


    General COURTER. Well, thank you. Mr. Chairman and members of the Panel, it is my pleasure to be here today. I would like to add my thanks and best wishes to Congressmen Bateman and Pickett. Thank you very much.

    I want to thank all the members for their strong support of our military members in providing for a strong and viable commissary benefit. I say this as both a long-term member of the military and now as director of DeCA. I have to say at the outset that I believe that a strong commissary benefit is vital to retention and the quality of life of our military members. It is clearly a critical nonpaid benefit that our country offers to our military.
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    I have provided a written statement for the record which details the management approach that I plan to use in running the agency. I have also identified five strategic focus areas. They are using this management approach to make the benefit stronger by improving output performance to customers, increasing sales, and reducing support costs on a cost per unit of output basis. Next is fixing the Surcharge Trust Fund. Then, improving produce consistency and quality. Next is developing a program that attracts young active duty families into our stores, which includes implementing what we call a ''best value'' approach. And, finally, developing a process for those limited situations where we would have combined commissaries and exchanges.

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

    [The prepared statement of General Courter can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much.

    General Bates.


    General BATES. Thank you, Mr. Chairman and honorable members of the Panel, for this opportunity to appear before you this afternoon. I would like to begin this afternoon by stating that the 53,000 dedicated men and women who make up the Army and Air Force Exchange Service (AAFES) work force continue to be the key component of the success of the Army and Air Force Exchange Service. And I might add that fully one-third of those are members of the greater military community.
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    Our two-fold mission compels us to seek the mutually supportive goals of customer satisfaction and financial performance. And I am pleased to report to you this afternoon that during the past year financial performance has remained strong and our customer satisfaction has increased, and I think it is important to note that this is during a period of time when the industry average of customer satisfaction has decreased. That tells us that the azimuth that we have taken and the measures that we are implementing to improve customer satisfaction are indeed paying off, and we are committed to aggressively continuing to pursue those actions to further customer satisfaction.

    In terms of financial performance, the Army and Air Force Exchange Service remains financially strong. Sales were three percent above last year and, I think a tribute to efficiencies that have been employed, earnings were four percent above last year.

    There is one issue that I would like to briefly highlight to you, and that is the continued need for relaxation of some ASER restrictions. I think this Panel did the military a great service in 1997 when you significantly eased the existing merchandise restrictions contained in the Armed Services Exchange Regulations. However, under the remaining regulations, Continental United States (CONUS) exchanges can sell neither direct view televisions larger than 35 inch diagonal screen, nor any projection format televisions.

    As our report to DOD on the results of the 1997 action states, the remaining restrictions place the military exchanges two generations of technology behind our retail competitors, and will essentially exclude us from the television market of the future. On behalf of our customers and the beneficiaries of the MWR dividend, AAFES vigorously supports the elimination of all current ASER restrictions regarding television sales.
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    I would like to conclude by saying that AAFES looks forward to the year 2000 with both enthusiasm and with confidence, and that I can assure this Panel that AAFES is financially and operationally sound, and with your continued assistance, your continued support, we will remain poised to meet customer expectations and general the nonappropriated fund supplement so necessary to sustain the MWR benefit.

    I conclude by thanking you, Mr. Chairman, and the members of the Panel for your important role in preserving and improving the quality of life for military members and their families. And a particular thanks and farewell to Congressman Bateman and Congressman Pickett for your many years of service to those of us in uniform. Thank you.

    [The prepared statement of General Bates can be found in the Appendix.]

    Mr. MCHUGH. Thank you, General.

    Admiral Ginman.


    Admiral GINMAN. Mr. Chairman and distinguished members of the Panel, I would like to thank you for the opportunity today to appear before you on behalf of the Navy Exchange Service Command, 16,000 associates worldwide. We are financially strong and we do provide a significant savings to our Navy family.
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    All of the people that I have met, from congressional members and staff, to the exchange associates, to the command and MWR leaders, to vendors and industry associations, have earned my respect with the dedication and the loyalty that they have provided to our service men and service women. I would like to acknowledge the support all these people have provided to our Navy family. It is through their continued commitment that we ensure that the military environment remains a place where our people want to continue to work and to serve their country.

    I, too, would like to thank Mr. Bateman and Mr. Pickett for their support of the Navy Exchange, and I am ready to answer your questions.

    [The prepared statement of Admiral Ginman can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much.

    Mr. Short.


    Mr. SHORT. Mr. Chairman and distinguished members, in my farewell I want to tell you it has been an honor to represent the Marines and the 12,500 employees of Marine Corps Community Services. I would also like to enter for the record a thanks to Mr. Pickett for his service to our country and in support of the military. And in addition, as a personal privilege to Mr. Bateman, my wife and I living in the Fredericksburg area, we certainly thank you not only for your stand for Marines and their families but your service to the Commonwealth of Virginia and the First District. God bless you, and thank you so much.
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    I am appreciative of the opportunity to appear before you today to report on the health and well-being of our Marine Corps Exchanges. The mission for our Marine Corps Exchanges is to care for those 172,600 Marines, 71,000 Marine families, 3,000 Marine recruiters who are making the bottom line of getting quality Marines into our Marine Corps, and the other independent duties in embassies and wherever they may serve, and their families.

    Our exchange benefit is more than a nonpay compensation benefit. It is a visible reminder for caring for Marines and raising the standard for quality of life. We do this effectively because we do listen to our Marines. General Klimp talked about our 1995 and 1998 quality of life studies. They told us where we needed on invest, and we did so wisely.

    In the near future, in fact this spring, we will be administering the customer satisfaction index and associate satisfaction index surveys at our exchanges to measure how our exchanges are meeting the expectations of our customers. Our research program will give us an accurate view of where we stand and need to go into the new century.

    We are an evolving organization, and in any evolving organization we have to listen to our Marines and our commanders. And because of that, we have set up a new, comprehensive delivery system for quality of life in the Marine Corps, and that is Marine Corps Community Services. In this we retain strong capabilities of family services, MWR, child care, and voluntary education. We have eliminated bureaucratic ''stovepipes'' and focused on the delivery to the end user. We enable commanders and empower them to manage the quality of life horizontally and vertically to meet their needs at the installation level, and to listen to those Marines and do that where the goods and services need to be delivered.
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    Our exchanges are an important component of this system because they provide high value goods and services, savings to patrons, and dividends to support and sustain our Marines' quality of life. This year we have again had strong financial performance. We have sales of $548 million in 1999, in this year, and it is a 3.2 percent increase over last year. Our net profit of $52.36 million provides a dividend of $269 per Marine or $46 million to MWR.

    This was made possible by planning, which was started in the early 1990s. We have done new business processes to promote efficiency; modernized our systems, including centralized accounting and electronic point-of-sale services; lowered costs, and many other best business practices. Our many cooperative partnerships with our sister service exchanges have lowered costs and provided better services to our customers.

    The Marine Corps Exchange synergistic relationship with the rest of Marine Corps Community Services, in other words, MWR and the Family Service Center, is important to our success because our Marines enjoy the value, and they are extremely proud of their exchanges and the value that is added to the whole process of quality of life.

    We now have an aggressive recapitalization program, and the five-year record shows 335 new or refurbished facilities at an investment of $203 million. In 1999 we had 22 projects, including 3 clubs, 6 recreation, 13 exchange facilities, at $17.27 million. In FY 2000, 20 projects, 3 clubs, 3 recreation, 14 exchange projects, at $28.85 million. In fiscal year 2001, projected, we will have 14 more projects, including two club, eight recreation, and four exchanges, for $19 million.

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    Our systems modernization continues. We will, by the end of 2001, upgrade all of our back-of-the-house systems and some direct user systems. Centralized procurement is an initiative, which is ongoing, and we are testing sites at Camp Elmore in Virginia and also at Marine Corps Logistics Base in Albany, Georgia. We will test our new merchandising system in the first half of 2000, and on the completion of the Beta test will be a systemwide rollout.

    We say yes to Marines, and we succeed, Mr. Chairman, because we listen to them through our board of directors and we listen to them through our community services at every point in their life. It means we meet their reasonable needs and expectations.

    We appreciate your relaxing a number of the ASER restrictions in 1997, and your help has been able to help us to say yes to those Marines by offering them better choices of merchandise and greater value. The feedback results we have obtained have shown very low impact to local retail businesses. General Klimp referred to the 40 letters that went out. We got two back who had some concerns, so we think that is a very low level of concern systemwide. We are hopeful that our impact reports will make it possible for the remaining restrictions to be eliminated or at least relaxed, and we certainly support AAFES' comments on this as being right on point.

    Another way that we have said yes is to communicate to our Marines the great value of our stores. We have a ''4 Star'' program which we implemented this year, and it is a huge hit with our customers. What we do is, we have 100 core items at entry-level prices across the system, wherever you go. What that does is take that junior Marine and allow them to get good value in their stores for such basic things as child needs and tee shirts and those kinds of things. We are now looking to grow the program because the response has been great for those junior troops and single troops, and we want to be there for the young entry-level customers who need basic quality merchandise at real savings to stretch their paychecks.
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    We are saying yes to our Marines by reaching out over the world wide web. We anticipate very shortly to place, we have placed a downloadable uniform clothing catalog—this is good if you are at an embassy or if you are on independent duty, because now you can order exchange items and get them delivered to your door when you don't have an exchange readily available. We are also working with Navy Exchange Command (NEXCOM) and AAFES to develop the right e-commerce solution for the uniform clothing catalog, which will be a tremendous help, and then we will be fully interactive and able to reach out 24/7, and that is an important development for us.

    Before my closing remarks, I want to address the issue the Marine Corps believes critical to our ability to sustain and support our families, and that is the integration issue. We concur with costing out the Joint Exchange Integration Oversight Board developed back office, behind the cash register solution. We believe that common IT solutions have got to be achievable because it makes good business sense.

    I also want to add that we in the Marine Corps believe that a strong and vibrant commissary system is an essential component of the complete quality of life delivery system at our installations. We thank you for your support of commissaries, and we recognize that where it may be effective, that we need to develop and implement those combined stores, those hybrid stores.

    Again, thank you, Mr. Chairman, for this opportunity to appear here today and update you and the other Panel members on the many good things that we are doing for the Marine Corps family. Our contributions go beyond brick and mortar. We are both the glue that binds our communities into a vibrant home for our Marines, but we are also the financial engine that makes many of the military lifestyle efforts more liveable and more enjoyable for our Marines and their families. We are proud to be part of that commitment.
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    Subject to any questions you have, this concludes my remarks.

    [The prepared statement of Mr. Short can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, Mr. Short.

    Let me go to General Courter. I assume you heard my opening comments with respect to the surcharge fund. I certainly heard your comments with respect to your prioritization of that challenge, and I think that is certainly appropriate.

    We are awaiting a report. However, as with the last panel, particularly given I know your great interest in this and some of the work that you have been doing, I wonder if you could kind of give us a broader picture of how you view this challenge and how you think it may be overcome most effectively.

    General COURTER. Sir, I would be glad to. First of all, I think we all agree that there should be no increase in the surcharge, so I think that is also part of the plan, and I think we all agree on that.

    What I think needs to be done here is to develop a coherent business strategy, a case for how we would run the surcharge and what is in the surcharge versus what is in the appropriation. If you look at the purpose of the surcharge over time, it has primarily been to recapitalize the infrastructure, to make it vital. It is critical that we have vital infrastructure so that our stores remain true competitors in the marketplace.
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    But if you look at the expenditures within the surcharge right now, that is not where we spend our money. Our money is a combination of operating expenses plus the surcharge, a surcharge that goes to the infrastructure recapitalization. So it is a mixed bag. We have operating expenses in the surcharge, and we have infrastructure expenses actually in the appropriation.

    There are certain expenses that we have, for instance, for roofs, that appear in the appropriation and I have no idea why they are there. It appears like over time it was based on convenience. At one time the surcharge was a burgeoning account, and so certain operating expenses went into that account and stayed there. Over time, these operating expenses have become fixed and growing, some just because of inflation. A case in point of one that is new and growing is your information technology expenses.

    The effect has been, if you have a set revenue coming in, and all these becoming fixed or enlarging, you essentially squeeze out the main purpose for the surcharge account, which is your infrastructure recapitalization. And so what has developed is a backlog, a backlog of critical maintenance, repair, replacement of stores.

    I have personally seen stores where we have done the job right and stores where we have not, have not yet done that right. I have seen major requirements for repair that are just unbelievable. So this backlog has developed, and over time the agency has dipped into their cash balances and cash reserve; not into the cash reserve yet, but it is close. Those are the funds that are necessary to keep the place running from month to month.

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    The plan—that is kind of the background—the plan, and I will be consistent with the statement that I provided for the record, essentially moves a lot of the operating, all the operating expenses that are presently in the surcharge to the appropriation. They would include such things as utility bills, supplies, labor, custodial, shelf stocking, and so on. We also move certain infrastructure requirements that are in the appropriation to the surcharge. That is usually in the form of maintenance and repair that just happens to be over there.

    This, if you do this exchange, it creates a net bill for the appropriation. But I don't want the story to end there, because the key here is that the simple solution is not just to shift the entire burden to the appropriation and then come to you for more dollars. We need to assess and reduce our cost per unit of output in every category of that appropriation expense, without endangering our benefit, without endangering the output that is present at the stores.

    I think this will probably take two years to do. What will remain in the surcharge will be those things that are necessary to provide and revitalize the infrastructure. It would be the things to design, construct, maintain, repair and ultimately replace the stores. It would include utility systems.

    If you look at the store, you go to the store, you turn a turnkey, it is a turnkey approach. Everything that you see in the store, fixed equipment, not installed equipment, the real property, the cash registers, the systems to run those things would be essentially financed through the surcharge.

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    I think it is a plan that will work. I think it is a plan that will provide the necessary funds, based on the revenues that are coming in, to take care of the stores over time and eliminate the backlog within about a ten-year period.

    On the other hand, we need to make sure that the appropriation is sufficiently funded, and that is the—this plan, in much greater detail than I am explaining today, was given to the Board along with the financial requirements. The key, though, is that we also have to find a way to reduce our costs. I think there will still be a net bill to the appropriation.

    In the two-year time period we have a choice of deciding if we go status quo or we place money against the backlog, because the only thing that will happen in the two-year period while I am working on this will be that the backlog will grow. I think it is important to have proper funding on both sides, and that is kind of the approach and plan, and it is the overarching thing as a good business strategy, and it is one that will stay beyond us, I think.

    Mr. MCHUGH. Well, we look forward to the details of that. Obviously, the appropriations side of it is a challenge under any circumstance, but we want to consider this fully and fairly, and obviously we think it is a very critical problem.

    Let me, just one more, what I hope will be a quick question, and it may be something that our resale chiefs may wish to supply for the record, but have you done—I would start with General Bates, because you mentioned it in your opening comments—have you done an assessment as to both the net benefit in terms of dollars to the system on our last ASER expansion? And, as well, could you kind of follow up what Mr. Short had said with respect to any perceived negative impacts on community businesses?
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    General BATES. Yes, sir. In 1997 the relaxation of limits on TV sales from 27 inch to 35 inch was authorized. During 1998, that yielded plus $36 million in sales—this is to AAFES—which resulted in plus $2.8 million in earnings and $1.4 million to the dividend for the MWR, TVs, TVs alone. And that is only looking at TV sales larger than 27, not greater than 35.

    We submitted 349, I believe was the number of letters, and the exchanges coordinated amongst ourselves so that we didn't send the same business two different letters. We received four responses.

    Mr. MCHUGH. I am sorry. How many?

    General BATES. Four.

    Mr. MCHUGH. Four.

    General BATES. One was from a sporting goods dealer, one was from an appliance and TV dealer, one was from a jewelry shop. The fourth one was from a furniture store. The sporting goods dealer indicated no significant impact. All the other three said yes, there has been an impact, but in none of those cases was the impact specified; it was a subjective yes.

    I would submit to the Panel that in this particular category of merchandise, the true competitor of the independent businessman is the, what we refer to as a category killer, large scale mass merchandising stores that are just as prevalent outside the gates of the exchange as are the independent businesses. That is the real competitor, in our view, to the independent businessman.
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    Mr. MCHUGH. Admiral Ginman.

    Admiral GINMAN. Sir, in 1998 we sold 2,000 additional 32- and 35-inch TVs. We sold 5,000 additional TVs in 1999. It was $3.5 or $4 million in sales for 32- and 35-inch TVs in 1999, $1.4 million in 1998. That is 7,000 customers that would have gone elsewhere and taken their footsteps out of the Navy Exchange and not made other purchases.

    I think clearly there is a demand from the customer there. I would echo what General Bates said earlier, that if we don't move up into the larger size TVs, we are already going to be two technologies behind, and we will be unable to do the high definition TV.

    We sent 220 letters. We received no responses.

    General BATES. Sir, could I add something, if I could? The position that we are in, I know of two manufacturers that are manufacturing 35-inch TVs only because AAFES buys them. All of their other TV manufacturing is 36-inch and larger.

    The Electronic Industry Association, which measures TV sales, indicated that TVs 36 inch and above, their sales increased by 8.6 percent in 1998. Projection format TV sales increased 18.8 percent in 1998, and they in fact represent the largest and fastest growing segment of the TV sales market. All other formats have declined or remained flat during that same period of time. The market is out there. We are not being able to participate.

    Mr. SISISKY. Mr. Chairman, just a follow-up question, if you will be so kind as to yield. There is another aspect of this.
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    What interest rate do you charge to the young service person that would buy a TV set and has a charge card?

    General BATES. If they purchase a TV set and use their exchange credit card, our rate is tied to the prime rate. It is prime plus 4.75, which currently would be 13.5 percent.

    Mr. SISISKY. Which is considerably cheaper than outside of the gates, I would assume.

    General BATES. The average bank card rate is about 16 percent today.

    Mr. SISISKY. That is just a credit card.

    General BATES. Yes, sir, so it is, more so than being cheap, it is the friendliest system a soldier, airman, sailor can be in.

    Mr. SISISKY. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    Mr. Meehan.

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    Mr. MEEHAN. Thank you. I will be brief, Mr. Chairman, just to follow up with General Bates' comments and some of the other comments on the television sets.

    I remember when we sent the letter in April of 1997, April 30th, 1997, to Secretary Pang relative to the television sets, and you know, actually our own experiences have a lot to do with how we view issues. I had a 35-inch television set at the time. And since that period of time I have gotten satellite TV, because I had to buy Direct TV and get the NFL game day package, because being from Massachusetts, I have got to follow Flute and Buffalo and also follow Parcells in New York. Parcells, and all of the plays he takes away from us. But, anyway, I went out and got another television set. Now it is a 40-inch screen, because I like to have the—

    General COURTER. Picture in Picture (PIP).

    Mr. MEEHAN. Yes. Yes, that is right, and I haven't liked the projection as much. But I spent some time considering the projection, and the technology is getting so much better, I just couldn't agree with you any more, just in looking at my own purchasing and how dramatically it has changed. And if you look at the technology into the future, it is going to be really important that we keep up with it, because I agree we are way behind, just from my own experiences.

    General BATES. I think in 1997 we probably all thought that was a good decision, but it has really taken off in the last two years.

    Mr. MEEHAN. I guess Direct TV issues might be something that we should add in, too, while we are at it.
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    General BATES. Might be, yes, sir.

    Mr. MEEHAN. Thanks, Mr. Chairman.

    Mr. MCHUGH. Mr. Bateman.

    Mr. BATEMAN. Mr. Chairman, I fear that I am in the inferior class when it comes to television. You have all surpassed anything that I am aware of or conversant with, but I will look very closely at the issue, General Bates.

    General BATES. Thank you, sir.

    Mr. MCHUGH. Mr. Sisisky.

    Mr. SISISKY. Thank you, Mr. Chairman.

    I have got a newspaper ad. There was just slightly mentioned here about the internet, web sites, and you might say what you have got in that, but this is basically the commissary that I am talking about. This service, as I understand it, is now available in many U.S. areas including Washington, D.C.

    This ad appeared in last Sunday's Washington Post. Now, is it misleading? I don't know. It says, ''Wow, I got $60 worth of steaks for $30. Get your free card today, priceline.com, web house club card, groceries up to one-half percent off, name your own price.'' You dial in, you do in the price.
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    Now, what I would like to know, number one, if we are just charging five percent and thinking that is good, there is something really wrong here. That is a—of course, we all know some parts of it is wrong—but it is a phenomena, and I want to know what has happened on the internet, and you mentioned, I think, overseas sales through the Exchange Service. Do you envision that as a growing part of your business?

    General BATES. Yes, sir, we do. As a matter of fact, during 1999 our internet sales increased by three-fold to just over $24 million, and the first few months here in the year 2000 that is holding true, and it is continuing to grow.

    Mr. SISISKY. General, have you all looked—General Courter, have you looked at this?

    General COURTER. Sir, I am really looking at what they are doing and how they are doing it in the industry. The best we could envision right now is at some point where we would have an order and pick-up arrangement. I need to see where this is going. I really don't want to be the lead sled dog in this particular business.

    But I will tell you I have some very basic information concerns that I need to solve before we get into that, because to enable that to run, I have to have things regarding inventory and prices fixed first. I don't have the capability right now for the back of the store to talk to the front of the store and back.

    Mr. SISISKY. Because this could have an effect.
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    General COURTER. Absolutely. Absolutely.

    Mr. SISISKY. Yes, and I don't know, again, whether you really do it.

    Now I am going to get serious, General Bates. The committee set the stage for a public-private sector policy when fast food outlets were authorized on military bases. As I understand it, and I have it here, Congress and DOD mandated that in the United States, that private sector franchise methods will be used. Overseas, the exchanges were to directly operate these facilities.

    It is my understanding, and we can find out now that the Marine Corps and the Navy use private franchise methods, yet AAFES operates its facilities direct. Why does not AAFES follow the DOD policy and the congressional policy?

    General BATES. Mr. Congressman, we have researched that thoroughly. Our understanding is that the language was that concession operations are preferred, which stops short of mandating concession operations over direct operations.

    Mr. SISISKY. Well, I thought it was the DOD policy. What did the Navy, how did the Navy and the Marine Corps come to the conclusion that the private sector—

    Mr. SHORT. We in the Marine Corps have used this. We use it for fast food, auto repair concessions, barber shops, florists, dry cleaners and the like. We find some advantages to it, and that is, we do require significant investment with a long-term return on investment. It allows us to take scarce construction dollars and use them elsewhere. And the policy that we work under is that private/public venture (PPV) consideration on category C (CATC) projects over $1 million. We don't let it impact our core competencies. It has got to make good sense, and it has got to improve the efficiency, and again—
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    Mr. SISISKY. Well, as I understand, what happens, the way that AAFES is doing it—as I understand it, and I can speak from personal thing, and I will tell you about that in a minute—what I understand is that maybe only one franchise can bid, because there are some franchises that prohibit—I mean that it has to be privately owned, that will not give a mass contract.

    When I was in the soft drink business, I was ready to sell fountain syrup at the cheapest price of anybody, and I sold it at the cheapest price. And yet at that time AAFES couldn't buy from me because they had a general contract for one brand that would do it. My franchise didn't allow me to ship it into other franchise areas.

    But that precludes good pricing. As I understand it, and I will just raise names, McDonald's can't even bid at AAFES. Am I correct? The number one company, but the other—but there is one company that can bid, that allows it. Now, I am just asking, you know, why? And is that good business, to do it that way?

    General BATES. Yes, sir, I understand your question. AAFES has a long-term contract with Burger King Corporation for our hamburger fast food franchise. That was initiated in the late 1980s, I believe, should be coming up for renewal or rebid in the not too distant future.

    Given that they are our selected hamburger franchisee, yes, when we look to put a hamburger fast food restaurant at a military installation, we are committed to Burger King. They in fact then are committed to us. Burger King, and getting to the—
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    Mr. SISISKY. I like Burger King, by the way.

    General BATES. —getting to the soft drink syrup, as many of these name brand fast food operations do, they select their provider. For Burger King, they only serve Coca-Cola. Alternatively, I believe Taco Bell only serves Pepsi, I believe.

    Mr. SISISKY. Excuse me. I meant direct sales to AAFES. I wasn't talking about to a third party operator. You knew what I was talking about.

    General BATES. I would like to—

    Mr. SISISKY. You knew what I was talking about.

    General BATES. I would like to also, though, make you aware that we employ both methods. Our preference is to operate the restaurant directly, but we do have some concession operations. As an example, at Holloman Air Force Base, Burger King did not want to put a fast food restaurant there because it would compete with the relative location of an off-post franchisee, so we went to McDonald's, and in accordance with their corporate policies, we entered into a concession agreement. The local concessionaire operates it on the military installation and pays them the fees.

    Mr. SISISKY. All right. Do you deny that—you deny that this is a congressional mandate, what I was talking about?

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    General BATES. I don't—

    Mr. SISISKY. Because we can make it a congressional mandate. I mean, that is pretty easy to do, if the committee—

    General BATES. Yes.

    Mr. SISISKY. I just want a fair and open bidding system, that is all.

    General BATES. I believe it is fair and open, but I would also say that their current processes allow us to strike the best economic business deal for the exchange, and therefore for the soldiers and airmen that we support.

    Mr. SISISKY. All right. I will come back. Let me catch my wind on that last sentence.

    Mr. MCHUGH. Mr. Bartlett.

    Mr. BARTLETT. Thank you.

    General Courter, until a few years ago the commissaries had a contract with a single company that bought their raw sales data, then formatted it and sold it to vendors who used it in their bidding for stocking your shelves. A few years ago that policy—oh, and by the way, in addition to paying the commissary for the raw data, this company provided services of considerable value to the commissary.
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    A few years ago that policy was changed, and the raw data was auctioned to the highest bidder, which resulted in less cash coming to the commissaries and little or no support services, which were of considerable value under the initial single prime contract. What are you now doing?

    General COURTER. Well, sir, first of all, this journey, I have looked at the whole thing, and I have a letter coming back to you, by the way. This journey began in 1994, and to sell our scanner data in return for a specified fee, and it was supposed to provide for reports to us and category management training. I think we know the history. Over time, we became fairly well versed in category management.

    The scanner data is extremely important to us. It shows product movement, consumption and sales. It shows those things that are moving and not moving, which in turn can be used as a tool to project demand. I agree with you, it is very important, and it also shows price history, ours and our competitors', and this can be used as a tool to set the right prices and to negotiate.

    It also impacts the delivery of our benefit. If we know the things that are moving and the correct prices for the same, then we have an advantage in buying the right things at the right cost, at the right time, in the right quantities. All this impacts sales. It indirectly impacts surcharge revenue and cost savings.

    What is amazing, and I have looked at it, is that after all this time, after seven court cases, appeals and protests, DeCA still does not have the information that we need about ourselves, nor do we have the information about our competitors.
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    Mr. BARTLETT. But did you not have that under the initial single contract?

    General COURTER. Sir, that was all by the by. I mean it was all cancelled. It was all—

    Mr. BARTLETT. I understand that, and my concern is that that did not inure to the good of our military personnel, because the commissaries ended up getting less money when the data was auctioned, and essentially no services, is what you—

    General COURTER. Initially, initially we did get less money, but now we are auctioning it off at about $700, $1,000 a head, and I think we are getting the money that we should for that information. What we don't have is the second part, and that is out for solicitation now.

    Mr. BARTLETT. But you did have that under the initial contract.

    General COURTER. Yes.

    Mr. BARTLETT. My concern is that we are not as well off as we were under the initial contract.

    General COURTER. Right now we are not, but if we get this contract completed, we will be. And I have looked at it, and I have looked at it from our side and the other side. All sides have made mistakes. It is clear that all sides have made mistakes, but the point is that this latest—the latest solicitation will provide that information, and we dearly need it. We dearly need it.
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    So I am not disagreeing with you that we could have done things better, I am not disagreeing with you that there were not mistakes made on both sides. But I am trying to use a business approach to run the agency, and I am trying to focus on costs, and I am trying to make sure that we have the right things on the shelves and that things are moving the way they are supposed to move. And I need this information dearly, and so the way—

    Mr. BARTLETT. I appreciate that. So as not to prolong this hearing, let me ask if we could have a personal conversation. I need to understand more about what you are now doing than I can from this brief exchange—

    General COURTER. Yes, sir.

    Mr. BARTLETT. —so that I have a good feeling that we are doing the right thing for our—because we lost a number of millions of dollars that could have improved quality of life, because I think we made a bad business decision initially to go from the single contract to auctioning off the data, which brought us less money and, as you pointed out, no services. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    Mr. Pickett.

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    Mr. PICKETT. Thank you, Mr. Chairman.

    In the case of the exchanges, what impact has the new health care program for the nonappropriated fund employees had on your bottom line?

    Admiral GINMAN. Well, from the Navy's perspective it is going to have a $13 million impact on my bottom line.

    Mr. PICKETT. I take that to mean adverse impact, meaning it—

    Admiral GINMAN. Yes, sir. It is going to reduce my profits $13 million.

    Mr. SHORT. The Marine Corps Exchange, it is going to be $3.8 million per year that is going to come out of the young sailors and marines and what they spend in our exchanges, so it will have a negative impact on us from a cost standpoint.

    Mr. PICKETT. General Bates, do you have—

    General BATES. It will have a relatively negligible impact on our bottom line, in that the plan that was adopted was generally patterned after the plan that we had in place, so we had costs for that insurance than the other exchanges to begin with.

    Mr. PICKETT. Okay. Thank you. In the case of the commissaries, I have mentioned a couple of times in these hearings about whether or not for the commissaries—this applies to a lesser extent to the exchanges, also—as to whether or not you were getting the government price. I hope that means the lowest price, not the highest.
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    General COURTER. Yes, sir.

    Mr. PICKETT. And I know we have talked about this, and some efforts have been made to put in place a policy that would routinely follow this issue, so it wouldn't come up as a matter of concern, because you would have something in place that would be routinely following this. General Courter, in the case of the commissary, I believe that you are in the process of working up a statement of work for the auditors that are going to be doing this work for you.

    General COURTER. Yes, sir. That is right.

    Mr. PICKETT. Tell us a little bit about that process, about where it is and what information we might be able to get on that.

    General COURTER. There is three main parts to this whole thing. One is, we have price warranties, and so DeCA contracts contain a price warranty clause, and with that goes a need then to assess the price to make sure it's correct, and that is where the audit process comes in. We are in the process of developing that statement of work, having it reviewed. Well, I want it reviewed by the Defense Contract Audit Agency to make sure that it is, you know, correct. We will use that as a tool to verify that in fact the prices are right.

    The other major component is price information, which is the subject of the discussion I just had with the Congressman. That is absolutely critical. Those three parts are integral to making this work.
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    Mr. PICKETT. Also, we have talked in the past about the computer systems that the commissaries and exchanges use for purposes of inventory control, sales and so on. Can you tell me where each of your organizations is in this regard, as far as having a computer system that meets your needs, and if not, what is being done to correct your deficiency?

    General COURTER. I will go first. I think you are aware of the background that we had with the, I believe it is the previous run. The system that we are—we are using an incremental approach right now, and using current data warehousing techniques. These are to obtain systems much like the exchange has, and Wal-Mart and so on.

    This system will be in place by the end this fiscal year. What it will enable us to do is two critical things. In the inventory part of the business, right now the front of the store cannot tell the back what we have sold, and we can't do computer-assisted ordering. This will help us move towards that. Second, on prices, we can't communicate what we paid for items in the back and what we should charge in the front of the store.

    These sound like very basic, basic things we need. This system will provide that. And so it is an off-the-shelf system, and it is at much less cost than we ever dreamt it would be. but when we made that initial run, this technology was not there. And so I feel that it is the right way to go, and I have been briefed on it, I have asked a thousand questions, I have been through this in a prior job, and I think it is going to be a good system.

    Mr. PICKETT. You said you could probably get it in by the end of the year?
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    General COURTER. Yes, sir.

    Mr. PICKETT. What is your budget, estimated cost of this?

    General COURTER. This is $1 million, and it is already expensed.

    Mr. PICKETT. General Bates.

    General BATES. Sir, we continue to devote 18 to 20 percent of our annual capital investment program to the information systems resource area, which includes both the hardware as well as the software systems to support our store operations. For 2000, that will amount to $49 million, in that area.

    We continue to deploy to our overseas stores a system that we call AAFES Store Automation Program and another system the we call Sales Determined Replenishment, this year, and hope to finish that this year for certain stores. We have a different challenge, I believe, or perhaps a larger challenge than the commissaries, in that I have stores that have sales of $3 million a month, I have other stores that have maybe $13,000 a month, small and large. So we have searched for and found a small system that is compatible with our larger ones, so we will be fielding those as well.

    I feel very good about the investment that we are making in the information systems arena.
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    Mr. PICKETT. And the system is going to be adequate, you believe, for what your requirements are?

    General BATES. Yes, sir.

    Mr. PICKETT. Admiral Ginman.

    Admiral GINMAN. We started modernizing our systems in the 1994 time frame. We will have completed the modernization project this spring with the roll-out to Japan and Europe, I think which I reported last year would be done this spring. We spend about $20 million a year in annual budget, and we have about $18 million a year in capital budget for information technology.

    Two of my systems that we put in place back in 1994, our point-of-sale system needs to be replaced and we are proceeding to do that. The merchandising system, commonly referred to as Richter, while it meets many of our needs, doesn't meet all of our needs. I initiated an action last year to look at a replacement. I am uncomfortable with making a final decision until I know where integration is going for that, so I have put that decision on hold and I continue to use the merchandising system I have. The point-of-sale system I am comfortable replacing. It is the point-of-sale system that AAFES uses today. It is the point-of-sale system that the integration study to date has recommended should be used, so I am comfortable with continuing to replace that system.

    Mr. PICKETT. So all of your systems really need to be replaced, but you are deferring that—
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    Admiral GINMAN. No. Of all of the systems, my buying plan system, my financial system, what we use for electronic data interchange (EDI), the warehouse system I have, my human resource system, my data warehouse systems, are all sound. They are all current today. They are all commercial off-the-shelf. They are all on the current release offered by the commercial firms. So in the case of human resources, I use PeopleSoft. I am on PeopleSoft's current release.

    The Richter system is now a five year-old system. It needs to be updated, and I need to put in a replacement for that, and I have that on hold for the integration decision. My point-of-sale system also is five to six years old. It needs to be update and upgraded, and we have made the decision to move forward and do that, and will have it Beta tested this fall. So, I mean, I have got 2 out of about 10 or 11 that are going to be updated after 5 years.

    Mr. PICKETT. Just a final one quick item, Mr. Chairman. I mentioned earlier in my remarks this afternoon keeping your doors open for small business concerns to do business with you. Now, I recognize that some products are only manufactured and distributed by the large companies and you have to deal with them on those products, but are you all maintaining an open door policy so that you can at least have a part of your sales that go to the small business concerns?

    I didn't give you a chance to respond to the computer problem.

    Mr. SHORT. I will be glad to, sir. I was just being polite. Partnering, well, we partner with NEXCOM in the Richter project. We use an Oracle-based system. It cost around $6 million. We are ahead, our Beta test for this, because it does meet our needs—we are a smaller organization—is 1 July, and again, about a $6 million cost.
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    As I said in my oral statement, also, all of our back of the house systems are going to be upgraded by 2001, and we are doing centralized buying, and we are Beta testing a new merchandising system in the first half of 2000. And we expect that this is going to save us about $4.5 million, so it makes it prudent to go ahead regardless of what happens.

    What we have done is designed an open architecture and some commercial off-the-shelf systems that allow us to be flexible, so that if integration, when integration, or wherever we go, we are trying to maintain enough flexibility. But we had to get out of our legacy system, so we are well into that, we feel, and are well positioned whichever way that goes.

    Mr. PICKETT. Do you want to go ahead and answer the small business question while you have got the floor here?

    Mr. SHORT. Yes, sir. If you go to our web site, we have ''How to do business with Marine Corps Community Services'' for both exchange and MWR. We encourage small businesses to participate with us, and we have a package, and we explain to them and we will work with them, and everybody has an equal opportunity to market their goods through the exchange. We think that is good for our marines and families.

    Mr. PICKETT. General Courter.

    General COURTER. This especially comes through to us in the produce business, and we plan no changes in that. Small business, we have met our small business goals that we have set. We also have an extensive number of contracts with National Institute for the Severly Handicapped (NISH) and National Institute for the Blind (NIB). As a matter of fact, they have been out to see us and I am very pleased with that, so I think it is a good, solid program. And we track all that.
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    Mr. PICKETT. Thank you.

    General Bates.

    General BATES. Yes, sir. Well over half of the retail merchandise supplies and expenses that we incur are incurred with businesses classified as small businesses, so we feel we have a real best program.

    Mr. PICKETT. Thank you.

    General Ginman.

    Admiral GINMAN. Our statistics mirror AAFES'. We have an open door policy into the buying office for people to sell products, and likewise in all of our purchases we solicit and actively pursue small business.

    Mr. PICKETT. Thank you.

    Thank you, Mr. Chairman, for your indulgence on that.

    Mr. MCHUGH. I thank the gentleman.

    Just as a note, I hope you are all as open and ready for change as possible on your computer systems, because it would seem to me that the possible implication dollar-wise on that is enormous on integration. And I understand some of you have greater concerns than others, but that is a piece that we are going to be very carefully looking at.
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    I was going to ask a question on magazines, but I am going to defer in just a moment to my friend from Virginia. Let me instead, very briefly, please, because we have a third panel and they have been very patient, let me ask you about the issue of hybrid stores. I hope I am not being conspiratorial, but I think there is some disagreement between some of you with respect to the future of this, between the exchanges and commissaries.

    I was wondering if you could each give me your personal brief opinion as to what the best way you think is to serve those small or remote overseas sites and the BRAC facilities that are ever more a part of the challenge of reaching out and getting those folks that have come to expect the kinds of programs or the services that you provide. Whoever wants to jump on first. General Courter?

    General COURTER. We have had several discussions on this, and I think we are going to move down towards agreement. The key pivot point seems to be whether you would have a commissary of any size there, and then if the answer is yes, then we would have a separate store. The next question is then would we, if we don't have a separate store, is the benefit still required in some form there?

    And that is what we need to work out. We need to decide when do we have one of these, and then who runs it and how is it structured, and then what is the reimbursement model that we would use, and that is what we are discussing.

    And so I have been discussing this. We have brought a proposal that is not any single model based, but it is a process that could be used, and that has been briefed to the Commissary Operating Board. And so we plan to meet in the next 90 days to work that out.
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    Mr. MCHUGH. Well, that may be an answer for all of you, but does anyone care to add on to that? General Bates?

    General BATES. Yes, sir. I would like to add that I believe that collectively we, and by ''we'' I mean all of us sitting at this table, and I include members of the Panel in that as well, I think need to do everything that we can and find the right solution to maintain the commissary benefit even at these BRAC sites.

    As I look at hybrid, it needs to maintain a full commissary benefit, it needs to reduce appropriated funding required to operate it, it needs to protect the MWR benefit. And I think there is a solution out there that we can arrive at, that does all three of those things for those members who become disenfranchised, if you will, as a result of BRAC or other circumstances that cause a commissary to be no longer viable. I am optimistic that we can arrive at a solution.

    Mr. MCHUGH. Well, I am optimistic over your optimism.

    Mr. SHORT. Ditto.

    Mr. MCHUGH. Okay.

    Mr. SISISKY. I think you already have your model over in Japan, do you not, in—where was I? I forgot.

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    Admiral GINMAN. We were at the Navy Exchange—

    Mr. SISISKY. Right. The housing was off from the base, a good deal away from the base.

    Admiral GINMAN. It was Nigeshi, Nigeshi Heights.

    Mr. SISISKY. That's it. You got it. I couldn't pronounce it.

    Admiral GINMAN. We run 12 NEXMARTS overseas that are holdovers, I mean they are really holdovers from when the Navy Resale System, now Navy Exchange Service Command, ran both the commissary and the exchanges, and in those particular sites we put them together and ran them together, and in many of those I think General Courter's comment was, the first decision you have to make is, is a commissary viable? And in many of the cases where we run those NEXMART models, a separate commissary would be a viable entity today. But I do think the NEXMART model provides an excellent model that works today, it operates today, and it supports sailors today.

    Mr. SISISKY. Before I forget, I better publicly say, when I mentioned brand Pepsi Cola, I have been out of the business since 1986, and I own as much Coca Cola stock as Pepsi Cola stock, so that has got that out. I wish I didn't, either one of them.

    Magazines, is anybody studying putting magazines in the commissary? The exchange, would the exchange fight that? It appears to me every supermarket that I've been in, they usually put their magazines by the checkout stand, which proves to me that it is an impulse item. That people come into an exchange to buy a magazine, probably not. They pass by it.
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    But it seems, if the figures that I have prove anywhere near right, it would be a nice source of income for DeCA. Of course, I don't know what we would have to do to do the pricing. They are authorized, I know that. It is like tobacco. I am talking about direct. I am talking about DeCA doing it directly.

    General COURTER. We would not want any consignment arrangements like we had before, but—

    Mr. SISISKY. I can understand that.

    General COURTER. —but if the price was right and we could sell it at some reasonable price, plus five percent, you know, that is something we could look at. But I would want the DOD position on this, because I am not sure what it does to my brothers here.

    Mr. SISISKY. Well, I will bet that they made a study somewhere along the line. And I was going to ask you, I bet you did your own study on alcohol, too, didn't you?

    General BATES. Sir, we have done a number of studies.

    Mr. SISISKY. I will bet. Tell me about them.

    General BATES. I know that there was a point in time, I believe, when magazines were available in the commissary, perhaps on a consignment basis, before either my or Bob's time.
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    I agree with his comment on whatever arrangements that we may make for selling what are considered to be exchange items in the commissary, that it not be done on a concession basis, if you will, or on a consignment basis. It is increasingly difficult for both he and I to do the inventory accounting, to support that. It is just a bad way to do business. It is not smart. So we need to figure out a way that allows us to conduct commerce between us, perhaps, or find those arrangements that would not have an adverse impact on the MWR dividend by expanding a merchandise category in the commissary.

    Mr. SISISKY. Now, how about alcohol. Have you studied what it would mean? Would it be a loss to you?

    General BATES. By ''alcohol''—

    Mr. SISISKY. I am talking about beer and wine.

    General BATES. Beer and wine in the commissary?

    Mr. SISISKY. Warm only.

    General BATES. Absolutely. Yes, sir, it would. I do have some numbers. I think we talked some of those last year, as well. It all depends, I think, on the extent of the assortment, and as you indicated in this particular case, only warm.

    Our worldwide sales in our Class 6 stores and our Shopettes that carry alcohol was a little over $1 billion. Depending on the model you choose, we have estimated that there could be a hit to the MWR dividend of as much as $34 million per year, or possibly as little as $4 million per year, depending not so much on the alcohol itself but on the related sales of items when someone comes in to buy a six-pack of beer, get the chips, get the napkins or whatever else there may be. And that is the very difficult piece to arrive at. Looking at a mix of 70 percent Class 6 and 30 percent non-Class 6 in terms of migrated sales arrives at a $34 million hit to the dividend on an annual basis, just from beer and wine sales migrating to the commissary.
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    Mr. SISISKY. Well, it looks like we won't get our report in, so I don't think you need to worry about that this year. I don't think it will be in this year. I know you will be glad of that, won't you, General Bates?

    General BATES. Sir, we all seek the same goal, and we all have the same requirement to balance service and profitability.

    Mr. SISISKY. Thank you.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Any other questions, gentlemen?

    Mr. PICKETT. One very quick one. General Courter, so you have any plans for the coming year as far as changing your distribution system, your warehouse?

    General COURTER. No, sir. We have had some, as in any big operation, some hiccups in some specific locations. I think we, in one case a distributor failed and we had to make arrangements rather quick to take care of that, but I don't see any changes, no.

    Mr. PICKETT. One other thing, Mr. Chairman. I don't know if you all, it has come up in your districts, but there has been a change in allowing noncarded patrons to come through the commissaries, and that has been an item of some discussion down our way. I don't want to prolong this, but would you all care to comment on that issue? General Courter?
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    General COURTER. Sir, it happened the day I was announced to come in here, and I was out in a store where that was implemented that weekend, and I know there was a lot of mixed feelings about it. The policy, I have looked at it since I have gotten the job, and I have gone out to talk to our customers.

    The reasons for it were very good, I think. The policy before that was inconsistent. You could have either the ID policy at the front or at the cash register, so this put it at the cash register.

    The patrons, the active duty patrons, were the ones that really said they wanted this. And the other thing it did, it took about 200 positions and moved those people to more productive employment in terms of customer output.

    What was not done very well was the implementation of it. We didn't explain all that to our customers, so I have since done that. I have since sent out a flyer and had that handed out to every customer since I got there.

    Initially we had some unhappy people, but it was just a minority, you know, a small number, and it has gone down significantly since then.

    Mr. PICKETT. But you do have consistency across the system, that the check is now made at the cash register?

    General COURTER. No, sir. It is not consistent.
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    Mr. PICKETT. Oh.

    General COURTER. It is supposed to be. The only reason you are not supposed to have it at the cash register is if you have specific security reasons that the installation commander says are necessary to put it up front, and in about half the cases where we don't have the checkpoint at the cash register, there is valid reasons. In other cases it is local policy. So it has not been fully implemented.

    Mr. PICKETT. Do you have plans for that?

    General COURTER. I have presented that case to the Commissary Operating Board, and asked the service members of that Board to work that within their services.

    Mr. PICKETT. Thank you.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you.

    Gentlemen, thank you very much for being here, for your service and for your participation this afternoon. We appreciate it, and you may stand down, or sit down, or walk out, whatever you want to do.

    We have a third panel. All I wanted to say is, we just got called for a vote. So, gentlemen, before you settle in and start getting cramped up, why don't you just relax. We will go vote and come back. I think that is probably the best way to do that. I appreciate it.
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    Mr. MCHUGH. Well, thank you all for your patience. The good news is, they tell us that was the last vote for the evening, so we won't be interrupted. And let me welcome our third panel of witnesses, the Department of Defense leaders in morale, welfare and recreation operations. And they are Mr. Victor Vasquez, who is Deputy Assistant Secretary of Defense for Personnel Support, Families and Education; Brigadier General Craig Whelden, Commander, United States Army Community and Family Support Center; Rear Admiral James Hinkle, Commander, Naval Personnel Command; Mr. Arthur Myers, Director of Air Force Services; and Mr. Phillip Short, Director of Personnel and Family Readiness for the United States Marine Corps.

    Again, thank you for your patience, gentlemen. It has already been a long day, and you have been seated for some time waiting your turn, and we are anxious to hear from you. Why don't we start with Mr. Vasquez, please. Welcome, sir.


    Mr. VASQUEZ. Thank you. Mr. Chairman and members of the Panel, I would like to start by adding my appreciation to those already expressed by previous witnesses for the efforts of the MWR Panel in providing the valuable oversight and support that has shaped the MWR programs that we have today. I particularly want to thank Congressman Bateman and Congressman Pickett from the Commonwealth of Virginia, along with their very capable staffs, for their efforts in improving the quality of life of service members and their families, not only in their districts but also DOD-wide
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    I want to focus my comments on the common themes I see in this year's report to the MWR Panel, and also the direction I see we will be taking for the remainder of this year. During my visits to installations stateside and overseas, I have had the opportunity to talk with service members and their families about their life in the military. They are committed to serving this Nation. They have also voiced their need for quality housing, child care, education for their children, health care, and the support provided by MWR programs.

    We have asked service members and their families, through surveys and focus groups, what is important, and we are taking action on their recommendations. Along with the surveys conducted by the services, the Department of Defense surveyed over 90,000 service members and family members in 1999, to assist us in focusing on our quality of life initiative. We are in the process of analyzing these results.

    Here are some of the common efforts undertaken as a result of listening to service members: We are concentrating efforts on fitness, libraries, single service member programs, child care and youth programs, because these are the highest priorities that have been indicated by service members and their families. We are committed to the appropriate fund support policy because doing so will protect the service members' dollars and also support improvements in the programs they have identified as their top priority.

    The uniform resource demonstration you asked us to test shows great potential. We are drafting language, which will provide the services with this resource option. We are establishing standards for programs, starting with those that are the top priority. In doing so, we can provide more consistent programs to meet expectations of service members and their families and more fully quantify the resources needed to sustain this level of quality. We are also in the process of developing a strategic plan for information technology. And, finally, we are finding efficiencies in operating these programs through the better use of technology.
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    We will continue on with these initiatives this year, and will take particular interest at the OSD level in reviewing the program standards being developed by the services. Mr. Chairman, we come to the MWR Panel every year and report that we have made progress. This year is no exception, but we know we still have much to do. With your continued support, MWR will continue to be an integral part of the military community that defines military life for our service members and their families around the world.

    Thank you for this opportunity to present our program, and I look forward to your questions.

    [The prepared statement of Mr. Vasquez can be found in the Appendix.]

    Mr. MCHUGH. Thank you, sir.

    General Whelden, welcome.


    General WHELDEN. Thank you, sir. I am also honored to appear before you and the Panel members, and I also would like to extend my appreciation to both Mr. Bateman and Mr. Pickett for the great service they have given to soldiers and family members throughout the years, and to the Army in particular.
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    The past year has been exhilarating for us. We have done an awful lot of things in youth programs, in fitness programs, in Army lodging and particularly, as I mentioned to you last week, with the Armed Forces Recreation Centers. You heard Major General Van Antwerp mention a few of those initiatives with each one of our centers, which the Army is the executive agent for during his testimony earlier today.

    I would like to limit my few minutes here to briefly describe one initiative I think that has kind of been the hallmark of the Army's efforts, and that is program standards. Five years ago the Army undertook an effort to put in place some fiscal standards, principally to lower overhead and realize efficiencies and measure the profitability versus the value of our Category C MWR programs. A year and a half ago when I came into this job, we recognized that we did not have that same level of scrutiny for standards in our soldier and family member programs, with the exception of child care, and the reason for that obviously is because the Congress told us 10 or 15 years ago when they passed the Military Child Care Act.

    So over the past year plus, we have worked very, very hard to put program standards in place for our soldiers and family members. And one of the principal reasons we did that was to identify what the resourcing requirements were in order to meet those program standards.

    We are very close to what I would characterize now as about an 80 percent solution. We have some refinement to do, but we have been able to get our arms around fitness, libraries, recreation, youth programs, Army community service, and some of the other programs in MWR that we previously had not been measuring as well. In the next few months we will continue to refine these standards. We want to then compare them to our current funding levels and our out-year funding.
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    Finally, Mr. Chairman, I would like to thank you and express my appreciation for your visit to Bosnia, I know just last week, where you saw the great 10th Mountain Division change out after a superb tour in Bosnia. Nothing I can say or anybody else can say can compare to seeing soldiers on the ground, doing their duty for this Nation, and the civilians that serve them in MWR as they serve.

    This is likely my last appearance before this Panel, as I think I am probably going to move this summer. I can tell you that there is no other job in the Army that I have enjoyed in 27 years more than this job right here, serving soldier and family members, and I appreciate it very much.

    Mr. Chairman, I am happy to answer any questions. I do have one question that was passed to me in the break, from Mr. Sisisky, which he wanted to make a matter of the record, and I am happy to answer that now or at any time you desire.

    [The prepared statement of General Whelden can be found in the Appendix.]

    Mr. MCHUGH. Let us wait until we have heard from all of the presenters.

    General WHELDEN. All right, sir.

    Mr. MCHUGH. Let me say that I had heard talk of your moving on. I wasn't sure if it was official, but—
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    General WHELDEN. Well, it is not, sir. If you hear something, please let me know.

    Mr. MCHUGH. Sort of wishful thinking, then. Well, let me just say in anticipation of it in fact becoming official, that we have really appreciated the opportunity to work with you, and all of the Panel members I know thank you for your service and wish you all the best in your future endeavors.

    General WHELDEN. Thank you, sir.

    Mr. MCHUGH. Good luck to you.

    Admiral Hinkle.


    Admiral HINKLE. Mr. Chairman and members of the Panel, thank you for this opportunity to appear before you today to discuss the Navy's morale, welfare and recreation program. I have submitted a written statement, and request that it be accepted for the record.

    Mr. MCHUGH. Without objection.

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    Admiral HINKLE. This is my third appearance before the Panel, and it may very well be my last appearance here. In the interest of time—

    Mr. MCHUGH. It is something I said? I mean—

    Admiral HINKLE. No, sir, but after three in a row, it is probably time.

    In the interest of time, I will forego my oral statement. I want to take a moment, though, to thank you, Mr. Chairman, and the members of the Panel for their support of MWR programs. You have been strong advocates for improving MWR and quality of life, and our sailors and their families truly appreciate all you have done on their behalf.

    I would like to add my voice to the chorus of praise for Congressmen Bateman and Pickett, and thank them for their many years of service on this Panel. And I stand ready to answer your questions, sir.

    [The prepared statement of Admiral Hinkle can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Admiral. Well, again, as with you, we have enjoyed working with you. I was unaware of your impending departure. We wish you all the best, too.

    Anybody else leaving, so I can say it now? You are leaving, too?

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    Mr. SHORT. Yes, sir.

    Mr. MCHUGH. I believe we already said that.

    Mr. SHORT. Yes, sir. You already—you are going to throw me out twice, sir.

    Mr. MCHUGH. Okay. Well, we wish you the best, too, we truly do.

    Mr. Myers, welcome, sir.


    Mr. MYERS. Thank you, Mr. Chairman, and members of the Panel, for the opportunity to appear before you today and tell you about the status of the Air Force's MWR program.

    On behalf of the men and women of Air Force Services, I would like to take this opportunity to thank two individuals on the Panel who have served this great country well and guided our programs throughout the years. Mr. Pickett and Mr. Bateman, we thank you for your unwavering support of our MWR program. Through your efforts in over 30 years of service, we have seen significant increases in our programs, and as a result the morale and quality of life in our Air Force is so much better. Although both of you will be missed, rest assured you will never be forgotten. Thank you, sir.
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    Our Air Force Services men and women continue to demonstrate a commitment to combat support and community service for our military members and their families around the globe. Our troops are trained, motivated and ready to deploy to support our war fighting commander wherever and whenever needed. Mr. Chairman, I am ready for your questions.

    [The prepared statement of Mr. Myers can be found in the Appendix.]

    Mr. MCHUGH. Well, thank you all very much, and also for your brevity. In response to one of the earlier statements—oh, I am sorry, Mr. Short. I thought he had left. You are still here.

    Mr. SHORT. No, sir. I have got one more shot at this.

    Mr. MCHUGH. Well, then, we want to give you that shot.


    Mr. SHORT. Yes, sir. Thank you. First of all, I appreciate for the second time today the opportunity to sing the song of the Marines before this Panel, and on behalf of 172,600 Marines and their 71,000 families, we appreciate your strong interest and support.

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    Mr. Pickett, you weren't here in the first when I said ''thank you,'' but as both a retired Marine and a citizen of Virginia, my wife and I appreciate what you have done to stand in the gap for America and for Virginia, for the Commonwealth of Virginia. Mr. Bateman, I have already—I will get him back in Fredericksburg later on.

    Again, your support and encouragement on this Panel has enabled us to make real progress in developing the programs and facilities that our Marines and families want and need. Our Commandant has said that when Marines are confident that the Corps' first instinct is to work for their benefit, they can concentrate on mission accomplishment. When our families share this confidence, they will contribute to the mission accomplishment by being supportive of our way of life and calling. Readiness is the key to success in warfighting, and our programs in MWR directly contribute to individual, unit and family readiness.

    I have already discussed the fact that we listen to our Marines in our quality of life studies. I will tell you that quality of life dissatisfaction between 1993 and 1998 is down 14 percent in the Marine Corps. The good news is that recreation and leisure satisfaction is up four percent, variety of programs that we provide is up three percent overall, program costs, the satisfaction with what it costs is up six percent, and our satisfaction with facilities is up six percent.

    When Marines said our support structure was too bureaucratic and complicated and it changed from base to base, so that Marines were frustrated at trying to find the right service or benefit, then we decided we had better listen and act. We knocked down the brick walls, got rid of the regulations, and we created a thing called Marine Corps Community Services. It combines both exchanges, MWR, and the old Family Service Centers and voluntary education, into a 21st century edge for Marines and their families.
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    We have also taken these Marine Corps Community Services programs and we have gotten rid of the banker's hours. As an example, our fitness centers open at 5:30 a.m. in the morning and stay open until 11:00 p.m. at night. This also makes it available for that Marine and also his or her spouse. We have 57 percent of our spouses who work outside of the home, and so this now increases the opportunity and access for them to enjoy this benefit.

    Resourcing, Marine Corps Community Services, we have historically operated with constrained funds. I know that is a concern that has been raised here with previous boards. We have raised our per capita investment from $88 in the early 1990s to $439 in FY 2001.

    We intend not to stay in fourth place amongst the services. We don't meet the goals yet of 100 percent in Category A or 65 percent in Category B, but our planning and our program is for 85 and 65 in 2004 and 100 and 65 2006. This allows us to take these resources and apply them, and use the taxpayers' dollars prudently and put them into programs and, as we achieve savings, then we are able to adjust. If we do this all in one bite, we may not be as efficient as we would be.

    Our quality of life study tells us this is the direction to go. Our NAF fiscal health is excellent. The exchange dividend of $269 per Marine allows us to invest these dollars in quality of life, and we have done some very, very good things with that. We have renewed our facilities. Our centralized construction fund, and we do all of our NAF programs through that, is by a 2.5 percent assessment on sales, so that it doesn't affect the fluctuations in the dividend.

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    In the past year we built or renewed 335 facilities with an investment of $203 million. This includes world class youth centers, skills development, transient lodging facilities, recreation areas. Our Marines and families are proud to use this, and they bring their friends. We have a strong support from our Marine Corps Community Services Board of Directors, which provides complete oversight.

    Our Military construction (MILCON) is healthy. We have fitness centers at Camp Lejeune and San Diego for fiscal year 2000, and for Quantico in 2001. There are child development centers at Yuma in 2000 and Miramar and Lejeune in 2001.

    We look forward and we don't look back. Strengthening our families is a priority. Our Spouse Leadership Seminar, as part of our Marine Corps family team building, is standing up this year. This will help new spouses to understand and better navigate the Marine Corps and military lifestyle.

    Strengthening the Marine and family health is also a priority. We have a new Semper Fit order, and with standards and measurements of effectiveness, so we can measure success in our healthy lifestyles and physical fitness programs. These mirror or exceed the published DOD standards.

    Our Single Marine Program focuses on those Marines who come into our Marine Corps and need to have opportunities to grow. It provides young Marines with a voice with the base, with growth and community service outreach opportunities. It shows our young Marines they can make a difference and directly improve their quality of life.

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    At the heart of the Marine Corps is our esprit de corps and our ethos. At the direction of the Commandant, Marine Corps Community Services is diligently reviewing club operations and developing ways to foster improved socialization and camaraderie within the club system.

    In conclusion, our Marine Corps Community Service programs encompass the whole Marine and the whole Marine family. It is a valuable and valued benefit of our service. Our goal is to make the programs work right for Marines and their families. Marines tell us what they notice. They see the Corps cares for them, their family's welfare, and they will be a strong supporter and sustainer should they go into battle. We are proud to honor the commitment that they have made from being citizen patriots to becoming Marines and warriors, all through their life until and after they retire.

    That concludes my remarks, and subject to any questions that you have, I am ready respond, sir.

    Mr. MCHUGH. Thank you, sir. Let me start with an issue, Mr. Short, that you raised. I opened my comments by saying that it was good news that the services had made substantial progress on meeting those target minimum supports through Categories A, B, C, and I think I speak for all the Panel members when I say we are pleased to see that, because every year I at least ask when are we going to see that kind of achievement.

    Beginning with the Marine Corps, we are thrilled to hear about 2004. I can't help but remember how it wasn't that long ago that in this Panel we were told it was 2002, and now we are at 2004, so I am just curious, are we going to see that slip again? Or I trust you are not just saying that to keep us appeased, although that is probably not a bad idea. But how certain are you of being able to reach that?
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    Mr. SHORT. I am certain that senior leadership is absolutely committed to that. We don't think that we want to stay there. We put $5.5 million into FY 2001, into Semper Fit, as the first down payment internally. Our budget for fiscal year 2002 includes between $19 and $21 million that we are going out and putting into our program Objective Memorandum, in appropriated funds (APF) dollars. That will raise us up. At 85 percent and 65 percent, it is about $32 million, so we have got 2003 and 2004 to achieve that. We have a ramp-up so we can assimilate these dollars into our programs, and we think that the plan is solid, and we are committed to do it.

    Mr. MCHUGH. Well, that is good news. I know the Marine Corps likes to think they are special and stand apart, but I know you don't want to stand apart with respect to this service, and we are looking very much toward seeing that achieved and will certainly be monitoring it.

    To the other services, the only concern I have, and I guess we get paid to worry about things, is that there have been some plus-ups to budget in recent years. $50 million the appropriators provided last year, and I am just concerned it may not repeat itself in the years to come. Are we going to be able to maintain that achievement level? Now that the other three branches have met it, have exceeded it, are we going to stay there?

    I am asking for, I guess, some assurance in that regard, and whoever would choose to start. Admiral, you cleared your voice. You have been selected.

    Admiral HINKLE. Yes, sir. It strikes me that the leadership of the Navy, in both Admiral Johnson and Secretary Danzig, and Admiral Clark, who is close to being nominated, I guess, for the new Chief of Naval Operations (CNO), have committed to me personally that they have every intent of seeing that these dollars stay where they are at, and in fact continue to increase over time.
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    Mr. MCHUGH. Great. General Whelden.

    General WHELDEN. Sir, I would answer that in two ways. The first way I would say is, while we are at the standard now, we expect to increase next year and in the out years. The amount of money that was appropriated for 2000 is $64 million more than it was in 1999 for soldier and family MWR programs. That is about a 14.5 percent rise, and so we are very comfortable that we will be able to meet and exceed those standards.

    Mr. MCHUGH. Great. Mr. Myers.

    Mr. MYERS. Sir, senior leadership in the Air Force has long put a great emphasis on quality of life. Through our MWR board, which is chaired by the Vice Chief of Staff of the Air Force, we have metrics to ensure that funding, and I can assure you the funding will continue in the Air Force.

    Mr. MCHUGH. Great. Mr. Vasquez, you want to weigh in on this?

    Mr. VASQUEZ. Yes, Mr. Chairman. I think with the advent of the development of standards and the variety of programs that we have started to develop standards and tracking, it is going to be much easier for us to maintain tracking and also to identify when there may be slippage. But I think the development of the standards itself is an indication of the commitment from all the services toward achieving 85/65 and going beyond.

    Mr. MCHUGH. Great. I also serve on the MILCON Subcommittee, and Chairman Hefley I think has done a tremendous job in trying to be creative in terms of creating housing, adequate, pleasant housing for our troops, and a big part of that has been the privatization initiative.
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    We have faced a challenge, however, in recent times about the evolvement and development of private sector programs within those housing developments. We are concerned that that kind of private sector activity would deplete available resources for MWR on the dividend side, and we as a Congress stepped in and precluded those kinds of things from going forward.

    The other part of that equation, of course, is there is a need for the program. I wonder if you could share with us across the board, all of you, what you are doing, where you have those privatization programs in place, to ensure that we have viable MWR activities available to the folks who are living there.

    Mr. MYERS. Sir, in the Air Force we have it set up that the exchange, commissary, and MWR has primacy for when we do contract housing or privatized housing, and we have based it on the need. In every privatization we have gone under, one of those three branches, commissary, exchange or MWR, has been able to meet the requirement.

    Mr. MCHUGH. Why don't we just continue down the line. General Whelden.

    General WHELDEN. Sir, our situation is similar. We have four Revitalization Community Initiatives (RCI), ongoing at Army installations right now, and there is a partnership between the Assistant Secretary of the Army for Installations and Environment and the MWR community to ensure that primacy is maintained for MWR, AAFES and DeCA in those areas. To date, since we testified last year, I have not had a single business program outside the Army be introduced to any one of those sites or suggested to be introduced, but when they are, they will come to us for analysis and consideration.
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    Mr. MCHUGH. Thank you, sir.

    Mr. VASQUEZ. From the department level, we are encouraging all services to collaborate and work with their housing counterparts, and to assess and to assure us that MWR programs will not be compromised.

    Mr. MCHUGH. Admiral, you have some privatization, I believe.

    Admiral HINKLE. We do, in several areas. It is a new issue. We are learning what we need to do and how we need to do it with the people that are involved. We are especially focused on the child care and the youth programs in those areas because that seems to be the big criterion. As the Secretary mentioned, Admiral Amerault, who does housing for the Navy, is also the Chairman of our MWR NEXCOM board of directors, our flag level executive committee, and in that regard we are very tuned in to him with what we are doing in that area.

    Mr. MCHUGH. Mr. Short.

    Mr. SHORT. From the Marine Corps, it is an easy answer. Our Marine Corps Community Services board of directors has on it the Deputy Chief of Staff for Installations and Logistics, who does all of our public/private ventures and sits on the operating board for the commissary, so we in all of these efforts fully include in our planning the MWR and exchange pieces as part of that whole body of Marine Corps Community Services.

    So for us it is close. We have got—I don't want to comment on how many are active right now, but we do have a number of housing public/private ventures going on, and we want to make sure and we do make sure that the quality of life portion of that, of MWR and exchange, is included through our existing system.
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    Mr. MCHUGH. Okay. I don't want to suggest we have heard a lot of complaints. We have not, but as was noted, this is a relatively new initiative, and the Panel wants to ensure that those programs where we have acted affirmatively to bar the private sector are not being overlooked. So we just want to stress upon you the importance, and it seems as though you are ahead of the curve on that, and I hope that can continue.

    Let me ask just one specific question, and then I will yield to Mr. Pickett. Mr. Myers, you heard that I was in Bosnia a few weeks ago, and I have to tell you I walked around to all of the MWR facilities, as I often do when I go to these locations, begged for complaints, begged to be told what they needed. And there were very few complaints, and by and large everything I saw indicated that our troops are being well cared for, and that is a tribute to all of you.

    The one concern I did hear, however, and I am asking you because the Air Force is the branch in charge of these, was the traveling shows that apparently in the beginning of the operation were quite frequent, and I believe I was told about once a week, have fallen off precipitously. And they weren't rioting in the streets at Eagle Camp, or Eagle Base, but they were concerned, the people in charge, that the gap that had developed was proving to be very troublesome to some of these folks. And I was just wondering what has happened there. Have you had a chance to look at it, a chance to size it up? I assume there is a funding component, but just if you could share with us what the status is.

    Mr. MYERS. Yes, sir. What we did, first of all, this is an Armed Forces Professional Entertainment Office. The baseline in the past has been about $3.1, $3.2 million. Well, with the war over there, we really enhanced the program, sent a lot of entertainers, and what we had planned on doing is, for the holidays we front-loaded the program because there was big name entertainers that wanted to go over, made commitments during the war.
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    What we did, we used some Kosovo contingency money to plus up the program. Through this period of time spent about $5 million. What the Air Force has done, the Air Force has put up an additional $2.7 million to the program, we program objection memorandum (POMed), so that the program should be around $8 million, because we went over for the war but the troops are still there and they want this entertainment. We believe, we POMed for $8 million but we think probably the right number for that program is $10 million. Most of these people will go just for quarters and meals, but the transportation is so expensive.

    We are committed to provide the same number, a continuous number of shows to the people in the Balkans and throughout the area. Now, at first there was a funding problem, but the Air Force did fix that funding problem. For the Balkans, I believe they are going to get two regular shows and a United Services Organization (USO) show and so forth. Next week we are bringing in all the entertainment coordinators throughout the world, just to size the programs for their requirements.

    So there is a funding requirement. Even though it is an armed forces program, the Air Force has stepped up for the funding, and hopefully later on this year there is contingency money. We will also use that.

    Mr. MCHUGH. Great. Well, you don't need me to tell you, you know far better than anyone—

    Mr. MYERS. Yes, sir.

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    Mr. MCHUGH. —how much these folks look forward to it. We had the change of command in what they call the ''Hootie Dome'' because Hootie and the Blowfish were the first people to play there. They had the Goo-Goo Dolls. You like the Goo-Goo Dolls? They are a great group from Buffalo, New York. I am probably the only guy on this Panel that knows that. But we certainly want to be supportive—

    Mr. MYERS. Yes, sir.

    Mr. MCHUGH. —in that regard, because these are fine young folks and a little entertainment, I think, is certainly the least we would like to provide for them, and I know you share that view.

    Mr. MYERS. Yes, sir. We put a call out, oh, about August, for more entertainers, and the Washington Redskinettes volunteered to go out, and they were the first group ever to go into Bosnia. And so they are a new source of entertainment for the troops, and the troops really like them.

    Mr. MCHUGH. Oh, yeah. Still talking about them, in fact. God bless America.

    Mr. Pickett.

    Mr. PICKETT. I have just one item, Mr. Chairman. Earlier in our hearing today I mentioned the matter of parking, automobile parking for military members. Like some other issues, it may not be a problem everywhere, but where it is a problem, it is really quite a morale problem because a lot of the military members do like to have their own automobiles.
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    And in places like where I live there is not much of a public transportation system, so that is the first thing that a military member tries to do, once they get to the point, is to try to get some kind of personal transportation. But if they don't have a secure place to park it, it is a problem for them, and many of them end up paying fines to the local base for traffic violations, for having to park their vehicle someplace where they are not supposed to park.

    But I would hope that the MWR folks would look, be proactive in looking for special items like this that do impact on quality of life for our people. Like you mentioned, the shows in Bosnia are an important item. Parking in some places around the country at the bases is an important item. And I hope that just because it doesn't affect everybody, that you won't ignore it as a worthwhile program to pursue.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you, Owen. I appreciate it.

    You heard in the earlier panel, gentlemen, the discussion from Mr. Bateman about the newly implemented nonappropriated fund employee health plan. All of us have heard anecdotally that at least some of the employees were concerned that they are not provided with the same kind of choices that the regular Federal employees are through the Federal employee health plan. I was curious, have complaints been bubbling up to you in that regard, or generally how has the new Unified Health Plan been received at the ground level? Heard anything at all about that?

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    Mr. MYERS. From the Air Force, I think it is a little bit too early to tell, but in the Air Force we have long advocated that the NAF employees should be eligible for the Federal Employees Health Care Plan. There is, I think, close to 200 plans, so families are different. I believe that the current plan is probably equal.

    Another problem we have is, you know, we change people from appropriated funds to nonappropriated fund employees based on their assignment. The number one complaint an appropriated fund employee makes when the go to nonappropriated funds, ''You are degrading my health benefits.''

    So I believe it is too early to tell on this, but I know earlier we talked about looking at it later, and I think we need to. And I also understand there is legislation or a movement to allow people under the Federal employees program to pay for that with pretax dollars, so that would be an added benefit.

    Mr. MCHUGH. General Whelden.

    General WHELDEN. Sir, we have had an occasional complaint. Each and every one of those, though, that have come to my headquarters, have been addressed, I think I could count the number on one hand that I have seen. Generally speaking, and every case needs to be looked at individually, but generally speaking, there are more benefits to this plan than what we had in our previous Army plan, and it is generally cheaper. And since we had our open season period in October-November of last year, we have increased the number of people that have enrolled in the health benefits plan by 20 percent. So, like Mr. Myers, I think we need to give it some time and see, but it is generally the glass is half full in the Army.
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    Mr. MCHUGH. Well, then let me ask a follow-up question. I think your assessment is undoubtedly correct with respect to the cost and the service coverage. Would it be more or less expensive to provide it through the established Federal Employee Health Benefit Plan?

    General WHELDEN. I would defer to the earlier panel. I think Mr. Maldon mentioned that the consultant that evaluated the current program, which is kind of tailored after the AAFES plan, to the Federal plan, determined that it was more cost efficient to do the plan that we now have.

    The other point I would make, I think, is that we contribute 70 percent of the cost. The employer provides 70 percent of the cost, and that comes out of nonappropriated funds right now, whereas the Federal Employee Health Benefit Plan comes out of appropriated funds. So we would have to get through the where is the employer contribution coming from.

    The DOD health benefits plan mandated, I think, that we have all employer benefits up to 70 percent contribution by, I believe it is 2002 or 2003. We took to our board of directors in October a request to go immediately to the 70 percent contribution, which we did in the Army. So we are at parity now or close to parity with the appropriated fund employees right now, rather than waiting, because we believe it is an issue of equity.

    Mr. MCHUGH. I was aware of the previous comment. I didn't know if your opinion might be somewhat different than the consultant on that question. Apparently not.

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    General WHELDEN. No, sir.

    Mr. MCHUGH. Okay. Admiral.

    Admiral HINKLE. As stated, it is probably premature to judge the program both in costs and effects, but the only metric I do have is that we have more people signed up for this program than we had for its predecessor. But I am not—

    Mr. MCHUGH. And you are not aware of any explosion of complaints that you didn't go for—

    Admiral HINKLE. Absolutely not. Actually, it is a better program than our sailors have.

    Mr. MCHUGH. Mr. Short.

    Mr. SHORT. I will say that we do have some concerns on that. I think that central to that is choice. While the FEHBP does offer 250-some-odd programs, the one program that has been offered under Uniform Health Plan (UHP) has kind of given us a loss in health care options to Marine Corps NAF employees with the elimination of the low option plan, the Medicare supplement plan, and the stand-alone dental plan.

    What we think is that we need to give this time to grow and maybe we need to adapt and improve it. The issue with FEHBP, besides APF funding, is that cost control by maintaining the UHP is, it is still within the control of the NAFE. If you turn it over to OPM, then we lose cost control of Marines' dollars, if we fund this, continue to fund it with NAF dollars.
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    I will also tell you that within our original health care plan we, just by changing to UHP, we adversely impacted 1,100 of our Marine Corps NAF employees by getting rid of the dental plan that we had. So we have some negatives. We think, though, in the long run there is room for improvement, and that to just scrap it and go back to ground zero may not be the best answer. So that is where we are.

    Mr. MCHUGH. General Whelden.

    General WHELDEN. Yes, sir?

    Mr. MCHUGH. You got a question via courier?

    General WHELDEN. I do, sir.

    Mr. MCHUGH. Before I ask you to answer it, what is it?

    General WHELDEN. The question is from Mr. Sisisky. It says, ''It's my understanding that Federal employees currently do not get retirement credit for nonappropriated fund service between 1966 and 1986. Can you comment on the equity of providing credit for employees in this category?''

    And that is in fact true. There are certain categories of employees that served in nonappropriated fund jobs between 1966 and 1986 who are not eligible in terms of getting credit for that service, so the short answer is, we do believe that it is an issue of equity between those that do have that credit given to them and those that do not. I do understand there is some legislation that is in the works right now. We think this is a matter of fairness and the right thing to do.
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    Mr. MCHUGH. Excuse me one moment. When you are the only one here, conferences become more apparent.

    General Whelden spoke about program standards. Mr. Vasquez, you talked about program standards, and I know that you have been developing standards on libraries and fitness centers, and I commend you for that.

    I wasn't clear—and I am not criticizing your presentation, it is just that I was kind of between things here—I wasn't clear, are we extending program standards in a formalized way for all the services beyond what you have established for libraries and fitness centers?

    Mr. VASQUEZ. We are looking at different areas. We want to look to develop standards for service members that are located in—geographically separated from like larger installations. We first want to look at service members that are overseas, deployed locations on various military missions, military assistance groups and other organizations. So we want to look at those areas where they generally don't get the concentration of focus, and look at how we can begin to look at standards for those areas.

    Mr. MCHUGH. Well, I would certainly encourage that to be extended, and to all the services I would say that program standards I think are a vital part of ensuring that we serve everybody equally well at the bottom side. So I commend that effort and certainly encourage you to continue it.

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    General Whelden, you and I talked privately a few weeks ago, I guess it is now, about the Armed Forces Recreation Center (AFRC) in Germany. Before I got to Bosnia this time, I tried to go before, and because of weather I spent some time in Garmisch, Germany, where we couldn't get out and down to Bosnia, and there are worse places to be stranded, I must admit. But as you know, we talked about the facilities there and their outdated status and their very high operating cost due to the upkeep and so forth.

    I want this on the record because I think it is going to be an important initiative for the Panel, and I had hoped that some of the members would be here to hear it so they couldn't later say they didn't, but we will be able to share with them the record. So can you just generally sketch for us how you view that problem, what you intend to do in light of the new reality in the European Theater? And I would like to hear from you an assurance that I assume you can easily make, that the primary target group in any kind of future effort as it is now are the junior grades and the junior troops who find it hardest to afford those kinds of recreation opportunities.

    General WHELDEN. Yes, sir. As you know, the facilities we have in Garmisch were confiscated from the Nazi regime at the end of World War II, and we have occupied them for 50-plus years, 55 years. Many of them were built in the 1930s, so they are in the 60- to 70-year-old range. They are inefficient, they are antiquated, they are energy and maintenance high cost. We are losing $1 million a year. Plus the rooms, if you visited any of them, are about half the size of a standard, industry standard room here in the United States.

    So our effort was ten years ago to replace all of the above with a modern, centralized hotel on the grounds of the Marshall Center, which is where Sheraton Casern is located, a walled compound, which also adds to force protection significantly. When the Berlin Wall fell down ten years ago, we put those plans back up on the shelf because we didn't know what the end state of military in Europe was going to be at the time. When General Shinseki became the Commanding General of United States Army-Europe a couple of years ago, he asked us to pull those plans off the shelf and relook them.
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    And so for the past year we have been looking at a public-private venture whereby we go out and get a third party to finance and build a hotel in Garmisch for us, and then they turn it over to us to operate. Our plan was to propose to them that they take all the risk. In other words, if the Germans kick us out, as Charles de Gaulle did in 1966 out of France, if the Germans kick us out five or ten years from now, we didn't want to be stuck with a liability, because the Army MWR fund is the fund that is accountable if in fact we have a debt to pay.

    We could not find a developer that was willing to do that, because there was no collateral for them, and we could not get agreement from the Germans that they would turn this hotel over to them if in fact 10 or 15 years ago we pulled out. So I went back to my folks and said, ''Let's take a look at doing this project through a commercial venture of our own. Let's commercially borrow the money, let's build the place on our own and save the $5 to $8 millon fee that we would have paid this third party to protect us from liability.'' We ran the numbers.

    And we said that while we are looking at this, let's look at doubling the size of Shades of Green in Florida. The reason for that is because Orlando is the highest destination resort in the world, and Shades of Green happens to be right now the highest occupancy rate hotel in the industry. It is almost a no-brainer to increase the size of Shades of Green. We turn away as many people as we put in there, and if you call on any given day during the year, on average the next 270 days are already booked.

    From a financial standpoint, it helps the project in Europe to build this what I call a no-brainer in Orlando, to provide the financial safety net in case something went wrong in Europe. We already have the overhead and the support services in place in Orlando at Shades of Green, so all we are doing is adding revenue-generating rooms. We ran the numbers on that.
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    Then I ran them through a number of worst case scenarios. What happens if the Germans kicked us out in 5 or 10 years? What happens if war broke out on the Korean Peninsula and we lost the revenues at Dragon Hill Lodge? What if both happened? In all cases we were able to protect the Army MWR fund from liability.

    We then went out and got a very reputable consultant to review everything we did, and they essentially validated what we had already determined, that this was a good business decision. I then took it to the MWR board of directors, Chief of Staff of the Army, Secretary of the Army, and congressional staffers on both sides of the Hill, and all agreed that this was the right thing to do for soldiers and families.

    So we are proceeding to get a commercial loan. The amount is, we believe, about $135 million. We would finance it over 30 years at about 8 percent, and our debt service would be paid back through the revenues we generate from the hotels.

    In terms of providing quality and service to the soldiers, particularly of value to younger soldiers, if you go to Shades of Green and you are an E4 or an E5 today, that room will cost you $61 a night. If I go to that Shades of Green and get a room, it will cost me $99 a night, so we have graduated scales based on their ability to pay. Younger soldiers pay less than senior soldiers do.

    We also, when Disney owned that hotel down at Shades of Green five years ago, that same room went for $150 a night, and that was five years ago. So we have gone from 1995 prices of $150 a night for the Disney Inn to $61 a night for a young soldier five years later. That alone I think attests to the value that we give to young soldiers and their family members. None of the fees that we projected in the out years went above inflation, so we believe that value will be in place.
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    I expect that by October we will have the financing in place, and we will come back to the Army leadership and the Congress to ask for a final green light on this.

    Mr. MCHUGH. One thing you and I didn't discuss, when I was in Garmisch, part of the overall vision was to give back Chiemse.

    General WHELDEN. Yes, sir.

    Mr. MCHUGH. Is that part of your plan now?

    General WHELDEN. Yes, sir, it still is.

    Mr. MCHUGH. Has the German government agreed to that?

    General WHELDEN. Yes, sir. They are ready to take back all the properties: the Patton Hotel, the Von Steuben Hotel, and Lake Chiemse. We would retain the golf course, the ski lodge and the campground, which are all profitable moneymaking operations, and we would consolidate all our hotel guest operations under one roof on Sheraton Casern next to the Marshall Center in the new hotel.

    Mr. MCHUGH. And the recent local elections haven't changed that equation? Everybody—

    General WHELDEN. No, sir. In fact, just two days ago I got an e-mail from our general manager there. The Bavarian State Government is very, very strong supporters of this.
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    Mr. MCHUGH. Great.

    General WHELDEN. And Garmisch has always been a strong supporter, the local mayor.

    Mr. MCHUGH. Well, as I believe I heard, about 72 percent of all their local revenues come through that activity, so I would hope.

    General WHELDEN. Yes, sir.

    Mr. MCHUGH. The Germans are very bright people. I think they understand that.

    Let me kind of not turn the tables but cast it in a different way. We here believe—when they are here, we all believe that we try to do the right thing over time and try to be supportive. That is not to suggest we don't do things as well as perhaps we would have liked on occasion.

    A lot of changes in the system lately. Let me give you an example of the clubs. We came under some criticism, and restrictions were put on as to limits for the clubs on the installations of appropriated funds. I am not so sure today that the withdrawal of all support in those clubs, given their evolving nature and how they are used today on a much more broad basis, is the best thing to do. I don't know as we ought to move them to Category B, but maybe we ought to authorize the payment of utilities through appropriated funds, something to keep them a bit more viable.
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    Not confining you to that example, but I would like to give you an opportunity: Are there any challenges out there, even things that we did—don't be afraid to, if not criticize, point out where we might not have envisioned some of the total outcomes of our actions—some things that you think should be changed, that are within the purview of this Panel and Congress to help provide the services that you work so hard to put out there each and every day?

    Mr. MYERS. Sir, I would like to talk about the clubs, as you brought up. I believe in the late 1980s, as a result of guidance from this Panel, we stopped all appropriated fund support to our clubs. Well, in the Air Force we used to have recreation centers. The recreation centers became a thing of the past. We now have community centers, we do a lot for everyone, for families, before and after school, and so forth, and we have moved those recreation programs into our clubs.

    We have a lot of troops that like to go to the club, maybe don't drink but they go there for camaraderie. Commanders like them there for esprit de corps, to bring a sense of value, of community and so forth. And what we find happening in the clubs is, the troops pay for all utilities. The commanders are bringing a lot of functions in there, commanders' calls, getting the troops together. Well, the way the rules are written, we have a ballroom which we are using for these functions, you as a commander bring your troops in there and use it for an hour, I can recoup one hour of appropriated funds for utilities. So that room is not let the rest of the day, the troops have to pay for the use of that room.

    So I think what you should consider is reversing the rules. Only have the troops pay for utilities when they use that part of the club for revenue-generating. Only use it for the part, and the rest of the time it should be maintained with appropriated funds for utilities, maintenance, custodial and so forth.
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    We in the Air Force have put a lot of emphasis on clubs. We have had significant increase in membership in the clubs. Commanders have used that to build a sense of community. And with that change, I think that would really increase the morale in the Air Force and also help retention.

    Mr. MCHUGH. Thank you. Any other program thoughts besides clubs at this time? And, by the way, I don't want to confine you to this opportunity. Let's leave the record open on this. We are not perfect, in spite of our campaign material to the contrary.

    Mr. MYERS. I think in child care is another where we can help. You know, right now the split is 50–50. I think a portion of the rate that the families pay per week is for meals. It is around $20. It is supplemented by United States Department of Agriculture (USDA). Maybe if we increased the appropriated funds to cover that, that could further reduce the child care costs. What we are finding out is, you know, today both parents are working, and in the Air Force you know about our Expeditionary Air Force (EAF). Troops deploy and so forth, so they depend more and more on that child development center. So if we reduce the costs in there, I believe that would also be a big plus.

    Mr. MCHUGH. Thank you.

    General Whelden.

    General WHELDEN. Sir, on clubs we went through an evolution over the past six years or so when our clubs were falling apart, nobody was going, they were losing money, they were being subsidized by other programs, and the MWR board of directors directed at that time that we take a very, very hard look at our clubs.
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    And, as the old axiom goes, those things get done well that the boss checks, and so we started measuring our efficiency and our profitability in clubs. We closed clubs that weren't working, we kept open clubs, and we got more efficient in clubs that stayed open.

    We were losing money across the Army in clubs. We are now making money in clubs. Last year's NIBD was $8.2 million for clubs. We have expanded beyond that into food operations. We have theme restaurants: Sports USA; Mulligan's; Primo's, an Italian theme restaurant. Much like you will find outside the gate with TGI Friday's, Applebee's or Outback. And we have 30 of those in place right now with another 10 on the drawing boards.

    So we are keeping the soldiers' food dollars on post as well, either in a club, or we have integrated one of these theme restaurants into the clubs. Clubs are turning into a success story for us, we believe, from what they previously were.

    Mr. MCHUGH. Good.

    Mr. VASQUEZ. Mr. Chairman, in the short time that I have been here and visited various installations, what I have seen is that the clubs that are successful are those clubs that are beginning to take community and family focus. And I think of some of the Air Force clubs in particular, one at Ramstein that comes to mind that is very successful. They have taken on really a lot of activities that involve the entire family and not just the single service member. So I think responding to your market and the changing market and taking a different approach can provide different venues for clubs, and I have seen some that are working.

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    Mr. MCHUGH. Admiral Hinkle.

    Admiral HINKLE. Mr. Chairman, I would like to accept your offer to come back to you.

    Mr. MCHUGH. Perfect.

    Mr. SHORT. And we will do that also. I will say the Commandant, the 32nd Commandant has put out a notice to increase the socialization in the clubs. We have taken that, and we believe that in our culture and ethos, that the camaraderie and socialization is very important. We also see opportunities, I think as Mr. Myers said, to take those opportunities that are APF-oriented and certainly take a look at how we balance and pay that out of APF funds. So we want to hold that door open. We appreciate that opportunity, and we thank you for listening.

    Mr. MCHUGH. Thank you. Gentlemen, I am a big believer in early parole for good behavior. This has been a 4-year—4-year, it only seems that way—4-hour stint, and we appreciate it. There are reams of questions in areas that we have great interest in, but in fairness to everyone here, we will submit those for the record. We would appreciate your cooperation in responding to them at your earliest possible convenience.

    Let me say to you and to the members of the previous two panels once more how much we appreciate the efforts that you make each and every day in behalf of these vitally important programs. We on the Panel want very much to continue what I think has been a relatively productive partnership, and certainly as we move toward our mark-up in the very, very near future, we will be working with you to try to ensure that the MWR portion of that mark continues what I think is a pretty good record.
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    So, thank you for your service. For those of you who are leaving, best wishes to you. For those of you who are staying, we are looking forward to seeing you again.

    [Whereupon, at 5:05 p.m., the Panel was adjourned.]


March 15, 2000
[This information is pending.]