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DoD plan would slash commissary budget, raise prices

Feb. 24, 2014 - 06:00AM   |  
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The often-touted 30 percent average savings that troops and families enjoy in military commissaries would shrink considerably under the Pentagon’s plan to slash taxpayer subsidies for the stores by two-thirds.

In unveiling his proposed 2015 defense budget Monday, Defense Secretary Chuck Hagel emphasized that the Defense Department “is not shutting down commissaries.”

But the plan would reduce the annual taxpayer subsidy for the Defense Commissary Agency by $1 billion over three years, from the current $1.4 billion to $400 million. Only stores that are overseas and in remote locations would continue to receive direct subsidies.

All other stores “will be able to continue to provide a good deal to service members and retirees — much like our post exchanges, which do not receive direct subsidies,” Hagel said. All commissaries will continue to receive free rent and pay no taxes, he said.

Under the plan, patrons would have to pay higher prices in order to fund the stores’ operations — such as employee salaries, the biggest cost at about $750 million a year. Most of the stocking of shelves is already done by industry.

A former defense official who spoke on condition of anonymity estimated that prices in commissaries would have to rise by an average of 20 percent to accommodate that big a reduction in the taxpayer subsidy.

Under current law, DeCA can’t mark up prices on its own; products must be sold at cost from the supplier. Commissary customers also pay a 5 percent surcharge at the cash register, which is also set by law.

It was not immediately clear whether DoD plans to ask for Congress to change the law to allow a price increase, a higher surcharge, or both.

Sources said defense officials also want to eliminate taxpayer funding for second destination transportation. DeCA pays about $200 million a year to transport products overseas, in order to help keep prices at the same level as in stateside commissaries.

Eliminating that funding would result in about a 2 percent increase in prices for all commissary shoppers, the former defense official said. Thus, stateside commissary shoppers would also in effect be paying for the shipment of commissary products overseas.

According to DeCA’s most recent price survey released in January, commissaries save their customers an average of 30.5 percent compared to off-base grocery stores. That price comparison included traditional grocery stores, club stores, discount department stores, drug stores and dollar stores.

Advocates have said increasing prices in commissaries would mean the beginning of the end of the benefit as troops and families have known it.

“If you increase the surcharge and prices, you take away the savings, and you take away the benefit,” said Joyce Raezer, executive director of the National Military Family Association.

Advocates also are concerned that if prices rise, fewer customers will shop in the commissaries, and prices would have to increase further to fund store operations in a downward spiral.

The plan would push commissaries toward the business model of the military exchanges, which receive no direct subsidies. Exchanges fund their operations, as well as any necessary construction and renovation of stores, by marking up prices on their products in varying percentages.

About two-thirds of the exchanges’ profits are paid to the military services to help fund the operation of morale, welfare and recreation programs on military bases. Together, the exchange services have contributed more than $5 billion to MWR over the last 20 years.

At $1.4 billion, the commissary budget is about 0.3 percent of the overall defense budget. At a congressional hearing in November, DeCA Director Joseph Jeu noted that since the services’ commissary systems merged into one agency in 1991, DeCA has reduced its operating costs by more than $700 million a year.

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