Lawmakers have taken a first step toward privatizing commissaries, approving legislation that would require a pilot program to test the concept of private companies operating at least five commissaries in large markets.
The Senate Armed Services Committee approved the plan Thursday as part of its version of the 2016 defense authorization bill.
According to the committee, the legislation also requires a report on a plan to privatize the Defense Commissary Agency, entirely or in part, and directs the Government Accountability Office to assess potential costs and benefits of having private companies run the stores. The language of the legislation was not available at press time.
Sen. Jim Inhofe, R-Okla., said he fought hard against the provision in committee and plans to introduce an amendment on the Senate floor to reverse it when the the defense bill comes up for consideration by the full chamber.
"With all the good in the bill, one of my greatest disappointments was legislation that directs the Department of Defense to privatize military commissaries on a minimum of five major bases and sets into motion the potential for all commissaries to be privatized," Inhofe said in a statement.
"It ignores recommendations made by the Military Compensation and Retirement Modernization Commission in January," he said.
That commission recommended consolidating some back-office operational functions of commissaries and exchanges, and allowing commissaries to mark up prices on items to help cover some operational costs.
Joyce Raezer, executive director of the National Military Family Association, noted that the commission had also explored the option of privatizing commissaries, and when they approached a number of companies, including Walmart, they said they wouldn't be interested. "Who's going to want it?" she said.
Information was not immediately available about whether the Senate committee has agreed to allow commissaries to mark up prices, as requested by DoD, or has agreed to the Pentagon's request to reduce funding for commissaries.
But according to a committee press release, the legislation "treats domestic and overseas transportation costs of commissary goods and supplies the same by spreading the costs evenly across the commissary system worldwide."
Under current law, the cost of shipping commissary items overseas is paid by taxpayer dollars, so that commissary customers overseas pay the same as those in the U.S. But defense officials asked Congress for the ability to raise prices to cover the cost of shipping commissary items overseas, and reducing the taxpayer cost by about $100 million.
That cost would be spread to commissary customers worldwide — including those in the continental U.S. — and would increase prices by 2 percent or less, according to Joseph Jeu, director of the Defense Commissary Agency, who spoke at a meeting of the American Logistics Association April 30.
The privatization pilot program would run for two years, and would require a report to the House and Senate Armed Services committees within 180 days after it ended., according to a committee aide.
The aide said the test, if included in the final version of the defense bill, could begin as early as July 2016.
"This isn't about hurting commissaries or getting rid of the benefit; it's about finding a more efficient and cost-effective way of delivering the benefit," the aide said.
As part of the initiative, lawmakers also have asked DoD to evaluate basic pay and subsistence allowances in relation to privatization of the stores, to ensure that service members would not see a decrease in purchasing power, the aide said.
DoD officials would determine whether any changes in pay and allowances might be needed to make up for any decrease in savings as a result of privatization, the aide said.
The NMFA's Raezer said she has questions about the legislation, while noting that the exact language is not yet public.
"The big question is, what is the Senate Armed Services Committee's intent? What information do they hope this would provide? Will there be any [taxpayer] subsidy to the privatized stores, and how does that work? What happens to prices? Will prices be set by whoever is running the store? What's the expectation on product mix? Will those commissaries be subject to the same restrictions on what they can sell?
"What is the committee looking for? What are the guidelines to [DoD] in going out with the solicitation? Will they be looking at metrics for the system as a whole, or just for the stores that are plucked out for the privatization pilot? If you're targeting the big stores, what does that do the rest of the system?" she said.
"My concern is the effect not just on the stores in the pilot, but on the whole system," she said.
She questions whether there will be privatization in multiple stores in large markets, such as the Washington, D.C. area, and large installations that have more than one store.
In effect, the larger stores help support stores in remote areas, because vendors give better prices based on volume.
Tom Gordy, president of the Armed Forces Marketing Council, said the commissary system could be in position where volume is diminished if some of the larger stores have been taken out of the system.
He has concerns that for the pilot, officials will "cherrypick" the stores that do the most business and would be of more interest to private companies.
"That's not where success or failure is determined," Gordy said. "It's in privatizing the smaller stores that you'll find the measure of success."
Smaller stores in remote areas especially are not as attractive to private companies.
Next, the bill that includes this provision will go to the full Senate for vote. No similar provision is included in the House version of the annual defense policy bill, which means the commissary privatization provision, if approved by the Senate, will have to be discussed later this year when House and Senate lawmakers will meet in a conference committee to reconcile differences in their respective draft bills.
The Veterans of Foreign Wars firmly opposes privatizing military commissaries and the pilot program, said John W. Stroud, the group's national commander.
"We want this language stripped from the Senate's version of the defense bill," said Stroud, a retired Air Force first sergeant.
"Military commissaries are a key quality-of-life benefit to military service members, their families and to retirees," he said. "You can sometimes find better deals off base, but nowhere near the overall 30 percent savings that commissaries provide."
He also said any reduction in customer traffic at the commissary would cause a corresponding reduction in customer traffic at exchange service stores, which would directly affect the exchanges' contributions to a variety of military morale, welfare and recreation programs.