The military exchanges and services’ morale, welfare and recreation programs have taken a big financial hit that is straining their entire operations because of the effects of the pandemic.
The Department of Defense comptroller has agreed to pump in nearly $308 million to the services’ MWR programs out of the $10.5 billion in DoD COVID-19 funding provided by Congress, according to a document obtained by Military Times. The funding will ensure no MWR employees will be furloughed. Information was not available about whether any COVID money is going to the exchanges.
Without enough revenue coming in to cover mandatory expenses such as salaries and utilities, “the cash available for recovery will quickly be depleted and may cause insolvency across NAF operations,” stated the comptroller document, signed by acting comptroller Elaine McCusker. Non-appropriated funds, or NAF, come from fees, sales and other revenue that is not taxpayer funding.
Over 55,500 employees in the services’ MWR programs “are facing immediate risk of furlough resulting from COVID-19 closures of morale, welfare and recreation facilities,” according to the document. The funding will primarily cover two months of salaries of these workers in the Category C non-appropriated fund, or NAF, activities that rely on income generated by programs and services. That includes about 12,000 employees in each of the Category C MWR programs in the Army, Navy, and Marine Corps, and an additional 19,000 employees in the Air Force programs that are at risk of furlough.
Any additional projected salary costs and other operating expenses beyond those two months’ worth will require more funding, according to the comptroller. The pandemic closures and effects started in mid-March; many MWR programs are still closed.
Among those who could be affected are the employees in many of the services’ child development centers who are paid by NAF — parent fees and other money, such as part of the profits from the military exchanges. It also includes NAF employees working at food operations, fitness centers, golf courses, outdoor recreation, libraries, youth centers, bowling alleys, lodging facilities and other MWR activities.
Throughout the pandemic, DoD has required that all MWR employees be paid, even as many MWR activities that generate income have been shut down.
The document provides a detailed accounting of DoD’s plan to spend each dollar of the $10.5 billion in supplemental funding from the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The overall CARES Act was a package with more than $2 trillion in economic relief.
These Category C NAF programs — such as military exchanges, golf courses, most bowling alleys, lodging facilities and others — generally don’t get taxpayer dollars and are required to be self-sustaining. But aside from the CARES Act funding, defense officials recently issued a memo giving temporary authority for these Category C NAF programs to receive taxpayer funding for COVID-specific expenses. Although officials provided the authority, no dollars had been provided as of this writing.
Information was not immediately available from defense officials about whether the military exchanges will receive any of the COVID money, although the exchanges, like other retailers, have seen decreases in sales and increases in costs related to additional requirements for cleaning, disinfecting, and personal protective equipment for employees.
The comptroller is also providing more than $28 million in additional COVID funding to the Defense Commissary Agency to pay for increasing hours of part-time store employees to help in extra store cleaning and disinfecting, and shelf stocking. It also helps pay for additional air shipments to Europe and the Pacific to meet the surge demand for products at overseas commissaries.
Here’s the breakdown of what the MWR programs are receiving.
Marine Corps MWR: Receiving $47.5 million in COVID money
Marine Corps MWR net losses in its fiscal year to date are significant compared to the same time last year — a 165 percent decrease in net profit, said Bryan Driver, spokesman for Marine Corps Business & Support Services. The time period is Feb. 2 to May 2. Officials are still working on projections for future losses related to the pandemic as installations develop their plans to reopen.
While impacts vary by command, in general the MWR programs that have suffered the greatest losses are Information Tickets and Tours, golf, bowling, and food and beverage operations, Driver said.
Army MWR: Receiving $57.2 million in COVID money
Information was not available about the economic impact, said Scott Malcom, spokesman for Army Installation Management Command, as the command is still working to gain a “full accounting” of the economic impact of pandemic-related service reductions and temporary program closures. It’s too early to tell what the consequences of any lost revenue will be, he said.
MWR activities that most rely on customers going to their facility and spending money — such as golf courses, bowling alleys and restaurants — are seeing the most impact, Malcom said.
Navy MWR: Receiving $99.2 million in COVID money
Between January and April, revenue was $18.7 million less than planned, and assuming most programs are able to reopen by some extent by July, the shortfall could grow to as much as $65 million by September, said Coleen San Nicolas-Perez, spokeswoman for Commander, Navy Installations Command. In addition, Navy MWR has continued to incur operating costs “in the face of significant revenue reductions resulting from closed or greatly reduced operations because of the pandemic,” she said. Like other DoD NAF programs, the Navy MWR continues to pay NAF employees during the pandemic.
The additional money in the form of more revenue or taxpayer funding is needed, San Nicolas-Perez said, to avoid having to reduce operations, defer the purchase of new equipment, or delay planned facility repairs.
Air Force MWR: Receiving $104 million in COVID money.
No information was available from Air Force officials about the effects on Air Force MWR to date.
The exchanges have felt the impact, and this will likely greatly diminish the amount of dividends paid to support MWR programs, which further hurts the financial stability of MWR programs. The dividends come from profits the exchanges make through their sales.
For example, the Army and Air Force Exchange Service contributed $217 million to MWR programs in the services, coming from profits, in 2019. About 59 percent of AAFES profits goes to MWR programs; the remaining 41 percent goes for improvements to stores and the online ShopMyExchange.com shopping site.
The exchanges are considered Category C non-appropriated fund operations, and they rely on revenue from sales.
Exchange online sales have increased, reflecting trends across retail. But the bulk of their sales have traditionally come from the brick-and-mortar stores, and there have been decreases in foot traffic in all the services’ exchanges. There’s been a significant shift in the types of purchases, toward consumables and essential items, as opposed to items with higher profit margins such as electronics. There have been additional COVID-19 related personnel costs such as liberal use of administrative and sick leave. The exchanges have also had extra expenses related to getting personal protective gear for exchange employees, and for additional prescribed cleaning and disinfecting procedures.
Many of the exchanges’ profit-making services have been forced to shut down, depending on the installation. In some areas, barber and beauty shops, optical stores, flower shops, tailoring have shut down, and many food courts have had limited operations.
“Without significant cost cutting and cash conservation efforts, [AAFES] projects operational losses of $300 million through September,” said AAFES spokesman Chris Ward. Officials have started mitigation efforts that will reduce that to a $150 million shortfall, he said — such as delays in store improvements, reducing inventory, and other measures.
Sales in AAFES brick-and-mortar stores were $407 million in April, a decrease of 20 percent compared to April, 2019. Online sales at ShopMyExchange.com were $58.3 million in April, up by 158 percent over April, 2019.
“Given that 45 percent of [AAFES’] workforce are military spouses, dependents and veterans, all efforts are focused on providing the hard-earned exchange benefit without furloughs or layoffs,” Ward said.
AAFES “will take all necessary steps to maintain solvency and protect the long-term viability of the benefit it provides, with or without [taxpayer dollar support],” he said.
Given the uncertainty of the pace of reopening of stores and service outlets, officials can’t predict the overall losses, said Courtney Williams, spokeswoman for the Navy Exchange Service Command. “However, we can expect significant negative impact to operating profit to continue for the foreseeable future,” said
From February through April, NEXCOM saw an operating loss of $20.4 million compared to the same period last year, instead of the $2.4 million increase in profits they had forecast.
Sales in Navy exchange brick-and-mortar stores were $259 million combined for March and April, down by nearly 6 percent compared to the same months last year. Online sales at MyNavyExchange.com of $6.6 million for March and April were up by 13 percent over the same months last year.
Marine Corps Exchange
Given the volatility of sales in today’s environment and the uncertainty about shoppers’ behaviors, officials are working on projections about any losses over the next few months, said spokesman Bryan Driver. But profits were down by 4.5 percent in March and 24.4 percent in April, compared to the previous year.
Sales for March were $75.1 million, down 6.3 percent from the previous March.
Sales for April, were $55.1 million, down 21.7 percent from the previous April.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.