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Your business is our business Participation in ALA these days is not optional….it is necessary part of your business and an investment that returns many.

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Presentation on theme: "Your business is our business Participation in ALA these days is not optional….it is necessary part of your business and an investment that returns many."— Presentation transcript:

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2 Your business is our business Participation in ALA these days is not optional….it is necessary part of your business and an investment that returns many fold in many ways.

3 Your investment in ALA proved its worth in 2014 Participation in ALA yields real, tangible benefits for your business. Furloughs and closures averted by 11 days resulting in hundreds of millions of dollars in sales that would not have otherwise occurred. $200 million cut in 2015 would have resulted in $3 billion lost sales and $600 million cut in 2016 would have resulted in $6 billion in lost sales. Averted major issues that could have impacted exchange ability to earn revenue and contribute MWR dividends. Averting hundreds of millions in lost sales.

4 Keep your seat at the table 2015 is going to be a pivotal year Things are going to change and a lot of balls are going to be thrown up in the air. Need pull the cart where you want it to go instead of getting dragged behind it. Active participation in ALA ensures that your interests are represented in decisions that are g0ing to be made Decisions on product availability reverberate in commercial sector

5 Strength in Numbers Table is going to be set this coming year. Help your Board of Directors reach out to sign up companies in the Association. Help demonstrate to policy-makers that the power of industry is behind us.

6 American Logistics Association Logistics is our middle name Manufacturers, Distributors and Brokers represent 95 percent of the supply chain Have a hand and a voice in what happens Can help agency partners get to where they need to get

7 Dynamic environment calls for energized partnership Publicly supported entities usually predictable This has changed Manufacturing, distribution, store support Industry employment Industry respects agency prerogatives Stability and predictability key to cost control Agency decisions reverberate across the chain Industry can react and support with adequate notice Advance notice avoids disruption of product flow Cooperation and communication key in dynamic environment Patron support is mutual bottom line

8 SITREP DoD is targeting the commissary appropriation in its 2015 budget submission, reducing $200 million of the $1.4 billion annual appropriation in 2015, $600 million in 2016, and $1 billion in 2017, leaving it with $400 million The proposal is direct reduction to military compensation and is inciting fierce opposition. Exchange programs are under stress On-base business model threatened

9 Mobilizing for fiscal 2016 Educating members of Congress. Input to multiple reports Working with Compensation Commission Gathering more data

10 ALA position on the budget The Pentagon has a budget problem but the resale system is part of the solution and not part of the problem.

11 Outreach—don’t lobby ourselves 40 briefings to Senate and House Economic report More underway Frame the argument and shape the debate Blunt new normal Support our friends, educate adversaries Coalition and patron involvement Energizing advocacy groups – Grass roots Moving resale to top priority Congressional Caucus Messaging – economic, compassionate, mission DoD outreach—military and civilian

12 System is strong but fragile and vulnerable Convergence of factors all at once could destroy it

13 Convergence of exchange challenges SDT and base operations funding Product and pricing restrictions—tobacco (CVS), beverage alcohol Wage hikes (minimum and SCA) Shrinking force structure Commissary as destination Off-base competition

14 Easy-credit retailer sues troops worldwide Money was tight, and neither Aguirre, 21, nor his wife had much credit history as they settled into life at Fort Carson, Colorado, in That’s when he saw an ad for USA Discounters, guaranteeing approval for service members. In military newspapers and maga- zines, on the radio, and on TV, the Virginia-based company’s ads shout, “NO CREDIT? NEED CREDIT? NO PROBLEM!” The store was only a few miles from Fort Carson. Army Spc. Angel Aguirre needed a washer and dryer. From there, USA Discounters files lawsuits against service members based anywhere in the world, no matter how much inconvenience or expense they would incur to at- tend a Virginia court date. Since 2006, the company has filed more than 13,470 suits and almost al- ways wins, records show. Associated Press—August 18, 2014

15 Rational Access

16 Military personnel are entitled at least to the same rights and privileges as the citizens they are charged to defend.

17 Sectors have inherent challenges Just in past year: Concessions Tobacco Alcohol Supplements Energy drinks Sugar Healthy foods

18 Hunter Amendment (Sec. 633) The Secretary of Defense and the Secretaries of the military departments may not take any action to implement any new policy that would limit, restrict, or ban the sale of any legal consumer product category sold as of January 1, 2014, in the defense commissary system or exchange stores system on any military installation, domestically or overseas, or on any Department of Defense vessel at sea.

19 ALA position on Sec. 633 Military folks are entitled to the same shopping rights and privileges as the citizens they are charged to defend. Products that are legal in the general civilian market should be available to military personnel. From a practical standpoint, we find that if legal consumer products are regulated on base, it merely forces the troops to go off base. If the military wants to control consumption of any product, it has to be a behavioral change, not an access change.

20 ALA position—Sec. 633 The debate over individual product categories such as alcohol and tobacco (or any other product) should be settled in the general American populace and marketplace and not specifically targeted to military personnel. Over the years, the oversight committees have adopted this view and have judiciously and deliberately expanded product availability through Title 10 and review of the Armed Services Exchange Regulations. By exercising this authority, the Defense …

21 ALA position—Sec. 633 …authorizing committees have been able to monitor and sometimes intervene when other members of Congress or committees have attempted to regulate product availability. The SASC and HASC viewpoint generally reflected prevailing practices and product availability in the civilian marketplace. Usually, the Executive branch conforms to this philosophy but Congress has occasionally stepped in when efforts have been made to prejudice product availability.

22 ALA position—Sec. 633 The wide price disparity between off base and on base for tobacco and alcohol has narrowed over the years to the point where it is virtually even. The demographic has changed where most of the military live off base and artificial market manipulation merely serves to inconvenience those on base. Manipulating the military marketplace for legal products is a slippery slope that opens the door for further sanctions on a wide range of other products directed only at the military.

23 Taking beverage alcohol issues head on Actively work to reverse and pre-empt any ill-advised policies aimed at limiting access to beverage alcohol on military bases. SecDef said that “policies are going to be revised where necessary to address risks that alcohol poses to others.” Working with industry experts, think tanks and associations to educate policy-makers. Engaged DoD Sexual Assault Prevention & Response Office—offer industry resources to deal with issue.

24 Tobacco--Durbin provision—SAC-D SEC The Secretary of Defense shall issue regulations to prohibit the sale of any tobacco or tobacco-related products in military resale outlets in the United States, its territories and possessions at a price below the most competitive price in the local community: Provided, That such regulations shall direct that the prices of tobacco or tobacco- related products in overseas military retail outlets shall be within the range of prices established for military retail system stores located in the United States.

25 Report language on Sec The Committee applauds these efforts and encourages the Department to continue to advance rapidly toward a tobacco-free military. In support of these goals, the Committee includes a provision directing the elimination of the price subsidy provided to tobacco products at military exchanges. This reform directs the Department to implement a consistent, verifiable price benchmark for tobacco products at exchanges, as recent surveys by the National Institutes of Health indicate that Army and Air Force exchange prices for cigarettes in practice to be between 14–25 percent lower than market price, despite Department of Defense Instruction , which allows only a 5 percent discount.

26 Tobacco Outright ban to tobacco being considered. SecDef report on tobacco imminent Not judging the health effects of tobacco Interested in ensuring troops are not prejudiced Need data to show that any ban would curb use

27 Minimum wage and SCA Favorable prices have emerged as a key benefit of military service. Military only wages create disparities and higher prices/reduced commissions on base. Contracts constantly renewing and some concessionaires won’t bid. Exchange and MWR earnings will drop. Troops want familiar name brands but now will pay higher prices or be denied their favorite food altogether. DoL acknowledge that these wages impose a “uniquely burdensome obligation” on military fast food restaurants

28 ALA position on wage rules Major consequences Military access to favorite brands should be protected. Will have the effect of denying these programs. Contractors pay rent and a portion of sales to exchanges and MWR. Most are small businesses. Military-only application will prejudice the troops. Off base competitors not affected. DoL pressed forward anyway.

29 Corporate tax inversions Rep. Jackie Spier, (D-Calif) wants DoD to end exchange contracts with Burger King because of merger with Canadian Company & corporate flight from the U.S. Only would affect military Burger King outlets on military bases. Singles out military and will deprive troops and families of a highly popular brand. Yet another example of an attempt to deprive access based on a fight over a larger national issue. Tells DoD to enhance exchange oversight “to ensure business integrity”.

30 Veteran online shopping Support any effort to open military resale offerings to larger, deserving audience.

31 Commissaries This is no drill

32 Prevention Pre-emption Preservation

33 Saw storm clouds gathering five years ago $1.4 trillion deficit Budget problems and the sequester Sprung into action Gathered data Mobilized key constituencies Created coalition to Save Our Shopping Benefit Educated allies

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35 Strategic Choices and Management Review Don’t just chip away at existing structures and practices but…fashion entirely new ones that better reflect 21 st Century realities. Prior modest reforms met political opposition “We are now in a different fiscal environment dealing with new realities that will force us to confront these tough and painful choices.” Aim to conclude review by May 31, 2013 Foundation for the Quadrennial Defense Review due to Congress in February 2014

36 Here we go again Pentagon is gearing up a new effort to cut overhead and administrative costs. Initiative will target the “Fourth Estate” — everything other than the military services and combatant commands, according to Deputy Defense Secretary Robert Work. Targeted components for cuts include the Office of the Secretary of Defense and the 16 defense agencies, including the Tricare Management Agency and the Defense Logistics Agency. Those account for about 20 percent of the overall defense budget.

37 ALA position on the budget Budget calls for a reduction of the “subsidy” Crops are subsidized Troops are not subsidized… They’re compensated

38 ALA position on budget System has already cut no more cuts-inherently efficient Stop irresponsible dialogue with facts—no more new normal As a vital compensation program, should be exempt from cuts. For Sequestration, these programs should not be cut disproportionately beyond the minimum reductions that are mandated by law. Certainly should not be singled out for major reductions or ill- advised experimentation or reengineering The resale system is inherently efficient with DeCA alone reducing its annual operating costs nearly $900 million a year. These programs are part of the solution not part of the problem as our report “Costs and Benefits of the Military Resale System” demonstrates—their contribution to the Defense Department far outweighs their costs by a factor of 6:1.

39 ALA position on budget Nonappropriated funds and surcharge funds are generated by charges to military personnel and their families. These funds should not be siphoned off in a convoluted shell game to pay for legitimate appropriated fund obligations that have been set forth by Congress over the years. NAF balance sheets should not be used to balance the budget on the backs of the troops

40 ALA position on the budget There should be no commissary reductions beyond the over $700 million a year in annual reductions that have already been taken out of the commissary budget (includes the $46 million in the just-passed Omnibus FY 2014 Appropriations Act, and the $500 million inventory savings from outsourcing distribution. Commissaries are one of the few DoD programs that has held costs constant; in FY92 constant dollars, commissary appropriations have actually declined since The primary purpose military families use the commissary is the savings offered, they will stop coming when the savings go away.

41 ALA position on the budget This is an earned benefit, not just a store. Commissaries are a community hub and bring the military together. Food inflation is expected to double this year. Would greatly impact DoD’s efforts to promote healthy lifestyles. DoD may say the stores will remain open but the practical effect of the appropriations reductions will be that the stores in the U.S. will close. Cutting commissaries is punishing success. These operations have already cut spending while other Defense programs continue to increase.

42 ALA position on the budget The cuts will reduce the current 30 percent savings to zero and the stores in the U.S. would close. Economies of scale would be lost for remaining overseas stores and costs and prices would rise. There are huge unknown consequences such as cascading impact on military PX operations and on-base community support programs, loss of U.S. supply infrastructure to support remote and overseas operations. Commissary cuts would demoralize the military at a time when there is so much uncertainty over the entire compensation package and force structure cuts.

43 ALA position on the budget DoD says that commissaries will not have to pay rent or taxes under their proposal. Commissaries should not have to pay rent anyway on stores built and maintained with patrons funds. The military is already exempt from taxes under the Supremacy clause of the Constitution. If you shut down the stateside hub stores, the supply chain will lose economies of scale and prices overseas will rise as well. Commissaries support the Defense mission including DoD efforts to promote healthy lifestyles.

44 ALA position on the budget Insufficient analysis/study of the consequences of the reductions Congress, at the Administration’s request, established the Military Compensation and Retirement Modernization Commission and specifically included commissaries as part of the review. The Commission was to look at commissaries in relation to other compensation benefits and provide recommendations to the Congress. The commission should be allowed to do its work. Commissary is an earned benefit in recognition of service. Reductions to the commissary benefit are out of proportion to the reductions that are shared by other Defense programs

45 ALA position on the budget Commissary patrons have built billions of dollars in facilities with their five percent surcharge Food inflation is expected to double in the coming year Represent a partnership between the public and private sector, taking advantage of a private sector supply chain that contributes an additional $500 million a year ancillary support to the military. Represent a partnership between the beneficiaries and the DoD with these beneficiaries offsetting nearly 20 percent of the operating costs. Provide a tremendous amount of no-cost compensation to the Department through state and local tax savings for beneficiaries valued to the Department at nearly $300 million.

46 ALA position on the budget Power military household income with$2.8 billion in price savings and another $250 million in income for family members who work there. Is a cherished and well-used benefit with 90 percent of active duty families using it last year and over 98 million customer transactions. Large operations in the United States anchor and indirectly underwrite operations in remote and overseas areas—equalizing the benefit no matter where our people serve. Are a flexible benefit that expands and contracts with the size of the force structure with nearly 150 of the stores closed corresponding with successive rounds of BRAC and force realignment over the years.

47 ALA position on the budget Have a declining budget, with funding for the benefit remaining stable and dropping in real terms during the Defense budget ramp-up and even when the number of eligible beneficiaries increased. Allow the Department to economize on cost-of-living allowances and personnel and operating costs in other areas such as direct pay and transportation. Commissaries support multiple Administration objectives including: hiring of Veterans and family members, supporting military quality of life; providing minority and small business opportunities; and opportunities for the blind and severely disabled. The Defense Commissary Agency is one of the few organizations in the Department that has been able to produce a clean financial statement, a major objective of the DoD.

48 More Military Families Are Relying On Food Banks And Pantries Despite the economic recovery, more than 46 million Americans — or 1 in 7 — used a food pantry last year. And a surprisingly high number of those seeking help were households with military members, according to a new survey by Feeding America, which is a network of U.S. food banks. NBC News—August 19, 2014

49 Economic Case 70 percent increase in food stamp redemption Sunk costs – buying the car but not putting gas in it Huge return to DoD and the Nation Sales imperative—increase share of AD who use benefit Tax savings alone justify benefit Family and Veteran employment Contribution to economy/balance of payments

50 Benevolence and Good Will Wounded Warriors Snowball Express Joining Forces Fisher House USO NMFA Cause promotions …and a multitude of others

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52 State of play Administration recommended a $200 cut for Fiscal 15 that begins October 1. Congress pushed back. HASC and HAC only allowed a $100 million cut. SASC and SAC said no cuts for 15 and asked to wait for the Commission report and is seeking other information, i.e., usage statistics. etc. No Congressional defense bills have passed. Pentagon sees Congressional intent and it would be unlikely they would short-fund DeCA in fiscal 15 without seeing outcome of Congressional deliberations.

53 State of play So, meanwhile, DeCA is adequately funded for fiscal Also, the other good news is that it is highly unlikely that this coming year we will experience the closures from furloughs or a government-wide shutdown that we experienced last year.

54 State of play Under an omnibus (a bill including several agencies' funding) DeCA would be cut anywhere from $100 M to zero, depending on the conference negotiations. Under regular order (a stand-alone Defense authorization and appropriations bill for 2015), DeCA funding reductions would from $100 M to zero, depending on the conference negotiations. Under a CR, DeCA is funded at last year's levels (manageable).

55 State of play Congress returns November 12 Current CR expires December 11 Must pass $1 trillion-plus omnibus spending bill including $550 billion Defense bill and $60 billion in OCO—Could fold-in Ebola and ISIS Or another CR Defense Authorization Act Authorization to train Syrian rebels (current authorization expires December 11 (or could be folded into the Authorization Act. AUMF for Iraq/Syria folded into Authorization Bill

56 State of play Many want to hold-off on major policy decisions until new Congress is seated in January. “Pre-conference” is taking place on Authorization Bill Senate has not passed its bill 239 amendments have been filed House has passed its authorization bill We may not know who is in the majority in the Senate until January (run-offs in Ga., N.C., Louisiana)

57 State of play Overall, we are no means out of the woods. DoD still has a massive funding problem across the board and the DeCA funding problem will persist as long as the sequester is in effect. It will continue to seek reductions and the Deputy Secretary of Defense stated the other day that they are going to take another bite at the compensation apple (probably including DeCA). $600 million cut still in 2016 budget plan. $1 billion cut still in 2017 budget plan. Congress has requested reports on DeCA covering various issues including consolidation of exchanges and commissaries and introduction of more private label. Reports are due in the Spring in time for deliberations on the fiscal 16 budget. All is being set up for the Compensation Commission report that is due February 15, So far, the Commission is favorably inclined for commissaries but that could change as they balance the books.

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59 In announcing the cuts as part of the budget roll-out, Secretary Hagel says that: DoD needs to cut compensation costs No commissaries would close Overseas and remote commissaries would continue to receive appropriations Commissaries will operate like PXs and still offer substantial (stated as 10% in briefing) savings Would continue to get free rent and pay no taxes Military in the United States can shop at Target or Wal- Mart

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61 JCS Hearing “Cutting commissaries is a sore point for me…the commissary issue is radioactive”—General Amos— Marine Corps Commandant “$200 million initial impact will be modest”—Admiral Winnefeld, Vice-Chairman, JCS “Difficult to understand the effect that a reduction in the subsidy will have, until you make a decision to do it.” -- General Dempsey, Chairman, Joint Chiefs of Staff Private label can make up for support reduciton.

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64 Obama at Pendleton-Aug 7, 2013 Closing commissaries “Not how a great Nation should treat it’s military and military families”

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66 Warner/Chambliss bill—3/14 “…the monthly amount of funds made available by the Department of Defense for the defense commissary system during fiscal year 2015 may not be reduced below the average monthly amount of funds made available for that system during fiscal year 2014 until the date of the report of the Military Compensation and Retirement Modernization Commission…”

67 Sec. 631—SASC FY 2015 bill (f) Special Rule for Brand-Name Commercial Items.— The Secretary of Defense may not use the exception provided in section 2304 (c) (5) of this title regarding the procurement of a brand-name commercial item for resale in, at, or by commissary stores unless the commercial item is regularly sold outside of commissary stores under the same brand name as the name by which the commercial item will be sold in, at, or by commissary stores. In determining whether a brand name commercial item is regularly sold outside of commissary stores, the Secretary shall consider only sales of the item on a regional or national basis by commercial grocery or other retail operations consisting of multiple stores. for the procurement of any commercial item (including brand-name and generic items) for resale in, at, or by commissary stores.

68 Senate Appropriations Committee Defense Commissary Agency.—The Committee recommends an increase of $200,000,000 for the Defense Commissary Agency [DECA] in fiscal year 2015 which is consistent with S. 2410, the National Defense Authorization Act for Fiscal Year 2015, as reported. The Committee also directs that the Committees on Appropriations of the House and Senate be recipients of the reporting requirements directed in the report accompanying S. 2410, the National Defense Authorization Act for Fiscal Year 2015, as reported, titled ‘‘Department of Defense proposal to modify commissary benefit.’’ Additionally, the Committee directs the Secretary of Defense to provide the following information to the congressional defense committees no later than December 1, 2014: —a breakdown showing the average percentage of commissary patrons by enlisted members, officers and retirees; —surveys or other data on the value placed on commissary access by its patrons, especially in comparison to other benefits; —a description of the impact of sequestration in fiscal year 2013 on the Defense Commissary Agency and commissaries; and —a detailed description of how the fiscal year 2015 proposal to limit appropriated fund support to commissaries would be implemented in each year of the future years defense program if approved by Congress.

69 Senate Armed Services Committee The budget request included $1.1 billion for the Working Capital Fund, Defense Commissary Agency (DeCA). The budget assumed savings of $200.0 million associated with a legislative proposal to streamline and reform commissary operations. The committee declined to support this proposal. Accordingly, the committee recommends an increase in the Working Capital Fund, DeCA of $200.0 million to restore these assumed savings.

70 Senate Armed Services Committee Department of Defense proposal to modify commissary benefit Commissaries have a major positive impact on the quality of life of all servicemembers—active, reserve, and retired—and their families. Commissaries, on average, afford savings of more than 30 per- cent on items purchased. Additionally, commissary patrons frequently use base exchanges when they come on post to shop at the commissary. Increased usage of the base exchanges results in additional dividends that are returned to the military community for morale, welfare, and recreation activities. The cumulative effect of all of these benefits from commissary patronage is particularly important to junior enlisted servicemembers. The committee is concerned that consequences of the Department of Defense proposal to increase costs to patrons of the commissary benefit in order to reduce appropriated fund support for the Defense Commissary Agency have not been fully evaluated, and that other business models that may not have the same detrimental impact were not considered.

71 Senate Armed Services Committee Directs the Secretary of Defense to submit a report to the Military Compensation and Retirement Modernization Commission and to the Committees on Armed Services of the Senate and the House of Representatives, not later than December 1, 2014, describing:  How changes to the financial structure and funding of commissaries would impact the purchasing power of military families, especially young enlisted members and their families;  The impact on commissary sales volumes if prices for groceries and other goods rise significantly under a new financial and funding structure; The collateral impact of the Department’s proposal on sales volumes in the military exchange system; The impact of lower sales volumes in military exchanges on monetary dividends provided to support the morale, welfare, and recreation programs of the military services; (5) An assessment of adoption by the commissary system of a business model similar to that of the military exchange system; and Other options for consolidation of commissary and exchange system functions. The committee expects the Commission to consider this report as it addresses the commissary benefit in the report that it submits to Congress and to the President.

72 House Armed Services Committee REVIEW REQUIRED.—The Secretary of Defense shall conduct a review, utilizing the services of an independent organization experienced in grocery retail analysis, of the defense commissary system to determine the qualitative and quantitative effects of—(1) using variable pricing in commissary stores to reduce the expenditure of appropriated funds to operate the defense commissary system; (2) implementing a program to make available more private label products in commissary stores; (3) converting the defense commissary system to a non- appropriated fund instrumentality, and (4) eliminating or at least reducing second-destination funding.

73 House Armed Services Committee ADDITIONAL ELEMENTS OF REVIEW.—The review required by this section also shall consider the following: (1) The impact of changes to the operation of the defense commissary system on commissary patrons, in particular junior enlisted members and junior officers and their dependents, that would result from displacing current value and name-brand products with private-label products. (2) The sensitivity of commissary patrons to pricing changes. (3) The feasibility of generating net revenue from pricing and stock assortment changes. (4) The relationship of higher prices and reduced patron savings to patron usage and accompanying sales, both on a national and regional basis. (5) The impact of changes to the operation of the defense commissary system on industry support; such as vendor stocking, promotions, discounts, and merchandising activities and programs.

74 House Armed Services Committee (6) The ability of the current commissary management and information technology systems to accommodate changes to the existing pricing and management structure. (7) The product category management systems and expertise of the Defense Commissary Agency. (8) The impact of changes to the operation of the defense commissary system on military exchanges and other morale, welfare, and recreation programs for members of the Armed Forces. (9) The identification of management and legislative changes that would be required in connection with changes to the defense commissary system. (10) An estimate of the time required to implement recommended changes to the current pricing and management model of the defense commissary system. (c) SUBMISSION.—Not later than February 1, 2015, the Secretary of Defense shall submit to the Committees on Armed Services of the Senate and the House of Representatives a report containing the results of the review required by this section.

75 State of play By December 1, 2014– CR--100 percent Omnibus--50percent Regular order--20 percent Authorization bill 30 percent

76 State of play By January 1, 2014– CR--100 percent Omnibus—60 percent Regular order--20 percent Authorization bill—80 percent

77 State of play By February 1, 2014– CR--100 percent Omnibus—60 percent Regular order—80 percent Authorization bill –80 percent

78 Mid-term election outcomes If Senate goes Republican, McCain takes the chair of the SASC. If it stays a Democrat majority, Senator Jack Reed of Rhode Island will take the chair. Senator Cochran would take the appropriations chair and has been supportive and would probably not override Senator Mikulski on this issue. (Mikulski like commissaries). On the House side, Buck McKeon is retiring and it looks like Mac Thornberry has the inside track for the Chair of the HASC. Mr. Thornberry has voiced support for lifting of the sequester. While he has not directly committed to full commissary funding, he is listening to the supporters of the benefit on the HASC that we have been working with.

79 Who’s kidding whom? The next time you hear a four- star whine to Congress about how military pay and benefits are wreaking havoc on the defense budget and must be rolled back, think about this item buried deep in the news mix last week: According to the Washington Post, a few years ago the Defense Department spent nearly half a billion dollars of U.S. taxpayer money to buy 20 Italian cargo planes for the Afghan Air Force. Unfortunately, the only thing likely to alter this rigged game is troops voting with their feet — as they did in the ’90s, the last era in which defense leaders habitually squeezed pay and benefits, to the point of sending recruiting and retention off the cliff. It took many years, great effort and a lot of money to fix that damage. Military Times—10/27/14

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81 Talk of cost-cutting started in 2008—post-9/11 spending spree July 22, 2010 DBB Report “Reducing Overhead and Improving DoD’s Business Operations” Spend more on health care and benefits for former military than on troops in uniform Personnel costs unsustainable Cost per person in active force increased 46 percent 75 percent of budget At current growth rate, personnel costs will consume entire defense budget by 2039 OK as long as budget rising—now it is colliding

82 Compensation Commission Retirement payments expected to double by 2035 to $116.9 billion Om 2017, DoD plans to have 100,000 fewer troops but spend as much as today on personnel Army personnel costs grown by 50 percent over last ten years Health care costs up $30 billion over last decade Iraq and Afghanistan health care bubble 80 percent say they would trade retirement policy changes for a 1 percent increase in pay

83 Compensation Commission

84 Included in 2013 NDAA “Military Compensation and Retirement Modernization Commission” Ensure long-term viability of all-volunteer force Enabling high quality of life for military families Achieving fiscal sustainability of compensation and retirement systems Examine all laws and policies affecting various programs and benefits

85 Compensation Commission Added by conferees: “Department of Defense morale, recreation, and welfare programs, the resale programs (military exchanges and commissaries) and dependent school system” “Closely weigh its recommendations regarding the web of interrelated programs supporting spouses and families of members of the uniformed services, so that changes in such programs do not adversely impact decisions to remain in the uniformed services.”

86 Compensation Commission Nine members & $10 million Majority and Minority Leader of House and Senate appoint two each within 4 months All hearings open to public President to report to Congress within 60 days of receiving the report Grandfather benefits to current members Provides for expedited consideration of recommendations by Congress

87 Compensation Commission Within 5 months—principles addressing:  Maintaining recruitment and retention of the best military personnel  Modernizing retirement and compensation systems  Differentiating between reserve and active service  Ensuring fiscal sustainability Within 9 months, SecDef to transmit his recommendations to the Commission and concurrently to Congress Report within 15 months to the President Report delayed until early 2015

88 President Recommendations Current members can choose to switch to new retirement system but not required Ensuring compensation comparable to outside Sufficiently flexible to adjust to economic conditions Generous enough to motivate and retain Grandfather

89 Compensation Commission Input due by November 1, 2013—Federal Register Notice Second round of input after Secretary Recommendations ALA positioned to input with economic report and resale research data

90 Compensation Commission interim report—June 2014 For over a decade, our men and women in uniform have participated in one of the most extraordinary chapters of service in the history of our Nation....They come from all walks of life and all stations; Active, Reserve, and National Guard; serving together to protect our people, while giving others a chance to lead a better life. We owe each and every one of them and their families a tremendous debt of gratitude for their sacrifice, service, and patriotism. Our Nation requires a strong military for our security and for the defense of American values and principles abroad. While we have successfully transitioned from a conscripted force to an All-Volunteer Force, sustaining this force requires responsive and prudent management, especially given the fiscal challenges we face as a Nation. The President’s Principles for Modernizing the Military Compensation and Retirement System, 2014

91 Compensation Commission interim report “…any modernization recommendations must protect the overall value of the current benefits package and the quality of life of the 21st century force—those who serve, those who have served, and the families who have supported them. “ “The Commission also understands that the uniformed services must have modern and relevant compensation tools to continue to recruit and retain the high-quality men and women needed to protect and defend our Nation into the future.”

92 Compensation Commission interim report “…today’s military compensation and benefit programs comprise a series of piecemeal programs. Some of these programs are decades old, while others were conceived to address short-term, force-shaping requirements.” “…fundamental objective is to forge integrated and flexible compensation and personnel management systems that will continue to be valued by Service members.” “…review these compensation programs to determine if they are designed to keep pace with changes in our society, the uniformed services, the preferences of Service members, and the priorities of upcoming generations. Similarly, the uniformed services must be empowered with flexible personnel management tools to shape the force as security needs change. “

93 Compensation Commission interim report “…Much of this growth is attributed to inflation (particularly medical inflation),5 policy-driven increases in compensation to counteract recruiting and retention challenges, and personnel funding that supported 13 years of war. In addition, introduction of several new benefits for Service members and veterans contributed to growth in compensation funding. Regardless of the reasons behind this growth, military compensation funding has consistently represented roughly 30 percent of the DoD budget (with Federal civilian employee compensation representing another 15 percent). “

94 Compensation Commission interim report “The Commission found a widely varied, but deeply interdependent, set of programs, often tied to key life events, such as marriage, childbirth, divorce, injury, health challenges, and deployment. These programs, as a whole, are used throughout the entire military lifecycle, from accession through retirement and post- separation, by all military and dependent populations. “

95 Compensation commission -- exchanges $512 million in appropriations SDT--$188.2 In theater support--$224.5 Other--$99.8 Sales--$13,379 million Earnings--$350 million MWR contributions--$320 million

96 Compensation Commission Interim report issued in June—”Findings” Arrays all compensation programs Major sections on exchanges, MWR and commissaries Thorough research Factual No recommendations Final report February 1, 2014

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99 2014 Congressional Caucus June 24 Rayburn House Office Building The premiere event on the politics & policy of resale Members of Congress Defense experts Pentagon and Administration Officials 2015 session date to be determined when new Congress reconvenes and we know when they are in session

100 2014 Congressional Caucus Congressman Scott Rigell, Seapower and Projection Forces Subcommittee, House Armed Services Committee Steven Parker, Joining Forces Executive Director, The White House Rory Brosius, Joining Forces Deputy Director, The White House Congresswoman Nancy Pelosi, House Democratic Leader (invited) Congressman Eric Cantor, House Republican Leader (invited) Congressman Sanford Bishop, Co-Chairman, Military Family Caucus

101 2014 Congressional Caucus Honorable John Conger, Deputy Under Secretary of Defense, Installations and Environment Mr. Charles Milam, Director, Military Family and Community Policy Steve Ham Defense Policy Advisor to Senator Barbara Mikulski, Chairwoman, Senate Appropriations Committee Ms. Joan Walters, Chief Operating Officer and Vice President for Military Medical Research, Samueli Institute Congressman Walter Jones, Personnel Subcommittee, House Armed Services Committee Senator Tim Kaine, Member, Senate Armed Services Committee Congressman Robert Wittman, Chairman, Readiness Subcommittee, House Armed Services Committee Mr. Tom Philpott, Author, Military Update

102 2014 Congressional Caucus Mr. John Kamensky, Senior Fellow, IBM Center for the Business of Government Congresswoman Susan Davis, Ranking Member, Personnel Subcommittee, House Armed Services Committee Mr. Russell Rumbaugh, Director, Budgeting for Foreign Affairs and Defense, and Senior Associate, The Stimson Center Congressman Randy Forbes, Chairman, Seapower and Projection Forces Subcommittee, House Armed Services Committee Congressman Joe Wilson, Chairman, Personnel Subcommittee, House Armed Services Committee Congressman Buck McKeon, Chairman, House Armed Services Committee

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108 “I don’t think we ought to cut the commissary budget.... I think if we want to look at the stress military families are facing, we need to look at their activities of daily living and look at this holistically.... [The commissary] is one of the most important tools you have for the health and well-being of the military and the garrisons in this country,”

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112 ALA & Resale Protecting the Benefit


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