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Hearing of the Military Personnel Subcommittee of the House Armed Services Committee - Military Morale-Welfare-Recreation


Location: Washington, DC

Hearing of the Military Personnel Subcommittee of the House Armed Services Committee - Military Morale-Welfare-Recreation



To the board, thank you for the panel for your service to our great country, appreciate it.

REP. DAVIS: Mike's not on. You might --

REP. MURPHY: My mike's not working? Better? No?

REP. DAVIS: Is it on? Have you tried -- grab that one.

REP. MURPHY: Is this better? There you go. It always helps if you put the button on.

Sir, you know, I taught at your alma mater, so I don't know -- you know, we've never had those audio issues at West Point.

But again, I want to thank the panel for your service to our great country. And I know your role in keeping the hearts and the minds of our troopers in the right place is greatly appreciated by this Congress.

I want to highlight -- I know we combined the two hearings this year as compared to last, and at last year's hearing on military resell programs, I had pressed Secretary Dominguez about my concern over the exchange's declining profits. Less profits means less money for the MWR dividends, which means less programs and support for our troops and their families. I asked the secretary whether he thought we should increase the percentage of the exchange profits that are used for MWR dividends, and he responded that he believed that the exchange system would be able to reverse the trend of receding profits through cost-cutting measures.

So my question today to the board is do you agree with the secretary's assessment that the exchange system's profits can be increased through cost-cutting measures, and what steps has the exchange system taken in the last year to cut overhead and ensure maximum profitability and how it affects MWR programs?

GEN. THURGOOD: Thank you very much for the question. And let me just highlight from an AAFES perspective, last year we delivered $140 million in productivity, and that was driven through several big buckets in our employee associate productivity, logistics supply chain productivity as well as buying smarter. Those things will continue to move forward. And additionally we will continue to work in a collaborative way with all of our exchanges and MWR sister agencies to drive productivity wherever we can lean it out of the supply chain.

So I think that there is good hope -- and hope's not a plan; let me back up. There is a plan, and you will see that from an AAFES perspective and from the exchanges' perspective that as we continue to focus and leverage our technologies in different ways than we have before, as that technology comes to fruition, as we create a culture of ownership and entrepreneurship and innovation within our own organizations, all of that will drive productivity.

Now, having said that, we can't save ourselves to the future; we also have to be good marketers and grow the top line as well, which is why all of the things that we've talked about earlier -- ASER restrictions, making sure that we have world-class facilities -- we're building those facilities in a way that create a sense of community and a new shopping experience going forward. All of those things drive us toward the productivity that I mentioned, it makes us better competitors in the global supply chain, and at the end of the day, it will deliver better, consistent growing dividends for our -- the MWR program.

REP. MURPHY: Thanks, General.

I know I -- I'm looking at review of my testimony from last year. I know I cited the profit, the dividend ratio, states studied for about 55 to 60 percent of the profits go in the fund, MWR dividends, so we were seeing declining profits. Do we have to expand that or are we locked in at still about the 55 to 60 percent currently?

GEN. THURGOOD: That's probably not a question for me. We'll deliver the dividend and somebody else can figure out how to divvy it up.

ADM. BIANCHI: Sir, I would just offer in the exchange from the Navy exchange perspective, right now our split within Navy is 70 percent of the dividend goes to MWR; 30 percent goes back to the -- into the exchange for recapitalization. We've had this reaffirmed by our board of directors that we have within the Navy that includes three-star-level admirals and representatives from the fleets and so forth. We believe that's a successful model because we had a period of time about 10 years or so ago where we weren't re-capitalizing, and I think what we saw was customer dissatisfaction and that drove footsteps out of there. So it becomes kind of a vicious circle if we're not able to replenish the brick and mortar.

The only other thing I'd offer in terms of efficiencies and so forth, General Thurgood mentioned cooperative efforts. That's been a key area, especially this past year. For example, we've combined with AAFES in stuffing vans that go overseas. That's -- we've increased utilization of those by about -- by almost 10 percent. We're saving about 8 percent on commercial rates by using some of the similar contracts that they have. So I believe we're positioning ourselves to be as efficient as we can at the same time we're trying to drive an increase in sales, which we've seen consistent sales growth over the last six or eight years.

REP. MURPHY: (Inaudible) -- did you want to -- oh, I'm sorry. Go ahead.

MR. LARSEN: From the Marine Corps perspective, if I could, from the Marine Corps exchanges, from our perspective, you know, we feel very good about where we are this year. We have increased our sales and increased our dividend at the same time we've had three of our major stores under renovation. We've also had a significant number of the Marine Corps -- amount of the Marine Corps deployed. And so there needs to be an understanding of why we continue to increase our sales and dividends while we have those other conditions that affect the number of people and the availability of people to take advantage of the benefit.

But a couple of those things is what we have done as an organization. We have centralized our buying. We've -- we have a centralized banking contract that has increased the efficiency of our organization and the way we do business. Another major reason that the Marine Corps is able to provide those dividends and keep them is because the way we're organized and the way that we spend that money. The money is generated on the installation. It remains on the installation. The installation commander then has the latitude to put that money into the programs that he needs to. So there -- so we have the ability not only to generate that income and that revenue but then decide how we're going to spend it.

REP. MURPHY: Thanks very much.

REP. DAVIS: Thank you.

REP. MURPHY: Can I ask a couple -- can I have one more?

REP. DAVIS: One more question, Mr. Murphy.

REP. MURPHY: Okay. I'll waive, Madame, if that's okay.

REP. DAVIS: No, go ahead. Go ahead. We're going to wind up in a few minutes.


I'm a Blue Dog Democrat, which means that I believe in strong fiscal discipline, but I also believe in strong national defense. When we propose government spending we should also propose a way to pay for it. We call it pay as you go here in Washington.

During the Bush administration, far too much of our military funding has been appropriated through supplemental spending bills that do not go through the regular budgetary process. This affects our military's ability to adequately plan, which in turn puts our nation at a strategic disadvantage.

Do the panelists believe that our overreliance on supplemental spending bills has hurt their ability to provide adequate MWR programs? And if so, could they give this committee some concrete examples of the budgetary problems that they have encountered?

REP. DAVIS: Who would like answer that?

MR. LARSEN: I'll take it on for the Marine Corps first.

You know, the Marine Corps I think shares your concern about supplemental funding. We have benefited significantly from that. And the commandant and the leadership of the Marine Corps has recognized that that funding might not be there forever, so they've taken steps to make sure that the programs that we have for the MWR programs and the family programs are funded within the baseline of the Marine Corps' budget. So for the next two years, in FY '08 and FY '09, we will benefit from the supplemental funding, but after that, in the POM, the budget is being developed right now, we -- our programs are funded in the baseline funding for the Marine Corps.

REP. DAVIS: Anybody else? Quickly, Ms. Arsht, did you want to respond? No? Did you want to respond?

MS. ARSHT: Only to say that we've been very grateful for the supplemental funding that we have received. It has been important additional funding to support warfighters and their families in very important ways that we talked about earlier, which is it's allowed us to extend our reach, our emergency intervention in child care, the different ways that we've been able to use our authorities to put programs in place that we didn't have before; whether it's the Playaway, books in the libraries for service members, these are important additions to the budget. But we do see the importance of moving out of supplemental and into the baseline these -- all of these programs.

REP. MURPHY: Would you concur with the Marine Corps? They -- obviously, the testimony was that those had it good by 2010? Is that what your plan is overall, ma'am?

MS. ARSHT: I think that the -- all of the services have talked about this POM being an important one; the conversations from this POM forward would include moving to baseline funding.

REP. MURPHY: Thank you.

Thanks, ma'am.


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