[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



                          [H.A.S.C. No. 112-4]

                                HEARING

                                   ON

                   NATIONAL DEFENSE AUTHORIZATION ACT

                          FOR FISCAL YEAR 2012

                                  AND

              OVERSIGHT OF PREVIOUSLY AUTHORIZED PROGRAMS

                               BEFORE THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

               SUBCOMMITTEE ON MILITARY PERSONNEL HEARING

                                   ON

                   MILITARY RESALE PROGRAMS OVERVIEW


                              HEARING HELD

                           FEBRUARY 10, 2011









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                   SUBCOMMITTEE ON MILITARY PERSONNEL

                  JOE WILSON, South Carolina, Chairman
WALTER B. JONES, North Carolina      SUSAN A. DAVIS, California
MIKE COFFMAN, Colorado               ROBERT A. BRADY, Pennsylvania
TOM ROONEY, Florida                  MADELEINE Z. BORDALLO, Guam
JOE HECK, Nevada                     DAVE LOEBSACK, Iowa
ALLEN B. WEST, Florida               NIKI TSONGAS, Massachusetts
AUSTIN SCOTT, Georgia                CHELLIE PINGREE, Maine
VICKY HARTZLER, Missouri
               Michael Higgins, Professional Staff Member
                 Debra Wada, Professional Staff Member
                      James Weiss, Staff Assistant











                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2011

                                                                   Page

Hearing:

Thursday, February 10, 2011, Military Resale Programs Overview...     1

Appendix:

Thursday, February 10, 2011......................................    25
                              ----------                              

                      THURSDAY, FEBRUARY 10, 2011
                   MILITARY RESALE PROGRAMS OVERVIEW
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Davis, Hon. Susan A., a Representative from California, Ranking 
  Member, Subcommittee on Military Personnel.....................     2
Wilson, Hon. Joe, a Representative from South Carolina, Chairman, 
  Subcommittee on Military Personnel.............................     1

                               WITNESSES

Casella, MG Bruce A., USAR, Commander, Army and Air Force 
  Exchange Service...............................................     5
Gordon, Robert L., III, Deputy Assistant Secretary of Defense, 
  Military Community and Family Policy, Office of Under Secretary 
  of Defense for Personnel and Readinesss........................     4
Gordy, Thomas T., President, Armed Forces Marketing Council......     8
Jeu, Joseph H., Director and Chief Executive Officer, Defense 
  Commissary Agency..............................................     6
Larsen, Timothy R., Director, Personal and Family Readiness 
  Division, Manpower and Reserve Affairs Department, 
  Headquarters, U.S. Marine Corps................................     7
Nixon, Patrick B., President, American Logistics Association.....     8
Robillard, RADM (Select) Glenn C., USN, Commander, Navy Exchange 
  Service Command................................................     5

                                APPENDIX

Prepared Statements:

    Casella, MG Bruce A..........................................    59
    Davis, Hon. Susan A..........................................    30
    Gordon, Robert L., III.......................................    32
    Gordy, Thomas T..............................................   151
    Jeu, Joseph H................................................    93
    Larsen, Timothy R............................................   107
    Nixon, Patrick B.............................................   124
    Robillard, RADM (Select) Glenn C.............................    79
    Wilson, Hon. Joe.............................................    29

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    Mr. Wilson...................................................   177

 
                   MILITARY RESALE PROGRAMS OVERVIEW

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                        Subcommittee on Military Personnel,
                       Washington, DC, Thursday, February 10, 2011.
    The subcommittee met, pursuant to call, at 2:05 p.m., in 
Room 2212, Rayburn House Office Building, Hon. Joe Wilson 
[chairman of the subcommittee] presiding.

  OPENING STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM 
  SOUTH CAROLINA, CHAIRMAN, SUBCOMMITTEE ON MILITARY PERSONNEL

    Mr. Wilson. Ladies and gentlemen, I would like to welcome 
everyone to the second meeting of the 112th Congress of the 
Military Personnel Subcommittee. In particular, I am so 
grateful that we have our freshman Representative here, 
Congressman Austin Scott, and then yesterday of course he 
participated, and I am very grateful today that we have 
Congressman Mike Coffman, himself a veteran and has served in 
Iraq, and I am so grateful for his service. And thank you, 
Congressman, for being here today.
    And then Congresswoman Chellie Pingree from the great State 
of Maine, who has family in South Carolina. So we are very 
grateful to have you here. And of course we couldn't meet if 
Congresswoman Bordallo wasn't back and to be here with 
Congresswoman Davis. But I would like to thank everyone for 
being here today.
    And today the Subcommittee on Military Personnel will 
conduct its second hearing on nonappropriated fund activities 
and will turn its attention to commissaries and exchanges, the 
Department of Defense's [DOD] military resale operations.
    And even as we begin, I want to indicate that I was really 
hopeful that the votes that we will have today would have been 
prior to the beginning of this hearing, but they could be any 
moment. And then if we appear startled and run out the door, it 
is because we are trying to live within the time frame of the 
vote. But the good news it won't be that extended and so then 
we shall return, and you can even figure out when we are coming 
back now, which is a novelty.
    I believe that the commissaries and exchanges are an 
essential part of the health of the military community in 
combat capability, as morale, welfare, and recreation [MWR] 
programs that this subcommittee examined during yesterday's 
hearing. Similarly, we also expect the exchange and commissary 
systems to pursue efficiency during this era of increased 
budget austerity, because we want these operations to provide 
the best service and value to the service members and their 
families.
    However, it must be recognized that the exchanges are not 
big consumers of appropriated dollars and calls for the 
exchanges to save appropriated dollars should be answered with 
factual justifications. There are analysts who are calling for 
more reductions in appropriated funding from the commissary 
system or have questioned the need for the military to operate 
the commissaries at all.
    I believe that the Defense Commissary Agency is a model of 
efficiency in our government with a budget that is less than 
what it was 10 years ago when inflation is considered. Service 
member surveys consistently rate it as one of the most highly 
valued benefits offered by the military that delivers over 30 
percent in grocery savings to families, service members, and 
veterans.
    I believe if the Defense Commissary Agency were eliminated 
that we would have to invent another benefit of equal impact on 
retention and the chances are it would not be as effective or 
as efficient.
    In addition to learning more about the value of the 
exchanges and commissaries and the need to prove they are 
factually justified, the resale community has other challenges 
that we also hope to learn more about today.
    We intend to explore continuing concerns about, first, the 
adequacy of funding for recapitalization; second, renewed 
interest in pursuing exchange consolidation; and third, the 
negative impact on vendors of the 3 percent tax withholding 
imposed by the Tax Increase Prevention and Reconciliation Act 
of 2005.
    Representative Davis, do you have any opening remarks?
    [The prepared statement of Mr. Wilson can be found in the 
Appendix on page 29.]

    STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE FROM 
 CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON MILITARY PERSONNEL

    Mrs. Davis. Thank you, Mr. Chairman, and I am delighted to 
be with you again today, and I want to welcome our witnesses 
here as well. We know that Mr. Gordon and Mr. Larsen joined us 
yesterday, and thank you for being here once again. We 
appreciate your willingness to do that, to come back a second 
day. And General Casella, and Admiral Robillard, and Mr. Jeu, 
Mr. Nixon, and Mr. Gordy, welcome to you as well.
    Yesterday, as the chairman noticed, we mentioned we focused 
on morale, welfare, and recreation programs, and today we will 
look at the military resale community.
    In thinking about our hearing yesterday, we talked about 
military resale in the context of the support programs that are 
provided to our men and women and their families in uniform. 
And we talked about how important, how critical those were for 
a variety of reasons, and I think that that was outlined really 
quite well in that hearing. So we share concern that the future 
of commissaries and exchanges may be being discussed in some 
significant way and some changes, and we want to be part of 
that conversation of course, but we also have to state very 
strongly how important the nonappropriated funding [NAF] that 
goes to our support services is.
    Over the past several years the commissary and exchanges 
have faced a number of significant challenges and you have all 
been aware of them, including the transformation of services, 
the personnel drawdowns, base closure and realignments, and 
force structure changes and movements. And sometimes we 
overlook those decisions about those functions really can 
impact our men and women in a large variety of ways and 
certainly impact our commissaries and exchanges as well. So we 
want to be very mindful of that as we move forward.
    Our military personnel and their families as well as our 
MWR programs have relied on the accomplishments of the 
commissary and exchanges. So we appreciate your leadership and 
your partnership with our private sector partners to ensure 
that we provide the best programs and the best products for our 
men and women in uniform.
    Thank you for supporting our service members. I know when I 
have had a chance over the last few years to address your 
organization I know how dedicated people are to being certain 
that our men and women are well cared for, and I appreciate 
that very much.
    So with you, Mr. Chairman, I look forward to the hearing 
and look forward to the remarks of our witnesses. Thank you.
    [The prepared statement of Mrs. Davis can be found in the 
Appendix on page 30.]
    Mr. Wilson. Thank you very much. And we are grateful to 
have an excellent panel of witnesses today. Mr. Robert L. 
Gordon, the Deputy Assistant Secretary of Defense, Military 
Community and Family Policy Office of the Under Secretary of 
Defense for Personnel Readiness.
    Major General Bruce A. Casella, USAR, Commander of the Army 
and Air Force Exchange Service. And General, the subcommittee 
is sadly aware of the recent passing of your wife Cathie. And 
on behalf of the subcommittee members and staff please accept 
our heartfelt condolences on your loss.
    We are grateful to have Rear Admiral (Select) Glenn C. 
Robillard, U.S. Navy, Commander, Navy Exchange Service Command 
[NEXCOM]. And I appreciate last week the opportunity of touring 
the command and seeing the first class professionals who work 
there.
    Mr. Joseph Jeu, the Director and Chief Executive Officer, 
the Defense Commissary Agency.
    Mr. Timothy R. Larsen, Director, Personal and Family 
Readiness Division, Manpower and Reserve Affairs Department, 
Headquarters, United States Marine Corps.
    Mr. Patrick B. Nixon, President of the American Logistics 
Association.
    And also Mr. Thomas T. Gordy, who is the President of the 
Armed Forces Marketing Council. And we welcome Tom back to 
Capitol Hill. He had a distinguished record of service here on 
Capitol Hill, and then I personally was very grateful for his 
Navy Reserve service in Iraq. And he was my host when I was 
there and made sure that we got to meet as many troops as 
possible and thank them for their service, and we thank you for 
your service in Iraq.
    As was the case yesterday, many of our witnesses are 
appearing before the subcommittee for the first time. General 
Casella, Admiral Robillard, Mr. Jeu, Mr. Gordy. Welcome. Mr. 
Nixon, you have testified before the subcommittee many times in 
the past but not in your current role at the American Logistics 
Association, and again you were previously director of the 
Defense Commissary Agency. And as we hear good things about 
that, we give you a lot of credit.
    I want to welcome to the hearing at some time the gentleman 
from California, Congressman Wally Herger, to the hearing. Mr. 
Herger has asked to participate in the hearing, and I would ask 
unanimous consent that he be permitted to do so following the 
members of the subcommittee.
    Without objection, so ordered.
    And so we will begin right away with Mr. Robert L. Gordon.

 STATEMENT OF ROBERT L. GORDON III, DEPUTY ASSISTANT SECRETARY 
  OF DEFENSE, MILITARY COMMUNITY AND FAMILY POLICY, OFFICE OF 
     UNDER SECRETARY OF DEFENSE FOR PERSONNEL AND READINESS

    Mr. Gordon. Thank you, Chairman Wilson and members of the 
subcommittee. I am delighted to testify before you again today. 
As with MWR, I am grateful for this committee's support for the 
Department's resale activities. Our industry partners here 
today also play a key role in preserving the valuable exchange 
and commissary benefit.
    As the Exchange and DeCA [Defense Commissary Agency] 
commanders will tell you, the state of military resale is 
healthy. Through cooperative and independent efforts we are 
improving the availability of services and lowering out-of-
pocket expenses for service members and taxpayers. Customer 
satisfaction and customer savings are also healthy. In addition 
to internal customer satisfaction surveys, external surveys are 
conducted by the American Customer Satisfaction Index, or ACSI. 
DeCA's 2010 score of 80 exceeded the ACSI commercial 
supermarket industry average of 75.
    Commissary savings on patrons' overall purchases is 31.5 
percent. Exchange savings average 26 to 28 percent with tax 
savings. The 2010 Exchange ACSI scores finished at or slightly 
below the department and discount store industry average of 76, 
with Marine Corps Exchange [MCX] at 75, Navy Exchange Service 
Command at 75, and Army and Air Force Exchange Service at 73. 
Each of the exchange services also conduct internal surveys to 
evaluate and improve customer satisfaction.
    The Department of Defense leadership is fully engaged in 
the oversight of these important benefits. The Executive Resale 
Board, with many of its members also serving on the DeCA and 
Exchange boards is taking an active role to ensure 
complimentary approaches where there are mutual interests.
    My written testimony outlines our ongoing work in greater 
detail. I look forward to working with this committee, and I 
thank you for your support and look forward to your questions.
    [The prepared statement of Mr. Gordon can be found in the 
Appendix on page 32.]
    Mr. Wilson. Thank you very much.
    General Casella.

STATEMENT OF MG BRUCE A. CASELLA, USAR, COMMANDER, ARMY AND AIR 
                     FORCE EXCHANGE SERVICE

    General Casella. Mr. Chairman, members of the subcommittee, 
I want to thank you for this opportunity to testify today. I am 
eager to share with you how the Army and Air Force Exchange 
Service [AAFES] is providing the exchange benefit to members of 
the armed services and their families. First, I would like to 
express my sincere gratitude for your commitment and our 
dedication to protecting and enhancing this important benefit. 
I would also be remiss if I did not thank the committee staff 
for their professionalism and counsel. It is a credit this 
committee.
    I am here today to report to you that AAFES, Army and Air 
Force Exchange Service, continues to succeed in a challenging 
economy. As part of our strategic plan we have focused on 
customer service, business and process efficiencies, and 
investing in capital improvements. Despite the recession we 
were able to generate over $8 billion in 2009 sales, and 
increased sales by 1 percent over plan for 2010, coupled with 
over $260 million of dividends returned to our MWR programs for 
2009 and 2010.
    What I am most proud of is the 4,500 volunteer AAFES 
associates who have deployed in Southwest Asia since early 
2000. Today we have an average of 400 associates deployed in 
Southwest Asia who provide a touch of home to our service 
members in harm's way. I am also proud of the support we 
provide the military community to new facilities. In Germany, 
Kaiserslautern Military Community Center opened in late 2009 
and achieved more than a $1.2 million in sales on opening day. 
In Japan, Kadena Air Force Base main store became our largest 
exchange in the Pacific. At Fort Bliss, Texas, the 52 acre 
recently opened Freedom Crossing lifestyle center, it supports 
over 120,000 soldiers, families, and local retirees.
    With these and other efforts discussed in the testimony I 
have provided for the record, I believe AAFES is on the right 
course to maintain a viable force in the lives of our customers 
and the military community we serve.
    Again, I want to thank this committee for its support of 
AAFES and the entire military resale community as a whole, and 
most importantly the brave men and women of our Armed Forces we 
support. And I look forward to your questions.
    [The prepared statement of General Casella can be found in 
the Appendix on page 59.]
    Mr. Wilson. Thank you very much. And it is interesting to 
me as we serve on the committee to find out that shopping 
centers have been superseded by lifestyle centers, but that is 
really reflecting serving our families.
    Admiral Robillard.

STATEMENT OF RADM (SELECT) GLENN C. ROBILLARD, USN, COMMANDER, 
                 NAVY EXCHANGE SERVICE COMMAND

    Admiral Robillard. Chairman Wilson, Ranking Member Davis, 
distinguished members of panel, thank you for the opportunity 
to appear before you today. It is my privilege to represent 
Navy Exchange Service Command and our 14,000 associates 
worldwide.
    Navy is committed to military and family readiness, and the 
Navy exchange programs are an important part of that 
commitment. Everything we do is focused on our sailors and 
their families. It starts with employing family members. 
Twenty-six percent of our associates are military family 
members. And we listen to our family members. Through surveys 
and focus groups we have learned what is important to them. We 
interact through social media, including Facebook and Twitter. 
We have also developed customer segmentation to focus on the 
differences of our shoppers, allowing us to target merchandise 
assortments at each location.
    Our military families see the Navy exchanges as more than 
just a store. It is a place where they go for that sense of 
military community, particularly for those families whose 
sailor is deployed or those families serving overseas. We 
provide the services they need, whether it is affordable 
lodging when they transfer, telecommunications to keep in touch 
when deployed, ship stores when they are at sea, barbershops, 
gas stations, dry cleaning, and much more.
    I would like to take this opportunity to thank our industry 
partners who help us provide not only value and savings to our 
families, but they support the many events that let the family 
know how special they are. I would also like to thank the other 
members of the military resale community here today. We are 
committed to working together to improving the military 
family's quality of life.
    In closing, I would like to say how proud I am of the Navy 
sailors who serve our country around the world every day. I am 
also proud of our Navy exchange team who is dedicated to taking 
care of sailors. Together with our industry and government 
partners and the support of this subcommittee, we are able to 
do more for the deserving families. On our sailors' behalf, I 
thank you.
    [The prepared statement of Admiral Robillard can be found 
in the Appendix on page 79.]
    Mr. Wilson. Admiral, thank you. We have been joined by 
Congressman Brady, thank you for being here, from the 
Commonwealth of Pennsylvania.
    Mr. Brady. Thank you.
    Mr. Wilson. Mr. Jeu.

   STATEMENT OF JOSEPH H. JEU, DIRECTOR AND CHIEF EXECUTIVE 
               OFFICER, DEFENSE COMMISSARY AGENCY

    Mr. Jeu. Mr. Chairman and members of the subcommittee, it 
is my distinct honor to have been chosen to serve military 
families and who continue to rate the commissary as one of 
their most valued benefits. I would like to talk about the 
value of commissary benefit.
    Too frequently we have limited our definition to patron 
savings, currently 31.5 percent. While savings are at the heart 
of the benefit, there are many other factors that define as 
real value. There are three facets that comprise the commissary 
benefit--quality of life, military readiness, and cost 
avoidance. The quality of life is most definitely measured by 
the patron savings, which can generate $4,400 annually for a 
family of four, which system-wide totaled $2.69 billion last 
year.
    Additionally, there are ancillary benefits provided by our 
industry. They contributed $244 million last year to military 
scholarships, commissary specific coupons and promotions, and 
installation support programs.
    I am pleased that 63 percent of DeCA's workforce is from 
our military family.
    The readiness facet allows our service members to 
concentrate on their mission rather than wondering about the 
well-being of their families.
    The cost avoidance facet describes what the Department 
saves in other areas such as reduced cost of living allowance, 
or COLA rates, better shipping rates for overseas 
transportation. These factors combined provide exceptional 
value and added to the Nation's return on investment from the 
commissary system.
    In closing, I want to thank you for your steadfast support 
of our military members and their families and the Defense 
Commissary Agency. Thank you, sir.
    [The prepared statement of Mr. Jeu can be found in the 
Appendix on page 93.]
    Mr. Wilson. Thank you very much. And Mr. Timothy R. Larsen.

 STATEMENT OF TIMOTHY R. LARSEN, DIRECTOR, PERSONAL AND FAMILY 
 READINESS DIVISION, MANPOWER AND RESERVE AFFAIRS DEPARTMENT, 
                HEADQUARTERS, U.S. MARINE CORPS

    Mr. Larsen. Chairman Wilson, Ranking Member Davis, 
distinguished members of the subcommittee, thank you once again 
for the opportunity to represent the Marine Corps and provide a 
report on Marine Corps Exchange and Retail Programs. I thank 
the Congress, especially this subcommittee, for your continued 
support.
    During 2009, we experienced one of the toughest retail 
economic climates in recent history, yet we exceeded all 
established performance measures. We are completing system-wide 
initiatives that began about 5 years ago to centralize buying, 
recapitalize our stores, and implement branding standards.
    As part of our daily operations we constantly pursue 
program efficiencies through cooperative efforts and 
partnerships with our sister services. We will be focused on 
improving our supply chain and management over the next several 
years.
    Without question, the Marine Corps Exchange is linked to 
our mission of taking care of Marines and families. Our 
operational success is measured on the program's value and 
contribution to readiness and retention and our ability to 
provide a high quality customer service, premier facilities, 
and value goods and services at a savings.
    On behalf of Marines and families, I thank you for your 
oversight and continued support of these critical pieces of the 
military and family community support system. I look forward to 
your questions. Thank you.
    [The prepared statement of Mr. Larsen can be found in the 
Appendix on page 107.]
    Mr. Wilson. Thank you very much. And Mr. Patrick B. Nixon.

 STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN LOGISTICS 
                          ASSOCIATION

    Mr. Nixon. Thank you, Mr. Chairman. It is once again an 
honor to appear before this subcommittee representing the 
members and board of directors of the American Logistics 
Association. I want to take this opportunity to recognize the 
leadership of the chairman and the distinguished ranking member 
over the course of the last several years, in particular your 
support for these vital benefits we will discuss today.
    We have outlined our legislative agenda and issues in the 
prepared statement provided to the committee. Major issues 
where we seek the committee's support are: Full funding of 
commissaries, exchanges, and MWR programs on quality of life 
and retention and readiness grounds; relief from the 3 percent 
withholding requirements of section 511 of the Tax Increase 
Prevention and Reconciliation Act of 2005 in the form of full 
repeal or exemption of MWR and resale programs when it affects 
prices to our men and women in uniform and their families; and 
finally a secure, affordable and expedient method of providing 
access to installations and facilities for industry personnel.
    I look forward to our discussions and I return the 
remainder of my time for Mr. Gordy.
    [The prepared statement of Mr. Nixon can be found in the 
Appendix on page 124.]
    Mr. Wilson. My goodness.
    Mr. Gordy. I will take it.
    Mr. Wilson. This is startling.
    Mr. Thomas T. Gordy.

STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED FORCES MARKETING 
                            COUNCIL

    Mr. Gordy. Good afternoon, Chairman Wilson. Thank you for 
your kind comments earlier. It was certainly a pleasure to host 
you over in Iraq as well as Mr. Coffman when you came over and 
Ms. Bordallo when you came over, especially with the troops 
from Guam, and we had a wonderful meal, didn't we, ma'am?
    Ms. Bordallo. Yes, we did.
    Mr. Gordy. Thank you for inviting me to be with you today 
to offer comments on behalf of the Armed Forces Marketing 
Council regarding the military resale services and the vital 
role they serve in supporting the quality of life of service 
members and their families.
    As we begin the hearing today there are a few facts that I 
believe should we noted first and kept in mind throughout our 
discussion. DeCA continues to receive clean audit opinions, 
demonstrating responsible stewardship of taxpayer dollars. All 
systems continue to maintain or improve their customer 
satisfaction index scores, showing that they are more in step 
with customer needs. All systems continue to provide double 
digit savings for military families. The exchanges continue to 
post strong dividends in support of military quality of life 
programs. All systems continue to recapitalize their stores and 
modernize their systems, seeking to always provide military 
families with a quality shopping environment and experience 
while driving efficiencies whenever and wherever possible.
    The military resale systems also provide expeditionary 
support to the warfighter, particularly AAFES and MCX which 
supports the needs of our warfighters on the front lines in 
Iraq and Afghanistan, while NEXCOM supports our service members 
in places like Guantanamo Bay and Djibouti. And all rapidly 
deployed to support troops mobilized to respond to natural 
disasters such as the devastating earthquake that struck Haiti 
last year. The civilian employees of the exchanges who deploy 
in support of contingencies are to be commended for their 
commitment and dedication to serve our warfighters in these 
difficult environments.
    As our economy has struggled to regain momentum, we have 
seen the value of food stamp usage among commissary patrons 
triple since 2007. Thus, the benefit is as important as ever in 
supporting the financial readiness and the health and well-
being of our service members and their families.
    The view of the Armed Forces Marketing Council is that the 
military resale benefit continues to work well. It is honest, 
it is efficient, and it is responsive. Its success derives from 
the unfailing commitment that the systems have made to the 
customer service, patron savings and to continued process 
improvements and efficiencies to keep costs and thus prices 
low.
    However, as we look to the future there are policies, 
practices and proposals that we believe warrant Congress's 
attention and action in order to prevent them from adversely 
impacting the resale benefit.
    And I will look forward to answering your questions 
regarding these and other issues. Thank you.
    [The prepared statement of Mr. Gordy can be found in the 
Appendix on page 151.]
    Mr. Wilson. Thank you very much. It is anticipated that we 
will have three votes, one 15, two 5-minute, between 2:30 and 
2:45, but we will proceed. But we will recess and proceed 
quickly and come back.
    At this time, again I would like to thank all of you for 
being here today, and for Mr. Gordon a question I have, we all 
understand more than ever base security is more important than 
ever and the vulnerability of our bases. The Department of 
Defense does not operate a uniform process for acquiring base 
access credentials for employees of the companies that deliver 
goods and services to the network of exchanges and commissions. 
What is your perspective of government and private sector 
efforts to provide vendors and brokers base access cards, and 
what is the status of the Department of Defense's efforts to 
address this problem?
    Mr. Gordon. Thank you, Mr. Chairman. We did meet recently, 
a month ago, about this very issue. It is very important of 
course just in terms of both efficiency and effectiveness to 
determine ways that we get our vendors on our posts and bases 
across the world. And it is an issue because of course it bumps 
up against the security requirements for our installations 
within the wake of a new era where we have to pay attention to 
security in much more important and measured ways. But we are 
committed to finding an alternative and a solution. It is not 
just about the Department of Defense, though. This is a whole 
of government approach, whether we are talking about our other 
agencies in terms of access to our facilities and our 
installations. Yet at the same time we are committed to finding 
a solution. We met recently about it. We are looking at ways 
where we can bring together both the commercial sector and our 
partners and our department and a whole of government approach 
to making sure that vendors have some sort of identification 
that they can get onto our facilities. So we will continue to 
work it, and I would love to keep you up to date on it.
    Mr. Wilson. Well, that is so important. In fact, Mr. Nixon 
and Mr. Gordy actually brought it up. And both of you, Mr. 
Nixon and Mr. Gordy, can you tell us about the secure vendor 
identification system that has already been developed by the 
private sector but hadn't been adopted, sadly, by DOD?
    Mr. Nixon. Yes. Mr. Chairman, first of all I would like to 
compliment Secretary Gordon for his transparency on this issue. 
He has met with us as well as meeting with the Armed Forces 
Marketing Council and Coalition of Military Distributors to 
discuss this issue and have a better understanding of the 
impact on industry.
    We have been working this issue for 6 years now, and it 
seems like it is one step forward and two steps backwards. We 
have worked closely with the Department on a federated solution 
that was actually initiated by the Department, and while that 
appears to meet all the requirements of HSPD-12, which is a 
controlling directive, the Department didn't recognize it as a 
solution. In fact there are some folks within the Department 
said a federated solution is not what they are looking for.
    An alternative, we have a company who is a member of the 
association, Eid Passport, has developed a system called 
RAPIDgate that has been adopted by the Navy and the continental 
United States for access to vendors. In a meeting with the 
Department they told us that RAPIDgate did not comply with the 
purported solution as well. So it appeared we ended up somehow 
stuck between the Department arm wrestling with itself on what 
is between the policy and the practices of what the right 
answer is going to be.
    In our written testimony is a little more gloom and doom 
than I think actuality now. February 3rd, the White House has 
issued a directive that all Federal agencies will comply with 
HSPD-12 this year, and our goal is a single solution that 
industry can use for all activities, and this appears to be 
what we are looking for.
    Now, there is a deadline of a date in March when the 
policies and procedures for each agency must be submitted to 
the OMB [Office of Management and Budget] and be certified that 
they are going to comply. If not, it is OMB's intention to 
withhold funding from agencies that do not comply with it. So 
we are going to go to both of our credential providers, have 
them certify that they meet these criteria, send that 
certification to the Department, make sure it is validated. And 
if this is in fact implemented as the White House says, then we 
expect a solution to take place this year.
    Mr. Wilson. Thank you. And Mr. Gordy.
    Mr. Gordy. First of all, I just want to commend Mr. Nixon. 
He has been really the champion on this issue for the industry 
and he has been our subject matter expert. And I really don't 
have anything to add to what he said other than from the Armed 
Forces Marketing Council's perspective, what we are concerned 
about is the interoperability of systems. As Mr. Nixon pointed 
out there, having one system would work best, but if the Army 
brings on one system, the Navy brings on another, and the other 
services yet go to different agencies or have different 
systems, it could mean that a vendor, one of the employees of 
the vendors, has to have four different CAC [common access] 
cards in order to access the different bases. That could lead 
to potential fraud. It also is very expensive. In order to get 
one of those cards then would you have to have a background 
check for each one of those cards. So this becomes very 
expensive for the vendor community, and we would hope that 
whatever systems are adopted that they are interoperable so 
that the vendor could have one card that would work at each 
base regardless of which service operates that base.
    Mr. Wilson. Well, thank you all. And thank you, Mr. Gordon, 
for helping to spearhead. Ms. Davis.
    Mrs. Davis. Thank you. Thank you, Mr. Chairman and again 
for all of you being here.
    We addressed this a little bit I think yesterday just in 
talking about some concerns that we might have about the 
exchange and commissary systems throughout our bases and our 
communities. I wonder, Mr. Gordon, if you could address for us 
whether there are any rumors, particularly as they would 
address the consolidation of the exchange consolidation, that 
would be helpful for people to hear. We know that there were 
several years there between I think 2000 and 2006 where that 
was a major area of discussion, and I was wondering if we have 
a chance to examine that today.
    Mr. Gordon. Thanks very much. I am not aware of any at this 
point discussions in terms of considering a study once again to 
consolidate our exchanges. You know, as we all know, this has 
been studied many times, about six times, in the past 42 years. 
What I am really excited about is the kind of efficiencies 
first of all that the leaders have found working together 
really in partnership because our services are different. They 
are the same but different. They are the same in terms of 
defending this country, but they have different slices of that 
sort of defense. So if you take the demographics of our 
services, they cater to those sorts of demographics.
    It is interesting, I think, when you visit the headquarters 
of our various resale activities how they have been very 
thoughtful about the demographics and how they outreach 
basically to their communities to provide the best benefit, but 
also the best value.
    I just want to note what Mr. Jeu said about the $244 
million that our commercial partners offer in terms of 
corporate social responsibility, you know, from scholarships to 
coupons. That sort of innovation I believe occurs because we 
have got different sorts of exchanges who participate with 
collaborative programs, and we have done that, who think very 
innovatively about how to outreach to their communities. So the 
good news story is you continue to see both the benefit and 
value go up with this system that we currently have, and the 
kinds of innovation and creatively can continue to occur with 
the kind of system we have.
    Mrs. Davis. Thank you. Mr. Nixon or Mr. Gordy, would you 
care to comments on that at all?
    Mr. Nixon. I would just mirror the Secretary's comments 
that this has been studied. If you were to look at the numerous 
efficiencies that have been garnered by the exchanges' 
cooperations to date, clearly they have partnered in many 
initiatives, supply chain efficiencies, and I think to 
undertake another study would be throwing good money after bad. 
It has been looked at and it just doesn't work.
    Mr. Gordy. Exactly. I mean I showed Mr. Wilson last week a 
stack of studies that were this tall of all the studies that 
have been done on exchange consolidation. And we know about the 
$17 million that have gone behind this. Millions and millions 
of dollars that have studied this and to go, you know, to any 
discussion that could be put forward. And we are thankful that 
it is not coming from the Department, but we are hearing it 
more from outside the Department where people think that this 
is a solution, but yet it is one of those items that it sounds 
good, it looks wonderful on a PowerPoint presentation, it 
briefs well, but when you start doing the studies and the 
analysis you realize it does not deliver the efficiencies or 
the savings that they promise.
    Mrs. Davis. I wonder if General Casella, or Admiral 
Robillard, or Mr. Larsen, what immediate challenges do you see 
facing the exchange system as we look at that today, aside from 
the fact that we are not perhaps looking at the consolidation, 
but what challenges do you see?
    General Casella. Great question. I think from our 
perspective at AAFES some of the challenges that we see today 
is probably trying to keep pace and be in a very competitive 
mode with our counterparts on the commercial side of the house.
    Today we are really getting into social media and to try to 
work that. We are working our dot.com sites. The paradigms in 
our community have changed over the years. We used to have 70 
percent of our folks living on base and 30 percent off base. 
And now that has flipped. So there is only 30 percent living on 
base and 70 percent living off base. And then a lot of those 
Guard, Reserve, and retirees are in the community not even near 
a local base or garrison out there to receive those benefits.
    So one of our challenges is how do we tap those and let 
them tap into this benefit resource and take care for their 
families and save money.
    A couple of things that are a challenge for us is where we 
have enhanced our dot.com sites to allow them to shop online 
and get the same savings with free shipping for certain costs 
you pay for certain goods. It is an excellent approach. It 
allows us to tap into a whole host of commodities.
    Our biggest store has 250,000 unique items in it, if you 
went to a store. Online we have 18 million. So if you do the 
math, you find out that if you want to tap into all the 
products and resources out there, you want to touch your 
community on the dot.com side.
    We are also getting into innovations too with smartphones. 
A lot of folks now are doing consumer shopping and comparison 
shopping with their smartphones. And we are developing that 
technology along with the other folks on the panel here to help 
leverage that to provide our families and our warfighters out 
there with those opportunities. So that is a challenge for us.
    I think another challenge for us is the Army is in huge 
transformation. The Air Force on our side of the house is 
fairly stable, but the Army is in huge transformation. We have 
large numbers of brigade combat teams consisting of 4,000 or 
more folks each and large shuffling going on with BRAC [base 
realignment and closure] moves, transformation, et cetera. With 
that comes a lot of movement, change, construction, a lot of 
effort that we have to be focused on. We are, we have a great 
plan for that, but it is a lot of big muscle movements for us.
    And I think, thirdly, for us is probably the OND [Operation 
New Dawn], OEF [Operation Enduring Freedom] support that we do 
overseas. We have got a great handle on that, a great process, 
and we are trying to work that transformation as well in terms 
of downsizing in OND and taking care of the requirements in 
Afghanistan.
    Mrs. Davis. Thank you.
    Mr. Wilson. Thank you very much and we have been joined by 
Congresswoman Hartzler of Missouri and Congressman Rooney of 
Florida.
    Our next question would be from Congressman Mike Coffman of 
Colorado.
    Mr. Coffman. Thank you, Mr. Chairman. I am not sure who 
would answer this question, but I believe that in South Korea 
where we currently have 28,500 military personnel and that now 
there is a movement afoot to take that from an unaccompanied 
tour to an accompanied tour, and to bring the dependents 
forward, and that we have to develop the infrastructure for 
that.
    Do you have any idea of what the costs will be relative to 
developing the exchange and commissary capability there to 
support those dependents? And where would that money come from?
    General Casella. Well, Congressman, now I guess my 
challenge is--I am not sure I have the exact figures for you 
for the cost data, but I will tell you that we are working in 
consolidation with the folks here on the panel to come up with 
a consolidated solutions at Camp Humphreys. Camp Humphreys 
actually is the center of gravity for the transformation off 
the DMZ [demilitarized zone]. And we figure about 40 percent of 
our population will be collocated at Humphreys once that 
installation is complete.
    One of the things the Army and Air Force exchange system is 
doing is we have already negotiated and already got the 
agreement through the folks in Korea to do a new main exchange 
at Camp Humphreys along with a relocation of the commissary as 
well, the commissary can talk about that as well, to provide a 
great resource for those families that are coming over.
    The budget for this, the dollars that are associated with 
this are in our program. We have programmed those, they are 
part of our master planning process. We have gone through 
several iterations of design to make sure we are on track. In 
terms of what we have to put up to make this appropriate and 
the Korean Government itself is also paying for certain funds 
to allow this to take place, too.
    Mr. Coffman. Do we already have the contracts in place in 
terms of building those facilities or have they yet to be put 
out?
    General Casella. I think as we speak today those contracts 
will have to be put out but they are part of our master plan. 
We are in the design phase right now, requirements and design 
phase. But it is definitely on the agenda to do. We have got 
the milestone set. I don't see any--our biggest hurdle was to 
get the final agreement, it just happened last month, to get 
the final agreement of where we are going to put the 
facilities. For us there is a little more challenge, because we 
also have to consider our warehousing operations and our 
bakery, it is also in the community. But those will come with a 
master plan so I think we are on track and right now we are in 
a design phase.
    Mr. Coffman. Okay.
    Mr. Nixon and Mr. Gordy, what would be the effect of a cut 
in funding of 5 or 10 percent relative to commissary funding?
    Mr. Nixon. Devastating, in a single word. The principal use 
for the appropriation for commissaries is personnel. And 
probably the next largest group is transportation. So any cut 
of that magnitude would immediately evolve into either 
reduction in days and hours of operation or closures of 
commissaries which would simply just begin to spiral to devalue 
the benefit.
    The one thing that I think that the message that we 
industry members like to pass is that savings is built into the 
DNA of these organizations, these resale commands up here. 
Because of the partnership with industry, every decision they 
make is either about increasing savings to the patron or 
savings to the patron or delivering dividends back to the 
installations. And so they have been involved in savings for a 
long time now. Defense Commissary Agency consolidation was 
based on savings. And it saved over a billion dollars from that 
consolidation in taking out cost of supply chain and 
construction and other associated costs. So any reduction, 5 
percent, 10 percent, immediately goes to personnel and 
immediately reduces the benefit.
    Mr. Gordy. I would add that if you take a look at DeCA's 
budget even from last year, it has already been cut by $40 
million and now we are looking at potential cuts again this 
year. DeCA has been for the past decade trying to become as an 
efficient organization as it can be. So if you look at DeCA in 
context of what you have you done for me in the last year, that 
is too short term of a view. You really have to look back over 
the last 10 years and to see what DeCA has done to reduce its 
costs in order to make this benefit as efficient and effective 
as it possibly can be. Granted, are there areas for more 
efficiency at DeCA? Potentially, yes. But when you start 
talking about cuts at the level of 5 percent or above, now you 
start talking about going beyond just efficiencies at the 
headquarters level to actually reducing store personnel. If you 
start reducing store personnel, you start having to reduce 
hours, you start having to shutter stores. And when you get to 
that point the military patron loses their benefit.
    So our concern is that any of these cuts that go beyond 
just achieving efficiencies at the headquarters level that 
actually go towards reducing the benefit or going to cut store 
hours or close stores, that starts effecting the military 
patron and that is something that we are very concerned about.
    Mr. Coffman. Thank you.
    Mr. Wilson. Thank you very much. Congresswoman Madeleine 
Bordallo of Guam.
    Ms. Bordallo. Thank you very much, Mr. Chairman. I do have 
a couple of questions here. And first of all, I want to thank 
all of our witnesses and of course Mr. Gordon and Mr. Larsen 
back again. Thank you for appearing today and providing us with 
your testimonies. I do promise, gentlemen, to stay away from 
the ever contentious issue of alcoholic beverage resale on 
Guam. But just a reminder it is still on my future agenda.
    The first question I have is for Secretary Gordon. In last 
year's House passed defense authorization bill there is a 
reporting requirement that I requested from the Department of 
Defense on its efforts to locally procure fresh meat, poultry, 
seafood, fish, and produce for commissary and exchange stores. 
Now that report was due on May 1st, 2011. Can I get a 
commitment that the Department will make every effort to get us 
that report on time? And I think, Mr. Gordon, you would be the 
one to answer that.
    Mr. Gordon. I will definitely look into it and expedite it.
    Ms. Bordallo. Okay. May 1st.
    Mr. Gordon. May 1st.
    Ms. Bordallo. 2011.
    Mr. Gordon. I hear you.
    Ms. Bordallo. I firmly believe in sustainability practices 
when it comes to our commissaries and exchanges, and here in 
the House we begin the greening of the Capitol initiative which 
has led to fresher food products in the meals that we eat. 
There are many benefits, including environmental cost savings, 
and improved health quality which improves the health wellness 
in the readiness of our men and women in uniform. So I would 
like to hear, I guess first from you, Secretary Gordon, to what 
extent is each of services and the Department as a whole 
looking at sustainability practices for our commissaries and 
exchanges?
    Mr. Gordon. I think we look at that very much in terms of 
sustainability. I think it is aligned also with once again this 
notion of innovation because, as we know, in an austere, 
fiscally austere environment you have to bring in partners to 
ensure that sustainability of both the benefit and values. It 
is not just about the benefit because the benefit as we know is 
a value in terms of recruitment and retention and readiness. 
But it is also the value proposition of what would bring a 
service member and their family to our commissaries and 
exchanges.
    Some of that sustainability comes with systems, and I think 
you would be very impressed if you go to the headquarters of 
these facilities and see the kind of information technology 
that they have now. Also the returns to scale by combining 
certain sorts of operations, our military STAR Card is an 
example of that. That begs the sustainability as well as we try 
to streamline efforts to ensure that each service complements 
one another in terms of finding ways of combining their efforts 
to ensure a long-term benefit in value.
    With that, let me turn it over to the AAFES Commander.
    Ms. Bordallo. General Casella.
    General Casella. Well, that is an excellent question for 
the AAFES because we are heavily engaged with sustainability 
and all the initiatives that go with that.
    Specifically, we have kind of embedded this whole approach 
in everything we do today. We have just been recognized I think 
earlier this year from Department of Energy for some of the 
great work we have been doing in water management, water and 
energy conservation, and fleet management, because we actually 
have our own fleet of vehicles as well. And that includes 
consumption, gasoline consumption and how we do more 
efficiently and operate on the highways. So we did get an award 
there, that is a start for us, but it is not the end.
    We also are involved in several LEED [leadership in 
environmental and energy design] silver projects in terms of 
what we do. And these LEED silver projects were already 
introduced at Randolph Air Force Base, Fort Polk, Fort Bragg, 
and Fort Bliss as well. And if you went to our new lifestyle 
center in Fort Bliss, Texas, you would see that we have many 
enhancements that we put not only there but in also our stores. 
Some include energy saving lighting systems where if you walk 
up to the counter they will turn on and if you leave they turn 
off and save energy. We have 30 and 40 percent reductions in 
basically water consumption for our bathrooms and some of the 
things that we use for water consumption. Air conditioning, we 
are using better air conditioning materials now. So in effect 
we save energy there too as well as for some of the insulation 
that we are using.
    Flooring, flooring that we use in our facilities is huge. 
We now have a flooring solution we use which allows us to give 
a high polished approach to concrete and saves maintenance 
costs tremendously. And we also use recyclable materials for 
building our new facilities, which is a huge effort in terms of 
our reusing those materials.
    So we are incorporating that not only in our lifestyles, 
but all of our image upgrades, too, that we are doing across 
our infrastructure, and that is where the bulk of our efforts 
are going to be.
    Ms. Bordallo. Thank you, General. It sounds very good and 
of course we will have to hear here from the Admiral now.
    Admiral Robillard. Yes, ma'am. I just want to talk a little 
bit about sustainability. One of the issues to be sustainable 
you have to be relevant. So one of the issues we deal with 
significantly is how do we deal with a new generation of 
demographics and how are we going to continue to make sure that 
they shop our exchanges and recognize the benefit we bring to 
them. So the entire effort that we do with segmentation is 
really about sustainability, to make sure we are relevant to 
our future sailors.
    When it comes to energy we do many of the same things as 
General Casella. We partner and we actually use best practices. 
I go to many of his stores as he does with ours to get an idea 
of some of the things that we do. But LEED silver, any new 
projects that we do today are built to a LEED silver standard. 
In fact, Bethesda, which is being planned over the next year, 
will be built to a green gold--LEED gold standard, and it will 
have the first green roof. So when you go there you will see 
you could actually put cows on the roof up there if it could 
hold it.
    When it comes to energy reductions, again that is 
significant not only for us but our entire department. So 
wherever there is a requirement for energy reduction we are 
really leading that, because we do a lot of renovations. So 
wherever we renovate we adhere to the latest energy savings as 
possible.
    Ms. Bordallo. Very good. Mr. Jeu, yes.
    Mr. Jeu. Defense Commissary Agency is also committed to 
sustainability. In fact, every major decision we make relating 
to a facility we are always thinking about how can we conserve 
our energy and environmental. And in fact we have created 
environmental management system where all our major decisions 
are processed through it. And some of the things we are doing, 
the same thing as what AAFES and NEXCOM are working on.
    As you know, when you look in grocery store we have all 
these refrigeration units. They are heavy users of energy. So 
now we go into all the refrigeration units with the doors so 
that they will not lose energy efficiency. We are also into 
recycling all the cardboard boxes, as a grocery store we 
generate quite a bit of those, tons. And so just about 
everything we do we think about sustainability.
    Ms. Bordallo. Thank you. And just one last comment, Mr. 
Larsen.
    Mr. Larsen. Thank you, just one point that is just a little 
different tack. I think we all do very similar things in most 
of those areas, but one additional point is I think we need to 
take a balanced approach. And there is a connection here to 
exactly the question that Congresswoman Davis asked a few 
minutes ago, and that is about the threat. And I think one of 
the things we need to look at is the balance of appropriated 
and nonappropriated funds. Those areas that are appropriate 
appropriated fund requirements need to be funded. Because when 
we don't then we take and we use NAF money to pay for those 
expenses. We then either have to do two things, diminish the 
dividend or we have to increase the prices. And when you do 
that, that becomes a threat to the sustainment of all of our 
facilities.
    So just a little different slant on the issue.
    Ms. Bordallo. Thank you. Thank you, Mr. Larsen. And I am 
going to look forward to visiting some of these facilities very 
soon.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Wilson. Thank you, all. We will recess and return after 
the vote.
    [Recess.]
    Mr. Wilson. Ladies and gentlemen, thank you for returning. 
And we are delighted to proceed with the hearing. Congresswoman 
Pingree.
    Ms. Pingree. Thank you, Mr. Chair. I appreciate being 
welcomed onto the committee. Thank you for that. And thank you 
all of you for your testimony. I learned a lot today. And I am 
glad to be here with all of you.
    I have a couple of questions that are very specific to 
Maine, so I hope you will indulge me. The first one is for Mr. 
Gordon. Thank you for all of the testimony that you provided us 
today. I imagine that you may know that the Brunswick Naval Air 
Station, which is in my district, was selected for closure in 
2005 during the BRAC process. And with it, the Navy has decided 
to close both the commissary and exchange at the base, a 
decision I must say I wholeheartedly disagree with. This 
decision will negatively affect the military population that 
should continue to be able to use these facilities, including a 
significant population of retirees. There is a very large 
Active Duty population in the immediate area, starting with the 
Supervisor of Shipbuilding, part of NAVSEA [Naval Sea Systems 
Command] that is stationed at BIW [Bath Iron Works], a mere 6 
miles away from the stores. There is also a Marine Corps 
Reserve battalion and an Army National Guard unit that are 
moving onto main side in the coming months. Construction is 
already underway. So I believe these sailors, soldiers, and 
marines are entitled to the savings and quality of life that 
you have all described so very well today.
    I realize the decision to close those stores is because the 
Navy decided to close Brunswick. But the Active Duty and 
Reserve population I have just described have a mission 
unrelated to the Brunswick Naval Air Station, and their mission 
continues today.
    So my question, you can imagine, is given the significant 
Active Duty, Reserve, and retiree population that continues to 
serve and reside in the mid-coast Maine area, is the Navy's 
decision to close these stores consistent with DOD guidelines?
    Mr. Gordon. Well, what we are trying to do is determine the 
degree to which--and we haven't done this yet, of course, 
because we are waiting for a GAO [Government Accountability 
Office] review.
    Ms. Pingree. Right.
    Mr. Gordon. And once we are able to get that review, we are 
going to take a very close look at it and determine the way 
ahead. But we think it is important for the process to let 
itself out in terms of review. And we are anticipating that as 
a result of that, we will take a look at all the issues and 
make a decision.
    Ms. Pingree. Great. I appreciate your saying that. I know 
we are all waiting for the GAO study.
    Mr. Gordon. Yes.
    Ms. Pingree. But we do believe that there is significant 
business that would be done there.
    Mr. Gordon. Yes.
    Ms. Pingree. And for the many families who have served our 
country and the many Active Duty personnel who are there, as 
you have all said so well today, it is a very important 
resource.
    Mr. Gordon. Yes, it is.
    Ms. Pingree. Particularly to an area that is being BRAC'd 
and losing a lot of resources at the same time.
    Mr. Gordon. Yes. I understand.
    Ms. Pingree. Well, thank you. And thank you for your work.
    Mr. Gordon. Thank you.
    Ms. Pingree. I have one other Maine-specific question for 
General Casella. And thank you, General, for your testimony 
today and for your service. You probably know that the Maine 
Air National Guard in my home State of Maine operates out of 
the Bangor Air Force Base. The 101st Air Refueling Wing has 
been running 24-7 operations since 9/11. Because of the 
increased operations tempo, the Army and Air Force Exchange 
Service--I guess you call it AAFES, I am trying to get those 
things right--the AAFES BX [base exchange] has performed very 
well. But as I am sure you know, Air National Guard exchanges 
do not currently receive dividends from store profits like 
their Active Duty Air Force counterparts. I understand Active 
Duty stores send their dividends back to the MWR programs, and 
the Air National Guard does not have MWR programs. However, 
there are family readiness and support programs that could 
benefit from these dividends.
    Given the increased usage at the Air National Guard 
exchanges like this one in Bangor, would you consider being 
supportive of Air Force policy being changed to allow AAFES 
dividends to be distributed to Air National Guard bases that 
have exchanges that earn a profit? These dividends certainly 
could really help the family readiness programs that our 
Reserve Component relies on.
    General Casella. That is a great question because you know, 
dividends is very important to what we do. And we want to make 
sure that all the families and warfighters out there are 
supported. It turns out that we actually do give dividends to 
Guard members. If you looked at our overall structure of 
dividends, we give primarily to the Army. The Army gets the 
bulk of those because of the Active Component of the Army. Then 
the Air Force gets the bulk of those.
    But then if you look at our Reserve elements, we actually 
give to the Army National Guard, the Army Reserves, and the Air 
Force and Marines and Navy, believe it or not, because we 
support the Navy and Marines, too, in different locations. So 
we have dividends that go to all those families.
    And I have a breakout chart that I show everybody. It is a 
small figure, but you have to--basically, the way the system 
works is you can attack this two ways. One way is all those 
elements that legitimately follow the rules and put in for unit 
morale welfare funds, they can apply for those and set up a 
unit account. I think it is called--it is a unit account, 
basically. If they apply for those and get them, then they 
become an eligible member to get the dividends. That is one 
approach. That is a pretty small amount of money, but it is 
appropriate and they can get that. And we do give that to a lot 
of the Army units that apply for those. But you have to set up 
an account, conduct minutes, have a meeting, figure out what 
you are going to do with it, and get it authorized. And that is 
one mechanism.
    But then the other plan is actually to go back to the Air 
Force and suggest, you know, can you really look at your 
dividend policy? We don't set that policy. That is something 
that we just adhere to. Whatever the Air Force policy is, along 
with the Army policy, we distribute the dividends based on 
their rules. So it is not for me to say, but definitely 
something that can be brought up in those service channels.
    Ms. Pingree. Great. Well, we will certainly follow up on 
that and do that. Thank you both.
    Mr. Wilson. Thank you very much. And what a great honor for 
all of us to have you here today. And what I would like to do, 
with the consent of all members, we would like to proceed with 
a second round, but with a hard stop at 4 o'clock due to other 
meetings.
    And so a concern that I have, the Tax Increase Prevention 
Reconciliation Act of 2005, TIPRA, threatens to impose a 3 
percent withholding tax penalty on military resale vendors. Mr. 
Gordon, General Casella, Admiral Robillard, Mr. Larsen, and Mr. 
Jeu, do you see a challenge for your organizations and your 
patrons with regard to the implementation of this law?
    Mr. Gordon. I will turn this over to the resale commanders, 
but absolutely, yes. I mean, at the end of the day, you know, 
those increases will potentially be passed onto our consumers, 
our patrons. So it is an issue. I will again let the commanders 
elucidate, but we have literally 13,000 vendors and more, a lot 
of those small businesses, where that tax will come out of 
their bottom line up front, basically, and will challenge their 
ability to be able to continue their services and the products 
that they provide for our service members and their families. 
So at the end of the day, it is costly, it will affect our 
service members, it will affect our infrastructure, it will 
affect our partners.
    General Casella. From an AAFES perspective, I would like to 
address this. This is a very important issue for us, and we are 
very focused on this. We hired a consultant last year to 
already start looking at the impacts of this, because we know 
with the extension that it is going to be effective in January 
of 2012. And so it turns out that the way things are rolling 
now, we would have to commit and start actually committing 
money to this approach about middle of this year in order to be 
compliant, if it kept going the same path it is on.
    We have looked at the impact of this, and it is huge. 
Definitely it is going to have an impact on how we do business 
with our vendors. These 13,000-plus vendors that AAFES has, 
quite honestly, the 3 percent puts a burden on them. When I am 
not in an Army uniform, I am a small business part owner 
myself, because I am in the Reserves. But bottom line is that 
it puts a huge burden on small businesses to have that 
withholding, because they need that cash flow in order to keep 
going. So that is a huge thing for them. We anticipate they 
would in turn raise the cost of our products, or decide not to 
do business with us, because the same constraints may not be on 
their commercial counterparts they are working with.
    So it is going to be a twofold impact for us. And 
specifically for AAFES itself, for supplier cash flow, we have 
estimated an annual loss due to reduced offsets to cost of 
goods sold to be about $41 million because of this effort. On 
top of that, we estimate that our estimated annual loss to the 
vendor cash flow will be $125 million. Estimated annual cost 
increase to the Exchange will probably be $23 million. 
Internally, because of the modifications that we have to make 
to account for all these changes, it is going to cost us 
probably around half a million dollars. And we have to probably 
hire more folks for reconciliations we have to do between the 
contract works and the resetting those.
    And also, then likewise as I said, the impact on small 
business. It is going to have a huge impact across our--in 
turn, all these will affect our dividends.
    Mr. Wilson. Well, that information needs to be shared with 
Members of Congress, and I will.
    Admiral Robillard. Sir, we are certainly not as large as 
AAFES, but I would like to tell you that we have very similar 
concerns. Right now it is probably one of our number one 
impacts that we have to worry about. Very soon we have to, 
within again the next few months, we will have to start 
spending money to implement this. And we think in our estimate 
that it will be almost a million dollars to implement it, and 
then a recurring cost of at least $200,000 a year just to work 
those reconciliations.
    Our biggest concern is really our vendors. We have a lot of 
small vendors. We have 5,000 vendors that would fall under this 
act. And a lot of those vendors, because they are already 
providing us what we think is best pricing, because of their 
sense of commitment to the military, are operating on very low 
cash flows. And so what they will have to do is borrow money, 
and, again if they have to borrow money to make themselves 
viable, then they will have to pass that cost onto us. And so 
really it is a reduction in benefits as a result of it. So 
again, we feel very strongly, mostly because it is an impact to 
our vendors, which again will impact our constituents as well. 
Thank you, sir.
    Mr. Wilson. Thank you.
    Mr. Larsen. Mr. Chairman.
    Mr. Wilson. Yes.
    Mr. Larsen. Yes, sir. You know, we share the same concerns 
that NEXCOM and AAFES have expressed for the Marine Corps 
Exchange System, so there will be for us an impact on labor and 
an impact on systems that we will have to cover those costs.
    We have also heard that the Senate Finance Committee may be 
considering a GAO study on this topic. And if that is the case, 
you know, that would be a step in the right direction. But our 
issue is we have to start putting things in place now if they 
are going to implement this in January. So there is a timing 
issue here that we need to get in alignment if we can. Thank 
you.
    Mr. Wilson. Thank you very much. And Mr. Jeu.
    Mr. Jeu. Mr. Chairman, we at DeCA are also deeply concerned 
with this law. The 3 percent withdrawal requirement would 
adversely impact nearly all of our contractual agreements we 
have with our vendors. And from discussion with the industry 
members, this withholding cost will be passed on to our 
customers. And in fact, one of our largest brokers estimated 
that they would have to increase our cost of goods by between 4 
to 5 percent, and that will be obviously passed onto customers. 
So we are deeply concerned with the potential price increase. 
Additionally, there will be significant administrative and 
system costs, as others have mentioned.
    Mr. Wilson. Well, I want to thank all of you. This is 
somewhat startling to hear people who represent government 
entities concerned about patrons and small businesses. This is 
very refreshing. I now refer to Mrs. Davis.
    Mrs. Davis. Thank you, Mr. Chairman. As you all know, 
second destination transportation [SDT] funding is used to 
subsidize the cost of goods sold overseas in exchanges and 
commissaries to ensure that our service members, of course, and 
their families are not penalized with those higher prices than 
members who are serving here in the United States.
    Mr. Gordon, could you share with us, does the Department 
share the subcommittee's views that this funding is well 
justified?
    Mr. Gordon. Yes, it is. And we want to make sure, under the 
auspices of fairness, that all of our service members and 
families, regardless of where they are in the world, are 
treated fairly, have the same access to goods and services. So 
I would love for actually the services to elucidate on that, 
please.
    Mrs. Davis. Okay. Fine. And then also, Mr. Nixon and Mr. 
Gordy, if you could give us your perspectives on that.
    Mr. Nixon. Yes, ma'am; absolutely this is a very 
significant appropriation. And there have been efforts along 
the way in past years to take runs at this for other purposes 
and think it is an easy target. Fortunately, this committee has 
stepped in on several occasions and made that much more 
difficult to do. As the Secretary said, this is an extremely 
important additive that allows the price of goods overseas to 
be sold at the same price as those in the continental United 
States. It is a very important element. We should make sure 
that it is protected at all costs.
    Mr. Gordy. I come at this issue a little bit from more of a 
personal perspective. Serving in Iraq it was great to be able 
to go to Camp Liberty or to Camp Victory to the PX there on 
base and be able to get a tube of toothpaste for $2 and change. 
If the costs had to have been borne by AAFES in order to put 
that toothpaste in there, and that cost would have been passed 
on to me, there is no telling how much that toothpaste would 
have cost. Or if my wife would have had to put it in a box and 
mail it to me, we would have had the $10 cost of shipping and 
it would have taken 2 weeks to get to where I was.
    You think about that in terms of the amount of money that 
we spend on SDT, the hundreds of millions, $200 million that we 
spend. If that cost had to be borne by military families, that 
means military families would be paying hundreds of millions of 
dollars more for the products that they purchase. And so to me, 
SDT is very important to help support the financial readiness 
of our families, particularly those overseas.
    Mrs. Davis. Anything else to add? General.
    General Casella. Yes, Congresswoman. Three things. We are 
good stewards of the money, too. I mean, we do understand the 
need, and we do need to have that equity in our costs. We are 
good stewards, though. We have used cube-container stacking 
processes to save money and reduce containers that go over in 
order to keep those moneys as low as possible.
    Along with that, we have container stuffing costs that we 
actually have a cost avoidance of $9.2 million just because of 
the way we are handling our containers, and being able to stack 
and rack and stack those for shipment. So we are saving $9.2 
million there instead of just doing it on the cuff.
    Likewise, for commercial air usage, we have actually had a 
cost avoidance there of $27 million. So I think we are doing 
our best at our level to take those funds that are given to us 
and use them very wisely so we can have them go further for us.
    Mrs. Davis. Thank you.
    And Admiral, I know that I was going to come back to you on 
the other question earlier about the consolidation, the 
challenges with the exchanges. And if you want to just comment 
on that briefly, and Mr. Larsen as well, quickly on this and 
the other one.
    Admiral Robillard. On this topic, I just wanted to mention 
that we really do believe in equity of service overseas. In 
many areas that we operate, and it is critical, and sometimes 
it is not that perspective taken. In Gitmo [Guantanamo Bay, 
Cuba] or Djibouti there really are no other alternatives. There 
is no outside-the-gate shopping at all. So we are the only 
source for that family or that sailor or that military member. 
And the only way we can be competitive is to have that offset. 
So thank you.
    Mrs. Davis. Mr. Larsen.
    Mr. Larsen. Yes, ma'am. The point on that is the same 
point. And that is, there is a direct relationship with 
reduction in appropriated costs and the impact on the dividend. 
And that is also an issue that is closely linked to 
consolidation. That is the way we all do business and our 
business models, our service cultures. And how we approach 
providing the services and the programs for marines and 
families and other service members and families, that is 
directly impacted. It has a direct impact and connection to our 
ability to provide those programs that have--and they have a 
direct impact on retention and readiness.
    And so consolidation I think over time would have a huge 
impact as you go from service to service on the types of family 
programs and the services that are provided. So, you know, we 
see that as a potential risk or challenge that we face. And 
that is if we decide that we are going to again explore 
consolidation, and we go down that road, there will be an 
impact for a number of years significantly on the dividend and 
on how we provide those programs to the service members and 
their families.
    Mrs. Davis. All right. Thank you. Thank you, Mr. Chairman.
    Mr. Wilson. Thank you, Mrs. Davis. And thank you for asking 
the questions about overseas availability.
    And I share the same personal view of Mr. Gordy. And I have 
had two sons serve in Iraq, another served in Egypt, and I have 
a fourth that will be deployed one day. And so I know how 
reassuring it is to our service members to be able to buy a 
product without there being an excessive charge.
    And so I want to thank all of you for being here today on 
behalf of military service members, military families, 
veterans, widows. And in particular as I think of the services 
you provide, we know firsthand. And so thank you very much for 
all of you being here today. And we are adjourned.
    [Whereupon, at 3:54 p.m., the subcommittee was adjourned.]



======================================================================




                            A P P E N D I X

                           February 10, 2011

=======================================================================


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           February 10, 2011

=======================================================================



=======================================================================


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           February 10, 2011

=======================================================================

      
                   QUESTIONS SUBMITTED BY MR. WILSON

    Mr. Wilson. Currently, Armed Services Exchange Regulations 
authorize service members to purchase cars from exchanges overseas when 
the car is U.S. name-plated manufactured in the United States or 
foreign name-plated with at least 75 percent U.S. or Canadian content. 
Advocates for an expanded policy that eliminates or reduces the 75 
percent content requirement argue that the international nature of the 
car industry and its parts suppliers and the impact of trade agreements 
such as the North American Trade Agreement have confused the 
manufacturing environment. Such advocates contend that the confusion 
has made the car content argument and the 75 percent content rule 
outdated and irrelevant in the context of the original objective to 
promote American products.
    Mr. Gordon, how valuable is this overseas car purchase benefit and 
is DOD inclined to seek Congressional approval to change the 
eligibility rules?
    Mr. Gordon. The Exchange New Car Sales Program (ENCS) dates to 
1961, when Congress recognized the need for Service Members and their 
families to be able to purchase American made automobiles while on 
overseas assignments. It is a valued program designed to enhance the 
quality of life of our Service Members serving overseas. In 
consultation with the congressional oversight committees, the current 
policy in DoD Instruction 1330.21, ``Armed Services Exchange 
Regulations,'' states that ``orders may be taken for U.S.-made 
automobiles, foreign name-plated vehicles with at least 75 percent U.S. 
or Canadian content, and motorcycles.'' DoD is considering 
clarifications to the ENCS policy. Should the review determine that 
modifications to the content requirement are necessary, we would 
consult with the Committee.
    Mr. Wilson. A simple review of the math suggests that the 5 percent 
surcharge may not generate sufficient cash to support a facility 
recapitalization program for the Defense Commissary Agency. Mr. Gordon, 
what is the DOD perspective on the need to increase the surcharge?
    Mr. Gordon. While the surcharge has been 5 percent since 1983, the 
Department does not believe an increase in the rate is appropriate at 
this time. As such, there are no plans to request an increase to the 
surcharge rate above the 5 percent currently paid by commissary 
customers.
    Mr. Wilson. Are the services stepping up to pay for commissary new 
construction and expansion when justified by base realignment and 
closure or force restationing decisions?
    Mr. Gordon. Yes, generally, the Services have been very supportive 
in making BRAC and MILCON dollars available for commissary 
construction. However, with the competition for these resources, they 
are challenged in prioritizing funding requirements.
    Mr. Wilson. The Subcommittee received complaints that MWR 
activities were inappropriately engaged in providing personal 
information services to service members when private sector vendors 
were available to provide the services. Congress became aware of the 
issue when the problem surfaced as a point of friction between the Army 
and Air Force Exchange Service and Army MWR. Although Congress 
subsequently placed restrictions on the ability of government agencies 
to provide the services, the friction between the exchange and Army MWR 
continued.
    General Casella, we understand that the differences between Army 
MWR and Army and Air Force Exchange Service over unofficial information 
services has been resolved--are you satisfied with the results? Have 
you agreed to a schedule to transfer contracts to AAFES and establish a 
profit sharing plan?
    General Casella. AAFES and FMWRC signed a Memorandum of 
Understanding to create a telecom partnership on 23 Feb 2009, and the 
partnership was activated in Apr 2009. The partnership creates a non-
competitive environment to provide common levels of Personal 
Information Services (PIS), and allows us to grow the business 
opportunity. These ``unofficial'' telecom services include for-fee 
Internet, TV and Telephone. The partnership is managed by AAFES with 
participation by and in coordination with FMWRC. This means AAFES will 
manage the providers of for-fee Internet, TV and Telephone services on 
Army installations worldwide, and continue to deliver these services 
through contractual agreements with commercial providers consistent 
with current regulations and legislative guidance.
    We are pleased with how the partnership has progressed. The initial 
action was the transfer of existing CONUS Army Recreation Machine 
Program for-fee Internet locations to a contracted provider, which was 
completed ahead of schedule prior to 31 December 2010. A European PIS 
support model is currently being developed. AAFES has also assumed 
responsibility for managing the Franchise Agreement process for the 
provision of cable TV services on post.
    Income from the partnership is distributed in accordance with the 
current telecom dividend agreement; that is, 80% to the garrison, 10% 
to Army MWR and 10% used to fund operations.
    Mr. Wilson. General Casella, it appears that after the opening of 
the Lifestyle Center at Ft Bliss that only 34 percent of the third 
party floor space has been occupied. What is the status of the 
lifestyle center at Fort Bliss and is AAFES moving forward with 
lifestyle center options at other locations?
    General Casella. It's important to remember that AAFES activities 
occupy 62% of the Lifestyle Center's available space. This mitigates 
risk for the project. AAFES activities and the leased third party space 
brings the overall centers occupancy to 73%. We are on track to have 
the third party space 50% leased by this summer (81% of the overall 
center). We are on a leasing glide path consistent with commercial 
industry in today's market. Tenants in the Lifestyle Center are 
performing well. Even more encouraging is the success we are seeing 
with the Lifestyle Center being the social gathering place for the Ft. 
Bliss Community. The amenities and offerings have created a sense of 
place that is positively impacting quality of life.
    We are moving forward with design of our Lifestyle Centers at JBLM 
and JBSA. JBLM is next in the queue and our intent is to seek approval 
to proceed on that project later this summer.
    Mr. Wilson. Currently, Armed Services Exchange Regulations 
authorize service members to purchase cars from exchanges overseas when 
the car is U.S. name-plated manufactured in the United States or 
foreign name-plated with at least 75 percent U.S. or Canadian content. 
Advocates for an expanded policy that eliminates or reduces the 75 
percent content requirement argue that the international nature of the 
car industry and its parts suppliers and the impact of trade agreements 
such as the North American Trade Agreement have confused the 
manufacturing environment. Such advocates contend that the confusion 
has made the car content argument and the 75 percent content rule 
outdated and irrelevant in the context of the original objective to 
promote American products.
    General Casella, what is your perspective on this issue?
    General Casella. Army and Air Force Exchange Service agrees that 
the car content of 75 percent is outdated and irrelevant based on the 
globalization of the current automobile manufacturing environment. In 
November 2010, we forwarded a request to change DoD policy to permit 
AAFES to sell any automobile assembled in North America to authorized 
patrons who are stationed or assigned overseas for 30 consecutive days 
or more.
    With globalization, the long standing terms U.S. name-plated, and 
foreign name-plated, are less clear given the Committee focus on 
American jobs. The current policy favored Canadian as well as U.S. 
industry and their workers in its part content standard for ``foreign 
name-plated vehicles''; and, the exchanges have been selling Canadian 
made automobiles for decades. Thus, AAFES believes Canadian assembly of 
automobiles, as well as Canadian assembly of parts, to be well within 
the Committee's intent. In the past few years, final assembly of some 
traditional U.S. brands has drifted to Mexico. Many of the most popular 
models of U.S. specification automobiles that the Exchange patrons want 
to buy are currently assembled in Canada and Mexico. Without adjustment 
to policy wording, the Exchange New Car Sales Program could not offer 
its patrons the following models: the Ford Edge and Flex, the Lincoln 
MKX, and the Chrysler 300 and Challenger, which are assembled in 
Canada, and the Ford Fusion and Fiesta, the Lincoln MKZ, and the 
Chrysler Journey, which are assembled in Mexico. In addition, many 
foreign plated brands have entered the U.S. market with manufacturing 
plants creating jobs for the American workforce and we are currently 
restricted by the part content from offering these vehicle models to 
our patrons overseas. Our current contractors tell us that, if they 
cannot offer our overseas patrons all of the popular models of U.S. 
specification automobiles, the Exchange New Car Sales program will 
likely lose financial viability.
    In short, the program may collapse and the Exchange could no longer 
provide its authorized patrons overseas the opportunity to purchase 
quality automobiles with U.S. specifications at competitive prices. 
Therefore, if the exchanges are to continue to provide this valuable 
service to our service members and their families overseas, it is 
essential that the program include all automobiles assembled in North 
America--to include Canada, Mexico and the U.S.
    Mr. Wilson. Currently, Armed Services Exchange Regulations 
authorize service members to purchase cars from exchanges overseas when 
the car is U.S. name-plated manufactured in the United States or 
foreign name-plated with at least 75 percent U.S. or Canadian content. 
Advocates for an expanded policy that eliminates or reduces the 75 
percent content requirement argue that the international nature of the 
car industry and its parts suppliers and the impact of trade agreements 
such as the North American Trade Agreement have confused the 
manufacturing environment. Such advocates contend that the confusion 
has made the car content argument and the 75 percent content rule 
outdated and irrelevant in the context of the original objective to 
promote American products.
    Admiral Robillard what is your perspective on this issue?
    Admiral Robillard. NEXCOM supports expanding the program, as this 
change would be beneficial to military members. The overseas car 
purchase program is a good benefit for military members and their 
families offered through our overseas Navy Exchanges and Ships Stores.
    Mr. Wilson. Mr. Jeu, a simple review of the math suggests that the 
5 percent surcharge may not generate sufficient cash to support a 
facility recapitalization program for the Defense Commissary Agency.
    Mr. Jeu. While the surcharge has been 5 percent since 1983, I do 
not believe an increase in the rate is appropriate at this time. With 
our Service Members and their families being asked to sacrifice so 
much, the stress of which has been further adversely impacted by 
today's economy, I fear the additional burden caused by even a slight 
increase in the surcharge rate would send the wrong message as to the 
value we place on their service. While the ten-year projection of 
surcharge backlog was reported to be $549 million in 2008, a number of 
economic and policy decisions have caused us to revise the estimated 
commissary surcharge funding shortfall downward to $148 million. In my 
opinion, that shortfall is manageable and I would not recommend an 
increase in the commissary surcharge.
    Mr. Wilson. Mr. Jeu, have we reached a point where we now can see 
that the 5 percent surcharge on purchases will have to be increased to 
ensure high quality stores?
    Mr. Jeu. I do not believe so. While we have not eliminated the 
surcharge shortfall, we are able to maintain a healthy surcharge 
construction program. This is principally due to three factors.

      The re-emphasis on the funding policy which called for 
the use of appropriated funds to build the first commissary on an 
installation and those that require the construction of new store or 
significant expansion of an existing store because of BRAC or global 
re-stationing decisions.
      The change in scope of an information technology project 
which made the appropriate source of funding the defense working 
capital fund, rather than surcharge; and
      In this economy, bids for new projects are showing 
reduced construction costs.

    Mr. Wilson. A recent review of products sold in commissaries 
revealed that some brand name products are only sold in commissaries 
and currently fail to meet the requirement to sell the same brand name 
in the private sector. The Defense Commissary Agency (DeCA) has taken 
action to have the vendors in question demonstrate that they meet the 
requirements of the DeCA brand name rules. While most vendors are 
complying with the DeCA rules, at least one has challenged the 
requirement. DeCA fears that a break with the brand name standard will 
threaten some of the advantages of a brand name system, to include: a 
single pricing system throughout the world, a simplified low cost 
acquisition system, and the popularity of brand name products with 
military patrons.
    Mr. Jeu. We are pleased that the vendor who ``challenged'' the 
requirement was able to demonstrate that their products are carried in 
the commercial market place. Consequently, their products continue to 
qualify for sale in commissaries.
    Mr. Wilson. Mr. Jeu, the subcommittee understands that there is a 
challenge to the DeCA rule and the underlying law about only selling 
brand name products that are also sold under that brand in private 
sector markets. What is the status of negotiations with vendors that 
are not inclined to comply with DeCA rules?
    Mr. Jeu. All products currently carried in the commissary system 
are in compliance with the special rule for brand name commercial items 
contained in 10 U.S.C. Sec. 2484(f). We determined that there were a 
total of 641 line items within DeCA's stock assortment for which we 
could not positively determine that the items met the Title 10 
requirements. In May of 2010, DeCA published a notice to industry--
complete with a list of the 641 items in question--requiring 
manufacturers to demonstrate that their product were fully compliant 
with the statutory requirements. We validated that 537 of the original 
641 items are fully compliant or the vendor requested the item to be 
phased out. The vendors for the 104 items that were phased-out on March 
21, 2011, did not address the appropriateness of their product 
remaining in the commissary system. There are no outstanding issues 
regarding compliance with the statutory requirements.
    Mr. Wilson. Currently, Armed Services Exchange Regulations 
authorize service members to purchase cars from exchanges overseas when 
the car is U.S. name-plated manufactured in the United States or 
foreign name-plated with at least 75 percent U.S. or Canadian content. 
Advocates for an expanded policy that eliminates or reduces the 75 
percent content requirement argue that the international nature of the 
car industry and its parts suppliers and the impact of trade agreements 
such as the North American Trade Agreement have confused the 
manufacturing environment. Such advocates contend that the confusion 
has made the car content argument and the 75 percent content rule 
outdated and irrelevant in the context of the original objective to 
promote American products.
    Mr. Larsen, what is your perspective on this issue?
    Mr. Larsen. The Marine Corps supports eliminating the 75% content 
requirement and a change to the policy that would delete ``U.S.-made'' 
and substitute ``North American-manufactured U.S. nameplate 
automobiles.''

                                  
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