Pentagon Proposes Plan to Gut Commissary's Budget

The Defense Department is discussing a $1 billion cut over the next three years to the commissary’s budget in a move that could lead to a widespread closure of stores, Pentagon and industry officials said.

Word of the pending cut comes two months after news that the Pentagon’s top financial advisor ordered the Defense Commissary Agency (DeCA) to produce a plan to close most stateside commissaries should the need arise.

The commissary agency currently operates 247 stores worldwide. Under the requested closure plan, all but 24 rural stores stateside and stores located outside the continental U.S. would close.

DeCA currently receives $1.4 billion annually in tax payer funding. The potential Defense Department cut would reduce the agency’s budget over three years until it stood at $400 million fiscal 2017, sources confirmed to Military.com.

Starting with the 2015 budget, Congress would be forced to either find funding elsewhere and give the Defense Department more than its requested commissary budget, or allow officials to make sweeping changes to the commissary system, including potential closures.

"If DeCA's budget is cut to such a magnitude, it would ultimately require DeCA to close stores or change the way it delivers the commissary benefit," a source with knowledge of the proposed cuts told Military.com. "But those options would mean military families would have to pay more for their groceries, significantly reducing the non-pay compensation benefit provided through the commissaries. Once again, military families are being forced to sacrifice their hard-earned money to achieve deficit reductions by having their benefits reduced or eliminated."

Pentagon leaders are under pressure to find savings throughout military spending following the passage of sequestration and the association $500 billion cut to the defense budget over the next decade. Military officials have said all DoD agencies will be reviewed in order to cut costs to include family programs.

DeCA’s $1.4 billion annual budget funds employee salaries, keeps the lights on in stores and pays for food to be shipped to overseas locations.  A congressionally mandated five percent surcharge on all commissary sales pays for other operation costs such as construction and building maintenance.

A recent grocery store study by DeCA found that using the commissary saves shoppers an average of 30.5 percent annually when compared to other stores off base.

The cuts will be incremental and will appear first in the department’s 2015 budget request, expected to be released next month. The full $1 billion cut would not be included in the request until 2017, sources said.

Implementing the cuts incrementally may be a way for DoD officials to test Congress’ acceptance of the cuts, sources said. Reducing the commissary’s budget could be a strategy to force Congress to fund other Defense Department priorities, sources said.

"The strategy may be to cut DeCA's budget and basically force Congress’ hand to offset the cuts. However, if Congress doesn’t fill the hole in the first year it basically gives DoD permission to continue to cut DeCA's budget going forward," an industry source said.

It’s unclear how the Obama administration will react to the proposed cuts as the White House must approve the defense budget before sending it to the Hill for approval. Last year, President Obama told Marines at Camp Pendleton, Calif. that closing commissaries is "not how a great nation should be treating its military and military families."

DoD personnel and readiness officials declined to confirm the cuts on the record – but did not deny that major commissary cuts may be on the table.

"We are in the process of finalizing our budget submission for Fiscal Year 2015, and we cannot provide any specifics at this time. I can tell you that no commissaries have closed, and no commissaries are about to close," said Joy Clabaugh, a spokesman for the personnel and readiness office of the assistant secretary of defense. "As the Department of Defense faces an increasingly constrained budget environment, we are reviewing all programs to identify cost-cutting and money-saving opportunities.  We have a process in place to finalize and announce budget decisions, and right now, we are assessing all options.

By law, DoD cannot close or consolidate any commissary stores without giving Congress written, 90 day notice and justification.

If DoD’s reduced commissary budget request is authorized, the department will need to find significant cost savings within the commissary system, which could include closing some stateside stores or changing the way food is shipped to commissaries overseas, sources said.

DeCA last year weighed several cost saving or revenue increasing options, including adding beer and wine to their inventory or requesting that Congress double the commissary product surcharge from 5 to 10 percent, said Tom Gordy, president of the Armed Forces Marketing Council, which lobbies for brokers doing business with military stores, at a November hearing of the House Armed Services Committee.

However, some within the DoD and commissary system do not look on either of those options favorably. Critics say adding alcohol to commissary shelves would cause competition with the Exchange systems, which operates for profit. And increasing either prices or the surcharge would lower patron savings.

The pending cut will be the most drastic way the commissary system has been impacted by DoD budget woes thus far. Commissaries were closed six extra days due to sequestration in 2013 when weekly furloughs were ordered for all DoD employees, including commissary workers. They were closed an additional five days over the government shutdown in October.

News of the pending government shutdown and corresponding commissary closures in October resulted in one of the largest sales days ever for the agency at $30.6 million, more than double their normal daily sales volume. Shoppers flocked to the stores filling their carts with meat. Military family members nationwide reported verbal fights and bickering in stores as shoppers vied for items. 

Candace Wheeler, a vice president for American Logistics Association & The Coalition to Save Our Military Shopping Benefits, said she expects servicemembers and their families to reach out to multiple lawmakers to ensure such a cut to the commissary does not pass.

"The military community will fight this devastating cut to their earned commissary benefit," said Candace Wheeler, spokesperson for The Coalition to Save Our Military Shopping Benefits. "Commissaries are vital to helping military families make ends meet and provide much needed employment for veterans and family members, cutting them would be another broken promise," added Wheeler.

- Military.com reporter Richard Sisk contributed to this article.