ALA Public Policy Advocacy

1. ALA Public Policy Advocacy

2. Advocacy • Representing common interests • Preserving the benefit • Advancing member issues • Work with White House/OMB, Defense, Homeland Security, Transportation, HASC, SASC, HFSC, HAC-D, SAC-D, SFC, GRO, HSGAC, W & M, Banking

3. Past year • 3 percent withholding • 1099 requirement • Interchange fees • Coburn amendment • Burr Bill (S. 277) • Bowles-Simpson • Defense Budget Review

4. 2011 Active—2012 More Active • Big issue is the budget • Perennial disagreement over cuts versus taxes • Budget Control Act (BCA) August 2011 • Raised the debt ceiling • Pledge to cut deficits $2.1 T from 2012-2021 • Half from Defense • Chainsaw running in the basement • Sequester not neutral—Defense represents 19 percent of budget but would absorb 50 percent of cuts--$500 Billion more from Defense in addition to $487 B already taken and $178 billion under Secretary Gates—13 percent of budget by 2017

5. Key Dates • April 13, 2011—President presents plan to reduce deficit by $4 T • August 2011—Budget Control Act—Supercommittee • November 21, 2011—Supercommittee fails • January 5, 2012—President and SecDef announce new defense strategy at Pentagon • January 26—DoD budget released • November 6—Election day • December 31—Bush tax cuts expire • January 2—Sequestration begins • January--Debt Ceiling increase • January 1—Payroll Tax Cuts Expire • January 3—113th Congress begins

6. Armageddon Perfect Storm • Most predicting no action before election • January 2013— • Debt Ceiling reached—default threatened • Tax cuts expire • Continuing resolution needed • Medicare doctor increases • Payroll tax cut expires • Sequestration takes effect • Combination—4 percent hit on GDP

7. Defense Budget Timetable • Pentagon and OMB lawyers already studying how sequestered cuts would take place. Comptroller looking at cuts to individual accounts, i.e., —Navy shipbuilding or Army O & M. • Panetta—”Across the board to all Defense Programs”. ”Inflict severe damage on Department of Defense.” ”Planning would have to begin this summer” • $56 B in added Defense Cuts in January 2013 • Depends on baseline—2013 real cuts under sequestration in $30 to $50 Billion range • Comes in the middle of January 2013 “Perfect Storm” • Bush tax cuts of 2001 and 2003 expire at year end • Sequester start looms • Need to raise debt ceiling (could be November 2012)

8. Budget Control Act of 2011 • FY 2011 Continuing Resolution Fight/Resolution • Near-term—Gates Cuts • Budget Control Act of 2011 • 2012—DoD $525 B--$5 B below 2011, $25 B less than requested • Beyond 2013—Caps on overall discretionary spending--$350 B to DoD over 10 years in line with $400 B Obama cuts by 2023 • Next round—Doomsday Machine--$54.7 billion in Defense cuts each year beginning in 2013 through 2021

9. Budget Control Act of 2011 • Half of $1.2 T from Security (050) • Exempts health care, retirement, wars with option to exempt military pay • Ax falls on O&M, Procurement, R&D—O&M outlay rich • Committee could come in under $1.2 T—deduct passed legislation from the $1.2 T • Consequences January 2013 (after election) • Trigger worst case--$99B cuts in 2013, $970B over 10 years • July 29, 2013 DoD budget proposals were submitted • Cuts already hitting some sectors—Air Force, Army, Navy base operations reductions—i.e. ,6500 IMCOM positions cut in 2012

10. Budget Control Act--Defense • Can’t touch wars • DoD already building budget for $400 B in reductions--will have to adjust for new reductions • Worst case, DoD another $600 Billion over 10 years • Appropriators already resetting their allocations • DoD already readjusting budget • Debt ceiling deal forces appropriators to reset their allocations to Defense • DoD had planned on $400 B in reductions on top of Gates reductions of $172 billion —now must plan for another $400 Billion to $1 Trillion over 10 years

11. Sequestration • Indiscriminate cuts with half aimed at Defense • HBC Action March 29—replace sequester with reconciliation instructions to six committees for cuts, for subsidies for health care insurance, child tax credits, and the social services block grant—opposed by Democrats • E & C Committee—April 25—Cut healthcare, rescind funds for other programs – opposed by Democrats • April 23—Veterans programs ruled exempted • Senate Budget Committee – Bowles-Simpson • Majority Leader Reid—”Adhere to Budget Control Act”

12. Strategy and 2013 Defense Budget • 2 more rounds of base closures—2013 and 2015 • By 2017, the Army is projected to shrink by 72,000 soldiers to 490,000, the Marines will shrink by 20,000 to 182,000, the Navy will shrink by 6,200 to 319,500 and the Air Force will shrink by 4,200 to 328,600. Pre-war levels. • 80K reduction—Marines and Army • Reduce Europe—Brigades out of Baumholder and Schweinfurt—About 30K each. Keep Vicenza and Vilseck brigades, Okinawa • 2500 personnel from Okinawa to Hawaii…5000 to Guam—pares back $21 billion ramp-up in Guam • Military Retirement Modernization Commission that will have the time and staff to look at this very complicated area of military compensation and make recommendations.

13. Strategy and 2013 Defense Budget • Tricare fee increase • Protect “number of (commissary) stores” • Cut DeCA $5 M • Top line $525 billion—2 percent less than 2012, $259 billion less than programed over 5 years--$487 billion less over 10 years – still above 2008 levels • Personnel—one-third of budget represents on 10 percent of the reductions • “Efficiencies”--$60 B over five years—Army--$19 B, Navy--$6 B, AF--$7 B—other $30 B—illusory?? • Pay raises in 2013 and 14 but more limited in 2015

14. 2012 changes • DeCA—organizational restructuring, $6M savings, eliminate outreach and marketing, health and nutrition program, annual commissary assessment, eliminate administrative positions • Convert commander AAFES and NEXCOM to SES

15. Appropriations Apportionment • Hard decisions are made on outlays in Appropriations Committees • SAC 302 (b) allocations April 17--$511 B HAC April 24--$519 B • In past, would make up in supplemental requests • Flexibility door closes for restoration as supplementals are more closely monitored.

16. FY 2012 NDAA • Funds DeCA, Exchange, and MWR request • Report on extending commissary and exchange benefits to Federal employees overseas—reimbursed • 3% withholding—exempt resale and MWR • Treasury has capability to certify compliance • Judicious use of IRS capability to determine tax status can be used to exempt DeCA, exchanges and MWR without loss of revenue to government • Exchanges may access Federal Financing Bank. Saves $30-$50 M -- Sec 645

17. FY 2013 NDAA—HASC Mark-up • Extend through 2018 period of eligibility for 2 years of commissary and exchange benefits for involuntarily separated military • Eliminates requirement for SecDef to report changes in merchandise restrictions required to prevent violation of treaty obligations of the U.S. & host nation laws • Establish guidelines for identification and purchase of fresh meat, poultry, seafood, produce and other products raised through sustainable methods • Personnel S/C resale hearings—October??

18. CBO Budget Option Findings • Included with Deficit Reduction Commission Report • Comments sought by OMB on proposal • Components • Exchanges have more flexibility in procurement and personnel practices than DeCA. • Consolidate Exchanges and DeCA. • Eliminate duplicative administration. • Convert commissary employees to NAF. • Consolidate over 5 years. • At year 6 budget authority lowered by $2 billion/year. • Return 1/3 of the $2 billion to active duty with grocery allowance.

19. CBO Budget Option Components • Grocery allowance phased in to coincide with consolidation at each base • Net annual savings by 2016 would be $1 billion. • Save $8 billion in outlays over next decade. • Charge 7 percent more for groceries. • Would cost active duty, retired and reserve $1.4 billion annually. • Active duty would pay $400 more per year offset by grocery allowance.

20. CBO Budget Option Components • Families benefit from longer store hours, one-stop shopping, access to private label currently not authorized in DeCA. • Greater certainty in benefit not subject to appropriations. • $400 grocery allowance targeted to specific pay grades with larger allowances to junior enlisted. • Consolidated system better able to compete with off-base enterprises. • Retirees would pay $325 more per year on groceries.

21. .S 277—Senate Veterans Affairs Bill • Passed full Senate Veterans Affairs Committee • Despite assurances—still a threat • Eliminates all Title 10 prohibitions to CBO option • Eliminates key Title 10 protections—pricing, stock assortments, consolidation restrictions • Single system by 2013 • Self sustaining by 2016 • CBO estimates 20 percent savings from efficiencies, rest from increased prices in combined system—7 percent price increase • Saves $2.5 B from 2013-2016

22. Other actions aimed at resale • Coburn Back in Black Report • Coburn amendment to 2012 NDAA • Bowles-Simpson adopts CBO proposal • S. 277 still alive in committee • H.R. 649—Welch/Doggett • Consolidate by January 1, 2013 • No appropriations used thereafter • Referred to HASC • Title 10 currently prohibits • Sitting in committee

23. March 6, 2012 testimony--SBC “An End to Commissaries and Exchanges. On benefits side…an end to commissaries and exchanges should be seriously considered. These provide benefits unequally and somewhat anachronistically to military service members and their families, and it makes more sense to eliminate them than to consider further cuts in compensation.” Michael O’Hanlon Brookings Institution

24. O&M Defense Commissary Agency and Exchanges—HASC Report 9/11 • “Appropriated funds for commissaries and exchanges reduced in FY 13 and eliminated in FY 14” • “Grocery savings for families are decimated (30% reduced to 15% or even zero” • “Option—elimination of exchanges in favor of self-sustaining enhanced commissaries exclusively selling high profit exchange goods” • “Exchanges on life support except where they can sill make a profit selling limited range of goods and overseas where they will required some appropriated fund support—exchange support of MWR stops”

25. ALA Mobilizing

26. Prevention Pre-emption Preservation

27. Total Market Capture • What is the total amount of discretionary spending for the military marketplace? • 3 percent pay raises means we lose ground each year if sales are flat • What are we capturing? • Sales--$16 B—Marketplace $200 B • 1 percent increase--$2 billion • Why and Why not? • Use it or lose it—especially for younger troops • Coalition driving to increase sales

28. ALA Assault on S 277 & CBO Cut • Increase grocery prices while increased food stamps • Guts key part of White House military family effort • Throw 50,000 family members and Vets out of work • Take away benefit while fighting two wars • Take away billions invested by shareholders • Force military overseas to shop off base • Gut funding for critical military community programs • Kill key public/private partnership program • Kill programs rating highest on federal accountability

29. ALA Testimony • To HASC Personnel Subcommittee--February 10, 2011: • Defend funding for full benefit • 5:1 ROI—savings, COLAs, infrastructure improvements, family employment, Industry in-kind support, transportation efficiencies, retention value • Cost constant—other programs increased 100-200% • Accountable stewards • DeCA $1 billion in annual efficiencies since 1991—Efficiencies continue—DeCA August 5 2011 announcement • Exchanges inherently efficient, direct mission support • Cost cutting in DNA • Single, affordable base access cards

30. Congressional Support Gathering • ALA, Marketing Council, COMID, Military Coalition • Appropriations Committees Chairmen Stated Support • 67 Members signed letter to Sec. Panetta “…commissaries and exchanges should remain insulated from radical restructuring.” • Letter to Defense Business Board by Wilson/Davis • Wilson/Davis Op-ed August 14—Washington Times: “…the purpose, power and efficiency of the commissary and exchange systems must not be overlooked.” “…the need to care for military families is a top priority for Congress.” “(discontinuing) these programs would increase costs to military families, cause higher unemployment for families, and would end one of the government’s most efficient programs.”

31. 69 Members of Congress to Secretary of Defense Panetta 7/21 • “Look past the rhetoric by budget-minded advocates and understand the immense value and cultural necessity of the military resale systems.” • “Few programs can match the power of military commissaries and exchanges to rally and solidify the security and strength of the military community.” • “Are among the most highly prized benefits.” • “Consider the purpose, power and efficiency of commissary and exchange activities.” • “Should be insulated from radical restructuring.”

32. HASC Committee Report 9/22 • “Breaking faith with the military.” • “Cuts of this magnitude require a fundamental cultural shift in the commitment to DoD school systems, military commissaries and exchanges, and other morale, welfare and recreation programs, significantly reducing support of military families and retirees. Family readiness will be degraded.”

33. HASC to Defense Business Board • “We are aware that the Defense Business Board has been examining commissary and exchange programs in recent months (and) …inclined to recommend the current military resale systems be dismantled and the benefit reduced or eliminated.” • “Military resale stores … contribute directly to the welfare of the military communities that sustain the combat readiness of our deployed forces.” • “These programs are highly efficient and effective in delivering this important benefit and we strongly believe it would be a tragic waste of a treasured benefit if they were to be discarded.”

38. The case Compassionate Economic National Security Mission

39. Build the economic case • $20 billion over 20 years • Challenge CBO assumptions & findings • Families save $6500 to $7000 per year • Boosting patronage & Protecting benefit one in same • Resale has constantly been in cost cutting or no growth mode • Other QoL areas realizing 30, 40, and often 100 & 200 percent increases • Talking about health care co-pays: We’ve always had co-pays—it’s called mark-ups and surcharge

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

41. Economic case • Strong force in our National economy and with the military • Member companies contribute nearly $1.2 trillion to the economy and generate millions of jobs • System builds nearly $600 million in facilities each year generating thousands of construction jobs in the private sector • Support for large manufacturing jobs and a large number of small businesses that are vital to the future growth of our economy • Military market -- $18 billion sales and produce 30,000 jobs for American industry • 100,000 jobs for military family members—billions in additional household income

42. Compassionate Case • Military coming off fighting two wars • Families under stress • Compensation being squeezed in other areas • Care for those deployed • Care for those at home • Multitude of benevolent causes run through system • Veteran and wounded warrior hiring

43. National Security Mission case • Ingrained in OSD fabric • Not inextricable without a major cost • Adapts for force structure • Brigade re-stationing • BRAC • Schweinfurt, Baumholder, Okinawa relocations • Underpins transportation system • Maintains ties with installations • Supports deployed forces—forward combat areas—95 sites in theater—resale workers deployed • All things to all people world-wide • Underpins DoD’s overseas transportation system • $150,000 to $200,000 to train a troop and $1 million for pilots, doctors, specialists

44. Equity • Patrons are shareholders • They have equity in the system • Management runs the system but patrons own it • Have invested billion in capital through surcharge and mark-ups and have capitalized at nearly $50 billion • Contribute $600 million each year • $20 Billion to facilities and programs since 1992 • Have taken capital loss at closed and realigned bases • Can’t take what’s not yours

45. Wilson/Davis Op-Ed—8/15 • “The commissary system delivers a remarkable $2.08 return benefit for every dollar expended...” • “…one of the federal government’s most cost-effective operations…” • “Few programs can match the power of the military resale systems to rally and solidify the strength of the military community, the bedrock of military readiness.” • “Defense officials must weigh the immense value and cost savings of the military resale systems against fleeting political rhetoric.”

46. Consistent with FLOTUS goals • Support Military Quality of Life • Support healthy life style • Support reducing child obesity • ALA taking initiative with exchanges and commissaries to put resale in front of FLOTUS • Presentation of all resale positives • Cooperative effort of industry and exchanges/commissaries

47. ALA Industry & Resale Support for Joining Forces