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i 

51–107 2010

[H.A.S.C. No. 111–22] 

MILITARY RESALE AND MORALE, 

WELFARE AND RECREATION OVERVIEW 

HEARING 

BEFORE THE

MILITARY PERSONNEL SUBCOMMITTEE 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 12, 2009 
(II) 

MILITARY PERSONNEL SUBCOMMITTEE 

SUSAN A. DAVIS, California, Chairwoman 

VIC SNYDER, Arkansas 

LORETTA SANCHEZ, California 

MADELEINE Z. BORDALLO, Guam 

PATRICK J. MURPHY, Pennsylvania 

HANK JOHNSON, Georgia 

CAROL SHEA-PORTER, New Hampshire 

DAVID LOEBSACK, Iowa 

NIKI TSONGAS, Massachusetts 

JOE WILSON, South Carolina 

WALTER B. JONES, North Carolina 

JOHN KLINE, Minnesota 

THOMAS J. ROONEY, Florida 

MARY FALLIN, Oklahoma 

JOHN C. FLEMING, Louisiana 

MICHAEL HIGGINS, Professional Staff Member 

JOHN CHAPLA, Professional Staff Member 

ROSELLEN KIM, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Thursday, March 12, 2009, Military Resale and Morale, Welfare and Recreation Overview ..................................................................................................... 1 

APPENDIX: 

Thursday, March 12, 2009 ...................................................................................... 27 

THURSDAY, MARCH 12, 2009 

MILITARY RESALE AND MORALE, WELFARE AND RECREATION 

OVERVIEW 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Davis, Hon. Susan A., a Representative from California, Chairwoman, Military Personnel Subcommittee ............................................................................. 1 

Wilson, Hon. Joe, a Representative from South Carolina, Ranking Member, 

Military Personnel Subcommittee ...................................................................... 2 

WITNESSES 

Baker, John B., Director, Fleet and Family Readiness, Commander, Navy 

Installations Command ....................................................................................... 10 

Bianchi, Rear Adm. Robert J., USN, Commander, Navy Exchange Service 

Command .............................................................................................................. 5 

Gorman, Richard, Chief Operating Officer, U.S. Army Family and Morale, 

Welfare and Recreation Command ..................................................................... 8 

Larsen, Timothy R., Director, Personal and Family Readiness Division, Manpower and Reserve Affairs Department, Headquarters, U.S. Marine Corps .. 7 

Milam, Charles E., Director of Air Force Services, Headquarters, U.S. Air 

Force ...................................................................................................................... 11 

Myers, Arthur J., Principal Director, Military Community and Family Policy, 

Office of the Under Secretary of Defense (Personnel and Readiness) ............. 3 

Sakowitz, Philip E., Jr., Director and Chief Executive Officer, Defense Commissary Agency .................................................................................................... 7 

Thurgood, Maj. Gen. Keith L., USAR, Commander, Army and Air Force 

Exchange Service ................................................................................................. 4 

APPENDIX 

PREPARED STATEMENTS: 

Baker, John B. .................................................................................................. 160 

Bianchi, Rear Adm. Robert J. .......................................................................... 87 

Davis, Hon. Susan A. ....................................................................................... 31 

Gorman, Richard .............................................................................................. 139 

Larsen, Timothy R. ........................................................................................... 112 

Milam, Charles E. ............................................................................................ 181 

Myers, Arthur J. ............................................................................................... 34 

Sakowitz, Philip E., Jr. .................................................................................... 99 
Page

IV 

PREPARED STATEMENTS—Continued 

Thurgood, Maj. Gen. Keith L. .......................................................................... 69 

Wilson, Hon. Joe ............................................................................................... 33 

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: 

Mrs. Davis ......................................................................................................... 217 
(1) 

MILITARY RESALE AND MORALE, WELFARE AND 

RECREATION OVERVIEW 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, MILITARY PERSONNEL SUBCOMMITTEE, Washington, DC, Thursday, March 12, 2009. 

The subcommittee met, pursuant to call, at 1:00 p.m., in room 

2212, Rayburn House Office Building, Hon. Susan A. Davis (chairwoman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE FROM CALIFORNIA, CHAIRWOMAN, MILITARY 

PERSONNEL SUBCOMMITTEE 

Mrs. DAVIS. Good afternoon, everybody. Today the subcommittee 

will turn its attention to the management of military resale and 

moral welfare and recreation, or MWR, activities. These are the 

nonappropriated fund operations that are so essential for the quality of life of service members and their families. 

There is much to celebrate within the military resale community 

as commissary and exchange sales are increasing and, in these 

very troubling economic times, they are fulfilling their promise to 

provide military patrons with quality goods and services with savings. I certainly want to applaud the many innovations that you 

talk about in your statements today, because we see some really 

quality changes taking place, that particularly help the men and 

women that we serve and we always want to be focused on that, 

you know, what’s best for them not always necessarily our ease, 

but what’s best for them. 

The MWR communities are continuing to work hard to provide 

the facilities and services that are so critical for the building of the 

military communities on our military installations. But the subcommittee continues to be concerned about reports that indicate 

that MWR programs have fallen victim to cuts in appropriated 

fund support at the installation level. The subcommittee is also 

very concerned that the majority of our nonappropriated fund activities are not confident that they have the recapitalization resources needed to maintain the quality of their facilities at the high 

level that we have come to expect. 

A related concern is the apparent reluctance of the services to 

use appropriated military construction funding to support construction of military resale and MWR facilities at installations impacted 

by base realignment and closure and force restationing. 

While we have an excellent panel today to help us explore these 

and a number of other issues, and I would certainly request that 

all the witnesses keep their oral opening statements to three min-
2 

utes. I know that is very difficult to do. If you can do that, we certainly can appreciate it, and, without objection, all written statements will be entered into the record. 

Mr. Wilson, do you have some opening comments? 

STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM 

SOUTH CAROLINA, RANKING MEMBER, MILITARY PERSONNEL SUBCOMMITTEE 

Mr. WILSON. Thank you, Madam Chairman. This subcommittee 

has had a long standing commitment to improve the quality of life 

of men and women of the Armed Forces and their families. One 

way we have shown that commitment is through efforts to sustain 

and even expand MWR commissary and exchange benefits. We 

must continue that aggressive approach. Our witnesses today have 

diverse responsibilities that span the complex world of MWR installations, commissaries and exchanges. They also face difficult 

challenges. 

Given the wartime high operations tempo of the Armed Forces 

today, the need for the organizations represented here to provide 

their product, quality of life to their customers has never been 

greater. It should also be pointed out we have never had a higher 

percentage of military personnel who are married with families and 

so what you are doing is just so crucial for the families to have a 

wonderful quality of life for persons serving in the military. 

Moreover, the demand of their customers active, guard, reserve, 

retirees, and their families for quality of life improvements and expansion have the benefit have never been higher. I sincerely appreciate the effort by our witnesses to provide wider opportunities for 

reserve and national guard personnel here in the United States to 

take advantage of the commissary and exchange benefits. I am also 

thankful for the leadership exemplified by our witnesses today that 

have worked continuously to provide support to all military personnel, their families and retirees. 

When I was on duty myself and now as a veteran, I know firsthand of your providing modern people friendly facilities. The highest compliment I can give all of you is that my wife and my mother-in-law, and she is the widow of a veteran, are very satisfied customers of the commissary and Post Exchange (PX) at Fort Jackson, 

South Carolina, and they tell me every time they visit of the first 

class staff who are always helpful. 

So, Madam Chairman, I join you in welcoming our witnesses, 

and I look forward to their testimony. 

[The prepared statement of Mr. Wilson can be found in the Appendix on page 33.] 

Mrs. DAVIS. Thank you. Thank you, Mr. Wilson, and now I would 

like to introduce our panel. 

Mr. Arthur Myers, principal director of the Military Community 

and Family Policy, Office of the Under Secretary of Defense for 

Personnel and Readiness. And we know that you are a familiar 

face in a new position. Congratulations and welcome to you. 

Major General Keith Thurgood, Commander, Army and Air Force 

Exchange Service (AAFES). And General, I understand that this 

may be your last time that you will appear before us as you are 

returning to civilian life. 
3 

General THURGOOD. Yes, ma’am. 

Mrs. DAVIS. So we wish you the best and thank you very much 

for your service. 

Rear Admiral Robert Bianchi, Commander, Navy Exchange Service Command. 

Mr. Philip Sakowitz, Director and Chief Executive Officer for the 

Defense Commissary Agency (DeCA). 

Mr. Timothy Larsen, Director, Personal and Family Readiness 

Division, Manpower and Reserve Affairs Department Headquarters, U.S. Marine Corps. 

Mr. Richard Gorman, Chief Operating Officer, U.S. Army Family 

and Morale, Welfare and Recreation Command. 

And Mr. John Baker, Director of Fleet and Family Readiness, 

Commander, Navy Installations Command. Thank you very much. 

I keep going back and forth. 

And Mr. Charles Milam, Director of Air Force Services Headquarters, U.S. Air Force. 

Mrs. DAVIS. Thank you all very much for being here, and we will 

start with you, Mr. Myers. 

[The prepared statement of Mrs. Davis can be found in the Appendix on page 31.] 

STATEMENT OF ARTHUR J. MYERS, PRINCIPAL DIRECTOR, 

MILITARY COMMUNITY AND FAMILY POLICY, OFFICE OF 

THE UNDER SECRETARY OF DEFENSE (PERSONNEL AND 

READINESS) 

Mr. MYERS. Chairwoman Davis, Representative Wilson and distinguished members of the subcommittee, for many years I have 

welcomed the opportunity to appear before you and discuss military morale, welfare and recreation resale programs in the Air 

Force. However, I am here this year in a new capacity, representing the Secretary of Defense (SECDEF) and all the men and 

women of the Armed Forces. On their behalf, let me thank you for 

your strong support of programs and benefits for the military community. You are recognized within the Department of Defense 

(DOD) for your service to the American people and commitment to 

soldiers, sailors, airmen, marines and their families. 

I also need to salute the subcommittee for their hardworking and 

dedicated staff members who work so closely with all of us 

throughout the year. Debra Wada, Mike Higgins, Dave Kildee, 

Craig Green, John Chapla and Jeanette James, special thanks to 

all of you. 

You can rest assured that your commitment to quality life in the 

military is stronger than ever. Our senior civilian and military 

leaders understands as does the subcommittee that the success of 

the military mission depends on the well-being of individual service 

members who are our number one weapons system, and of course, 

their families. 

There is no question that the commissary exchange and MWR 

programs directly impact the well-being of our people and the retention and readiness of our force. Today the resale MWR programs face unprecedented changes within the Department, our society and the business world. Their employees, and especially the 
4 

leaders representing all of them here today, we need to recognize 

them for their hard work dedication and professionalism. 

Working closely with our industry community partners their creative solutions have led to larger role force these programs and 

new partnerships promote military community and family support 

for the total force. I have written my testimony for the record, but 

like to highlight some areas four your consideration. 

Several years ago, the Congress granted temporary authority for 

minor military construction of child development centers. To meet 

our goals for child care and to keep our members fit to fight and 

win, we require similar authority for fitness centers and for child 

care facilities to 12 years of age. To complete the work underway, 

we need to extend this authority through fiscal year 2012 and increase the project threshold to $15 million. 

We also need to eliminate barriers to hiring practices key to expanding our partnership with community providers of child care. 

Finally, we must address our trading partner concerns about payments for goods and service and access to our military installation. 

Thank you again for your strong support of the military members 

and their families and for giving us the flexibility to deliver the 

benefits within today’s operating budget and realities. It is a key 

ingredient in the recruitment retention, and most importantly, the 

readiness of our military personnel and their families. 

I would be happy to respond to any questions you may have. 

Mrs. DAVIS. Thank you. 

[The prepared statement of Mr. Myers can be found in the Appendix on page 34.] 

Mrs. DAVIS. General Thurgood. 

STATEMENT OF MAJ. GEN. KEITH L. THURGOOD, USAR, 

COMMANDER, ARMY AND AIR FORCE EXCHANGE SERVICE 

General THURGOOD. Madam Chairman, Representative Wilson 

and members of the subcommittee, it is my privilege to appear 

again to update you on the essential services and support AAFES 

provides to the men and women of the Armed Forces and their 

families throughout the world. 

In 2008, we set a goal to enable AAFES to win the future by redefining our valued proposition to be our customer’s first and best 

choice for quality merchandise and service and as you know increased selection is one key to our future success, and I thank you 

for your support in relaxing the merchandise restrictions on televisions, diamonds, and finished furniture. In my brief remarks this 

morning, I would like to highlight a few AAFES initiatives that I 

believe represent the tremendous support AAFES offers our military members and their families. 

AAFES deploys mobile field exchanges providing immediate support for our conflict areas abroad. We operate today 89 PXs, 228 

name brand fast food outlets and about 600 concession operations 

throughout Operation Enduring Freedom (OEF) and Operation 

Iraqi Freedom (OIF), and help troops keep in touch with home 

through our 72 calling centers and 12 Internet cafes. 

We have taken the lessons learned from the war zone and are 

using them to serve our wounded warriors. AAFES personal shoppers look after the immediate needs of wounded troops evacuated 
5 

from Afghanistan and Iraq and those in rehabilitation back home 

who are unable to leave the hospital. We also support their transition to civilian life as AAFES participates in the DOD sponsored 

hiring heroes program and to date has hired 92 wounded warriors, 

8 in the last month, and we partner with numerous other government agencies that assist wounded veterans to locate employment. 

AAFES is taking care of military families through a variety of 

programs designed to enrich their quality of life. Twenty-five percent of our approximately 45,000 thousand associates identify 

themselves as military spouses and dependents making AAFES the 

largest employer of military family members in the Department of 

Defense. 

AAFES keeps deployed troops connected with loved ones back 

home by offering a low rate with the military exchange global prepaid phone cards, and to help ease the challenges of family separations, AAFES is putting the finishing touches on the Patriot Family 

Deployment Passbook, a comprehensive book that offers discounts 

and money saving ideas for those families due to deploy. 

We know these are troubled financial times so AAFES is helping 

the budget conscious military shopper stretch every single dollars. 

An independent market basket surveyed confirms that AAFES is 

a one stop solution for thrifty military shoppers offering an overall 

savings of over 20 percent compared to the competition, and when 

you add the no tax, it is almost 30 percent better. 

Our customers are increasingly reaching for the value in quality 

of private label merchandise, including the exchange select products we offer. 

I would like to offer my personal thanks to all of our AAFES associates who make a difference every single day but especially to 

the more than 4,500 associates who deploy to the Middle East, 

some more than once, in support of our troops and their families. 

I believe AAFES is on the right course to maintain a viable position in the market and to be a combat multiplier for our formation, 

our customer and our military communities wherever we serve. 

Again, I thank you for all the support you have given AAFES 

over the years. The entire military resale community and system, 

and most importantly, the brave and men and women in our 

Armed Forces. 

Thank you and I look forward to your questions. 

[The prepared statement of General Thurgood can be found in 

the Appendix on page 69.] 

Mrs. DAVIS. Thank you, Admiral Bianchi. 

STATEMENT OF REAR ADM. ROBERT J. BIANCHI, USN, 

COMMANDER, NAVY EXCHANGE SERVICE COMMAND 

Admiral BIANCHI. Chairwoman Davis, Representative Wilson, 

and distinguished members of the subcommittee, it is my privilege 

to appear before you today representing Navy Exchanges Command (NEX). 

Taking care of military family is what Navy exchange is all 

about. Deployments, long separations and recurring moves are just 

a few of the challenges our military families face. When our families know they are being taken care of, readiness recruitment and 

retention are positively impacted. 
6 

Last year 93 percent of Navy spouses ranked Navy exchanges as 

the most important and most used of all Navy quality of life services. In today’s challenging economic environment, we know our exchanges can provide the savings our military families are looking 

for. Based on their needs, we developed several new pricing strategies last year with a focus on our junior enlisted families. Our 2008 

savings are up 3 percent from last year with an average of 23 percent savings and that doesn’t include sales tax savings. 

We have a unique business model. We don’t have a niche market. 

Rather we exist to serve and appeal to all authorized patrons. We 

provide a wide range of both merchandise and services. For example, our telecommunications program provides an important link 

for deployed sailors to phone home. Our Navy lodges support families with Permanent Change of Station (PCS) moves with affordable quality lodging. We provide school lunches at several overseas 

DOD schools, and through the support of our industry partners, we 

bring celebrities and events to our Navy families at bases around 

the world. 

We are expanding our merchandise availability through online 

channels, our NEX paper flyer is now digital. We use mobile text 

message advertising, and we even have 5,000 fans on our Facebook 

page. NEX is environmentally conscious, providing more green 

products for our customers and employing energy conservation 

technology in our facilities. In fact, tomorrow Congressman Nye 

will be participating with me as we cut the ribbon on the Navy’s 

second E–85 flex fuel facility at the Navy exchange Oceana, which 

will be available for public use. 

As you know, Navy exchanges are operated predominantly with 

on appropriated fund receiving only limited appropriated fund support primarily for oversea transportation of goods even in today’s 

uncertain retail environment our fiscal and financial position and 

capitalization programs remain strong. 

The Navy exchange strives to meet the needs of our deployed 

war fighter. Our ship store program takes care of our sailors while 

they are at sea. Our exchanges at Bahrain and Djibouti support 

those serving in remote locations, and we proudly support our 

wounded warriors. 

With assistance from our industry partners and MWR, we provide many events and donations targeted toward their specialized 

needs. We also actively partner with industry, MWR, Navy, and 

the other military resale activities and have executed many successful cooperative initiatives designed to complement our operations. 

In closing, I would like to assure this committee that the Navy 

Exchange Service Command is a military organization laser focused on our mission to support our Navy readiness recruitment 

and retention. On behalf of our dedicated sailors and their families, 

I thank you for your support. 

Mrs. DAVIS. Thank you. 

[The prepared statement of Admiral Bianchi can be found in the 

Appendix on page 87.] 

Mrs. DAVIS. Mr. Sakowitz. 
7 

STATEMENT OF PHILIP E. SAKOWITZ JR., DIRECTOR AND 

CHIEF EXECUTIVE OFFICER, DEFENSE COMMISSARY AGENCY 

Mr. SAKOWITZ. Madam Chairman and members of the subcommittee, it is my pleasure to appear before you to provide the 

update of the Defense Commissary Agency’s performance this past 

year. Since arriving there last June, I am ecstatic with the Agency’s performance both as a business and effectively delivering the 

commissary benefit to all those who proudly serve our Nation, and 

in its efficiency as a government entity. In these trying economic 

times, the commissary benefit is more valuable than ever. We have 

another impressive year in 2008 with sales continuing to grow, the 

cost of delivering the commissary benefit, both in actual and in constant fiscal year 2000 dollars, is coming in under budget and customer service and patron saving levels are remaining strong. 

With today’s strain on individual budgets, patrons are making 

the right choice by increasing their commissary shopping. As 

shown by both our dollar sales figures and the fact that our customer transactions are up 2.6 million visits our service members 

are relying on the commissary benefit to make ends meet. This year’s savings of 31.1 percent amounts to nearly $3,400 per 

year that an E–6 with a family of four saves by purchasing their 

grocery items at their commissary and a new private entering the 

service saves nearly $1,200. 

Of course, attaining this level of savings would not be possible 

without the tremendous support our extended team of trading partners, the manufacturers, distributors and brokers, continues to provide in the pricing, promotion and in-store products. Their support 

of military families and their commissary benefit remains stupendous, and I would like to take this opportunity on behalf of DeCA 

and the commissary patrons everywhere to publicly acknowledge 

and thank them. 

DeCA continues to outperform many governmental agencies and 

in many areas has been held up as a model government agency. I 

am pleased to report that for 7th year in a row, independent auditors have given our financial statements an unqualified opinion 

and DeCA continues to be in the top three in Department of Defense for implementing the internal controls requirements. 

DeCA’s performance has been stellar, and I can only hope to lead 

it to new heights as we continue to demonstrate to all of our patrons that the commissary is worth the trip. 

I will be happy to answer any questions you may have of me at 

this time. 

Mrs. DAVIS. Thank you very much. 

[The prepared statement of Mr. Sakowitz can be found in the Appendix on page 99.] 

Mrs. DAVIS. Mr. Larsen. 

STATEMENT OF TIMOTHY R. LARSEN, DIRECTOR, PERSONAL 

AND FAMILY READINESS DIVISION, MANPOWER AND RESERVE AFFAIRS DEPARTMENT, HEADQUARTERS, U.S. MARINE CORPS 

Mr. LARSEN. Thank you. Chairwoman Davis, Representative Wilson and distinguished subcommittee members, thank you for the 

opportunity to represent Marine Corps Community Services 
8 

(MCCS) which shares the responsibility with unit commanders for 

taking care of marines and their families. 

The demands of today’s military lifestyle impacts both the individual marine and their families. This lifestyle is challenging, particularly for young marines with families who often find that they 

are coping with separation, relocation, sometimes isolation or financial difficulties. They deserve the highest quality of support 

that we can provide. 

Today’s wartime environment of frequent and extended deployments creates additional stressors on marines and even more when 

they are worried about their loved ones at home. 

In addition to the war and deployments, marines are concerned 

about the impact today’s unpredictable economy may have on them. 

One of the primary goals of MCCS is to develop self-sufficient 

and resilient marines and families. Their well-being grows as we 

provide the right programs delivered at the right time at the right 

place and it meets their needs. 

General Conway has clearly stated that after winning the War 

on Terror, our wounded warriors and marine families are his highest priority. Many MCCS programs and services were developed to 

support peacetime environments that serves to meet the requirements of the past seven years. The arduous nature of frequent deployments has caused us to reevaluate unit family readiness programs such as Marine Corps family team building, exceptional 

family member school liaison, and many others. And we have reassessed how we are funding and sustaining these critical programs 

as we go into the future to meet the needs. 

By providing relevant programs, MCCS will have a positive impact on readiness and retention and continue to contribute to the 

overall mission of the Marine Corps. 

Today’s marines and families are naturally action oriented and 

well educated consumers. If they can’t find the support and service 

they expect and deserve with us, they will go elsewhere. The Marine Corps exchange is focused on meeting the needs of our patrons 

and providing them a valued shopping experience. 

We have looked for opportunities to improve our programs, processes and services and will continue to do so. MCCS is positioned 

and ready to continue to take care of marines and families today 

and in the future. 

I would like to thank you for your long standing support for the 

Marine Corps, and I am happy to answer any questions. Thank 

you. 

Mrs. DAVIS. Thank you. 

[The prepared statement of Mr. Larsen can be found in the Appendix on page 112.] 

Mrs. DAVIS. Mr. Gorman. 

STATEMENT OF RICHARD GORMAN, CHIEF OPERATING OFFICER, U.S. ARMY FAMILY AND MORALE, WELFARE AND 

RECREATION COMMAND 

Mr. GORMAN. Chairwoman Davis, Congressman Wilson, distinguished members and also members of the committee staff, good 

afternoon. 
9 

I am honored to come before this committee today on behalf of 

our soldiers and their families. I have submitted my statement for 

the record, and I have just a few brief comments, beginning with 

my sincere thanks to this committee for the support you provide 

our soldiers and their families. I know that you know very well 

that the strength of our Army comes from the strength of its families, and it is your support that continues to allow us to recruit and 

retain high quality American men and women during this difficult 

period of persistent combat and multiple deployments. 

The recognition that family readiness relates to military readiness is the underpinning of the quest General Casey set us upon 

as he became our Chief of Staff in April of 2007. General Casey’s 

assessment after five years of war is that the Army was out of balance and we were simply asking too much of our soldiers and families and not properly counter balancing their commitment and contribution to our Nation. 

General Casey and Secretary Geren asked soldiers and families 

how they were doing. They told us and we reacted by creating the 

Army Family Covenant which expanded programs in five major 

areas critically important to our soldiers and their families. 

The Chief of Staff and the Secretary doubled the Army family and MWR budget from $750 million in fiscal 2007 to $1.4 billion 

in fiscal 2008. The increased funding was provided using supplemental funds and is now largely included in our base budget. 

The resources associated with the Army Family Covenant include reduced fees, expanded operating hours, increased counsel 

and other types of deployment support for child and youth programs. We have also included construction of 120 new child and 

youth facilities in this program, as well as additional facilities that 

are included in our submission to the American Recovery and Reinvestment Act. 

We have also established Army One Source as the central entry 

point for all family and MWR services either on our installations 

or wherever soldiers and families of all components reside in the 

unique, high touch, high-tech combination which includes instant 

messaging for our family readiness support groups. 

We have enhanced staffing in all of our family services to heighten value and responsiveness. We have certainly advanced survivor 

outreach as never before and implemented behavior modification 

activities to safely reintegrate soldiers returning from combat. 

We have implemented a customer service management program 

to assess delivery and adjust as feedback suggests appropriately. 

We have also established a synergistic partnership with AAFES 

which will allow us to make better use of our investment and acquisition funds through a range of efficiency enhancing initiatives 

that will allow us greater return to our patrons. 

I want to close by thanking you all personally and on behalf of 

the Army for all your continued support to our men and women 

who wear the uniform of our Nation. I look forward to answering 

any questions that you may have. 

Mrs. DAVIS. Thank you. 

[The prepared statement of Mr. Gorman can be found in the Appendix on page 139.] 

Mrs. DAVIS. Mr. Baker. 
10 

STATEMENT OF JOHN B. BAKER, DIRECTOR, FLEET AND FAMILY READINESS, COMMANDER, NAVY INSTALLATIONS COMMAND 

Mr. BAKER. Thank you. Madam Chairwoman Davis, Representative Wilson, distinguished members of the subcommittee, General 

and flag officers and fellow senior executive service members, I am 

pleased to report that the Navy continues to provide world class 

morale, welfare and recreation programs to our sailors and families. Navy MWR and child and youth programs have developed and 

enhanced a wide array of programs in 2008 to meet the needs of 

our patrons today. 

MWR is everywhere our sailors are stationed or deployed and 

wherever their families live. We provide a diverse range of programs vital to their morale, their well-being. To the people we 

serve, MWR should be a place for physical exercise or enjoy some 

quiet time or reading a book or watching a movie. It could be perhaps grabbing just a bite to eat. 

It also might be where they can leave their children while they 

are on duty and knowing that they are in safe and in trusted 

hands. Whatever the service, our patrons know MWR is focused on 

taking good care of them and in turn MWR is consider an integral 

part of the Navy’s readiness. 

During the past year, MWR has placed particular focus on family-oriented programs with significant growth in child and youth 

programs and general recreation programs that appeal to family 

members. MWR enables members to spend leisure time not worried 

about daily living, but focusing on refreshing their mind, body and 

spirit. 

We have designated 78 family fitness centers on our installations. We have created a dynamic youth fitness program called Fit 

Factor that has been implemented Navy-wide that encourages our 

youth to develop and apply good nutrition and exercise habits. 

We have established respite child care that is now offered to families of deployed sailors, and we continue to expand our 24/7 child 

care for our standard watch bearers. 

We have also installed mobile learning centers (MLC)s that are 

funded through the national defense authorization authority that 

you provided the services last year. This authority has enabled us 

to begin installing sixty new MLCs over the next two years and 

will help address this need. This commitment will have a direct 

and positive bearing on the readiness of Navy families. 

We promote military readiness through a simple equation: Family readiness equals sailor readiness which in turn equals Navy 

readiness. All components must be synchronized, resilient and prepared for the daily challenges. 

In closing, MWR continues to be a vital component of the operational readiness and a valuable retention tool for the Navy. We 

appreciate the focus and the attention Congress provides in funding and developing new policies in supporting the MWR program. 

My full statement is submitted for the record and I look forward 

to answering your question. 

Mrs. DAVIS. Thank you very much. 

[The prepared statement of Mr. Baker can be found in the Appendix on page 160.] 
11 

Mrs. DAVIS. Mr. Milam. 

STATEMENT OF CHARLES E. MILAM, DIRECTOR OF AIR FORCE 

SERVICES, HEADQUARTERS, U.S. AIR FORCE 

Mr. MILAM. Good afternoon. Chairwoman Davis, Ranking Member Wilson, distinguished members of the Military Personnel Subcommittee, thank you for the opportunity to appear before you 

today. 

I am happy to share the status of the Air Force morale, welfare 

and recreation programs. Our airmen and their families truly appreciate the leadership and support this subcommittee has historically provided for matters affecting their readiness and quality of 

life. 

It is a humbling experience to follow in the footsteps of Mr. Art 

Myers, and I know I speak for the rest of my colleagues when I say 

we are grateful that he has continued in the key leadership position at the Office of the Secretary of Defense (OSD). 

The Air Force has weathered many leadership challenges over 

the past years, but one thing has remained steady through it all, 

the outstanding airmen and women providing world class MWR 

programs for our airmen and their families. 

Through their outstanding efforts our programs continue to grow 

and improve to meet the ever changing needs of our customers, in 

garrison, in national support disasters, and in forward deployed locations. Air Force Services continues to deliver combat support and 

community service programs that are the cornerstone of regenerating, sustaining and retaining a vital weapons system, our airmen. 

Our airmen are only as strong as the network of family and 

friends around them, and we recognize the importance of taking 

care of families so our airmen can focus on the mission. A strong 

and viable MWR program must maintain this delicate balance of 

war fighting and family member support. 

My written statement has been submitted for the record and outlines where we are, what we have done in the past year, and part 

of our strategic view for the future. We remain concerned about the 

challenges posed by the economy, the resources available to support 

member and family quality of life, and the impact of issues like 

joint basing, post allowance and recapitalization. 

The hard work of our dedicated personnel is the backbone of success for the Air Force Services MWR mission and I am very proud 

of their successes. 

This would not be possible without the tremendous support of 

the Military Personnel Subcommittee. On behalf of the Air Force 

team, I thank you and I look forward to working with you as we 

continue to move forward in helping to sustain America’s Air Force. 

I welcome your questions. 

[The prepared statement of Mr. Milam can be found in the Appendix on page 181.] 

Mrs. DAVIS. Thank you very much, and again, I want to thank 

you all for your brief statements. We appreciate that. We have a 

chance to hear from all of you at one time. We have votes now, and 

we should be back—it is always hard to project these things. It 

sounds like a long time. We like all the partnerships that you are 
12 

developing, and we are going to give you another networking opportunity in the next half hour. So I am sorry about that, but we will 

be coming back and having an opportunity for people to ask their 

questions. Thanks again for being here. 

[Recess.] 

Mrs. DAVIS. Thank you, everybody, for waiting. I feel like asking 

you all to tell me how many business cards did you pick up, how 

many conversations did you have that you have been needing to 

have for the last week or two? We hope perhaps we gave you that 

opportunity. As always, it is always tough to have you waiting 

here. I know how busy your days are, and we hate to do that, but 

hopefully something good came out of that time. 

I want to really start with looking at the funding, the MWR 

funding, that we compare from fiscal year 2003 to 2008, and what 

we see in that is that the numbers are actually going down, not in 

huge numbers, but when you compare it to inflation, it is considerable. 

I want to look at where would we like this appropriated funding 

to be five years from now. I mean, what is it that you want from 

us; how can we work together to sort of answer the questions of 

what—where we want to be really in that time? We also know that 

as we move towards bringing the supplemental and our budget together, that some of those numbers are going to change just by virtue of the fact that they are items that are going to be included 

in the budget that have been in the supplemental before, and that 

throws things off a little bit. But I really would like you to take 

a look at whether there is a kind of inevitable degradation of programs and facilities, and whether we should be stepping in and 

protecting these programs. Should that appropriated funding not 

even be going down some, but going up? Have you had a chance 

to look at those numbers from fiscal years 2003 to 2008, and what 

can you tell us about that? 

Mr. MYERS. What I found is we have been reporting the straight 

numbers to you every year, but we haven’t included the supplement. So, you know, we got like $671 million in the supplemental. 

If you add that, there is an increase. Now, this year, without the 

supplemental, there is a 35-percent increase. 

So I think what we are going to do in the future is send you the 

numbers; here are the straight numbers, here is with supplemental 

money, and you can see the difference. We want to break that out 

further. The biggest increase in our funding has been in the child 

care area, because of the war and families separated and, of course, 

it is needed. Then we want to break that also to show you the child 

development number and the MWR numbers so you can make a 

better-informed decision. 

But we certainly appreciate the support and interest of the staff. 

This is something we are focused on getting it into the baseline. It 

looks like we have been successful, but as the year goes on, we 

have to make sure that we can retain those funds. 

Mrs. DAVIS. If we just look at those numbers, though, and recognizing the issue of where the supplemental, does that say something about whether or not we really are moving forward enough? 

Mr. MYERS. I think we are moving forward enough in certain 

areas, especially in child care; we have put a lot of effort in that. 
13 

I think in some of the MWR programs we have probably regressed, 

and that is where we have to focus, especially in some of our fitness programs, and that is why we probably need some authority 

so we can do these minor construction and so forth to our fitness 

centers. 

As we break it out, I can really see the difference, but there are 

programs that are suffering because of others. But, again, child development was a big issue with our military families and so forth. 

So we have met that need. Hopefully we are coming to a point 

years down where we have got that program basically fixed, and 

we can focus on other programs. 

Mrs. DAVIS. Anybody else want to respond to that? Any other of 

our chiefs? 

Mr. GORMAN. I would just add to what Mr. Myers said. As I mentioned in my oral statement, we have increased Army funding from 

$350 million in 2007 to twice that in 2008, initially through the 

supplemental, but in 2009 and beyond most of those dollars are migrated into the base budget, and, as Mr. Myers said, significantly 

in support of child and youth programs that are critical to us, as 

well as other family programs. And I think that a refocus at some 

point into our other activities, fitness centers particularly, would be 

helpful. 

Mrs. DAVIS. And, Mr. Gorman, certainly in terms of the appropriated funding for Army MWR, I think the projection now is for 

2009 that it is actually significantly higher, which is $900 million. 

So could you be a little more specific about why that has jumped 

so much? Is it because of the supplemental? 

Mr. GORMAN. It goes back to the creation of the Army Family 

Covenant, which created new standards for our programs at the 

specific behest of General Casey. So the child care is a big part of 

it. In the way that we report or have reported in the past, we didn’t 

include other family programs in the numbers that we sent forward 

to you all. I think the reporting has to do with the lack of inclusion 

of supplemental, but I think we are past that at this point. 

Mrs. DAVIS. Okay. Great. Thank you so much. And we have a 

great deal of interest in the family programs. We are going to have 

one or possibly even two hearings on family issues. We haven’t 

done that quite in that way looking at education, but certainly having witnesses that can speak to that, and I am certain that they 

will identify the benefits that come from your programs. But I also 

want to be certain that we have a chance to really hear from them 

as best we can as we bring in some people who can represent some 

of those concerns. 

Mr. Kline. 

Mr. KLINE. Thank you, Madam Chairwoman, and thank you, 

gentlemen, for being here, for your testimony and for your service 

to the services and to our country. 

I think, Mr. Gorman, I want to just have a short discussion here 

with you. I was down at Fort Campbell, Kentucky, or Fort Campbell, Tennessee, depending upon how you look at it, just a couple 

of weeks ago, and I was visiting a—I guess they call it a community center. I am not sure of what the name of that is, but it is 

a facility, very nice building, new building; has playground equipment out back for the kids; has a coffee shop built into it; has 
14 

meeting rooms and gathering places designed to support housing 

area on the post. Is that something that falls under your purview? 

Mr. GORMAN. Sir, that sounds like it might have been included 

under the Residential Communities Initiative—— 

Mr. KLINE. Okay. 

Mr. GORMAN [continuing]. Where we have outsourced and 

privatized virtually all of our housing and made huge improvements. With some of those projects, there have been community facility improvements that we really appreciate and really come to us 

at no cost to our budget. 

Mr. KLINE. So it does not fall under your purview even though 

it clearly seems to be all about Army morale, welfare and recreation, but it doesn’t fall under you? 

Mr. GORMAN. Not specifically, because it is privatized. 

Mr. KLINE. Okay. Thank you. 

Now, I would like to turn to the issue of exchange dividend contributions to MWR programs, and I am looking at a chart that we 

have here—our staff prepared this? Okay. And this is committee 

staff, and I am just confused. I am hoping that maybe somebody 

can explain. 

If I am looking at AAFES, going back to 2006, it shows dividends 

at about $231 million; and if I look at 2009 budgeted, it is still 

$231 million, dropping down from numbers like 262 and 272. 

And by comparison, the reason I am confused, if I go to the Marine Corps exchanges and go back to the same year, 2006, dividends at $31.8 million; and projected 2009, $47.2, with a steady increase throughout the years 2005, 2006, 2007, 2008, 2009, 2010, 

going up steadily. And yet Army Air Force exchange system does 

not do that. It goes up, and then it comes down, and then 2010 it 

projects to jump back up again to 272. 

I am not sure where to start on this; Mr. Myers, or go straight 

to the Air Force, or who can help me understand what has happened here? 

General THURGOOD. Well, sir, let me give you the best explanation I can. In 2009 and beyond, we did not include any of our 

appropriated funding reimbursements, so it is in our expense base. 

Typically we get about 90 to $100 million a year in appropriated 

funding reimbursement. Once you add that into those financial 

numbers, you will see that it actually grows every year beyond 

that. So if I take, for example, the 231 in 2009, and I add in the 

appropriated funding that we would get for the expenses that we 

would bear in that year, if I take 231 and add 50 million to it, 

which is about the right number, you will see that will be about 

281. And all the outyears are the same way. We don’t plan that, 

and that is why, therefore, we didn’t include it in these numbers 

in this chart. 

Mr. KLINE. Okay. Mr. Larsen, can you address what happens to 

the Marine Corps exchange system? Because your numbers increase in a nice linear fashion starting at 31.8 in 2006 and working 

right up through 49.5 in 2010, so you don’t have that same issue. 

Or do I just have bad numbers? 

Mr. LARSEN. No, sir, we have consistently been improving, and 

we have continued to increase in sales, increase in profits during 

that period, and it is projected in the budget. 
15 

Mr. KLINE. You don’t have that appropriated funds issue. 

Mr. LARSEN. No, sir. 

Mr. KLINE. Okay. All right. So in general, in going back to 

AAFES, you are expecting your sales to go up; you are just having 

to account for moving appropriated funds out? 

General THURGOOD. Yes, sir. 

Mr. KLINE. Absent that, your profit, and therefore your dividends, would go up? 

General THURGOOD. Yes, sir. 

Mr. KLINE. Thank you. 

Thank you, Madam Chair. 

Mrs. DAVIS. Mr. Wilson. 

Mr. WILSON. Yes, unless Madam Bordallo. 

Mrs. DAVIS. I know Ms. Bordallo has an issue she wants to talk 

about. Why don’t you go ahead. 

Ms. BORDALLO. Thank you very much, and I want to thank the 

Ranking Member for yielding me his time. Thank you, Madam 

Chairman, for calling this hearing. 

I have a very important concern. I represent the territory of 

Guam, and my questions will be directed to the admiral and the 

general. And prior to us opening the hearing again, I did have an 

exchange with the admiral. 

My first question is to the two of you. As you know, the annual 

defense appropriation bill contains a provision regarding the purchase of beer, wine and other alcoholic beverages for resale on military installations. In general, the provision requires that beer and 

wine be purchased from instate distributors for 48 States. Now the 

provision further requires that all types of liquor in Alaska and 

Hawaii are to be purchased from instate distributors. The 2008 appropriations bill included a provision that would treat Guam in a 

manner consistent with Alaska and Hawaii in requiring all liquor 

resold on military installations to be purchased from local distributors. 

Now, one of the main concerns that I heard from my constituents 

regarding this policy change was the sudden and drastic increase 

on the part of the military, we found out later. I was blaming the 

local distributors, but they said they hadn’t sold anything to the 

military as yet. And in some cases the increases were upwards of 

60 percent on various types of alcohol. 

Now, can you, General and Admiral, further expand on the rationale for these increases, and why did it take nearly a year to implement the change in policy that emanated from the fiscal year 

2008 defense appropriation bill? And, of course, setting aside now 

the provision has been repealed, but I want to get the history on 

the beginning. 

Admiral BIANCHI. Yes, ma’am, I would be happy to answer that 

one for you. 

As you are well aware, the appropriations bill was not signed 

until 13 November of 2007, and basically that change that inserted 

Guam into the bill into section 8073 was a really no notice change 

to us. So, frankly, we were not made aware of that change to the 

provision until probably a couple weeks after the bill had been 

signed. 
16 

Given that, we attempted in good faith to follow the provisions 

of the bill, and so we started down the path, because obviously 

there is a long supply chain for Guam, it is about a five-month supply chain when you figure ordering time, shipping time, et cetera. 

So in December we got together with AAFES, and we started initial planning sessions. We met again in January of 2008, and in 

April of 2008 we actually brought all the Guam distributors together to start talking about requirements, ability to handle the increased requirement there that would be on island if when we 

started purchasing. In July we had follow-up meeting, and actually 

at the April meeting we got together and set the date of 2 September, 2008, as the date when, in essence, we would flip the 

switch, because at that point the vendors on island said they would 

have sufficient capacity ramped up. 

We stopped shipping in July so that we knew we would have 

enough product so that we wouldn’t run out while the vendors in 

Guam were making their arrangements with the stateside, you 

know, Anheuser-Busch, et cetera, and so it was all supposed to 

come together. As I mentioned, the last shipment left Continental 

United States (CONUS) in July of 2008. 

So on 2 September, yes, in fact, the prices were adjusted. Was 

every product in the store at this point specifically bought on 

Guam? No. But you have to sort of pick a point in time to adjust 

pricing. The reality is when we were purchasing the items from the 

U.S. and sending them over, as you know, we must ship anything 

overseas with second destination transportation with Appropriated 

Funds (APF). So there is clearly an advantage to the price structure in that situation. 

When we started purchasing on Guam, there the vendors had to 

absorb that transportation cost, and yes, the price increases were 

fairly significant. I will give you two examples: A 12-pack of Bud 

Light cans went from $4.47, this is cost price that we would be paying, up to $7.75; and Jim Beam, a liter of Jim Beam went from 

$5.55 to $11.20. So we had to raise the prices in our package stores 

commensurate with the increased costs that we were now having 

to pay for the product being available on Guam. 

We did not, we consciously did not, put a whole bunch of signage 

in the stores and so forth because we felt it would not—it might 

create a lot of angst on the part of the patrons if we put up signs 

that said, you know, your liquor prices have gone up because now 

we are buying it on Guam. I mean, I don’t think that was the message that we would want to send. When patrons asked, we explained to them the provisions of the bill and that we had to purchase locally. So naturally the patrons obviously were concerned 

when they saw a sudden jump in price, but, you know, frankly, 

there wasn’t much we could really do at point. We were living up 

to the bargain we had made with the—well, the law and the bargain we had made with the vendors. 

Now, subsequent to us enacting or beginning that purchase, and, 

in fact, I guess I would offer that week of 2 September, at least in 

the Navy exchange, we even purchased 4- or $5,000 of product from 

the Guam distributors. So, in fact, we were actually, you know, 

spending money on Guam buying those products. 
17 

Now, as you mentioned, the law was repealed in the 2009 bill, 

and obviously we were concerned about the fact that the vendors 

had invested money, had created capacity and so forth, and so we 

have been working with them since the law changed to make arrangements and source some of the items from there. 

Clearly, since the law has been repealed, it is in the best interests of our patrons for us to go back and order from the U.S. and 

allow the APF funds to be used to ship. You know, that is part of 

the benefit, delivering the benefit. But in the meantime we have 

worked hard with the vendors, and we have even helped to negotiate between Anheuser-Busch and other distributors with the vendors to try and liquidate their inventory. So since 2 September we 

have purchased almost a quarter of a million dollars’ worth of product on Guam. 

But as far as raising the prices, it was strictly—it was a mathematical issue. You know, the cost went up because the vendors, in 

essence, were having to pay the transportation costs that normally 

would have been covered in the second destination transportation 

which we are authorized to use. 

So I hope that—you know, throughout this entire situation, we 

really did try to work, you know, best-faith effort. We involved the 

vendors, involved the local distributors, and I hope that helps clarify the situation. 

Ms. BORDALLO. Yes. Thank you, Admiral, and just for the record, 

you said since that time you have purchased about three quarters 

of a million? 

Admiral BIANCHI. No, a quarter, about $266,000 worth, yes, 

ma’am. 

Ms. BORDALLO. Two hundred sixty-six thousand, all right. 

General, do you have any comments to make? 

General THURGOOD. No. I just—again, he is the expert on this. 

We actually get our spirits from the Navy on Guam, as you know, 

ma’am. 

At the end of the day, I think what we are trying to do is provide 

the best value for our customers wherever they are across the 

globe, and that would include the pricing structure as well as the 

assortment. And if I understand the situation correctly, I believe 

that the Guam distributors for spirits only have about 40 percent 

of the assortment we currently carry, and on wines I believe it is 

193 of 250; and therefore, just to ensure that we are providing our 

customers with the assortment that they have become accustomed 

to, we will have to go to search—we will have to seek other sources 

to go do that, but at the end of the day, we want to provide the 

best value to our customer. 

Mrs. DAVIS. Thank you. 

Ms. Bordallo. 

Ms. BORDALLO. If I could just have a follow-up question, I notice 

that during some of your correspondence, it was noted you were 

concerned about the ability of the local distributors to store the capacity of alcohol. Now, we have three or four major distributors on 

Guam. Some of our distributors, because of this law, went ahead, 

purchased containers, additional containers that are regular supplies, purchased trucks, hired personnel, and all to no avail when 

the law was repealed. 
18 

Now, I have one other question. I just want to kind of wrap it 

up. Finally, I am concerned about the consistency in the application 

of the Department of Defense instruction 1330.09 in your commands across the installations of the exchanges. What efforts are 

you taking to ensure the consistent application of this regulation? 

General THURGOOD. I don’t know what 1330.09 is off the top of 

my head. 

Admiral BIANCHI. That is the Armed Services Exchange Regulation (ASER) policy. 

With respect to the pricing of alcohol? Yes, ma’am. I mean, we 

do follow that pricing policy, and it is very specific. For prices for 

a product that is bought within the U.S., you know, we have to follow the pricing structure for that; which is procured locally, we can 

only go 10 percent below the price of the local competitive sourcing, 

and, you know, that would apply, for instance, in Hawaii. Our beer 

and wine and spirits are priced within 10 percent, or no more than 

10 percent, below the competitive market there. 

Ms. BORDALLO. Well, I want to thank you, General and Admiral. 

I didn’t want to put anybody on the spot, but this has been such 

a big concern on Guam. We have had problems with the utilization 

of local businesses at our exchange locations on Guam, and the reversal of the fiscal year 2008 policy in the 2009 bill has left a very 

bitter taste with the business community, and at a time when their 

support for the build-up is critical. 

So we must continue to work together. I would like to see this 

put into the next fiscal—you know, instead of repealing the law, to 

continue on with it, and I think we can come together and come 

up with a better solution if we can work together; and possibly to 

keep the local community to keep their prices down a little bit in 

order to take care of the military business, and you do likewise. So 

we will work together, and I would look forward to further discussing this issue. Thank you. 

Mrs. DAVIS. Thank you. We certainly hope it will be better resolved. 

Mr. Wilson. 

Mr. WILSON. Thank you, Madam Chairman and gentlemen. 

Thank you for being here today. Thank you for your professionalism, for your thoughtfulness working with military families. 

You certainly enhance the opportunities of service. 

And, General Thurgood, I want to congratulate you on your service. I am always happy to see, as a former reservist, a reserve officer make such a high rank and also do such a good job. 

General THURGOOD. I hope I haven’t disappointed you, sir. 

Mr. WILSON. In fact, I was with Congresswoman Bordallo last 

August, and I mentioned this to you before, but we were in central 

Bulgaria, and it was really exciting. It was Novo Selo base, which 

is very historic. It is the first time in the 1,225-year history that 

Bulgaria has invited a foreign military presence, and we were able 

to visit a temporary base, and there were temporary facilities; 

among the first, the AAFES laundry, the AAFES barbershop, the 

AAFES cappuccino bar. And we were both impressed to see the 

Bulgarian and American troops there sipping coffee, making lifelong friends. And so what you are doing is so important to make 

serving in a new location so worthwhile. 
19 

Additionally you provide personal information services domestically and overseas. And can you tell us how extensive these are 

and how they reach the troops? 

General THURGOOD. Yes, sir. In OEF and OIF we have 72 call 

centers, as well as 7 or so Internet cafes, I think I mentioned earlier. We are in the process right now, as we think about these strategic shifts that are taking place in Iraq, of how we handle the 

drawdown there and plus-up the infrastructure, including the 

things that I just mentioned in Afghanistan. And for the troops in 

Afghanistan, as that gets up to 17,000 or 30,000, as the President 

has indicated, we are working very closely with the command there 

to make sure that we are providing the right kinds of infrastructure, including a new idea that we have called an Air Assault PX. 

So the infrastructure, as you know, in Afghanistan is not very robust compared to Iraq, and, therefore, we have got to come up with 

some way to support these soldiers that are in the far end tip of 

the spear, and our way of doing that is what we call an Air Assault 

PX, literally load up a container and sling-load it out to them. 

Mr. WILSON. The telephone call service, what is the cost of that 

to the personnel? 

General THURGOOD. Today it is 15 cents a minute. It is the best 

deal going. You can’t beat it. 

Mr. WILSON. Domestically what is the status of call centers—— 

General THURGOOD. Let me—— 

Mr. WILSON [continuing]. And information services? 

General THURGOOD. Well, as you know—well, let me back up. 

Domestically I don’t think we have any call centers in the United 

States, do we? We don’t have any in the United States, but we are 

working very closely on the personal information services with 

Army MWR to create an environment that allows us to bring telecommunications to our soldiers, airmen and families in a noncompetitive basis, competitive meaning with us and MWR, and we 

are trying to do that in a way that creates the right value equation, 

which is around price, quality, service and those kinds of things. 

We have just recently concluded a Memorandum of Understanding (MOU) with Army MWR that I think will put us in the 

right direction and a new strategic direction and provide the value 

that our service members and families expect. 

Mr. WILSON. It is greatly appreciated. 

Mr. Gorman, actually in visiting Jalalabad, Afghanistan, I was 

able to see a call center that I am confident that you helped work 

with, and it really meant a lot to the troops to have that capability. 

Could you tell me, are these services provided sole source, or is this 

a competitive bid? 

Mr. GORMAN. Sir, all of our programs, and particularly as we 

move forward with our partnership with AAFES, are being done on 

a competitive basis with best value at the core of all of our decisionmaking. 

Mr. WILSON. And the cost of the services through your program 

is what? 

Mr. GORMAN. Those that we operate in the United States that we 

are in the process of incorporating with the arrangement that we 

have made with AAFES, as an example, an unlimited month, without guarantee of long-term commitment anyway, is $39 a month for 
20 

a soldier to use wireless access from his barracks or wherever else 

the wireless will allow him to connect. 

Mr. WILSON. And what would be the cost in Jalalabad? 

Mr. GORMAN. Sir, that program is more than likely—it is either 

free, or it is provided by one of our partners at a very low cost. 

Mr. WILSON. And—— 

Mr. GORMAN. We are presently not operating that program. 

Mr. WILSON. I really was sort of leading you on that. 

There has been, Madam Chairman, information that our troops 

were, quote, ‘‘being taken advantage of or denied access to telephone service,’’ and we found out that on visiting Jalalabad that it 

was free. So thank you all for your service. 

Mr. GORMAN. I guess I would say that we are committed, absolutely committed, in partnership with AAFES to provide a best 

value equation through a combination partnership with AAFES 

and industry to provide our soldiers the absolute best value at the 

lowest price. 

Mr. WILSON. Thank you. 

Mrs. DAVIS. Thank you, Mr. Wilson. 

Can I go back, and maybe you can help me understand a little 

bit better, because I understand on this issue of providing the unofficial communication services—is that—you mentioned that you 

came to an agreement, you sort of struck a balance; is that right? 

Is that between AAFES and MWR programs? 

General THURGOOD. Yes, ma’am. Let me address that and then 

Rich jump in anytime. 

We just within the last 30 days have finalized an MOU with 

Army MWR that allows us to integrate our business models in a 

better way, and, as Mr. Gorman mentioned, at the end of the day 

what we are trying to do is to provide the best value for our soldiers, our airmen, and our families wherever they are across the 

globe. And, therefore, we want to integrate the best practices in the 

industry. We want to bring best business partners from the industry in, let them compete for this service. 

Mrs. DAVIS. So you are looking at the competition, then, doing 

that best value. 

General THURGOOD. Absolutely. And so when we do that, we will 

bring the appropriate people in that are interested in competing for 

this business. As AAFES will operate it, we will return the dividends back to Army MWR, but it will absolutely be competitive, 

and as Mr. Gorman said, it will be based on the best value, which 

includes things like price, quality, infrastructure, support services 

provided, and all of those will go into the equation from which we 

will make a decision. 

Mrs. DAVIS. Okay. So was this unique to the Army, then, in some 

ways? 

General THURGOOD. It is unique to the Army right now, yes, 

ma’am. 

Mrs. DAVIS. Is there a similar problem internally with the Navy 

as well? 

Admiral BIANCHI. No, ma’am. 

Mrs. DAVIS. How do you all handle it? 

Admiral BIANCHI. The Chief of Naval Operations has designated 

the Navy Exchange Command as the provider of personal tele-
21 

communications, so we partner with MWR, but we provide—we 

have 129 Wi-Fi spots. We have all the telephones that float. We 

manage the program for Navy, and so we are in partnership with 

them, but we are the executive agent basically for Navy. 

Mrs. DAVIS. And Mr. Milam. 

Mr. MILAM. We believe the current way of competing contracts 

for the services is certainly the best value, and we certainly welcome AAFES in that competitive bidding process. 

Mrs. DAVIS. All right. Thank you. 

So at this point is there anything left to do in this area? Obviously to get those to pull it together in terms of the bids, but in 

terms of the internal disagreements of some sort, is that—— 

General THURGOOD. I think all of those have been worked out, 

ma’am, and as I mentioned earlier, this will be an integrated approach to providing this kind of service. What is left now is to really work out the final details and get after the business. 

Mrs. DAVIS. Mr. Larsen, did you want to—— 

Mr. LARSEN. Just to add, what the Marine Corps does, since we 

have both MWR and the exchanges in the same organization, we 

don’t have the internal competition or that issue, but I would like 

to mention one thing that we are doing in Afghanistan. We are 

pilot-testing a program to provide Internet service and telephone 

service for our marines that are forward-deployed to the most farreaching areas of the forward-operating bases. And so we have acquired a system that has the capability of linking to a satellite and 

then provide those services to marines that are forward-deployed at 

no cost to them. 

Mrs. DAVIS. All right. 

Mr. MYERS. From the OSD standpoint, we have reviewed the 

MOU between the Army and AAFES, and we are fine with it. We 

think it is the right approach, and that approach will provide the 

best services to our men and women in uniform. 

Mrs. DAVIS. Okay. Great. That is our goal, right? Give them the 

best service. Thank you. 

I wanted to just turn to the adequacy of the construction funding 

and the recapitalization needs of both nonappropriated and appropriated funding support. 

Mr. Myers, I understand that a DOD report concluded that the 

majority of the service MWR programs are inadequately funded to 

meet these recapitalization requirements over the next ten years. 

So where are we, and how are we going to do that? 

Mr. MYERS. Well, funding has been a problem in a lot of areas. 

So we have got with the services, and what we are looking at, in 

a lot of cases maybe we won’t have to build a new facility. We can 

renovate it, consolidate facilities, look for Private-Public Ventures 

(PPV)s or outside assistance and so forth. Under Base Realignment 

and Closure (BRAC) funding, we actually have a policy now that 

you have to use appropriated funds. In the past, you know, they 

had been using some nonappropriated funds for BRAC. So now we 

do have a policy, and right now we have over $300 million in the 

pipeline for BRAC-related funding. So it is an issue we just have 

to continually work to get the economies of scale to get our facilities up to speed. 
22 

Mrs. DAVIS. Okay. Thank you. I wanted to follow up with that. 

My time is up. I can turn to Mr. Wilson, or I am just going to go 

ahead for three more minutes or so. 

Mr. WILSON. Go ahead. 

Mrs. DAVIS. In mentioning that, I know that there was some 

funding for—in the reinvestment dollars as well for BRAC. Are we 

able to plan and take advantage of the fact that materials are at 

a lower cost right now, that construction should be less perhaps 

than it was a few years ago, even labor? Are we moving ahead as 

quickly as we can to really get those dollars out right now? 

Mr. MYERS. Yes, we are. And in the stimulus bill we did get 

funding for our facilities now, and we are making every effort to 

take advantage of it. Even overseas, like in Korea, we have big 

projects. The won, the dollar is very strong against the won, so we 

are seeing a decrease, and as we see a decrease, we can use those 

funds to apply against other projects. 

Mrs. DAVIS. Okay. We would certainly like to see that happen. 

Mr. Sakowitz, in light of this discussion, as well should we be 

thinking about a five-percent, something greater than the five-percent commissary surcharge to maintain the high-quality DeCA 

projects? 

Mr. SAKOWITZ. Ma’am, my thoughts, bottom line, up front, is no, 

not at this time. And I don’t know that it is actually necessary. 

And I will explain a little bit. 

The surcharge started in the 1980s was about facility management. It was about new and sustainment. And we have added to 

that account now Information Technology (IT), which, as you know, 

can be costly, and it has been great for us with our new finances, 

but it can be costly. And the result of all that, if you look at just 

the numbers, is that over the 10-year period that you spoke of, we 

have looked to be short $550 million. So it does beg the question. 

However, I believe that the efficiencies that we can take on, one 

that you just mentioned, building now quicker because of the 

cheaper prices, so we work with all that build for us, Corps of Engineers, you name it, to try to get more efficient at doing that. We 

have also instituted a new policy in terms of how we manage our 

maintenance contracts, so that is affording us some opportunities 

there. 

But lastly, and what I think is the most exciting opportunity for 

us, is taking off on the services, Residential Communities Initiatives (RCI), Army RCI, that Mr. Kline talked about before, and how 

they leveraged some dollars to get a 12-for-1 buyback of housing 

that we could possibly do. It is not exactly the same model, but it 

is build-to-lease that we could use on the surcharge. Our initial discussions with those portfolio managers who helped the Army and 

the Air Force is that it could be applicable to us, and I think that 

would be tremendous, and if we got even half of what they got for 

the housing, then we could take care of a good portion, if not all, 

of that balance. 

So I think we have a lot of opportunity. I don’t think it is the 

right time to raise it. And we are going to do our best to keep those 

costs down for our servicemembers and families. 

Mrs. DAVIS. Thank you. 
23 

Any other comments on that? Anybody want to disagree? No? 

Okay. 

Mr. Wilson. 

Mr. WILSON. Thank you, Madam Chairwoman, and thank you for 

this hearing. As I conclude my participation, I want to reiterate my 

appreciation for your service. I find it absolutely amazing that you 

are operating and managing worldwide enterprises that have 12 

million customers, that you have sales of $12.8 billion annually, 

that you employ 158,706 people, and you can tell how calm this 

hearing is. And we reflect the people we represent, particularly 

Congresswoman Davis does. And there is great appreciation. And 

what you are doing, I believe, is providing devoted service to military families, increasing the opportunities for people to serve in the 

military. So thank you very much. 

Mrs. DAVIS. Thank you, Mr. Wilson. I am just trying to make 

sure that we stay somewhat within the time that we had initially 

anticipated. Could you just discuss briefly whether or not BRAC 

and the restationing of related construction projects is—where is 

that? Where do you see that we should be? 

Mr. MYERS. Right now, as I said, we have over $300 million in 

appropriated funds for BRAC-related projects. You know, in the 

past we did a lot of those with nonappropriated funds. Now the policy is clear. We will use appropriated funds. And I think they are 

moving along, and I think we have got a lot of traction on it right 

now. 

Mrs. DAVIS. Just percentage wise, as we go back a little bit and 

look at the use of the nonappropriated funds—— 

Mr. MYERS. Well, I think, you know, in BRAC we probably used 

nonappropriated funds for several years because back then all the 

service had to do is—appropriate funds are not available, and, of 

course, the troop was being taxed twice, because they pay taxes, 

and now they are digging in their pocket. Under the new policy 

that is no longer a reason. The only reason that could be, if they 

have a project that is funded, it comes to the President’s budget 

and is stripped out of his budget, then they can come back for nonappropriated funds. So I think it is working. 

Mrs. DAVIS. Are you using a fair and reliable criteria to do that? 

Mr. MYERS. Yes, ma’am. 

Mrs. DAVIS. All right. I want to thank you all so much for being 

here. I can give you all an opportunity if you would like if there 

is something that was in your statement that our three-minute request didn’t have a chance to highlight, we are happy to let you 

just, you know, give us one thing that you would like us to absolutely be aware of and be able to deal with as we deal with the upcoming authorization. We would like to hear from you. You don’t 

need to use your time to thank us. We appreciate that. But just if 

there is anything, you don’t have to say it, but just in case you 

would like to, I want to give you that opportunity, if there was an 

issue dangling out there you would like to focus on. 

Mr. Myers. 

Mr. MYERS. The primary issue of our military people today is 

child care and so forth. I went to Iraq, visited 21 sites in December, 

talked to all the military. That was their number one priority, and 

it was—thankfully their families were being taken care of it. We 
24 

have about 37,000 children on the waiting list. So any help you can 

give us with extending that authority for contracting and raising 

the limit to 15 million, that is a key retention and readiness issue. 

So any support on that would be appreciated. 

Mrs. DAVIS. May I just ask you about that quickly, because I 

support the opportunity for many families in the military to provide that service for others and to get involved in this and to have 

that as a source of income and also a source of pride and interest 

that they have. 

One concern, though, would be whether we have done such an 

exceptional job in training our child care providers, and I just wonder whether, you know, there isn’t—sometimes in trying to spread 

it out there is also a concern over whether or not we are going to 

have people at the same level of training, whether we will be able 

to do that. 

Mr. MYERS. I think systematically we have been doing that. Now, 

sometimes we have problems overseas hiring caregivers because of 

the pay and so forth. I think we have requirements in that we 

want to start giving them benefits, free child care, bonuses and so 

forth, because in England you can get 10 pounds for a menial job. 

That is about $16 an hour. So we can’t pay that. So give them free 

child care, assistance for training and so forth, I think that will go 

a long way. 

And, of course, you may know, but this morning at the Longworth House Office Building, the National Association of Child 

Care Resource and Referral Agencies announced that the Department of Defense child care centers continue to lead the Nation and 

hold the highest rating in both standards and oversight. So they 

are doing good, but we can never be satisfied. 

Mrs. DAVIS. We want to keep those standards high. 

All right. Anybody else? 

Mr. THURGOOD. Ma’am, I will give you two things to think about, 

if you would, and I think I might speak for the entire exchange system here, and that is, we compete in a global supply chain, and, 

therefore, our supply chains, including the pricing structure and 

the assortment that we have, has to be competitive. And so I would 

ask for you to continue to look at the ASER restrictions and the 

lifting or the easing of those where it makes the most sense. 

Associated with that would be the continued assistance working 

with Department of Defense on base access for our vendors. It is 

a continuing sore spot, and, at the end of the day, those costs are 

borne somewhere in the supply chain. So to the extent that we can 

smooth that out, come up with a consistent policy as quickly as we 

can, I think it would benefit our soldiers, our airmen and our families all across the globe. Thank you. 

Mrs. DAVIS. Thank you. 

Anybody else? 

Mr. MILAM. Ma’am, I would just add, and this already is in our 

statement, that the Air Force is very committed to taking care of 

their families. And certainly on the child care issue, the additional 

funding that we received to build additional child development centers and reduce our waiting list was very key. We hope to have our 

numbers down on the waiting list down to about 250 within the 
25 

next couple of years, which is the first time ever we have been that 

low. So we appreciate your support in that regard. 

As far as taking care of families, that is a very important issue 

for us. I know OSD is launching the Year of the Military Family. 

We are doing the same in the Air Force, kicking it off with a summit at the end of this month, and bringing all of our providers together to find ways where we can continue to take care of the military families. So thank you. 

Mrs. DAVIS. We appreciate your doing that. As you know, there 

was a resolution yesterday, and we will continue to focus on it on 

this committee. And we are very pleased that the President and 

the First Lady have also put it as one of their highest priorities. 

Anybody else? 

All right. That is great. Thank you all so much for being here, 

and we look forward to continuing our work with you. 

[Whereupon, at 3:16 p.m., the subcommittee was adjourned.] 

A P P E N D I X 

MARCH 12, 2009 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

MARCH 12, 2009 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

MARCH 12, 2009 

(217) 

QUESTIONS SUBMITTED BY MRS. DAVIS 

Mrs. DAVIS. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) 

requires all Federal, State, and local government agencies to withhold 3 percent of 

payments to vendors in order to ensure tax compliance for companies doing business 

with the Government. Implementation was delayed until December 31, 2010. Representative Meek has introduced bills to repeal the provision-H.R. 1023 (260 cosponsors) in the 110th Congress and H.R. 275 in the 111th Congress. The bills were referred to the Ways and Means Committee and have not been addressed in either 

the 110th or the 111th Congress. The effective date, initially set for January 1, 

2010, has been delayed by one year twice, mostly recently to January 1, 2012, as 

a result of the American Recovery and Reinvestment Act of 2009 that was signed 

into law on February 17, 2009. The provision will impose a significant impact on 

the cash flow to small businesses doing business with government agencies, to include military resale entities. The financial penalty resulting from implementation 

of the provision will require changes to payment systems for resale programs and 

the additional advance handling of tax withholding may reduce incentives by vendors to provide military resale optimal pricing policies. Most companies doing business with the resale program are tax compliant and it seems improper to punish 

all for the transgressions of a few. 

Mr. Myers and Resale Commanders, has tax compliance been a problem for companies doing business with resale? Do you advocate an exemption from TIPRA for 

companies doing business with the resale programs? Do you believe that vendors 

may change their pricing policies if the tax withholding provision of TIPRA is allowed to take effect? 

Mr. MYERS and General THURGOOD. We are not aware of any tax compliance 

problems for companies doing business with Defense Commissary Agency (DeCA) or 

any of our nonappropriated fund instrumentalities (NAFIs), including the Armed 

Services Exchanges and the Services’ morale, welfare, and recreation activities. We 

are extremely concerned about both the direct and indirect costs to DeCA and the 

NAFIs which are expected to ultimately be passed on to our Service members. DeCA 

and the NAFIs will incur substantial costs to modify all existing accounting, procurement, and inventory systems to handle reporting for the Internal Revenue Service. Additionally, this withholding is expected to be an onerous burden on the many 

small businesses resaling with DeCA and NAFIs. We expect all the vendors providing goods to military resale activities may either cease doing business with our 

entities or pass these costs on to our Service members through higher prices for 

goods and services. 

Admiral BIANCHI. Navy Exchange Service Command (NEXCOM) vendors represent a cross section of all U.S. companies. NEXCOM currently does business with 

approximately 5,000 vendors and has no specific information regarding which vendors may have tax compliance issues. NEXCOM receives only two to three tax liens 

a year where the IRS asks us to forward payments to them rather than to the vendor. NEXCOM recommends the military resale activities be exempt from the withholding requirements of TIPRA. NEXCOM firmly believes that vendors will view the 

3% withholding requirement as an added expense and an additional burden in conducting business with the government. In some instances, merchandise may be in 

short supply, which occurs often in times of high consumer demand for specific products. In these instances, vendors will be less likely to provide such merchandise to 

the military resale activities, due to the added 3% withholding requirement. Our 

military patrons should not be placed on the secondary priority system for high demand merchandise. NEXCOM believes vendors will add the TIPRA withholding 

amount to the cost of our goods and services or even possibly refuse to do business 

with us to avoid being monetarily penalized by the withholding provisions of TIPRA. 

Mrs. DAVIS. The Defense Commissary Agency (DeCA) has been working to restructure its workforce to develop more flexible multi-skilled workers and managers 

who can operate and advance within a whole-store team concept. This ‘‘Workforce 

of the Future’’ (WOF) includes the best practices of the private sector which would 

hopefully posture DeCA to improve its performance in A–76 competitions with private sector industry. Because the program would take a number of months to imple-
218 

ment, the Congress exempted DeCA from A–76 competitions in the National Defense Authorization Act for Fiscal Year 2006 until December 31, 2008. Many of the 

aspects of WOF implementation were dependent on the successful execution of the 

National Security Personnel System (NSPS). Unfortunately, implementation of 

NSPS was problematic and WOF was never able to move forward on its original 

schedule. Consequently, the Congress must now contemplate restoration of the exemption from A–76 competitions or risk great damage to a capable DeCA workforce 

and the greatly improved stores they operate. 

Mr. Sakowitz, given that the Defense Commissary Agency has not been able to 

fully implement its new workforce model, Workforce of the Future (WOF), do you 

agree that the continued exemption from A–76 contracting out competitions is necessary? 

Mr. SAKOWITZ. The Defense Commissary Agency (DeCA) implemented the Workforce of the Future structure in all the stores located within the continental United 

States, Hawaii, Alaska and Puerto Rico, before the moratorium expired. DeCA was 

not able to convert all personnel in the existing positions before the December 31 

moratorium expiration. The new workforce structure provides the necessary flexibility to utilize personnel in all operational functions of the store, producing a better 

overall operational execution. DeCA is transitioning to the redefined positions 

through attrition and expects to complete that transformation by 2014. 

Mrs. DAVIS. Mr. Myers, what is the DOD perspective on this issue? 

Mr. MYERS. The Department is supportive of the Defense Commissary Agency 

(DeCA) efforts to transform its workforce. This transformation will improve operational performance and individual potential for career advancement, and allow 

DeCA to compete favorably in OMB Circular A–76 competitions. However, pursuant 

to Section 737 of the Omnibus Appropriations Act for FY 2009 (P.L. 111–8) (the 

Act), which precludes the use of funds appropriated or otherwise made available by 

the Act (or any other Act) to announce or begin A–76 competitions, the Department 

has placed all such competitions on hold through FY 2009. 

Mrs. DAVIS. The retirement systems for the various military resale and NAF activities are, to some degree, invested in the stock market. Given the decline in stock 

prices that has accompanied the recession, it seems likely that the investments supporting the retirement plans have decreased in value and may present a problem 

to personnel managers. All panel members, given that retirement systems are, to 

some degree, invested in a declining stock market, have there been losses in securities supporting your retirement plans that now threaten the security of your respective systems? 

Mr. MYERS, General THURGOOD and Mr. SAKOWITZ. The non-appropriated fund 

(NAF) defined benefit retirement plans in the Department of Defense have suffered 

asset losses to be expected with a recession that are commensurate to the decline 

in stock prices (and the value of other asset classes such as bonds and real estate). 

However, based on the solid pre-recession financial position of the plans, diversification of plan investments, history of United States equity market performance, and 

current measures being taking by plan sponsors to address asset losses, we believe 

the security of the plans is not threatened. 

NAF plan sponsors have exercised strong plan oversight for decades, which includes regular collaboration with private sector actuarial, accounting, and investment firms. This collaboration ensures accurate actuarial reporting and appropriate 

benefit and funding levels. Further cooperation is producing actions for dealing with 

recent asset declines, including increasing or reinstating employer contributions, adjusting retiree cost of living increases, and refining investment diversification strategy. We believe NAF employers are well-positioned to ensure the financial security 

of their respective plans. 

Admiral BIANCHI and Mr. BAKER. The Navy Exchange Service Command 

(NEXCOM) has a pension trust that funds the retiree benefits. As of the end of our 

fiscal year at January 31, 2009, the pension plan asset allocation was as follows: 

Equity securities 45% 

Debt securities 44% 

Real estate & other 11% 

The declining stock market has reduced the value of the NEXCOM pension trust 

fund, however the plan remains adequately funded. As of January 31, 2009, the end 

of our fiscal year, our pension obligation was $808.5 million and our pension trust 

fund balance had a fair market value of $883.4 million. The retirement plan’s investment strategy is to be invested with a long-term outlook, with the risk and return balance of the asset portfolio reflecting a long-term horizon. 

Additionally, since our retirement plan is a defined benefit plan, there is no impact to current or future retirees as a result of the declining market conditions. 
219 

The Navy MWR NAF Retirement Plan maintains a diversified investment portfolio held in a retirement trust. Included in this portfolio are investments in U.S. 

equity securities. The returns generated from this portfolio over the last year have 

reflected the overall decline experienced by the U.S. equity market in general. The 

precipitous drop in equity values has altered the funding status for most retirement 

plans, including the Navy MWR NAF Retirement Plan. 

While this market decline has taken the Navy MWR NAF Retirement Plan from 

an overfunded to underfunded condition, the basic investment strategy of holding 

a diversified portfolio of several asset classes remains the soundest long-term investment strategy. Unfortunately, this strategy has not fared well over the past year. 

The financial downturn has affected all asset classes, driving asset values down for 

U.S. equities, international equities, real estate, and corporate bonds. This aberration should correct itself when the U.S. economy begins to recover and other world 

economies begin recovery in conjunction with the U.S. History tells us that investment in U.S. equity securities remains prudent and will continue to offer attractive 

long-term returns. 

In its first 25 years of existence, the Navy MWR NAF retirement plan was underfunded and MWR made annual contributions to reach an overfunded state. For the 

past 20 years through September 2008, the Navy MWR NAF retirement plan had 

maintained an overfunded status without employer contributions from CNIC. Since 

that situation has now changed, CNIC has re-started employer contributions and 

will continue to do so as long as the plan remains underfunded. The level at which 

CNIC must make future employer contributions will depend on the direction of future market returns and actuarial estimates as to requirements. 

Mr. LARSEN. Losses to the Marine Corps Nonappropriated Fund (NAF) Civilian 

Employee Pension Plan have been consistent with losses in the private sector as 

well as that of the other NAF employers. While the funding level of the Plan has 

decreased, the security of the Plan is not threatened. 

The Marine Corps is currently exploring several practical courses of action to 

achieve a fully funded status. Various funding options are being explored and will 

be presented to the Fiscal Director of the Marine Corps as well as the Board of Directors for consideration. 

Mr. GORMAN. Although the Army’s Nonappropriated Fund (NAF) Employee Retirement Trust investments have experienced some losses during the declining stock 

market, we do not believe those losses threaten the security of our retirement system. Our portfolio is diversified over several investment types, including stocks, 

bonds, insurance contracts, and US Government Securities. As of October 1, 2008, 

the date of our most recent actuarial valuation, the total actuarial accrued liability 

was $909.5 million, and the actuarial value of plan assets was $887.4 million. As 

the markets continued their decline, the estimated actuarial value of assets declined 

to $742.4 million by the end of February 2009, yielding an estimated funded status 

of 90.2 percent. Given the current condition of the investment markets, this is not 

a serious concern. However, as a precautionary measure, we invoked the Retirement 

Plan provision which allows us to cap the annual cost of living adjustment (COLA) 

for our current retirees at 4 percent, rather than grant the normal Consumer Price 

Index based COLA of 5.8 percent. We have also made the decision to increase the 

employer contribution to the Trust from 6.5 percent of covered salary to 7 percent 

of covered salary for the foreseeable future, effective October 1, 2009. 

We believe these precautionary measures, along with prudent attention to our investments and adherence to our investment strategy, will protect the long-term security of the Retirement Trust and insure the financial security of our current and 

future NAF Retirees. 

Mr. MILAM. The Air Force Nonappropriated Fund (NAF) retirement systems are 

invested in the stock market and, as such, respond to market conditions. While 

there has been a change in our portfolio due to market fluctuations, there is no 

threat to the long-term viability of our retirement systems. We monitor the market’s 

performance on a continuing basis and adjust accordingly to minimize negative 

trends. We are currently evaluating a potential increase in contribution rates to the 

Air Force NAF Employee Retirement Plan Trust. 

Æ