Taxpayer support of base grocery stores this fiscal year would fall by $130 million, or 9.4 percent, if Congress fails to reach a debt-reduction deal by Jan. 2, its deadline to avoid arbitrary budget cuts mandated by the sequestration mechanism in last year’s Budget Control Act.
The Office of Management and Budget delivered that news to Capitol Hill in a larger report that Congress required to make the impact of the sequestration threat more transparent to voters.
A commissary budget cut of that size, which stores likely would be forced to absorb over just the last six to nine months of fiscal 2013, intensifying its effect, “would be devastating,” says Tom Gordy, president of Armed Forces Marketing Council. The council represents manufacturers of products sold in military stores.
Commissary shoppers, Gordy said, likely would see store hours and staff services cut by next spring, and might even see some stores closed in areas where two or more bases are co-located. Commissary budgets are used almost entirely for wages and benefits of its 18,000 employees.
About two thirds of employees, Gordy notes, are affiliated with the military, either family of active duty members or military retirees, retiree spouses or military veterans. Many employees would see work hours and, therefore, incomes cut by the sequestration knife.
Exchanges or base department stores would not be impacted because they are self-sustaining, with staff salaries and other operating costs paid for through store-generated profits.
Commissaries, however, rely on annual taxpayer subsidy of $1.4 billion. In return, military patrons see savings of about 30 percent on their groceries, a popular benefit worth about $2.8 billion annually. Goods are sold at cost plus a five percent surcharge. The surcharge money is used to modernize old stores and build new ones.
The commissary appropriation, like funding for most other defense and non-defense discretionary spending, would be hit by the sequestration process that both Republicans and Democrats agreed to accept as an intolerable result if they could not muster the political courage themselves to reach a fresh $1.2 trillion, 10-year debt reduction agreement.
Some key lawmakers, worried that this pitiable Congress still lacks leadership and character to negotiate a debt deal after the election, one with real compromises and meaningful tradeoffs, is said to be drafting stop-gap legislation to delay sequestration’s impact for at least several months.
The White House is signaling that President Obama won’t accept anything short of a “balanced” debt deal to avoid sequestration, a deal that would include higher taxes on the wealthy, which is something most Republicans have pledged not to consider.
The Defense Commissary Agency, which oversees military grocery operations worldwide from its headquarters on Fort Lee, Va., won’t comment on the potential impact of sequestration. DECA is operating, like the rest of the Department of Defense, on the assumption lawmakers will act to avoid sequestration and compromise on a plan to address the nation’s $16 trillion debt crisis. With this Congress, however, the sequestration mechanism seems about as thoughtful as passing a loaded gun to a pouting child.
Gordy said DeCA probably could absorb a five percent cut without shoppers being impacted. That could be handled, for example, by layoffs of some headquarter employees or by enticing older careerists to retire early.
“There would be pain but it’s manageable,” Gordy said. Above five percent, however, and staff furloughs have to be large enough to impact store hours and even force some stores closures.
2013 COLA set
Military and federal civilian retirees, survivor benefit annuitants, disabled veterans and Social Security recipients will see a 1.7 percent cost-of-living adjustment in January.
Annual COLAs for federal benefits are based on inflation, as tracked by the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This COLA was set by comparing average prices for a market basket of goods and services tracked by CPI-W in the third quarter of last year to average prices in the third quarter this year.
That comparison shows the CPI-W average of 223.23 for July through September 2011 has climbed to 226.94 for the third quarter this year, an increase of 1.66 percent, which the BLS rounded up to 1.7 percent.
BLS economist Steve Reed said food inflation was relatively modest at 1.6 percent. Gasoline prices are high today but also were high in the third quarter of last year, climbing by only 2.6 percent since last September. The price of durable goods, meanwhile, rose more modestly.
This COLA will be less than half of last year’s 3.6 percent adjustment, after two years without a cost-of-living raise when consumer prices fell during the recession and collapse of U.S. housing and financial markets.
Various debt reduction studies including the 2010 report of the National Commission on Fiscal Responsibility and Reform, also known as the Simpson-Bowles commission, have proposed moving from CPI-W to a “chain-weighted” CPI for adjusting federal entitlement and retirement programs.
This would save an estimated $200 billion over the next 10 years. Retirees can expect adoption of the chain CPI for Urban Consumers (C-CPI-U) to be floated again when Republicans and Democrats resume negotiations on addressing the debt crisis.
If Congress had agreed to the chain CPI already, the COLA in January would be 1.5 percent rather than 1.7 percent. Proponents argue that the chain CPI addresses “substitution bias” found in the CPI-W. That market basket of goods and services is weighted based on spending patterns of American workers. And every two years BLS conducts a separate survey to readjust how those goods and services are weighted in the basket.
What CPI-W doesn't do is change the mix of goods and services it surveys to reflect changes in spending behavior. For example, as the price of beef rises, consumers buy less beef and more chicken. CPI-W doesn't take account of that shift so, critics contend, it exaggerates inflation.
A chain CPI would capture changes in consumer behavior. But opponents of that index argue it ignores the fact that consumers might prefer beef to chicken. And so over time they could feel worse off financially with inflation adjustments shaped more by prices than by preferences.
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