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Decision to Discontinue Commissary Operations at NAS Brunswick, but 
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GAO-11-266R: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 20, 2011: 

The Honorable Susan Collins:
United States Senate: 

The Honorable Olympia Snowe:
United States Senate: 

Subject: Defense Infrastructure: DOD Used Available Guidance in Its 
Decision to Discontinue Commissary Operations at NAS Brunswick, but 
Criteria Needs Clarification: 

The Department of Defense (DOD) plans to cease commissary operations 
at Naval Air Station (NAS) Brunswick, Maine because of a 2005 base 
realignment and closure recommendation to close the installation and 
transfer the assigned active-duty personnel and equipment to NAS 
Jacksonville, Florida. DOD plans to close NAS Brunswick and its 
commissary by September 15, 2011. As of January 2009, NAS Brunswick 
commissary--located approximately 6 miles northwest of the air station 
in the town of Topsham--had more than 19,000 authorized patrons. About 
10,000 authorized patrons are expected to remain after the 
installation closes. Representatives from communities surrounding 
Brunswick and certain elected state officials expressed concern that 
the commissary's closure will limit shopping options and purchase 
prices will rise for reservists, military retirees, and dependents and 
the relatively small number of active-duty personnel remaining in the 
region after the installation closes. 

Commissaries are intended to enhance the quality of life of active-
duty personnel, military retirees, and their dependents, and support 
military readiness, recruitment, and retention goals. Commissaries are 
not expected to be self-supporting, and provide a noncash benefit for 
active-duty personnel by offering food and related household and 
health and beauty items that are similar to merchandise sold in 
commercial grocery stores. This merchandise is typically offered for 
sale at substantially reduced prices (including exemption from any 
sales taxes) when compared to retail prices at commercial grocery 
stores. DOD estimates that a family of four can save about $4,400 
annually (or approximately 30 percent) by shopping at a commissary 
instead of a commercial grocery store. 

As directed by Senate Appropriations Report 111-40, the Under 
Secretary of Defense (Personnel and Readiness) submitted a report to 
Congress on March 30, 2010, which evaluated the economic feasibility 
of continuing commissary operations in the Brunswick area following 
the closure of NAS Brunswick. As you requested, we evaluated the 
extent to which DOD considered applicable guidance in deciding to 
discontinue commissary operations at NAS Brunswick upon the closure of 
the installation by September 2011. 

To determine the extent to which DOD's decision considered its 
established guidance, we reviewed the DOD guidance for commissary 
operations, along with the Navy's study on continuing commissary 
operations at NAS Brunswick after the installation closes. We also 
reviewed the Defense Commissary Agency's actual and projected sales, 
surcharge revenues, and operating costs for fiscal year 2007 through 
fiscal year 2012 for the NAS Brunswick commissary. We met with 
officials from the Office of the Under Secretary of Defense (Personnel 
and Readiness), the Defense Commissary Agency, and the Department of 
the Navy. We also visited NAS Brunswick and met with installation 
officials responsible for managing the commissary, along with 
officials from the Marine Corps and Maine Army National Guard, which 
will have active-duty personnel remaining in the Brunswick area after 
NAS Brunswick closes. In addition, we met with representatives from 
the communities of Brunswick and Topsham, Maine, and the Midcoast 
Regional Redevelopment Authority to discuss their involvement in 
seeking to keep the NAS Brunswick commissary open. We also assessed 
the data that the Navy used in recommending to discontinue commissary 
operations at NAS Brunswick. To assess the reliability of the 
personnel, distance/time, and economic financial data and projections, 
we examined the information sources and relevant documentation that 
were used to calculate these data, and talked with knowledgeable 
agency officials about their quality control procedures documentation. 
Based on our examination and discussions with agency officials, we 
determined that the data were sufficiently reliable for the purposes 
of this report. 

We conducted this performance audit from October 2010 through April 
2011 in accordance with generally accepted government auditing 
standards. These standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Summary: 

The Navy considered the governing DOD instruction[Footnote 1] for 
continuing commissary operations at NAS Brunswick after the 
installation closes. The Navy concluded that the NAS Brunswick 
commissary met some elements of the general criteria,[Footnote 2] but 
did not meet the economic criteria, based on its interpretation of the 
DOD instruction. Under the general criteria, the Navy considered the 
mission and personnel factors and concluded that there will be an 
active-duty mission and at least 100 active-duty armed service 
personnel within a 20-mile radius of NAS Brunswick upon its closure. 
Additionally, regarding the geographic factor under the general 
criteria, the Navy determined that the nearest commissary to NAS 
Brunswick satisfied the distance and time criteria stipulated in the 
instruction. However, in considering the economic criteria, the Navy 
determined that continuing commissary operations would not be fiscally 
responsible because of projected one-time equipment replacement costs 
and annual recurring costs, along with a declining population of 
authorized patrons. 

Some of the general and economic criteria in the DOD instruction are 
not clear and are open to interpretation on when to establish or 
continue a commissary versus when to discontinue commissary 
operations. The DOD instruction for commissary operations states that 
the primary consideration in assessing the need for a commissary store 
and selecting the location of the store--including whether to operate 
commissaries on closed installations--is the effect on active-duty 
personnel and their dependents. However, the instruction does not 
specify how this effect should be measured and used as decision 
criteria. Additionally, the instruction states that "as a general 
rule, commissary operations are discontinued when an installation is 
completely closed and no active-duty or reserve component personnel 
remain on the installation," which will be the case when NAS Brunswick 
closes. However, it is unclear what conditions would warrant an 
exception to the general rule and how the general rule relates to the 
other criteria. According to Navy officials, they have not continued 
commissary operations at any domestic Navy installation closed under 
the base realignment and closure process[Footnote 3]. At the same 
time, however, the instruction gives flexibility to continue 
commissary operations based on other criteria. For example, the 
instruction states that DOD may continue to provide commissary support 
to active-duty personnel at or "in the immediate vicinity" of a closed 
installation when a "significant" active-duty or reserve population 
remain; however, "significant" and "the immediate vicinity" are not 
defined, giving the services and the Defense Commissary Agency Board 
of Directors discretion in recommending whether to continue or 
discontinue a commissary. Elsewhere, the instruction directs the 
Defense Commissary Agency to verify that a commissary's operation is 
"economically supportable" by preparing a business case analysis, but 
it does not define "economically supportable" thus giving the board of 
directors (which ultimately makes a recommendation based on the 
Defense Commissary Agency's analysis) additional discretion in making 
its recommendations. According to federal best practices, policies and 
procedures should exist and should be updated when needed to ensure 
that an agency's planning and implementation activities are carried 
out as intended.[Footnote 4] Without clear guidance, there is an 
increased likelihood of inconsistent recommendations and decisions 
about whether to establish, continue, or discontinue commissary 
operations. 

To help facilitate consistent decision making affecting DOD's 
commissary program, we are recommending that DOD revise and clarify 
its guidance by defining key terms and certain analytical procedures. 
DOD concurred with all of our recommendations and stated that the 
revisions and clarifications required to address each of the 
recommendations will be incorporated into the next version of the DOD 
instruction on commissary operations. 

Background: 

Commissary Operations Are Funded by Appropriations: 

Commissary operations are centrally managed within DOD by the Defense 
Commissary Agency. The Defense Commissary Agency operates a worldwide 
chain of nearly 250 commissaries for almost 12 million authorized 
patrons including active-duty members of the Army, Air Force, Navy, 
Marine Corps, and Coast Guard, as well as reserve personnel, retired 
military personnel, and their dependents. Each military service enters 
into support and servicing agreements with the Defense Commissary 
Agency to provide facilities, physical security, maintenance, 
logistics, and administrative support as required for effective 
operation of the military commissary program. 

Commissary operating costs (excluding recapitalization of store- 
related infrastructure) are paid by funds transferred from the 
military services' annual appropriations on a prorated basis based on 
their active duty and reserve component personnel levels to the 
Defense Commissary Agency. The Defense Commissary Agency reported 
receiving approximately $1.3 billion in military service appropriation 
transfers during fiscal year 2010 to finance the operating costs of 
commissaries. By law, commissaries sell items at cost plus a 5 percent 
surcharge, which is used to pay for the recapitalization of store-
related infrastructure,[Footnote 5] including replacement, expansion, 
and improvement of existing commissaries and central product 
processing facilities; maintenance and repair; and store-related 
information technology. 

Commissary Operations Roles and Responsibilities: 

The Defense Commissary Agency is under the authority, direction, 
control, and overall supervision of the Under Secretary of Defense 
(Personnel and Readiness). The Principal Deputy Under Secretary of 
Defense (Personnel and Readiness) serves as the primary point of 
contact for all commissary matters within DOD. The director of the 
Defense Commissary Agency is responsible for the day-to-day operations 
of the commissary program, and reports to the Defense Commissary 
Agency Board of Directors, which is comprised of representatives from 
each of the military departments and services. The board of directors 
is the commissary system's governing body and, among other things, 
evaluates military department recommendations on whether to establish, 
continue, or discontinue commissary operations at specific locations. 
Under most circumstances, the board of directors forwards its 
evaluation and recommendations to the Principal Deputy Under Secretary 
of Defense (Personnel and Readiness) for approval.[Footnote 6] The 
Under Secretary of Defense (Personnel and Readiness) is required to 
notify Congress at least 90 days before a commissary's closure and to 
include an assessment of the impact the closure will have on the 
quality of life for the military patrons and the welfare and security 
of the local military community. The notification requirement does not 
apply to commissaries closing as part of implementing a base 
realignment and closure recommendation. 

DOD Has a Policy to Combine Commissary-Exchange Stores in Certain 
Situations, but None Are Operating in the United States: 

A combined commissary and exchange store combines elements of both 
under the management of the exchange store.[Footnote 7] According to 
the DOD instruction for commissary operations, a combined store will 
be considered in cases where an independent commissary is not 
economically feasible and supportable due to base closure, military 
force structure changes, or where nearby stores produce overlapping or 
redundant delivery of the commissary benefit. In a combined store, 
edible commissary merchandise (e.g., meat, produce, dairy, and 
nonalcoholic beverages) continues to be sold at cost plus a 5 percent 
surcharge, and other merchandise continues to be sold at regular 
exchange prices--prices greater than cost to produce a profit. 
According to the DOD instruction, the combined store must be 
economically viable and not negatively impact morale, welfare, and 
recreation dividends after authorized funding is provided. A combined 
store will generate less profit than an independent exchange store 
because the commissary grocery items sold at cost do not contribute to 
profit. Combined stores may receive appropriated funds to defray 
operating expenses up to 25 percent of the appropriations used in the 
last full year of the independent commissary's operation.[Footnote 8] 
The appropriations provided, as well as the profits generated, are 
used to cover operating expenses. Any loss under this model that is 
not covered by appropriations is borne by the exchange program. 

By law, the number of combined stores in the United States shall not 
exceed 10 at any given time.[Footnote 9] As of April 2011, there were 
no combined stores operating in the United States.[Footnote 10] 
According to DOD and Navy officials, the combined store model has not 
proven to be economically viable. 

DOD Used Available Guidance in Its Decision to Discontinue Commissary 
Operations at NAS Brunswick, but Criteria Are Not Always Clear and Are 
Open to Interpretation: 

The Navy considered the governing DOD instruction in determining 
whether to continue commissary operations at NAS Brunswick after the 
installation closes. The Navy concluded that the NAS Brunswick 
commissary met some elements of the general criteria, but did not meet 
the economic criteria, based on its interpretation of the DOD 
instruction. After considering the mission and personnel factors of 
the general criteria, the Navy concluded that there will be an active-
duty mission and at least 100 active-duty armed service personnel not 
on the installation, but within a 20-mile radius of NAS Brunswick upon 
its closure. Additionally, regarding the geographic factor of the 
general criteria, the Navy determined that the nearest commissary to 
NAS Brunswick satisfied the distance and time thresholds stipulated in 
the instruction. In considering economic criteria, the Navy analyzed 
three options for continuing commissary operations and concluded that 
none of them was fiscally responsible. Thus, the Navy recommended to 
the Defense Commissary Agency Board of Directors that commissary 
operations at NAS Brunswick be discontinued after the installation 
closes. 

Some Mission and Personnel Criteria for Commissaries Are Unclear and 
Can Result in Inconsistent Implementation of DOD Guidance: 

The Navy determined that NAS Brunswick met the mission and personnel 
factors under the general criteria; however, we found that some of the 
criteria are unclear and can result in inconsistent implementation of 
the DOD guidance. In deciding whether to discontinue commissary 
operations at NAS Brunswick, the Navy considered the following general 
criteria in the DOD instruction pertaining to mission and personnel: 

* The presence of an active-duty mission. 

* The effect on active-duty personnel and their dependents. 

* The presence of at least 100 active-duty personnel assigned to the 
installation or stationed on and within a 20-mile radius of a closed 
installation. 

In accordance with the instruction, Navy officials told us that they 
gave primary consideration to the effect on active-duty personnel and 
their dependents when assessing whether to discontinue commissary 
operations at NAS Brunswick. However, the instruction does not specify 
how this effect should be measured and used as decision criteria. The 
Navy determined that there will be no active-duty mission and active- 
duty personnel stationed on the installation itself, but that there 
will be an active-duty mission and at least 100 active-duty armed 
service personnel within a 20-mile radius of NAS Brunswick upon its 
closure. Nevertheless, the Navy applied the 100 active-duty personnel 
threshold only to permanently assigned Navy active-duty personnel and 
projected only 16 personnel would remain after the installation is 
closed. Moreover, according to DOD's instruction, "as a general rule, 
commissary operations are discontinued when an installation is 
completely closed and no active-duty or reserve component personnel 
remain on the installation." However, it is unclear what conditions 
would constitute an exception to the general rule, and how the general 
rule relates to the other criteria. Navy officials told us that there 
currently are no commissary operations at any domestic Navy 
installations which were closed under the base realignment and closure 
process. 

The instruction also gives DOD the flexibility to continue commissary 
operations based on other considerations relevant to the mission and 
personnel factors. Specifically, the instruction states that DOD may 
continue to provide commissary support to active-duty personnel at or 
"in the immediate vicinity" of a closed installation when a 
"significant" population of active-duty or reserve personnel remain. 
However, the DOD instruction does not define "significant" and "the 
immediate vicinity." The Navy reported that NAS Brunswick will no 
longer have an active-duty mission after September 2011. However, the 
Navy's Supervisor of Shipbuilding, Conversion and Repair in Bath, 
Maine is 7 miles away and will continue to have an active-duty 
mission. According to Navy officials, about 150 to 200 active-duty 
Navy personnel are assigned to this shipbuilding facility at any given 
time, but only 16 are permanently assigned active-duty personnel. The 
remaining 134 to184 active-duty personnel are precommissioning unit 
personnel temporarily assigned for 4 to 18 months to the Navy 
shipbuilding facility in Bath, Maine, who prepare the newly 
constructed or renovated ships and eventually sail the ships to their 
homeports. According to Navy officials, these personnel are not 
accompanied by their family members and most are on temporary-duty 
orders. DOD personnel on such orders receive per diem while assigned 
to the Navy shipbuilding facility and consequently may obtain their 
meals using their travel-authorized meals allowance. Thus, according 
to Navy officials, the Navy concluded that the remaining 134 to 184 
personnel do not need the commissary benefit. The DOD instruction is 
not clear about whether to include personnel temporarily assigned to 
an area when assessing the criterion that there are at least 100 
active-duty personnel remaining within a 20-mile radius of a closed 
installation. 

Another section of the DOD instruction states that the supporting 
Military Department should validate and document that at least 100 
active-duty personnel shall be assigned to the installation or 
stationed within a 20-mile radius, when considering whether to 
continue commissary operations on a closed installation. As previously 
stated, the Navy, in its analysis, acknowledged that there will be at 
least 100 active-duty personnel within a 20-mile radius of NAS 
Brunswick after the installation closes, and projected that 304 
temporary and permanent active-duty armed service personnel will 
remain in the area. However, as shown in table 1, only 170 of the 304 
personnel are permanently assigned and most are not Navy active-duty 
personnel. 

Table 1: Number of Permanently Assigned Active-duty Personnel 
Projected to Remain Within a 20-mile Radius of NAS Brunswick after the 
Installation Closes in September 2011: 

Armed service: U.S. Army; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 26. 

Armed service: U.S. Air Force; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 3. 

Armed service: U.S. Navy; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 16[A]. 

Armed service: U.S. Marine Corps; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 26. 

Armed service: U.S. Coast Guard; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 25. 

Armed service: Maine National Guard (activated); 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 74. 

Armed service: Total; 
Permanently assigned active-duty personnel within 20-mile radius of 
NAS Brunswick: 170. 

Source: Navy's Evaluation for Continuing Commissary Operations at NAS 
Brunswick, July 2009. 

[A] These active-duty personnel will be assigned to the Supervisor of 
Shipbuilding, Conversion and Repair in Bath, Maine, which is about 7 
miles from NAS Brunswick. 

[End of table] 

According to Navy officials, the criterion of "at least 100 active-
duty armed service personnel shall be assigned to the installation or 
shall be stationed on and within a 20-mile radius of a closed 
installation" was applied to permanently assigned, active-duty Navy 
personnel, and not to active-duty personnel from other military 
services or the Coast Guard. Specifically, according to Navy 
officials, only 16 permanently assigned active-duty Navy personnel 
will remain within 20 miles of NAS Brunswick. Hence, according to Navy 
officials, after the closure of NAS Brunswick, the Navy will no longer 
meet the criterion of 100 active-duty personnel within 20 miles of a 
closed installation. However, DOD's instruction does not specify 
whether the minimum of 100 active-duty personnel within a 20-mile 
radius must be of the service that hosted the commissary or whether 
all service personnel must be considered in this decision. According 
to federal best practices, policies and procedures should exist and 
should be updated when needed to ensure that an agency's planning and 
implementation activities are carried out as intended.[Footnote 11] 
Without clear criteria, the potential exists for inconsistent 
implementation of the guidance. Consequently, based on the guidance as 
it is currently written, a military service has broad discretion in 
recommending a commissary closure or a continuation decision. 

In its analysis, the Navy projected that about 10,000 authorized 
commissary patrons would be within 20 miles of NAS Brunswick after its 
closure, including about 304 temporary and permanent active-duty armed 
service personnel, 8,500 retirees and their dependents, 150 Marine 
Corps reservists, and 1,000 Army reservists. Navy officials stated 
that while they validated and documented the number of authorized 
patrons expected to remain in the area after NAS Brunswick closes, its 
recommendation to discontinue commissary operations when an 
installation is completely closed and no active-duty or reserve 
component personnel remain on the installation--which will be the case 
when NAS Brunswick closes--is consistent with the instruction's 
general rule.[Footnote 12] However, it is unclear how the military 
services are supposed to use the reservists and retiree data in its 
decisions to establish, continue, or discontinue commissary 
operations. Navy and DOD officials told us that the other military 
services were consulted through the Defense Commissary Agency Board of 
Directors to determine their interest in continuing the commissary 
operations at NAS Brunswick, and that none expressed interest. 

The Navy Considered DOD's Geographic Criteria for Keeping the 
Commissary Open, but the Relevance Is Unclear for Decisions to 
Discontinue Commissary Operations: 

The Navy considered DOD's geographic criteria for commissaries in its 
analysis, and determined that it met this factor under the general 
criteria because the nearest commissary at Portsmouth Naval Shipyard 
in Kittery, Maine is at least 20 miles or a 30 minute one-way drive. 
However, the relevance of the minimum required distance and travel 
time for discontinuing commissary operations at NAS Brunswick is 
unclear. The instruction states "while there may be some variance 
depending on population density, civilian shopping alternatives, and 
security of the military community in which the commissary is located; 
there should be at least 20 miles or 30 minutes one-way driving time 
to the nearest commissary." DOD officials told us that these values 
were based on Defense Commissary Agency assumptions about the distance 
and time that authorized patrons would most likely travel to shop at a 
commissary--no more than 20 miles or 30 minutes each way. 

The Navy calculated the distance and driving time between NAS 
Brunswick and the nearest commissary at the Portsmouth Naval Shipyard 
in Kittery, Maine, which is 89 miles or about 90 minutes one-way 
driving time, easily satisfying the distance/time criteria of 20 miles 
or 30 minutes one-way driving time.[Footnote 13] The Navy also 
identified several civilian shopping alternatives, including grocery 
stores and drug stores, within 2 miles of NAS Brunswick. According to 
Navy and Defense Commissary Agency officials the distance and travel 
time criteria are intended to create separation between commissaries 
and avoid clustering commissaries within close proximity of one 
another. However, it is unclear how a criterion intended to avoid 
establishing too many commissaries in one location is relevant to 
decisions to discontinue commissary operations. Without clear 
geographic criteria, the services may come to inconsistent conclusions 
in recommending the location of commissaries. 

Table 2 describes our analysis of the general criteria in the DOD 
instruction governing commissary operations, including the Navy's 
interpretation of the criteria as it applies to NAS Brunswick. 

Table 2: GAO's Analysis of the General Criteria in DOD's Commissary 
Instruction: 

Criteria in DOD Instruction 1330.17: The effect on active-duty 
personnel and their dependents shall be given primary consideration 
when assessing the need for a commissary and selecting its location; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
Navy officials stated they gave primary consideration to active-duty 
personnel and their dependents when assessing whether to discontinue 
commissary operations at NAS Brunswick; 
GAO analysis of DOD criteria: It is unclear how effect should be 
measured and used as decision criteria. 

Criteria in DOD Instruction 1330.17: The military installation or 
location shall have either a full time active-duty mission, or active-
duty armed service personnel who remain on a former installation and 
within a 20-mile radius of the installation; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
The Navy determined that there will be no active-duty mission and 
active-duty personnel stationed on the installation itself, but that 
there will be an active-duty mission and at least 100 active-duty 
armed service personnel within a 20-mile radius of NAS Brunswick upon 
its closure. However, Navy officials stated that the 100 active-duty 
personnel threshold was applied to permanently assigned, active-duty 
Navy personnel, and not to temporarily assigned personnel, or active-
duty armed service personnel from other military services or the Coast 
Guard; 
GAO analysis of DOD criteria: It is clear that there will be an active-
duty mission within a 20-mile radius of NAS Brunswick; however, it is 
unclear whether the active-duty armed service personnel should include 
active-duty personnel from all military services and temporarily 
assigned personnel. 

Criteria in DOD Instruction 1330.17: At least 100 active-duty 
personnel shall be assigned to the installation; or shall be stationed 
on and within a 20-mile radius of a closed installation; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
According to Navy officials, the 100 active-duty personnel threshold 
was applied to permanently assigned, active-duty Navy personnel 
stationed within a 20-mile radius of the installation, and projected 
only 16 personnel will remain after it closes; 
GAO analysis of DOD criteria: It is unclear whether the 100 active-
duty threshold should be applied to active-duty personnel from all 
military services and temporarily assigned personnel. 

Criteria in DOD Instruction 1330.17: As a general rule, commissary 
operations are discontinued when an installation is completely closed 
and no active-duty or reserve component personnel remain on the 
installation; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
Navy officials stated they have not continued commissary operations at 
any domestic Navy installation closed under the base realignment and 
closure process except NAS Barbers Point, Hawaii, which was continued 
in response to a later base realignment and closure recommendation; 
GAO analysis of DOD criteria: It is unclear what conditions would 
warrant an exception to the general rule, and how the general rule 
relates to the other criteria. 

Criteria in DOD Instruction 1330.17: Validate and document the number 
of families stationed on the installation and the number of patrons, 
to include reservists and retirees, who expect to use the commissary; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
The Navy projected that approximately 10,000 authorized commissary 
patrons will be within a 20-mile radius of NAS Brunswick when it 
closes, including 8,505 retirees and their dependents, about 1,150 
reservists, and 304 active-duty personnel. The number of family 
members for the active-duty and reservists was unknown, and therefore 
was not factored into the Navy's projection; 
GAO analysis of DOD criteria: It is unclear how the reservist and 
retiree data should be considered in decisions to establish, continue, 
or discontinue commissaries. 

Criteria in DOD Instruction 1330.17: DOD may continue to provide 
commissary support to active-duty personnel at or in the immediate 
vicinity of a closed installation when a significant active-duty or 
reserve component population remains; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
The Navy determined that no active-duty personnel will be stationed on 
NAS Brunswick upon its closure, less than 100 permanently assigned 
Navy active-duty personnel will be stationed within a 20-mile radius, 
and projected that about 10,000 authorized commissary patrons, 
including about 1,150 reservists, will remain in the area; 
GAO analysis of DOD criteria: The terms "significant" and "in the 
immediate vicinity" are not defined. 

Criteria in DOD Instruction 1330.17: While there may be some variance 
depending on population density, civilian shopping alternatives, and 
security of the military community in which the commissary is located, 
there should be at least 20 miles or 30 minutes one-way travel time to 
the next nearest commissary; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
The Navy determined that the nearest commissary to NAS Brunswick is 89 
miles and 90 minutes one-way drive, satisfying the distance/time 
criteria; 
GAO analysis of DOD criteria: The next nearest commissary is more than 
20 miles or 30 minutes one-way drive from NAS Brunswick; however, it 
is unclear how this criterion applies to decisions to close 
commissaries. 

Source: GAO analysis of DOD information. 

[End of table] 

DOD Concluded that NAS Brunswick's Commissary Will Not Be Economically 
Supportable After the Installation Closes: 

The Navy considered DOD's economic criteria for commissaries in its 
analysis, and concluded that continuing operations of the NAS 
Brunswick commissary would not be economically supportable. However, 
the instruction does not define "economically supportable," thereby 
increasing the likelihood of inconsistent decisions about whether to 
establish, continue, or discontinue commissaries. This is significant 
because commissaries are not expected to be (and are not) self- 
supporting, but rather are designed to provide a noncash benefit for 
active-duty personnel and their dependents. 

In evaluating the future of the NAS Brunswick commissary, the Defense 
Commissary Agency prepared a business case analysis to verify whether 
commissary operations are economically supportable, as directed by the 
instruction. As part of the business case analysis for the NAS 
Brunswick commissary, the Navy and the Defense Commissary Agency 
considered two of three options based on the following factors: annual 
cost of goods,[Footnote 14] total operating costs (as offset by 
appropriated funds), surcharge revenues, future requirements in the 
geographic area, and a 15-year market assessment of influences that 
may affect the number of authorized patrons.[Footnote 15] The Navy 
also considered a third option for continuing commissary operations at 
NAS Brunswick. 

Three Options Were Part of DOD's Analysis of Economic Supportability: 

To determine if continuing commissary operations at NAS Brunswick 
after the installation closes were economically supportable, the Navy, 
with assistance from the Defense Commissary Agency, evaluated three 
options. Option 1 was for the commissary to remain at its current 
location, option 2 was for the commissary to relocate to a larger 
building currently occupied by the Navy exchange store on NAS 
Brunswick,[Footnote 16] and option 3 was to create a combined 
commissary and exchange store. All three options are discussed below. 

Option 1: Remain in the Current Commissary: 

The Navy, with assistance from the Defense Commissary Agency, 
evaluated the option of continuing operations of the NAS Brunswick 
commissary at its current location in Topsham, Maine, and determined 
that it was not economically supportable. Under this option, the Navy 
would transfer ownership of the facility and land to the local reuse 
authority when the installation closes and the local reuse authority 
would lease the space--based on the average rental rates for 
commercial retail space in the Brunswick area--back to the Navy to 
continue its commissary operations. The Defense Commissary Agency 
estimated that this option would cost nearly $3.7 million more in its 
first year than for current operations. The bulk of the $3.7 million 
increase would be from the one-time expense of $3.1 million to upgrade 
the store's refrigeration system, which has not been replaced since 
1999 and was due for an upgrade or replacement. Also, there would be 
additional annual recurring costs of about $608,000 related to leasing 
space ($506,000); and building maintenance, roofing, refrigeration 
system, and heating and air-conditioning systems ($102,000). Moreover, 
in addition to the $3.7 million increase, retail sales are projected 
to drop about 12 percent (from about $9.2 million to about $8.1 
million), and surcharge revenue is expected to decrease by 12 percent 
(from $460,000 to $406,000) for fiscal years 2010 and 2012, 
respectively. During the same time, the number of authorized patrons 
is projected to decrease by nearly 48 percent to approximately 10,000 
authorized patrons, the majority of whom will be military retirees. 
For the same time period, the Navy also projected about a 3 percent 
increase in operating costs (from about $2.1 million to about $2.2 
million) and a corresponding 3 percent increase in appropriated funds 
(from about $2.1 million to about $2.2 million) to cover operating 
costs.[Footnote 17] According to Navy and Defense Commissary Agency 
officials, the one-time and recurring costs to continue commissary 
operations at NAS Brunswick after the installation closes would be 
paid--depending on the specific costs--by the Navy, all of the 
military services, or with funds from the surcharge revenue account. 

Option 2: Relocate Commissary to Existing Exchange Store Facility: 

The Navy, with assistance from the Defense Commissary Agency, 
determined that relocating the commissary from its current location to 
the larger exchange store facility[Footnote 18] at NAS Brunswick was 
not economically supportable. Like option 1, the Navy would transfer 
ownership of the facility and land to the local reuse authority when 
the installation closes and the local reuse authority would lease the 
space--based on the average rental rates for commercial retail space 
in the Brunswick area--back to the Navy to continue its commissary 
operations. The Defense Commissary Agency estimated that this option 
would cost about $6.7 million more in its first year than current 
operations. The bulk of the $6.7 million increase would be from the 
one-time expense of $6 million to add a refrigeration system 
(including processing areas, storage coolers, and freezers) since the 
exchange facility currently does not have such equipment and the 
commissary's current refrigeration system would not be used because it 
was due for an upgrade or replacement. Also, there would be additional 
annual recurring costs of about $764,000 related to leasing space 
($629,000) and building maintenance, roofing, refrigeration system, 
and heating and air-conditioning systems ($136,000).[Footnote 19] 
Moreover, in addition to the $6.7 million, retail sales are projected 
to drop about 12 percent (from about $9.2 million to about $8.1 
million), and surcharge revenue is expected to decrease by 12 percent 
(from $460,000 to $406,000) for fiscal years 2010 and 2012, 
respectively. During the same time, the number of authorized patrons 
is projected to decrease by nearly 48 percent to approximately 10,000 
authorized patrons, the majority of whom will be military retirees. 
For the same time period, the Navy also projected about a 3 percent 
increase in operating costs (from about $2.1 million to about $2.2 
million) and a corresponding 3 percent increase in appropriated funds 
(from about $2.1 million to about $2.2 million) to cover operating 
costs.[Footnote 20] According to Navy and Defense Commissary Agency 
officials, the one-time and recurring costs to continue commissary 
operations at NAS Brunswick after the installation closes would be 
paid--depending on the specific costs--by the Navy, all of the 
military services, or with funds from the surcharge revenue account. 

Option 3: Combined Commissary and Exchange Store Operations: 

The DOD instruction states that a combined commissary and exchange 
store will be considered in cases where an independent commissary is 
not economically supportable due to, among other things, an 
installation's closure. The instruction provides specific guidance for 
assessing a combined store's operations. For example, the DOD 
instruction states that a combined store must be economically viable 
and not negatively impact morale, welfare, and recreation dividends 
after authorized funding is provided. Specifically, the instruction 
states that a combined store that has a financial loss in 2 
consecutive years or 2 out of 3 years shall close. Furthermore, the 
instruction states that the cost for the combined grocery store 
operations must yield at least a 10 percent annual savings compared to 
the operating costs of an independent commissary. The Navy evaluated 
the combined store option at NAS Brunswick and determined that it was 
not economically viable because it would result in a net loss of about 
$2.4 million after its first year of operation (with a projected 
source of funds of about $13.5 million and a projected use of funds of 
about $15.9 million). Some of the key assumptions in the analysis were 
a leasing cost of about $629,000, general and overhead expenses of 
about $2.2 million, personnel expenses of about $1.4 million, and a 
partial offset of about $618,000 in appropriated funds.[Footnote 21] 

The DOD instruction also requires that the combined store complement 
the local reuse authority plan and have written support from the local 
governments immediately surrounding the closed installation. The Navy 
considered the local reuse authority's plan that assessed the 
redevelopment of NAS Brunswick after closure. Navy and local 
government officials stated that the plan includes a mixed land use 
area that allows the development of a retail facility that could house 
an independent commissary or a combined store, but acknowledged that 
the plan does not include funding that would defray the commissary's 
or combined store's operating costs. However, as described in the DOD 
instruction, the city managers for the local governments of Brunswick 
and Topsham submitted written support for keeping commissary 
operations in the Brunswick area. 

Table 3 describes our analysis of the economic and combined commissary 
and exchange store criteria in the DOD instruction governing 
commissary operations, including the Navy's interpretation of the 
criteria for NAS Brunswick. 

Table 3: GAO's Analysis of the Economic and Combined Store Criteria in 
DOD's Commissary Instruction: 

Criteria in DOD Instruction 1330.17: A business case analysis shall be 
prepared to verify that the commissary operation is economically 
supportable; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: 
The Navy evaluated a business case analysis for two options: (1) 
continuing the commissary at its current location, (2) relocating the 
commissary to the existing exchange facility at the installation. For 
these two options, the Navy determined that continuing operations at 
NAS Brunswick would not be fiscally responsible because of the loss of 
an active-duty mission on the installation, a sharp decline in the 
population of authorized patrons, and projected one-time equipment 
replacement and recurring costs for each option totaling $3.7 and $6.7 
million, respectively, more in its first year than for current 
operations; 
GAO analysis of DOD criteria: The instruction provides a number of 
factors that should be included in the analysis, but the term 
"economically supportable" is not defined. 

Criteria in DOD Instruction 1330.17: A combined commissary and 
exchange will be considered in cases where an independent commissary 
is not economically feasible and supportable due to base closure, 
military force structure changes, or where nearby stores produce 
overlapping or redundant delivery of the commissary benefit. Among 
other things, a combined store operation with a loss of two 
consecutive years or with a loss of two out of three years shall close; 
Navy's interpretation of DOD criteria for NAS Brunswick commissary: As 
a third option, the Navy evaluated establishing a combined commissary 
and exchange store. The Navy determined that a combined store would 
not be economically viable because it would result in a net loss of 
about $2.4 million after its first year of operation; 
GAO analysis of DOD criteria: This criterion is clear because the DOD 
instruction provides specific circumstances for when a combined store 
should be considered and gives specific guidance for assessing the 
economic viability of a combined store's operations. 

Source: GAO analysis of DOD information. 

[End of table] 

Conclusions: 

The commissary program is an integral element of the military pay and 
benefits package for active-duty personnel. DOD's decision to 
discontinue commissary operations at NAS Brunswick was based on 
criteria that are not always clear and are open to interpretation. 
Specifically, the DOD instruction on commissary operations does not 
establish clear criteria for when to establish or continue a 
commissary versus when to discontinue a commissary. Additionally, the 
instruction does not clearly explain how the effect on active-duty 
personnel and their dependents should be measured and how it should be 
used as decision criteria when assessing whether to establish, 
continue, or discontinue a commissary. Also, the instruction does not 
explain what conditions would warrant an exception to the general rule 
to discontinue commissary operations when an installation closes and 
how the general rule relates to the other criteria. Furthermore, the 
instruction does not clearly define several key terms--such as 
"significant," "in the immediate vicinity," and "economically 
supportable"--that the military services and Defense Commissary Agency 
Board of Directors must consider as they recommend whether to 
establish, continue, or discontinue a commissary. Moreover, the 
instruction is not clear on whether the criterion of at least 100 
active-duty service members at an installation is specific to one 
service or all military services in a geographic area and includes 
temporarily assigned personnel, and whether the minimum distance and 
travel time criteria are relevant to the decision to discontinue 
commissary operations. As a result, the military services and the 
Defense Commissary Agency Board of Directors may apply the same 
guidance differently and therefore incur a risk of making inconsistent 
recommendations and decisions on when to establish, continue, or 
discontinue commissaries. Our recommendations focus on enhancing 
clarity and consistency in the DOD guidance governing commissaries. 

Recommendations for Executive Action: 

To facilitate consistent decision making for commissary operations, we 
recommend that the Secretary of Defense direct the Under Secretary of 
Defense (Personnel and Readiness) to revise its commissary guidance 
for the services. In revising the guidance, at a minimum, DOD should 
consider the following six recommendations: 

* Clarify which guidance--if any--applies only to discontinuing 
commissary operations, and which guidance--if any--applies only to 
establishing or continuing commissary operations. 

* Describe how effect on active-duty personnel and their dependents 
should be measured and used as decision criteria when assessing 
whether to establish, continue, or discontinue commissary operations. 

* Describe what conditions would warrant an exception to the general 
rule to discontinue commissary operations when an installation closes 
and how the general rule relates to the other criteria. 

* Define or clarify key terms, such as "significant," "in the 
immediate vicinity," and "economically supportable." 

* Specify whether the minimum of 100 active-duty personnel criterion 
is a service-specific or DOD-wide requirement and whether temporarily 
assigned active-duty personnel should be included. 

* Explain the relevance of the distance and time measures to the 
nearest commissary in making decisions on whether to discontinue 
commissary operations. 

Agency Comments and Our Evaluation: 

In written comments to a draft of this report, DOD concurred with all 
six of our recommendations and provided a plan of action for 
implementing each of the recommendations. Specifically, DOD stated 
that the revisions and clarifications required to address each of the 
recommendations will be included in the next version of the DOD 
Instruction 1330.17, Armed Services Commissary Operations; however, 
DOD did not specify a time frame for issuing the next version. Once 
the revisions are incorporated into the commissary guidance, we 
believe there will be less likelihood of making inconsistent 
recommendations and decisions on when to establish, continue, or 
discontinue commissaries. DOD also provided technical comments, which 
we incorporated as appropriate. DOD's comments are reprinted in 
enclosure I of this report. 

As agreed, unless you publicly announce the contents of this report 
earlier, we plan no further distribution until 30 days from the report 
date. At that time, we will send copies of this report to the 
appropriate congressional requesters and committees. We will also send 
copies to the Secretary of Defense; the Secretary of the Navy; the 
Director of the Defense Commissary Agency; and the Director, Office of 
Management and Budget. The report will be available at no charge on 
GAO's Web site at [hyperlink, http://www.gao.gov]. If you or your 
staff have any questions on this report, please contact me at (202) 
512-4523 or leporeb@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made significant contributions to 
this report are listed in enclosure II. 

Signed by: 

Brian J. Lepore:
Director, Defense Capabilities and Management: 

[End of section] 

Enclosure I: Comments from the Department of Defense: 

Under Secretary Of Defense: 
Personnel and Readiness: 
4000 Defense Pentagon: 
Washington, D.C. 20301-4000: 

April 11, 2011: 

Mr. Brian J. Lepore: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Lepore: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-11-266R, "Defense Infrastructure: DoD Used Available 
Guidance in Its Decision to Discontinue Commissary Operations at NAS 
Brunswick, but Criteria Needs Clarification," dated March 4,
2011 (GAO Code 351547). DoD concurs with the report and provides the 
enclosed comments. 

Thank you for the opportunity to comment. 

Sincerely, 

Signed by: 

Clifford L. Stanley: 

Enclosure: As stated: 

[End of letter] 

GAO Draft Report Dated March 4, 2011: 
GAO-11-266R (GAO CODE 351547) 

"Defense Infrastructure: DoD Used Available Guidance in Its Decision 
to Discontinue Commissary Operations at NAS Brunswick, but Criteria 
Needs Clarification" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by clarifying which 
guidance-if any-applies only to discontinuing commissary operations, 
and which guidance-if any-applies only to establishing or continuing 
commissary operations. 

DoD Response: Concur. The policy for establishing and disestablishing 
commissary operations will be clarified in the next revision of the 
DoD Instruction 1330.17, "Armed Services Commissary Operations." 

Recommendation 2: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by describing how the 
effect on active-duty personnel and their dependents should be 
measured and used as decision criteria when assessing whether to 
establish, continue, or discontinue commissary operations. 

DoD Response: Concur. Criteria to measure the effect on active duty 
personnel and their dependents will be included in the next revision 
on the DoD Instruction 1330.17, "Armed Services Commissary Operations." 

Recommendation 3: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by describing what 
conditions would warrant an exception to the general rule to 
discontinue commissary operations when an installation closes and how 
the general rule relates to the other criteria. 

DoD Response: Concur. The procedure and criteria under which 
commissary operations may continue after an installation closes will 
be clarified in the next revision of the DoD Instruction 1330.17, 
"Armed Services Commissary Operations." 

Recommendation 4: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by defining or 
clarifying key terms. such as "significant," "in the immediate 
vicinity." and "economically supportable." 

DoD Response: Concur. Any key terms included in the next revision to DoD
Instruction 1330.17, "Armed Services Commissary Operations," will be 
clearly defined. 

Recommendation 5: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by specifying whether 
the minimum of 100 active-duty personnel criterion is a service-
specific or DOD-wide requirement and whether temporarily assigned 
active-duty personnel should be included. 

DoD Response: Concur. The minimum DoD-wide active-duty personnel 
criterion, and as to whether temporarily assigned personnel should be 
included, will be addressed in the next revision of the DoD 
Instruction 1330.17, "Armed Services Commissary Operations." 

Recommendation 6: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
revise its commissary guidance for the services by explaining the 
relevance of the distance and time measures to the nearest commissary 
in making decisions on whether to discontinue commissary operations. 

DoD Response: Concur. DoD will review and validate the relevance of 
these criterions in the next revision of the DoD Instruction 1330.17, 
"Armed Services Commissary Operations." 

[End of enclosure] 

Enclosure II: GAO Contacts and Acknowledgments: 

GAO Contact: 

Brian J. Lepore, Director, (202) 512-4523 or leporeb@gao.gov. 

Acknowledgments: 

In addition to the contact listed above, key contributors to this 
report include Marc J. Schwartz, Assistant Director; Jacqueline S. 
McColl; Charles W. Perdue; Richard S. Powelson; Hia Quach; and Michael 
Willems. 

[End of enclosure] 

Footnotes: 

[1] Department of Defense Instruction 1330.17, Armed Services 
Commissary Operations (Oct. 8, 2008). The DOD instruction has two 
categories of criteria for evaluating the establishment, continuance, 
and discontinuance of commissaries: general criteria and economic 
criteria. Unless indicated otherwise, the term "DOD instruction" 
refers to DOD Instruction 1330.17. 

[2] The general criteria include active-duty mission, personnel, and 
geographic factors. 

[3] Navy officials stated there has been one instance in which the 
Navy kept a commissary open temporarily after a base closed through 
the base realignment and closure process--Barbers Point, Hawaii. The 
1993 Defense Base Closure and Realignment Commission recommended that 
the Naval Air Station at Barbers Point be closed, but that family 
housing at Barbers Point be retained for multiservice use. However, 
the 1995 Defense Base Closure and Realignment Commission amended the 
1993 Commission's recommendation to require certain family housing 
support facilities at Barbers Point (including the commissary 
facility) to remain open as well. Section 2843 of the John Warner 
National Defense Authorization Act for Fiscal Year 2007 provided the 
Secretary of the Navy authority to dispose of certain real estate at 
the former Naval Air Station Barbers Point, including the facilities 
housing the commissary. Pub. L. No. 109-364 (2006). The Navy conveyed 
the facilities to a private developer, and discontinued commissary 
operations at Barbers Point in May 2010. 

[4] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[5] 10 U.S.C. § 2484. 

[6] This approval process was followed for the decision to discontinue 
commissary operations at NAS Brunswick. 

[7] Exchange stores are nonappropriated fund entities, operating as 
profit and loss enterprises. Exchange stores price their merchandise 
above their cost to pay operating expenses and to generate a profit 
that pays dividends to the military services' morale, welfare, and 
recreation programs. Exchange stores sell items typically found in 
commercial department and discount stores (e.g., clothing, shoes, and 
vending machine items). The Navy Exchange Service Command oversees 
more than 1,200 worldwide exchange stores and service operations such 
as gas stations, food outlets, and barber and beauty salons, and 
provides authorized patrons with an average savings of 22 percent (not 
including sales tax) when compared to commercial retail prices. 

[8] 10 U.S.C. § 2488(e)(2). 

[9] 10 U.S.C. § 2488(b)(1). 

[10] According to DOD officials, four combined stores have been 
established in the continental United States in response to a base 
realignment and closure decision to close the host installation: a 
Navy combined store in Orlando, Florida that was operated by the Navy 
Exchange Service Command; and three combined stores operated by the 
Army and Air Force Exchange Service Command at Fort McClellan, 
Alabama; Naval Air Station Fort Worth, Joint Reserve Center, Carswell 
Field, Texas; and Homestead Air Reserve Base, Florida. All four 
combined stores have subsequently closed. 

[11] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[12] The number of family members for the active-duty and reservists 
was unknown, and therefore not factored into the 10,000 estimate the 
Navy used in its evaluation. 

[13] Other commissaries identified by the Navy are at Bangor Air 
National Guard Base, Maine, which is approximately 110 miles or a 2 
hour one-way drive from NAS Brunswick; and at Hanscom Air Force Base, 
Massachusetts, which is approximately 139 miles or a 2.5 hour one-way 
drive from NAS Brunswick. 

[14] The cost of goods includes the invoice cost of the items plus an 
additional 1 percent for theft, spoilage, or damage to goods, known as 
"shrinkage." DOD refers to the cost of goods as retail sales. 

[15] Influences considered in a 15-year market assessment include: (1) 
changes in the military community (such as changes in installation 
mission, active-duty presence, or family housing); (2) changes in 
adjacent civilian communities (such as the number of commercially 
available groceries); and (3) changes in adjacent communities 
affecting the number of authorized patrons expected to use the 
commissary. 

[16] The Navy exchange store on NAS Brunswick is scheduled to close by 
September 15, 2011, when the installation is closed. 

[17] For fiscal year 2010, actual total value of appropriated funds 
was $2.3 million to cover commissary operating costs. However, for 
reporting purposes we used projected figures because actual data were 
not available for all data elements. 

[18] The exchange store facility has 52,381 gross square feet compared 
to the current commissary facility, which has 33,724 gross square feet. 

[19] Totals do not add due to rounding. 

[20] For fiscal year 2010, actual total value of appropriated funds 
was $2.3 million to cover commissary operating costs. However, for 
reporting purposes we used projected figures because actual data were 
not available for all data elements. 

[21] In accordance with 10 U.S.C. § 2488(e)(2), the appropriated funds 
provided for a combined store can not exceed 25 percent of the amount 
provided during the last full year that the Defense Commissary Agency 
operated the commissary. 

[End of section] 

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