Budgetary Incentives for Retail Activities at Military Bases

The Department of Defense (DoD) operates an extensive system of retail activities at military bases for active duty, retired, and reserve personnel and their families. DoD stores employ 96,000 civilian workers and sell $14 billion of goods and services annually at below-market prices. DoD resists efforts to reduce its role in retail activities, arguing that even within the United States stores with below-market prices are a cost-effective alternative to higher cash compensation for military personnel. This article examines the budgetary incentives that make inefficient, government-operated stores attractive to DoD and describes options that would change those incentives. Because most of DoD's retail stores are controlled by nonappropriated fund instrumentalities of the federal government, reforming those incentives could require changes in the treatment of these poorly understood federal entities.