Summary: The Pentagon's morale, welfare, and recreation program provides service members and their families with such services as commissaries, fast food restaurants, health clubs, and golf courses. The financial outlook for the program appears to be worsening. Exchange stores--the largest producer of program revenue and a source of money for other program activities--have seen revenues shrink since 1989. Defense downsizing and increased private sector competition are likely to further dampen program revenues during the 1990s. Appropriated funds, which now constitute about 10 percent of program funding, are also expected to decline along with overall budgets. Cuts in program services are likely unless changes are made soon. The Defense Department's (DOD) decentralized approach to managing the program--a $12 billion enterprise when exchanges are included--may not be well-suited to an environment of diminishing patronage and funding. Because individual commanders have broad discretion in allocating money at installations, funds from different sources become mixed, making it hard to know whether the program is providing the best mix of services with the least demand on taxpayer dollars. Also of concern are cash balances of more than $300 million at some Army installations. If not managed carefully, the money could be spent in ways that incur future costs and worsen finances in the long run. Program consolidation has been tried successfully by some of the services but has been resisted by others. A DOD strategic review of the program, a promising catalyst for change initially, appears to have stalled.
