Surplus Stores : The Battle Over Privatizing Military Junk

Vice President Al Gore launched his effort to reinvent government in 1993 with a ringing call to action, telling senior bureaucrats and political appointees on the south lawn of the White House: “Abandon the obsolete. Eliminate duplication. End special privileges.”

Prodded by Gore’s words, the Pentagon laid out an ambitious plan to privatize many noncombat operations. A prime target was a nationwide complex of money-losing junkyards and recycling centers, but today they remain Pentagon fixtures--much to the dismay of combat commanders whose forces continue to wither amid unrelenting spending cuts.

“Private contractors could be making money for the government, but instead we are getting ripped off,” fumed Thomas G. McInerney, a recently retired Air Force general and former fighter pilot who headed a privatization task force for the Pentagon.

The story of the Pentagon’s junkyards offers a cautionary tale about the pitfalls and challenges of privatization, not only for the Defense Department but for any government entity--federal, state or local--seeking to shed assets.

Republicans in Congress have brought new momentum to the privatization push, seeking to sell the space shuttle fleet and the Naval petroleum reserves. They may ultimately pass legislation to force the Pentagon to put the junkyard agency--known formally as the Defense Reutilization and Marketing Service--in private hands.

Yet as attractive and straightforward as privatization sounds, the process invariably gets messy when it comes to the details, and it can be derailed by bureaucratic cunning and political guardianship. With the junkyards, everybody underestimated the ability of the management to protect its turf.

“There is a natural bureaucratic resistance to losing jobs,” acknowledged Elaine C. Kamarck, senior policy adviser to Gore. “It is very contentious.”

Nowhere was the need for an overhaul more pressing than at the Pentagon, where a vast noncombat bureaucracy had largely managed to elude the budget ax as combat forces were slashed. The privatization task force, known as the Defense Performance Review, considered the junkyards “low-hanging fruit, easy to pick,” according to McInerney.

Yet no sooner had the ink dried on a 1993 report recommending the junkyards be privatized than the bureaucrats began to object. Their rationale was simple: There is potentially big money in junk, and getting the best value for tons of Cold War surplus is an important mission for the Pentagon.

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Junkyard defenders argued that private contractors would be unable to deal with toxic materials or properly destroy obsolete military weapons. Moreover, they asserted that they had become more efficient and did not deserve to be cast from the military family.

However, many military commanders liked the privatization idea. As the Pentagon budget has been squeezed, reductions hit war-fighting units first and hardest. As a result, the vast administration for finance, personnel, research, purchasing and surplus grew as a percentage of the Pentagon budget.

Since 1988, for example, the Air Force has cut its combat aircraft squadrons by 50%, as funding for noncombat operations--such as depots, laboratories and test ranges--shrank by just 15%, according to Gen. Mike Loh, the Air Force’s combat chief.

“We have tried to find ways to cut overhead, but it is very difficult,” Loh said. “Each depot is the largest employer in the state in which it is located. And they get a lot of political support. Politically, they become hot potatoes.”

Indeed, the military junkyards employ 3,900 people nationwide and have powerful political guardians in states where they are major employers.

The junkyard operations are run from Battle Creek and are one of the few military operations in Michigan. Not surprisingly, they have the strong support of Sen. Carl Levin (D-Mich.)

Last December, for example, Levin issued a news release declaring that the junkyard agency was “doing superb work” and should be left alone. The agency employs about 400 in Battle Creek.

Levin is also vowing to lead a fight against new House efforts to force a privatization. An obscure provision in a bill that has yet to reach the House floor would put the junkyards in private hands.

Large private government-service contractors--such as EG&G; Inc. in suburban Boston--see enormous financial opportunity in taking over these kinds of government operations. EG&G;, for example, which runs the formerly money-losing Customs Service auctions, says it has saved taxpayers more than $85 million since taking over the operation several years ago.

But congressional aides and military officials have attacked EG&G;, noting that the firm has been accused of losing track of millions of dollars’ worth of government property running nuclear weapons plants.

Industry officials strike back just as hard, alleging that the junkyard agency has a poor record with its personnel--citing as an example the indictment last year of the agency’s top public affairs officer on drug-smuggling charges. The officer was later acquitted.

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The junkyards are part of the Defense Logistics Agency, a 57,000-employee operation that manages contracts, buys supplies and operates the junkyards. Supporters say the agency’s performance has improved markedly in recent times, noting that it has cut government middlemen out of the delivery system for items ranging from hospital supplies to mess hall food.

“We are committed to driving costs down,” said Rear Adm. Bob Chamberlin, a senior logistics agency officer.

Chamberlin said he didn’t like the centers being described as junkyards, saying that a lot of the surplus is quite valuable. “It is anything but junk,” he said.

Navy Capt. Donald A. Hempson, commander of the Defense Reutilization and Marketing Service, said the principal mission of the centers is to ensure that the government saves money by recycling surplus goods--not by maximizing revenue and making a profit. Hempson said a private contractor would not be able to operate like that.

But Bob Ward, president of an EG&G; unit pushing to privatize the agency--dismissed that argument, saying the government can create incentives in a contract to emphasize recycling goods rather than maximizing sales. EG&G; has formed an alliance with Science Applications International Corp. in San Diego to push for the privatization.

Nobody doubts the military has a lot of junk and surplus goods. The junkyards annually get tons of surplus, which last year they valued at $24 billion. But the valuation is based on the original cost, not a fair-market estimate of the value as used goods.

A lot of military surplus such as trucks or machinery has value, but plenty of the items are clearly worthless and must be disposed of at great expense. Under federal law, virtually everything but items clearly intended to be disposable, such as plastic spoons and forks, must be sent to a junkyard for recycling.

At the military’s Ft. Belvoir, Va., center, for example, the military tries to sell the most unlikely items. On a recent day, the junkyard was offering a broken Beta videotape player, various military uniforms with holes in them and a pair of men’s shoes in size 14 extra narrow. Among the most bizarre items was a six-foot-wide, 1970s-era photograph of the Saudi Arabian royal family that had apparently come from a U.S. officers club, according to Ed Kirkland, chief of the store.

Scattered elsewhere in the 10,000-square-foot store was a metal bucket filled with computer keyboards. “They are $15 each, but no guarantee they work,” Kirkland said. Private electronics stores nearby sell brand-new keyboards for as little as $13.

Underlying the federal government’s philosophy of recycling surplus, critics say, is a Depression-era mentality that forces workers to use dented desks that may have been recycled three or four times.

Hempson defends his agency, pointing out that it has established a network of 100 cash-and-carry retail stores open to the public that are making an average profit of $470,000 per week, demonstrating that the military can adopt commercial practices.

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But even with the stores, profits are not what they seem. The agency’s stores operate rent-free on military bases, and the transportation of the goods into the stores is charged to military services.

And, of course, the stores obtain the goods at no cost. Under such circumstances--similar to the economics of a garage sale--it is hard to see how the stores could lose money, critics say.

On a broader basis, the agency has increased revenue and it broke even on its overall operations last year, Hempson said.

But critics such as McInerney dismiss that contention as an accounting gimmick. In meetings with defense officials, EG&G; has asserted that, taking into account all the hidden costs, the agency actually lost $168 million.

Hempson, who is a Wharton School graduate, said his agency is working hard to adopt commercial practices but that privatizing the entire operation would jeopardize important missions such as ensuring that weapons are properly destroyed.

“If it ain’t broken,” Hempson said, “don’t fix it. We ain’t broken.”