March 2, 2006

The Honorable Judd Gregg, Chairman

The Honorable Kent Conrad, Ranking Member

Committee on the Budget, United States Senate

Washington, DC  20510

Dear Judd and Kent:

            Pursuant to Section 301(d) of the Congressional Budget Act of 1974, I, as Chairman of the Committee on Veterans' Affairs (hereinafter, "Committee"), submit this report to the Committee on the Budget on the proposed fiscal year 2007 (hereinafter, "FY07") budget for Function 700 (Veterans' Benefits and Services) programs.

            Your staff requested that Congressional Budget Office (hereinafter, "CBO") estimates be used in presenting this report.  There were difficulties that precluded me from doing so.  I was informed that CBO's revised estimate of the President's FY07 budget request would not be available before your requested deadline for submission of this report.  Those revised estimates are essential in that they reflect the impact of key policy proposals included in the President's budget.  Without those estimates, I would have to present a portion of this report using CBO numbers and another portion using the Administration's numbers.  To avoid that confusion, this letter will use only the Administration's numbers.  Once CBO's revised estimates are available, my staff can then make the appropriate adjustments upon your request.

SUMMARY

            Function 700 is comprised of budget authority and outlays associated with four entities under the jurisdiction of the Committee:  the Department of Veterans Affairs; the Department of Labor's Veterans' Employment and Training Service; the American Battle Monuments Commission; and the United States Court of Appeals for Veterans Claims.

?                     The President requests total VA appropriations in FY07, including collections, of $79.892 billion, $41.362 billion for mandatory programs and $38.530 billion for discretionary programs.  The $38.530 billion request for discretionary programs is comprised of $2.833 billion in expected medical care collections and $35.697 billion in general revenue appropriations.  I do not recommend increases beyond those requested by the President for either mandatory or discretionary programs.  Furthermore, I agree with the President that discretionary spending from general revenue appropriations be limited to $35.697 billion.

?                     The President requests $224.9 million for the Department of Labor's Veterans' Employment and Training Service programs and services.  At this time, I will not object to that level of funding.

?                     The United States Court of Appeals for Veterans Claims requests $19.79 million.  At this time, I will not object to that level of funding.

?                     The President requests $40.738 million for the American Battle Monuments Commission.  I have no objection to that level of funding.

DISCUSSION

I.   MANDATORY PROGRAMS

            Within Function 700, only VA programs contain mandatory account appropriations.  The President's request for FY07 is $41.362 billion in appropriations and $42.050 billion in total mandatory budget authority. 

            Since fiscal year 1996, VA mandatory account spending has nearly doubled.  The bulk of the accelerated spending is attributable to growth in the Compensation and Pension (hereinafter, "C&P") account.  The C&P account funds disability compensation payments for veterans with service-connected disabilities; compensation payments to surviving spouses and dependents of veterans who die as a result of service-related conditions; pension payments to disabled or elderly wartime veterans; pension payments to needy spouses of wartime veterans; and payment of certain burial-related expenses.

            The primary drivers of C&P account growth are the total number of veterans in receipt of disability compensation and the average amount of compensation payment per veteran.  VA estimates that 2.87 million veterans will be in receipt of disability compensation in FY07, a 10% increase in just two years and a 24% increase since fiscal year 2001.  As a point of comparison, overall growth in the compensation roles was 5% between fiscal years 1991 and 2001. 

            VA projects that average compensation payments to veterans will continue to increase due to a variety of factors:  1) More veterans filing disability claims (primarily Gulf War era and Vietnam-era veterans); 2) More veterans filing and being granted service-connection for multiple disabilities (the number of veterans filing for at least eight or more disabilities has doubled in five years); 3) Increases in average disability ratings (as veterans age, their disabilities worsen and they may be granted increased disability ratings); 4) Increases in Individual Unemployability and Post-Traumatic Stress Disorder (hereinafter, "PTSD") claims; 5) Cost-of-living adjustments; and 6) More military retirees filing for disability compensation spurred by new laws allowing partial concurrent receipt of military retired pay and VA disability pay (according to VA's budget, 45% of the nation's 1.8 million military retirees are now receiving VA disability compensation).

            CBO estimates a lower rate of growth for C&P spending than does the Administration.  The key difference between the Administration and CBO's estimates is the lower accession rate of veterans being added to the disability compensation roles.  Whereas VA projects 10% growth in the caseload from fiscal years 2005 to 2007, CBO projects only 5% growth.  A focus of the Committee this year will be to understand the factors that have driven the growth in both the disability compensation roles and actual expenditures, and the implications this growth may have on future budget submissions. 

II. DISCRETIONARY PROGRAMS

A.  VA Medical Care

            The President requests $34.295 billion for medical care in FY07.  The President's request is comprised of a combination of general revenue appropriation ($31.462 billion) and medical care collections ($2.833 billion).  I support both the President's total medical care request and the sources from which he proposes to obtain requested dollars.  

            Before I provide my views on the President's request for medical care, I feel it is necessary to explain what "medical care" is in order to ensure accuracy. There is no longer a single VA "medical care" appropriation account as in prior years.  Beginning with fiscal year 2004 appropriations, Congress divided the medical care account into three separate health-related accounts:  medical services (including amounts transferred to medical services from medical collections), medical administration, and medical facilities.  It is the sum of these three accounts I refer to when using the term "medical care."

            VA is a national leader in the delivery of high-quality health care.  Its reputation has driven demand for its services from veterans across the country.  Of VA's 7.6 million enrollees, roughly 5.3 million will use VA's system in FY07, an increase in the number of users since fiscal year 2001 of over one million.  Couple the demand for VA care with an aging population, and veterans with complex care needs arising from service-related injuries, and it is not surprising that there is tension between demand for health services and available resources.  

            Assuming enactment of the President's request, VA medical care will have increased by 69% since fiscal year 2001.  If the President's increase for FY07 is any barometer for out-year increases, and assuming current enrollment eligibility policy continues, VA's medical care budget will need to double nearly every six years.  Additionally, the President's request assumes that VA's patient base will remain relatively stable in FY07. Should VA's estimates on frequency of health care use per patient be too low, or should a higher number of enrolled patients actually use the system, resource demands will be greater than those assumed in the President's request.  That said, VA's submission of quarterly reports (now a requirement of law) on its finances, workload, and performance measures will serve as an additional check to ensure its budget, when executed, is sufficient.

            For the fifth year in a row the President has proposed to finance a portion of his medical care budget by enacting revenue-generating policy proposals.  The first of his FY07 proposals is to levy an annual $250 enrollment fee on Priority 7 and 8 veterans; the second is to charge priority 7 and 8 veterans $15 for a 30-day supply of prescription medication; and the third is to cease waiving indebtedness of 1st party co-payments under certain circumstances.  If these proposals (or other proposals with similar effect) are not enacted, an additional $795 million in general revenue appropriation would be needed (assuming there is no change in enrollment eligibility policy).

            During a time of high deficits and restrained spending in every account unrelated to national security, the President's proposal to shift a small portion of the cost of funding record growth in VA's budget onto lower priority veterans is reasonable.  I have no objection to the proposals he has chosen, but I am not necessarily wed to them.  Should there be another combination of fee proposals that results in an avoided appropriation of $795 million, I will take them under consideration.  But my bottom line is this:  I recommend the Budget Committee support the President's requested level of medical care spending, both in the amount of general revenue appropriation requested ($31.462 billion) and in the amount of medical collections assumed ($2.833 billion).

            The President's budget for medical care contains numerous other funding initiatives that I support and which are vital to veterans, particularly the 2% of VA's patient population who participated in Operations Iraqi Freedom or Enduring Freedom (hereinafter, "OIF/OEF").  Assumed in the request are increases for prosthetic and sensory aids, treatment of serious mental illness, treatment of PTSD, and other programs to support Gulf War and OIF/OEF veterans.  Care for returnees of the Global War on Terror must remain VA's highest priority.

            One area of particular focus of mine and the Committee is VA's homeless veterans programs.  The President requests an additional $44 million in funding for treatment costs associated with homeless veterans and an additional $20 million for other programs to assist homeless veterans.  In particular, I commend the request for a 16% increase in Homeless Grant and Per Diem funding.  In the coming year I am committed to reviewing this and other specialized homeless programs to ensure that they are providing the necessary services to help homeless veterans resume self-sufficient and independent lives.

B.  Medical Research

The President's budget proposes a $13 million reduction in the Medical and Prosthetic Research account in FY07.  VA projects that $399 million in appropriations will be leveraged with other federal (and to a lesser degree, non-federal) resources to yield an overall increase in allocations for research.  However, this may be an unrealistic assessment given that the Administration's budget does not move to increase funding for the National Institutes of Health, the Centers for Disease Control and Prevention, and other agencies associated with biomedical research. 

One research priority that VA has identified for the coming fiscal year focuses on returning OIF/OEF veterans.  Many of these veterans have sustained traumatic brain or spinal cord injuries, often in conjunction with sensory loss and loss of limbs.  It is essential that research be conducted to guide treatment and rehabilitation for these individuals with polytraumatic injuries.  Now in particular, VA must invest in research to guide evidence-based treatments for the future.  In pursuit of this goal, I propose that VA's Medical and Prosthetic Research be increased by $30 million over the Administration's budget and $17 million over the fiscal year 2006 level.

C.  Information Technology 

            The President requests $1.257 billion for information technology (hereinafter, "IT") under a separate IT account as directed in Public Law 109-114.  This amount is intended to facilitate VA's transition to full implementation of the Federated IT Management System by VA's June 2008 target date. 

            The Committee held a hearing in October 2005 to examine VA's plan to re-organize its IT management system.  The Committee will continue to closely monitor this process to ensure that this new accounting system maintains the proper balance between budget control in the Office of the Chief Information Officer and operational flexibility vested with the individual VA administrations. 

D.   General Operating Expenses

The President requests $1.635 billion in general operating expenses in FY07, $1.322 billion for the Veterans Benefits Administration (hereinafter, "VBA") and $313 million for General Administration.  Included in the total is $154 million in appropriations that will be transferred to the General Operating Expense account for administration of VA's housing programs.

Veterans Benefits Administration

            Including transferred appropriations for administration of VBA's housing programs, $1.322 billion is requested for VBA.  This funding request will support a staffing increase of 173 Full Time Equivalent employees (hereinafter, "FTE") over fiscal year 2006.  The budget request provides a blueprint of how FTE for each of VBA's programs is expected to be allocated.  It is a blueprint only; actual FTE will be allocated according to workload demands as they arise.

a) Compensation and Pension Service

          The President requests funding to support 9,445 FTE to administer VBA's compens