Hearing of the Military Construction Subcommittee of the House Appropriations Committee - Veterans Affairs Budget
Statement
REP. EDWARDS: Secretary Peake, good afternoon, and let me welcome you and your first formal testimony before this subcommittee, and I want to again congratulate you for having earned the tremendous honor of being secretary of Veterans Affairs, and we thank you as well as your colleagues' lifetime of service to our veterans and to our military troops and families. It's an honor to have you here.
If I could begin as we have our first hearing on the budget request for the Department of Veterans Affairs -- if I could begin with a personal note. A number of us this morning attended a very moving service for Congressman Tom Lantos, and in the program Mr. Lantos had a quote that was printed there that said only in America could a penniless survivor of the Holocaust come here, raise a family as he did, and be a member of Congress. And I think the tie-in to this hearing is that today at this hearing we're honoring those who have made ours the kind of the nation where a penniless Holocaust survivor could come to America, could be successful in every way, personal, family and public.
And so that to me is the (solemn-ness ?) of this subcommittee's responsibility and your duties in your positions, is to truly honor those who have made the sacrifices so that we can have the Tom Lantoses of this world truly live out the American dream. So for those reasons I thank you, Secretary Peake, for being here. I also want to thank Dr. Cussman (ph), our undersecretary for help, for your presence here, Admiral Daniel Cooper, undersecretary for Benefits. Admiral, good to see you again.
We have the undersecretary for Memorial Affairs, Mr. William Turk. Mr. Turk -- there you are, Mr. Turk. Good to see you. We also have the Honorable Paul Hutter (ph), general council of the VA, the Honorable Robert Hinkey, (ph) assistant secretary for management, and -- Mr. Hinkey, and then the Honorable Robert Howard, assistant secretary for information technology. Thank you all for being here.
I think it's also appropriate to mention that this is National Salute to Hospitalized Veterans Week, and one of the things that I'm proud of is that this committee -- working together on a bipartisan basis last year, showed our respect to veterans, not just with our words, but with our deeds as well. And it was a privilege for us to be a partner with you in that effort.
Last year we were able to increase funding for veterans by $11.8 billion. That's $5.5 billion more than was requested by the Administration, and it represents the largest funding increase in the 77-year history of the department. What does that mean to veterans? It means increased health services. It will mean our veterans will wait less time to receive the benefits they've earned and the doctors appointments they need. It will mean that Operation Iraqi Freedom and Operation Enduring Freedom veterans will be screened for PTSD and traumatic brain injury, including the non-visible forms of TBI. And it will mean that the Department of Veterans Affairs will be able to address a significant backlog in facilities maintenance and ensure that our veterans are cared for in a safe and healthy environment.
I would like to take this opportunity to again thank our former ranking member, now Senator Wicker, for all of his leadership and in our work together last year, and again, thank all the members of this subcommittee, Democrat and Republican alike, who have worked on such a non-partisan basis.
The budget request for fiscal year 2009 totals $44.7 billion in discretionary spending and an additional $46.2 billion in mandatory spending. On the discretionary side of the ledger, the amount requested represents an increase of $1.7 billion over the fiscal year 2008 appropriations when you consider the additional emergency funding that was included in the FY '08 bill. I want to salute the Administration for requesting significant increases in medical services accounts, but I do have concerns about very large cuts for VA research and VA construction, both minor and major construction.
I do have a number of questions. I'm sure we all do. Some of those that I have include how the VA is dealing with what we're seeing across the country, whether it's in DOD or the private sector, high inflation rates for construction. How is that impacting our construction program and budgets? Questions about whatever level of confidence the Department has in its estimates in regards to the OEF- OIF populations in our hospitals. I know that's not an exact science. It's always a difficult, challenging process to estimate. And inflation rates for the Department in other areas, such as health care. Are our budgets (that are going up on paper ?) actually allowing us to keep up with health care inflation and continue to improve services for our veterans?
Mr. Secretary, we very much look forward to hearing your testimony (in a moment ?), but at this point I'd like to -- before I recognize you, I'd like to recognize our ranking member, Mr. Wamp, for any comments that he would care to make.
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REP. EDWARDS: Okay, if I could ask staff to check and see -- there will be a substantive vote after this, and if it's a five-minute vote, then we might have to recess for a few moments to go cast that vote.
Mr. Secretary, let me just begin by asking you -- there were legitimate concerns about the fact that -- given that the VA received so much additional funding last year for both supplemental as well as the '08 budget year that -- and the fact that those dollars did not come (initially ?) on October 1, the beginning of the new fiscal year -- that the VA might have a difficult time putting in place a plan to spend that money efficiently and effectively.
Could you just make some observations about how you feel in terms of the VA's plans for implementing the budget that we passed and the President signed recently? Do you feel comfortable in how you have those resources allocated? And perhaps I should ask whether you think there could be -- sooner rather than in the last quarter of the year -- requests for reprogramming in order to allow you to use that money most efficiently.
MR. PEAKE: Yes, sir. I think that we will be coming forward to talk about shifting some of that money around a little bit to make sure that we can use it most effectively. I do think that we have a good plan in place to be able to execute that in what I've been able to see so far. Some of it is going to be, you know, things that don't require an ongoing, (sustained ?) -- they're sort of one-timers as well, so -- and I think we can get those executed. But I think that we also have in this budget the ability to sustain the things that will have an out year tail to them.
REP. EDWARDS: Right. In regard to reprogramming, let me just say that this subcommittee would want to do careful due diligence in reviewing those requests in the VA to be sure they reflect the priorities that the Congress has set in its budget, but at the same time I urge you to not have the Department wait until the second or third week of August to ask that reprogramming --
MR. PEAKE: We will --
REP. EDWARDS: We understand you've got a great deal of new funding and you got it late in the process, so given that process wasn't perfect, we know there may be some adjustments. And bottom line to us is that those adjustments we made -- whenever it can best help the most -- (inaudible) -- veterans.
MR. PEAKE: And we will not be waiting until August. We will be out there soon.
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REP. EDWARDS: Okay. Thank you, Mr. Wamp. Mr. Secretary, back in 2005 and over a period of several years one of the challenges we faced was that even though on a bar graph the funding each year for the VA discretionary budget and particularly VA medical care was going up, it was not going up as quickly as the increasing number of veterans needing health care added to the medical inflation numbers, which, I guess, traditionally had been 200 percent higher than the CPI. Could you -- and I know the VA has worked very hard on its modeling, and again, it's not an exact science, it's an art and a science --
MR. PEAKE: Sure.
REP. EDWARDS: -- and economics. But could you tell me how comfortable you are with the projections? And what assumptions did you make in the '09 budget in terms of increasing number of veterans needing health care: outpatient, inpatient; how comfortable you are with those projections within a certain parameter?
MR. PEAKE: Sir, can I --
REP. EDWARDS: And what inflation numbers did you use both for medical care and for construction?
MR. PEAKE: Well, sir, I can talk to the medical care projection, if we could put that graph up. Yeah, I know we've had sort of a history where our projections have been questioned, and maybe for good reason, you know? So what this shows is the variance from the original estimate for each year going back to 2001. And what you see is as we come to 2005, '06 and '07, we are within 1 percent of what was estimated.
I mean, I asked the question because I wanted to be comfortable when I came to you that we had decent projections, and this looks to me like it is. And this includes -- you know, there's 12 -- most of this is from Millman, which is probably the best medical actuary available. And they understand us and they know us. And so they've been involved with doing these projections. There's 12 percent or so that's outside of the Millman projection, but this number includes even that 12 percent that's outside. So we've been accurate even with those that are -- have to be taken off model.
So in terms of being able to come to you and say, I think we have some confidence in where we are going in terms of our projection, this gives me some confidence.
REP. EDWARDS: Track record.
MR. PEAKE: Yes, sir. The other point I'd make is that even within that now there's 333,000 OEF/OIF. And we put some Kentucky windage in there because we want to make sure that we don't underestimate there, so we think we're going to have 14 percent growth and we think we -- and we budgeted 21 percent in terms of cost because we want to make sure that if something develops, we're ready to do it.
REP. EDWARDS: Right.
MR. PEAKE: I think we are -- again, if we had that other graph, I mean, we've got, I think, confidence that we are going to not come in over the OEF/OIF. I was just looking back now. You know back in 2005/2006, I don't -- my understanding is we may have missed it because we really didn't take it into account.
REP. EDWARDS: Right.
MR. PEAKE: But I think that we've got a--
REP. EDWARDS: Good handle on it.
MR. PEAKE: -- the data to really support what we're doing.
REP. EDWARDS: What about the medical inflation factor? Is that something that the VA must follow OMB dictates, or are you given the flexibility to estimate medical inflation? And if so, what factor did you use for --
MR. PEAKE: Sir, my understanding is the number is 4.63 percent medical inflation. And as you know, we're 5.9 percent more than that -- you know, really the augmented funding that y'all gave us last year, though, you know, even if you say that 4.63 percent of that is going to be taken up by inflation, we're still a little bit, a couple of percentage points above that for new initiatives and so forth.
REP. EDWARDS: For medical care?
MR. PEAKE: Yes, sir, for medical care.
REP. EDWARDS: Right. Okay, so 4.63 percent. Do we know what the private health care sector uses? Is that --
MR. PEAKE: Sir, that is the national --
REP. EDWARDS: That is the national --
MR. PEAKE: Yes, sir, 4.63.
REP. EDWARDS: -- health care inflation factor.
Okay. Who sets that? Does anyone know? Dr. Kussman, would you know who sets the national health care inflation factor? Is that an independent private group?
DR. KUSSMAN: I'm sorry, I don't know what company, but I think it's from -- you know, my experience in the Army is we'd look for Millman. I mean, they --
REP. EDWARDS: Right.
DR. KUSSMAN: -- they do it for lots of people, and they'll tell you. You know, they measure it.
REP. EDWARDS: Okay. Could I ask you about the inflation factor for construction? We're seeing in highway construction, military construction, in some parts of the country inflation as significant as 15 percent. And at least from a MILCON side of our subcommittee's responsibility, we learned a couple of years ago that the OMB magically dictated that military construction inflation would be 2.4 percent per year. It doesn't pass the smile test or the laugh test. Can you tell me what kind of facts you're using for your construction inflation?
MR. PEAKE: Sir, I don't have that information. Perhaps somebody at the table does. I will tell you that we are concerned about the cost of cement and the cost of steel and the cost in the competition of the people that actually can do the labor. And for us, it says, wait a minute, in the future are we be going to be running into billion-dollar hospitals, and who can afford them?
REP. EDWARDS: Right.
MR. PEAKE: So going back to, really, Mr. Wamp's point and Congressman Dicks' point, this issue of maybe looking at how do we leverage these CBOCS and, you know, a different model is going to be important as we look our way forward.
REP. EDWARDS: Does OMB require you to use a certain inflation factor for construction?
MR. PEAKE: No, sir. Not that I'm aware of.
MR. HENKE: Not that I'm aware of. We have a number of different commercial indices that range from between 23 and 37 percent. Or in 2003 to 2007 -- I'm just informed that we do market surveys of the local areas and we use a locality factor as we -- ( inaudible) -- our requirements.
REP. EDWARDS: Have your estimates for your major construction projects, such as in Las Vegas and around the country, are those updated in the '09 budget using the best estimates, or are we going to have to make some adjustments upwards on those projects because of inflation?
(Pause.)
MR. KUSSMAN: Excuse me, sir. Mr. Neary (ph), who works with our Office of Construction, says that this is -- and for the Las Vegas we used the latest information, which was in '08.
MR. NEARY (?): (Inaudible) -- funded in the '08 budget. We used the best information we had from a current market survey at the time.
REP. EDWARDS: All right.
MR. NEARY (?): Recognizing that when we come into a budget, we are some time away from a contract award.
REP. EDWARDS: Okay. Well, maybe what I would ask you is just if you would monitor that. It's not the VA's fault the construction costs are going up significantly all across the country, and as we need to make adjustments in what the real costs are, it would be nice to plan ahead. And if perhaps we need to build in for some of that before we pass the '09 budget to this subcommittee, maybe that would be helpful and we could work together on that.
Mr. Farr, I know we have seven minutes, 52 seconds. Would you like to take several minutes to ask questions before we go? And then I'm going to turn it over to Mr. Wamp to take whatever time. Would this vote be the vote that -- you don't need to? Okay. And you and Ms. Granger can then take whatever time.
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