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Letter to Senator Kent Conrad and Senator Judd Gregg (Part 1)

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Letter to Senator Kent Conrad and Senator Judd Gregg

The Honorable Kent Conrad, Chairman

The Honorable Judd Gregg, Ranking Member

Committee on the Budget, United States Senate

Washington, DC 20510

Dear Senators Conrad and Gregg:

Pursuant to Section 301(d) of the Congressional Budget Act of 1974, I, as Ranking Member of the Committee on Veterans' Affairs (hereinafter, "Committee"), submit this report to the Committee on the Budget on the proposed fiscal year 2008 (hereinafter, "FY08") budget for Function 700 (Veterans' Benefits and Services) programs.


From time to time, it is worth repeating the obvious. We are a nation at war. The fourth anniversary of the war in Iraq, and the sixth anniversary of the war in Afghanistan will occur this year. Hundreds of thousands of volunteers have been sent into harm's way. Thousands have given their lives in combat; thousands more have returned with severe disabilities. The mission statement of the Department of Veterans Affairs (hereinafter, "VA"), "To care for him who shall have borne the battle, and for his widow, and his orphan…," is more relevant now than ever. These brave men and women expect, and deserve, our best, as do all who suffer disabilities as a result of military service. They are the reason VA exists. Our shared values demand that they, above all others, have first call on the nation's resources. Within the context of a near $87 billion budget for VA, few can argue that resources are not there to meet our obligation to those suffering disabilities as a result of current and past conflicts.

We must also acknowledge that we are a nation with deficits and debt. After meeting our commitment to those for whom VA benefits and services were created, we cannot escape the reality of resource constraints. It is with this reality in mind that I make my recommendations on the President's FY08 budget. Almost exactly ten years ago, every member of the Committee on Veterans' Affairs, on a bi-partisan basis, signed a views-and-estimates letter expressing similar sentiments. I believe the following excerpt from that letter provided the appropriate framework for debate on VA's budget then and still does today:

In preparing these comments, the Committee's members have kept in mind the fiscal limitations within which we must operate if we are to get Federal spending under control and thereby reduce the Federal deficit and debt. We believe that the Government can be fiscally responsible while still fulfilling its commitments to the most deserving among us -- including our Nation's veterans. We also are mindful of the fact that uncontrolled Federal spending threatens the long-term health of the Nation's economy and, in turn, could adversely affect the provision of veterans' benefits. Thus, we recognize that those who have worn the uniform in defense of the Nation seek, as we do, to protect the health of the Nation's economy.


Function 700 is comprised of budget authority and outlays associated with four entities under the jurisdiction of the Committee: VA; the Department of Labor's Veterans' Employment and Training Service (hereinafter, "VETS"); the American Battle Monuments Commission (hereinafter, "ABMC"); and the United States Court of Appeals for Veterans Claims (hereinafter, "CAVC"). I support the President's request for total Function 700 discretionary funding and, except as noted below, the President's total mandatory funding request. With a few exceptions, I endorse the President's allocation of Function 700 spending among the various appropriations accounts. The exceptions are noted in the following chart and will be discussed in greater detail in the body of this letter.[1]

President's FY08 Request

V&E Recommendation


State Home Construction Grant

$85 M

$10 M

- $75 M

Medical Research

$412 M

$432 M

+ $20 M

Minor Construction

$233 M

$284 M

+ $51 M

General Operating Expenses

$1.717 B

$1.721 B

+ $3.7 M

National Veterans' Training Institute

$1.949 M

$2.099 M

$150 K

Veterans' Workforce Investment Program

$7.351 M

$7.501 M

+ $150 K


The President requests total budget authority for VA in FY08, including revenue from medical collections authorized under existing law, of $86.757 billion. This total consists of $44.978 billion for mandatory programs and $41.779 billion for discretionary programs. The $41.779 billion request for discretionary programs is comprised of $2.352 billion in expected revenue from collections and $39.427 billion in appropriations. I do not recommend increases beyond those requested by the President for discretionary programs. Furthermore, I agree with the President that discretionary spending from general appropriations be limited to $39.427 billion.

With respect to mandatory programs, the President's budget assumes offsetting receipts of $355 million in FY08, and $2.313 billion over five years, from the enactment of revenue-generating proposals. As will be discussed below, I do not support revenue from these or other revenue-generating proposals being used as offsets against mandatory spending.

Veterans' Employment and Training Service

The President requests $228 million for the Department of Labor's VETS programs and services. I recommend that $300,000 be added to the President's request to increase funding for the National Veterans' Training Institute (hereinafter, "NVTI") and the Veterans' Workforce Investment Program (hereinafter, "VWIP").

United States Court of Appeals for Veterans Claims

The CAVC requests $21.2 million. I support the CAVC's full request provided that it continues to use its statutory authority to recall retired judges throughout FY08.

American Battle Monuments Commission

The President requests $42.1 million for ABMC. I enthusiastically support the President's request.



Within Function 700, only VA programs contain mandatory account expenditures. The President's request for FY08 is $44.978 billion in budget authority for mandatory programs.

The President's budget assumes offsetting receipts of $355 million in FY08, and $2.313 billion over five years, from the enactment of legislation that would: apply a progressive annual premium on veterans without service-disabling conditions whose family income exceeds $50,000; increase pharmacy co-payments from $8 to $15 per 30-day supply of medication for priorities 7 and 8 veterans; and end VA's practice of offsetting first-party co-payment debt with third-party collections. I agree that the proposals put forth by the President merit serious consideration and I recommend adoption of some mixture of revenue-generating proposals. However, I do not support revenue from these or other proposals being used as offsets against mandatory spending. Rather, all revenue generated from new collections should be used to fund veterans' medical care.

As was noted in last year's letter, VA entitlement spending has nearly doubled in a 10-year period. 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.

During his testimony at the Committee's February 13, 2007, hearing, VA Secretary R. James Nicholson attributed the growth in VA's entitlement expenditures to a variety of factors, chief among them VA's efforts to inform eligible veterans of the benefits to which they may be entitled. VA expects net accession to the compensation roles to continue to increase, even in the face of an overall declining veterans' population.

Looking at specific drivers of cost growth, 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 for 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 may worsen and they may be granted increased disability ratings); 4) Increases in Individual Unemployability 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 (43% of the nation's 1.96 million military retirees are now receiving VA disability compensation).

A number of bills, including some I have authored, already have been referred to the Committee proposing additional VA entitlement program spending. Although I am aware of and, in many cases, sympathetic to efforts to address gaps in educational assistance, compensation, insurance, and other benefits, I believe it is important during a time of fiscal restraint to live within our means. Therefore, it will be my policy to adhere to existing budgetary guidelines and find spending offsets to pay for any new, non-emergency entitlement spending.


A. VA Medical Care

The President requests $37.02 billion for medical care in FY08, including $462 million that is proposed to be realigned with the Information Technology (hereinafter, "IT") account. The President's request is comprised of a combination of general revenue appropriation ($34.66 billion) and medical care collections ($2.35 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, 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."

I believe that Congress should collectively revisit the policy of having three separate medical appropriation accounts. Although the purported reason for the three account structure was to provide Congress with more detailed, transparent information about the expenditure of health resources, the effect has been to increase VA's financial management transactions with little or no benefit and to add greater complexity to financial accounting decisions. The following is a post-hearing question response from VA about the operational effect of the three account structure:

Unfortunately, the change in the medical care account structure has resulted in a number of unintended consequences that have dramatically increased the volume and complexity of VA's workload. One significant impact has been the negative effect it has had on the Department's budget execution activities. Financial management transactions occur at all of VA's more than 150 medical centers. Prior to the account structure revision, there were about 30,000 funding transactions required to support the single medical care appropriation account. With the implementation of the new account structure, our workload has grown to 70,000 transactions. This substantial increase in the volume of financial transaction workload has increased the risk of errors.

The current account structure has also had the unintended effect of introducing greater complexity into the hiring process at medical centers. For example, payroll funds to support nurses, security guards, and food service staff are now in three separate accounts instead of managed through a single medical care account. All three positions are key components leading to safe, high-quality patient care. Funding limitations caused by the more detailed account structure have made it much more difficult for medical center directors to staff their facility with the proper combination of employees, who contribute to both direct and indirect patient care. This has had the greatest impact on the management and administration of the Medical Services and Medical Administration accounts.

I will work with the Appropriations Committee on this issue as the year progresses.

As to the current request for medical care funding, the dramatic change in perception of VA as a national leader in the delivery of high-quality health care has driven an increase in demand for its services from veterans across the country. Of VA's 7.6 million enrollees, roughly 5.8 million will use VA's system in FY08. Couple the demand for VA care with an aging population, and newer veterans with complex care needs arising from service-related injuries suffered during Operation Iraqi Freedom and Operation Enduring Freedom (hereinafter, "OIF/OEF"), 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 77 percent since fiscal year 2001. If the President's increase for FY08 is any barometer for out-year increases, and assuming current enrollment eligibility policy continues, VA's medical care budget will grow at a pace that may be unsustainable.

For the sixth year in a row the President has proposed enacting revenue-generating policy proposals. However, this year's proposals are different than prior year's in that the President's discretionary budget request for the medical care system does not assume enactment of those policies in order to provide the system with the resources necessary to fund all medical care programs. Instead, the President proposes to deposit any receipts from the proposals directly into the U.S. Treasury, resulting in a mandatory cost savings.

The first of the FY08 proposals is to charge certain veterans a progressive annual premium based on the veteran's family income: $250 per year for those making between $50,000 and $74,999; $500 for those making between $75,000 and $99,999; and $750 for those who make over $100,000 annually. As a point of comparison, the average annual premium of an individual health insurance policy in the United States is $4,242. The second proposal would increase co-payments for priority 7 and 8 veterans to $15 for a 30-day supply of prescription medication; and the third is to cease waiving indebtedness of first party co-payments under certain circumstances.

During a time of high deficits and restrained spending in every account unrelated to national security, the President's proposals are a very reasonable way of sharing some of the costs associated with access to what is widely regarded as the nation's best health care system. Given that this budget does not rely on the proposals' enactment, I believe they represent a good starting point from which Senators can discuss any responsible approach to increasing revenue from sources other than appropriations.

Further, I would strongly recommend that any new revenue sources be devoted to VA's discretionary accounts, specifically the medical services account, for use in providing care to America's veterans. I would also recommend that any such revenue enhancing measures not go into effect until the start of fiscal year 2009. In that way, VA would have more time to plan for the implementation of the new proposals and additional time to provide Congress with a more accurate projection of revenue generated from them. This will allow Congress to properly reflect the budgetary implications of any new policy during the fiscal year 2009 budget cycle.

The President's budget for medical care contains numerous other funding initiatives that I support and that are vital to veterans, particularly the four percent of VA's patient population who served in OIF/OEF. Assumed in the request are increases for prosthetic and sensory aids, treatment of serious mental illness, treatment of post-traumatic stress disorder, and other programs to support Gulf War and OIF/OEF veterans. Care for veterans of the Global War on Terror must remain VA's highest priority.

B. Medical Research

The President's budget proposes flat-lined funding in the Medical and Prosthetic Research account in FY08. VA projects that the $412 million request (including $1.1 million proposed for IT realignment) 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. I recommend an additional $20 million above the President's request.

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. VA must invest in research now to guide evidence-based treatments for the future. In pursuit of this goal, I propose that VA's Medical and Prosthetic Research account be increased to $432 million for FY08.

C. Information Technology

The President requests $1.303 billion (not including $556 million proposed for IT realignment) for IT and data security activities. This amount is intended to continue VA's transition to a fully central IT management system by the July 2008 target date.

The Committee held a series of hearings during the 109th Congress to examine VA's plan to re-organize its IT management system and rectify longstanding problems with data security and the stewardship of veterans' sensitive personal information. I support the President's request for the resources necessary to accomplish these goals. I will continue to closely monitor the centralization process as well as VA's security progress to ensure that this transformation allows VA to maintain critical infrastructure, make the investments necessary to enhance future operations, and protect veterans' personal information.

D. General Operating Expenses

The President requests $1.717 billion (including $89 million proposed for IT realignment) in general operating expenses in FY08, $1.399 billion for the Veterans Benefits Administration (hereinafter, "VBA") and $318 million for General Administration. Included in the total is $156 million in appropriations that will be transferred to the General Operating Expense account for administration of VA's housing programs. I recommend a $3.7 million increase above the President's request, all of which would go towards General Administration.

Although the President's budget recommends budget authority and full-time equivalent (hereinafter, "FTE") employment levels for each of the organizations funded under the General Operating Expense account, it is important to note that these are estimates only and that VA retains the authority to shift money around among each organization if actual events differ from the assumptions contained in the FY08 budget. For instance, should the number disability compensation claims received by VA exceed expectations due to court decisions, legislative or regulatory changes, or otherwise unexpected volume, I would expect VA to adjust budget and FTE needs for the Compensation and Pension Service (hereinafter, "C&P Service") and the Board of Veterans' Appeals (hereinafter, "BVA") as is necessary. Conversely, should claims receipts be less than projected, I would expect an accounting from VA as to how it will adjust its budgetary and FTE needs.

Veterans Benefits Administration

Including transferred appropriations for administration of VBA's housing programs, $1.399 billion (including $45 million proposed for IT realignment) is requested for VBA. This funding request will support a staffing increase of 470 FTE over fiscal year 2007.

a) Compensation and Pension Service

The President requests funding to support 9,893 FTE (including 334 IT FTE) and 8,320 direct FTE to handle VBA's compensation and pension workload. This would provide the C&P Service with an increase of 457 direct FTE over the expected fiscal year 2007 level. That FTE level would represent almost a 59 percent increase in direct FTE during the past 10 years.

Claims or actions involving disability rating decisions are the primary workload handled by C&P Service direct FTE. Since fiscal year 2000, the number of disability claims received by VA has been trending upward, from 579,000 in fiscal year 2000 to 800,000 expected in fiscal year 2007. (The number of claims received in fiscal year 2006 was slightly higher than the expected fiscal year 2007 level, as a result of approximately 8,000 claims generated by special outreach in six states.) During that time, the complexity of the workload has also increased. For example, the number of claims involving eight or more issues increased dramatically (from 21,814 in fiscal year 2000 to 51,260 in fiscal year 2006) and court decisions have imposed additional procedural requirements.

For FY08, VA expects to receive approximately 800,000 rating claims, roughly the same level of claims that it expects to receive in fiscal year 2007. With the requested 8,320 direct C&P FTE, VA expects to complete 840,320 claims in FY08, an average of 101 decisions per direct FTE. The Administration expects that this would allow VA to reduce its pending inventory (from 370,000 claims at the end of fiscal year 2007 to 330,000 claims at the end of FY08) and to improve the average days it takes to complete a claim (from 160 days in fiscal year 2007 to 145 days in FY08). I appreciate the Administration's focus on improving the timeliness of decisions on disability claims and will support the C&P Service budget request in its entirety.

However, I disagree in part with the assumptions contained in the C&P Service budget proposal. First, the number of incoming claims has been steadily trending upward since 2001 and, with the ongoing conflicts in Iraq and Afghanistan, should be expected to continue to increase during FY08. Assuming a 2 percent increase over the expected fiscal year 2007 level, I anticipate that VA will receive approximately 816,000 claims during FY08.

Also, VA has assumed a productivity level of 101 decisions per direct FTE for FY08. That goal is lower than VA has achieved in prior years and less than VA expects to achieve this year. It is also substantially lower than the fiscal year 2007 goal of 108, a goal that VA described as "realistic" given the increasing experience levels of employees hired during fiscal year 2005 and fiscal year 2006. Although I recognize that the complexity of cases has continued to increase and that new employees will not be fully productive for at least two years, I believe that setting a higher productivity goal of 104 decisions per direct C&P Service FTE is reasonable. Thus, with the 8,320 direct C&P FTE requested in the President's budget, VA should be able to produce at least 865,000 decisions during FY08.

Finally, I would like to stress that, although I hope the requested funding level will help improve timeliness and alleviate the current backlog of claims, I do not believe this will be a long-term solution to the problem of lengthy processing times and high levels of pending claims. In fact, according to

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