Prepared Statement

Views and Estimates Letter on the FY07 VA Budget Proposal - Signed by Ranking Member Akaka, Senator Jeffords, and the Democratic Members of the Senate Committee on Veterans' Affairs

The Honorable Judd Gregg
The Honorable Kent Conrad
Ranking Member        
Committee on the Budget
United States Senate
Washington, DC  20510
Dear Chairman Gregg and Senator Conrad: 
 Pursuant to Section 301(d) of the Congressional Budget Act of 1974, the Democratic Members and Senator Jeffords of the Committee on Veterans' Affairs (hereinafter the ?Undersigned Members?) hereby report to the Committee on the Budget their views and estimates on the fiscal year 2007 (hereinafter, "FY07") budget for Function 700 (Veterans' Benefits and Services) and for Function 500 (Education, Training, Employment, and Social Services) programs within the Committee's jurisdiction.  This letter responds to the Committee's obligation to provide recommendations on veterans' programs within its jurisdiction, albeit from the perspective of the Undersigned Members.

 The Department of Veterans Affairs (VA) requires, at a minimum, $3.45 billion in additional funding in FY07 to support its medical care operations.  Our requested medical services increase is $1.49 billion over the Administration's request. 

 Once again, the Administration's proposed budget includes a number of legislative proposals designed to generate additional savings and revenue.  The Undersigned Members unanimously reject each of the legislative proposals ? the increase in prescription drug copayments from $8 to $15 for ?middle-income? veterans; the annual enrollment fee of $250 for ?middle-income? veterans; and eliminating the practice of offsetting VA first-party copayment debts with collections from insurance companies.

 With respect to benefits, we disagree with the amount requested for staff at the Veterans Benefits Administration for compensation and pension, and at the Board of Veterans' Appeals.  We also recommend additional funding for the Department of Labor's Veterans' Employment and Training Service.  In addition, we believe it is time to provide non-service connected pension for Filipino veterans who served alongside American troops during World War II.     

 The projections for discretionary account spending in the outyears are disturbing.  The VA health care system would be decimated should the Administration's budget for future years become a reality.  It is our view that veterans, who have sacrificed for this country, are carrying a disproportionate share of the burden to balance the Federal budget.  We believe that the Government can be fiscally responsible and reduce the Federal deficit and debt, and still fulfill our commitment to our Nation's veterans.  The cost of war must include the costs of caring for servicemembers when they return home.

A.  Proposed Medical Services  
 While we generally agree with the Administration on the level of funding required to support VA health care, we differ on the amount that needs to come from actual appropriated dollars, relative to the amount that can be garnered directly from veterans in the form of new fees and increased copayments, or ?saved? by the use of less than concrete efficiencies.

 Prescription Drug Copayment Increase for Priority 7 and 8 Veterans: The Undersigned Members oppose the Administration's increase to this copayment from $8 to $15, for a projected savings of $355 million from increased revenue and decreased enrollment of these categories of veterans.  In large measure, Priority 7 and 8 veterans ? earning as little as $26,902 ? cannot afford to pay almost double for needed prescription drugs. 

 $250 Enrollment Fee for Priority 7 and 8 Veterans: The Undersigned Members oppose the Administration's new enrollment fee of $250, for a projected savings of $410 million from increased revenue and decreased enrollment of these categories of veterans.  Again, this proposal is targeted at ?middle-income? veterans, and we believe it is an unacceptable financing mechanism.

 Offset of First-Party Debt: The Undersigned Members of the Committee oppose a change in law which would eliminate the practice of offsetting or reducing VA first-party copayment debts with recoveries from insurance companies.  Presumably, many of these veterans were drawn to VA because of low-cost prescription drugs.  Yet, in most cases, acquiring these drugs requires visits to a specialty care provider. The vast majority of these veterans are elderly and on a fixed income. They are not "high-income" by any local economic standard but are certainly over the "means test" threshold. While the current primary care copayment of $15 is in line with most private insurance companies, VA's specialty care copayment is $50 per visit. The amount is high enough to be an instant disincentive to seeking medical care in VA.  VA estimates this change would yield $31 million in increased collections.

 Efficiencies:  The Administration is estimating cumulative efficiencies of $1.1 billion in FY07, which results in an additional $138 million in efficiencies for the medical services account.  At the request of the Committee's Ranking Member, the General Accounting Office performed an audit of VA's management efficiency savings claimed for FYs03-06.  GAO reported VA lacked a methodology for making these assumptions and found that the Department could not support its own estimates.  VA has termed these efficiencies as ?clinical? rather than ?management? this year, but regardless of their classification, they should not be used to offset increased appropriations until such time as they are verifiable.

1. Current Services (+$892 million)

 Payroll inflation, increases in the costs of goods, and other ?uncontrollables? dictate funding increases of at least $892 million in FY07 simply to maintain the level of current services.  VA's medical care payroll costs will increase by $458 million in FY07 due to non-optional cost-of-living and within-grade salary and wage adjustments, as well as increases in government-paid Social Security, health insurance, retirement, and other benefits.  The cost of inflation and rate changes for goods and services (including pharmaceuticals) dictates the need for an additional $434 million in funding in FY07.

 We are concerned that the Administration has not adequately budgeted for enough physicians and nurses to meet the increased demand for veterans seeking VA medical care in FY07.  The number of physicians, Registered Nurses, Licensed Practical Nurses, Licensed Vocational Nurses, and Nursing Assistants in the Medical Services account has remained nearly flat since the FY05 budget submission.  Although the FY07 budget shows a net increase of 100 Physicians (12,337 to12,437), there has been no increase in the number of Registered Nurses, Licensed Practical Nurses, Licensed Vocational Nurses, and Nursing Assistants. VA should make the establishment of a national nurse staffing standard a high priority and budget funds accordingly to accelerate the completion.
2. Rescinding the Ban on Priority 8 Veterans (+$706 million)

           VA has seen a substantial increase in enrollment, especially in the number of ?middle- income? veterans ? those whose financial means are above the HUD geographical low-income threshold for their respective counties.  In January 2003, the Administration halted enrollment for Priority 8 veterans.

 The Administration's request for FY07 assumes the enrollment ban on Priority 8 veterans will continue.  The Undersigned Members estimate that new resources of $706 million are needed to restore access for these veterans.  We believe veterans needing VA care should not be prohibited from enrolling in the system.  Indeed, adequate appropriated funding should be provided to VA so that all veterans have access to VA services.  Additionally, many of these veterans bring health care coverage with them and continue to pay copayments for care and drugs, so, in effect, they actually bring revenue into the system, offsetting the cost of their care.  We can think of no other health care system which discourages insured patients from seeking care.
 The Undersigned Members believe it is important to note that this cost estimate would be reduced if the ban was actually rescinded, due to the fact that the Priority 8 veterans who would come into the system would bring their third-party insurance with them, in addition to paying copayments for their care and prescription drugs.  Both of these factors would generate revenue that would offset VA's obligations. 
3. Demand Changes (+$1.726 billion)

 In large measure, we support the Administration's estimated cost for demand and case mix changes for all veterans' priorities ($1.495 billion).  It is abundantly clear that veterans are relying heavily upon VA for pharmaceuticals.  In addition, older veterans present for care with debilitating and chronic conditions requiring a higher ? and more expensive ? level of care. 

 We would also like to address the issue of returning servicemembers, as we believe the Administration is once again underestimating demand.  VA has estimated that any potential workload from OIF/OEF will be negligible relative to the overall number of new enrollees each year.  Such veterans cost VA $232 million to treat in FY05, and ultimately required an increase of that same amount in FY06 for a total funding level of $464 million. 

 We believe that VA should keep their level of funding for treating these veterans in FY07 consistent with the current fiscal year, as these returning servicemembers are entitled to a two-year "automatic" window of eligibility for VA care upon their separation from service (Public Law 105-368).  As such, we recommend a total funding level of $696 million for treating OIF/OEF veterans under current law, for an increase of $231.7 million over FY06.

4.  New Initiatives (+$123 million)

 The Undersigned Members of the Committee accept the Administration's proposed new initiatives.  While we support each of these initiatives, we believe that more can and should be done ? especially in the areas of readjustment counseling and rehabilitative care.  The first is critically important for returning OIF/OEF servicemembers; the second is a lifeline for veterans of all ages.

 Vet Centers.  As the War on Terrorism continues, the number of veterans seeking readjustment counseling and related mental health services through Vet Centers will continue to grow.  Experts predict that as many as 30 percent of those returning servicemembers may need some kind of mental health treatment ? from basic readjustment counseling to care for debilitating PTSD.  Furthermore, a recent study published in the Journal of the American Medical Association reported that 35 percent of Iraq veterans received mental health care during their first year home. Despite increases in the number of veterans coming for care to Vet Centers, the budget for the program has remained relatively stagnant.  We note that legislation to authorize $180 million in funding for Vet Centers passed the full Senate last December.  We therefore recommend that Vet Centers receive a funding increase of $81 million above FY06 to meet that end.

 Rehabilitation.  The Administration is projecting a decrease in the average daily census for its residential rehabilitation care program.  We believe that the rate of spending for this account should maintain the same rate of growth as in previous years.  Rehabilitative care programs offer a full range of rehabilitation services in a supportive environment, with minimal medical care.  We recommend an increase of $42 million for this program.

 Our overall views on medical spending are summarized in the chart below:

Current Services

$458 million -Salary and wage adjustments and increases in benefits
$434 million - Inflation and rate changes for goods and services

$892 million - Subtotal Current Services    

$706 million - Restoring Enrollment to Priority 8 Veterans 


$1.495 billion - Administration's Estimate for Demand
$231 million - OEF/OIF Workload

$1.726 billion - Subtotal Demand 

New Initiatives
$81 million - Vet Centers (Readjustment Counseling)
$42 million - Rehabilitative Care

$123 million - Subtotal New Initiatives 

$3.45 billion -Total New Funding Needed for FY07 

B.  Proposed Discretionary Spending for FY08-FY11

 The Administration's proposed budget for discretionary spending in the near term lays out a financial path which would devastate VA health care.  The cuts over five years would total $10.3 billion, including $789 million in FY08; $2.33 billion in FY09; $4.033 billion in FY10; and $4.94 billion in FY11.

 We are fully cognizant that the proposed budget contains assumptions about future years.  Nevertheless, we view the current strategy as one which gives in the first year and cuts heavily thereafter.  Veterans groups know and understand that a frozen appropriation coupled with cuts in other programs will translate into a reduction of services and benefits.  Any budget resolution must reverse these cuts in the future years.

C.  Medical and Prosthetic Research

 The Administration's proposed FY07 budget for the direct costs of VA research is $399 million, representing a $13 million cut from the current year level of $412 million.  This sum is insufficient to sustain current research initiatives or to provide the program growth necessary to attract and retain quality clinical staff; rather, it would result in the direct loss of 96 projects and 286 FTE.  We believe that an additional $35.7 million to the Administration's proposal is required to sustain the current VA research and development program commitments and cover inflationary cost increases associated with these commitments.  This will ensure that VA is able to continue addressing the special needs of our country's veterans, and enable VA to continue to recruit and retain the highest quality physicians.  Therefore, we recommend a total funding level of at least $434.7 million to maintain current services and avoid any personnel or project cuts.

D.  Grants for State Extended Care Facilities (SECF)

 The Administration is proposing a funding level of $85 million in FY07 for the SECF Grant program, the exact same amount that VA estimates it will spend on the program in the current fiscal year.  The Undersigned Members believe that this program should receive a slightly higher level of funding, as it is a cost-effective and successful long-term care program.

 SECF's provide long-term care services to over 27,000 veterans in 119 locations across 47 States and Puerto Rico.  Construction matching grants are awarded both for new construction in States with the highest needs as defined by P.L. 106-117, and for repair, renovation, or expansion of existing State Homes.  Federal construction grants fund up to 65% of the cost of construction, with States contributing at least 35% of the total cost.  In FY06, the Administration proposed zeroing-out the funding for the construction grant program from $104.3 million in FY05.  Congress rejected this proposal, although the final appropriation level was reduced by $19.3 million to $85 million.
 With construction costs rising, and at least $237 million in pending SECF construction grant requests already approved by States, the Undersigned Members recommend that FY07 funding for SECF Construction Grants be increased from the FY05 baseline to account for inflation costs (current annual CPI index of 4%, accounting for $4.2 million of the increase), then by $19.3 million to restore the cut in FY06; for a total FY07 funding request of $127.8 million.  This amounts to a net $23.8 million increase above the Administration's FY07 request of $85 million.
E.  Compensation and Pension Service

 VA anticipates an end-of-fiscal year 2007 pending workload of 396,834 receipts.  Despite this projected inventory, the Administration's budget would cut direct compensation staff by 149.  We do not believe that VA can manage this increased workload without additional staff.

 VA has stated that caseload from the Vietnam and Gulf War eras is increasing rapidly and that this trend is expected to continue through the budget year.  

 Additionally, the best indicator of new claims activity is the size of the active duty force.  Over 616,000 veterans of the Gulf War era are in receipt of benefits from VA.  More than one million servicemembers have deployed in support of Operations Enduring and Iraqi Freedom.  Therefore, we can expect a large number of new claims as a result of these ongoing conflicts.  These new veterans deserve to have their claims rated timely and accurately.
 We recommend an additional 200 FTE for direct compensation work.  This number would help to reduce the expected end-of-fiscal year 2007 backlog.  We ask for an additional $17.1 million to accomplish this goal.
F.  Vocational Rehabilitation and Employment  
 We support the provision in the budget that increases staffing by 130 FTE over the FY 2006 level for VR&E to fully implement the Employment Coordinator position for the Job Resource Labs.  

 The additional FTE will aid in the implementation of the Five-Track Employment Model, which was suggested in the Department's April 2004 Vocational Rehabilitation and Employment Task Force report.

 Additionally, VR&E's workload is expected to increase 2.5 percent in 2007 as a result of the VBA-wide effort to increase outreach activities to separating servicemembers.  VR&E expects more veterans to utilize their services as the number of wounded veterans from Operations Enduring and Iraqi Freedom increases.  We will monitor staffing needs at VR&E to ensure that our disabled veterans are receiving the assistance necessary to enable them to become employable and maintain that employment, or achieve, to the maximum extent practicable, independent living.

G.  Insurance

 VA's insurance division is continually recognized for its excellent, professional service provided to veterans, active duty servicemembers, and their beneficiaries.  We support the Administration's request for this division.

H.  Housing   

 Housing is one of the best-run VA divisions.  VA helps veterans and active duty personnel purchase and retain homes in recognition of their service. 

 However, we take note of the decrease of 17 FTE and will monitor whether Housing is able to continue its high standard of service given that VA expects more eligibles to take advantage of the loan guaranty as interest rates continue to rise.  Additionally, VA anticipates defaults and foreclosures to increase consistent with the high volume of loans guaranteed in 2002 and 2003. 

 We applaud VA's efforts to assist veterans with foreclosure avoidance.  We look forward to obtaining statistics on active duty military personnel and veterans who could not have purchased homes but for VA assistance.

I.  Board of Veterans' Appeals

 The Board of Veterans' Appeals (BVA) is responsible for making final Departmental decisions on behalf of the Secretary for the thousands of claims for veterans' benefits presented for appellate review. 

 There is a glaring problem with BVA's appeal resolution time despite its decrease from 622 days in 2005 to 600 days in 2006.  The numbers are not expected to improve to the strategic target of 365 days (from receipt of the Notice of Disagreement to rendering of final decision) in the near future.  While the Administration's request of $55,309,000 would support 444 FTE, we recommend BVA be provided with 25 more employees at $2,875,000 above the Administration's budget to reduce the backlog at BVA and decrease the average days pending.

J.  Education

 We support the Administration's request of $90.1 million in discretionary funding for educational assistance administered by VA.  The proposal calls for an increase of 46 FTE over the fiscal year 2006 level for a total of 930 FTE for fiscal year 2007.  Education claims rose by 35 percent between fiscal year 2002 and 2004.  We believe the additional FTE will increase the timeliness of education claims' processing.

K.  Office of the Inspector General
 The work of the VA Office of Inspector General (OIG) has made significant contributions to management effectiveness throughout VA.  Its independent oversight of VA's programs and activities has resulted in a return on investment over the last three years of $128 for every $1 spent.  Given the diverse and complex nature of VA's significant and important mission, the VA could effectively utilize $10 million over the Administration's request to improve service to our Nation's veterans.  We recommend that $4.3 million be used to support 20 additional FTE in the Fugitive Felon Program, and $5.7 million be utilized to support 51 FTE that would expand OIG oversight.

 In the Fugitive Felon Program to date, using about 17 FTE, the VA OIG identified $218.2 million in estimated erroneous payments, $237.3 million in estimated cost avoidance, and 1159 arrests? including 73 VA employees.  We estimate that the additional $4.3 million and 20 FTE could result in cost avoidance reaching $209.6 million and 1100 arrests per year, as law enforcement agencies issue an estimated 2 million new felony warrants a year. 

 These 51 FTE would support additional auditors, healthcare inspectors, and criminal investigators to focus on enhanced quality and safety of health care including issues of credentialing and privileging, identity theft to obtain medical care, and drug diversion; and systemic audits to improve financial management controls, information technology security, claims processing timeliness and accuracy, and procurement practices.  

L.  Department of Labor, Veterans' Employment and Training
 VA estimates that one in three homeless Americans has served their country in the Armed Services.

 Congress established the Homeless Veterans' Reintegration Program (HVRP) in 1987 amid concerns that the number of homeless veterans has risen steadily since the Vietnam War.  HVRP provides competitive grants to community-based organizations to offer outreach, job placement, and supportive services to homeless veterans.  Homelessness presents a high barrier to employment, and homeless reintegration programs help break down that barrier with specialized support unavailable through other programs.  HVRP also offers specialized support to compliment its employment services for many veterans who have been turned away from other programs because of substance abuse and post-traumatic stress disorder.

 The Department of Labor estimates that 16,250 homeless veterans will be served through HVRP at its fiscal year 2006 appropriated level of $21.78 million, nearly the same amount requested in the fiscal year 2007 request. This figure represents just 4 percent of the overall homeless veteran population, which VA estimates to be more than 400,000 over the course of a year. While the fiscal year 2006 appropriation was the most received by HVRP in any fiscal year, it funds the program at only 44 percent of the authorized level.  An appropriation at the authorized level of $50 million would enable HVRP grantees to reach an estimated 36,820 homeless veterans.  Therefore, we request an additional $28 million for HVRP.   
 We additionally recognize that VETS would benefit from an additional $12 million for Veterans Workforce Investment Grants (VWIP) and the National Veterans' Training Institute (NVTI).  Give the unemployment rate for young veterans, VWIP should continue to expand its efforts to target recently separated veterans.  Those involved in the delivery of services to veterans must be adequately trained.  We expect that with additional funding, NVTI will develop new courses based on the Jobs for Veterans Act.


 We support the budget request of $42.1 billion for entitlement programs, and request an additional $106 million for non-service connected pension for Filipinos who served alongside U.S. servicemembers during World War II.

  This Administration's requested increase in mandatory funds provides for a 2.6 percent cost of living adjustment in 2006.  A 2.6 percent increase is the expected increase estimated in the Consumer Price Index and is the same increase expected for Social Security benefits.  Other than the cost-of-living increase, there were no other legislative proposals for this mandatory account in the President's budget.       

 We thank the Budget Committee for its attention to the Undersigned Members' views and estimates of the Administration's fiscal year 2007 budget, and we look forward to working with the Committee in crafting a budget for VA that truly meets the needs of our nation's veterans.