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Hon. Bob Filner Chairman, and a Representative in Congress from the State of California

The Committee on Veterans’ Affairs will come to order.  I would like to thank the Members of the Committee, our witnesses, and all those in the audience for being here today.

In general, there are two types of federal spending – mandatory, or direct spending, and discretionary spending.  Discretionary spending is subject to annual Congressional determinations regarding funding levels. 

When we think about what the Federal government does, most of these activities are financed by discretionary spending.  Direct spending, also known as “entitlement spending,” is governed by eligibility rules and criteria, and includes Medicare and Social Security.  

For fiscal year 2008, the House-passed VA funding bill provides $43.2 billion for discretionary spending, of which $37.1 billion is for the four accounts that comprise the Veterans Health Administration.  This bill provides $44.5 billion for mandatory spending, including $41.2 billion for the payment of compensation and pension benefits. 

There is a widespread perception that the current manner in which we fund veterans’ health care is broken, and must be fixed.

The VA currently utilizes the “VA Enrollee Health Care Demand Model” to estimate its health care needs. 

Although utilizing an actuarial model to predict health care spending may arguably be an improvement over the old system of utilizing a current services model, there are concerns that this model does not accurately reflect the true costs of caring for veterans. 

There are concerns that even if the model is accurate, decisions regarding budget requests made subsequently under-estimate the real need.  This leads to budget shortfalls as experienced by the VA in previous years, most notably in 2005 and inadequate budget requests, requests that must be augmented by Congress.  The bottom line is that each year we see VA struggling to do more and more with a budget that does not quite keep up.

In addition to concerns over the adequacy of the VA’s health care budget, there are concerns that the failure to provide this funding at the start of the fiscal year hinders the VA’s efforts to plan and to spend its resources in the most advantageous manner.

These concerns have led a number of veterans’ groups to propose that VA funding be switched from the discretionary side of the federal ledger and placed on the mandatory side of the ledger. 

VA health care funding would be provided subject to a formula.  Proponents argue that by doing so, VA funding would be needs-based and removed from the vicissitudes of the annual budget process.

This was a legislative issue championed by our former colleague on this Committee, Lane Evans.  It is an issue now championed by the successor to Mr. Evans’ seat, Mr. Hare.

We do not debate VA funding in a vacuum – whether the VA is funded by discretionary or direct spending has long-term implications regarding our fiscal ability to fund veterans’ health care and to meet the obligations that our government must meet.

The Congressional Budget Office, in testimony before another Committee earlier this year, stated that VA medical spending would increase from $35 billion in fiscal year 2007 to $66 billion in 2025 “or 88 percent cumulative real growth.”  This figure was 50 percent greater than the VA’s assumptions.  If VA’s growth rate continued at the level of the growth of appropriations in recent years, then VA health care would “triple in real terms, reaching $108 billion in inflation-adjusted dollars by 2025.”

How will the VA fare in the future when forced to compete with other discretionary spending programs?

There are concerns that as a Nation we are facing a crisis in mandatory spending in the coming decades.  In 2006, mandatory programs made up 53 percent of the federal budget, discretionary programs 38 percent, and interest 9 percent.  In 1962, discretionary spending made up 68 percent of the federal budget and mandatory spending 26 percent.

The Administration claims, in its FY 2008 budget submission, that “by 2040 spending . . . on mandatory programs will crowd out all discretionary spending – for defense, homeland security, or education – unless we take steps to reform these programs.”

The Administration paints a bleak picture, a picture that may, or may not, be accurate.  Are we indeed facing a future where discretionary programs like veterans’ health care are at risk because of the explosion of entitlement spending?  If the VA was funded by mandatory spending would it be affected by efforts to rein in mandatory spending in the future?

The 110th Congress has instituted strict pay-as-you-go (PAYGO) mechanisms that require offsets for any new direct spending.  There are concerns that in the future we may face mandatory spending caps or even discretionary spending caps as we struggle with moving the federal budget towards balance.

Today, we begin the discussion on how best to fund the VA of the future, how best to meet the needs of returning servicemembers, and our veterans from previous conflicts.  This may mean that we stick with the current discretionary funding mechanism, perhaps with an expectation that we will see more accurate budget submissions in the future, budget submissions that acknowledge the true costs of providing health care and do not, year-after-year, underestimate demand or rely on Congress to come up with extra resources because those resources have not been requested. 

Perhaps it is time, within the current discretionary funding framework, to explore how to increase alternative funding streams, such as seriously looking at the issue of Medicare subvention or increasing the effectiveness and efficiency of the VA’s third-party collections efforts.  Or maybe it is indeed time to fund VA health care in the manner that other federal health care programs are funded, by direct spending.

The new fiscal year began on Monday.  Both the House of Representatives and the Senate have passed historic increases for veterans’ programs.  Currently, the VA is being funded under a continuing resolution that is scheduled to run until November 16,2007.  It has been over a decade since the VA did not have to rely on a CR.  I am hopeful we will not face the situation faced earlier this year when the VA did not get its fiscal year 2007 funding in place until February 15, 2007. 

Whichever method we ultimately decide upon, I know I speak for all of us that we are committed to finding a manner that accurately reflects the needs of veterans, and provides the VA with a steady and sufficient stream of resources to enable it to meet its requirements and care for our veterans.