Honorable Michael H. Michaud
Thank you all for coming today.
I want to thank the Chairman for holding this hearing. Ensuring the Department of Veterans Affairs has the proper infrastructure and facilities to provide safe, effective, quality healthcare to veterans is a priority of mine and of this Committee.
Some of the ways in which VA provides this care is through the construction program, sharing agreements, collaborations with other Federal agencies, and leasing authority.
This is an important hearing, and an important step in our ongoing discussion regarding how we can best meet these infrastructure and facilities needs of the VA this year, and in the years and decades to come.
The VA has an ever-increasing backlog of construction requests. Along with this backlog we are facing an environment of constrained Federal spending, and uncertainty regarding where our veterans will live, and how, in the decades to follow, medicine will be provided. The VA has an inventory of many facilities that are over 50 years old, that were built to provide medicine the way it was provided following World War II. We must ensure that the facilities we build today will meet the needs of the future, and that we build or acquire them for a reasonable cost.
One way VA meets its infrastructure needs today is through seeking authorization for major medical facility leases as required in statute. In light of recent events regarding a change in the way the Congressional Budget Office treats VA major medical facility lease authorizations for scoring purposes, the time has come to look for alternative solutions. This hearing is an important step to begin that discussion.
Last year, the CBO made a determination that VA leases were “similar to contracts for acquiring facilities and thus a form of third-party financing” as compared to operating leases. CBO decided that, in its view, this third-party financing was “equivalent to a government purchase of the asset” and therefore the cost should be recorded up front, as compared to spread out annually over the duration of the lease, as is the practice for operating leases, and how VA major medical facility lease requests were scored in the past.
For 20 years CBO had been scoring VA’s facility leases as operating leases, however, in preparing the cost estimate for the construction authorization for Fiscal Year 2012, CBO received additional information from VA that caused CBO to determine that the facility leases were executed more like capital leases and therefore the cost of the leases should be recorded upfront for budgetary purposes.
This determination led to a CBO score of $1.2 billion in direct spending for the leases originally contained in the FY 2012 construction bill. Because offsets could not be found the leases were stripped from the bill.
For over a year now we have been unable to come to a solution or put forth alternative ideas on this issue. In all honesty, it has been disappointing and I hope that this hearing provides some open discussion from all parties involved.
I would like to hear from our witnesses whether there was a change in VA policy regarding the types of leases it undertakes. I want to hear from both panels on what they have done together to try and solve this issue. Is it a matter of disagreeing on definitions or terms or does this need a legislative fix? Has VA looked at alternative ways besides the major medical facility lease program as it is currently operating to provide services to veterans?
I have many more questions than I have answers. What I do know is that if we don’t find a way forward, over 340,000 veterans in 20 States could be negatively affected by this and that is simply unacceptable. We must find a way ahead.
In short, I would like to learn from our witnesses where we go from here. Not just in terms of the VA’s major medical facility lease program, but where do we go from here in terms of providing the infrastructure needed to provide world-class health care to our veterans this year, and 20 years from now. I look forward to the testimony of our panelists.