[Budget of the United States Government, Fiscal Year 1998]
[Page 199-202]

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                   26.  VETERANS BENEFITS AND SERVICES


                   Table 26-1.  FEDERAL RESOURCES IN SUPPORT OF VETERANS BENEFITS AND SERVICES                  
                                            (In millions of dollars)                                            
            Function 700                1996   -----------------------------------------------------------------
                                       Actual      1997       1998       1999       2000       2001       2002  
  Discretionary Budget Authority                                                                                
   \1\.............................     18,359     18,910     18,750     18,719     18,715     18,702     18,706
  Mandatory Outlays:                                                                                            
    Existing law...................     18,820     20,579     21,735     22,850     24,443     21,463     23,151
    Proposed legislation...........  .........  .........        593        294        690      1,057      1,547
Credit Activity:                                                                                                
  Direct loan disbursements........      1,442      1,933      2,189      2,249      2,273      2,287      2,269
  Guaranteed loans.................     28,676     30,230     28,948     25,458     25,032     24,566     24,059
Tax Expenditures:                                                                                               
  Existing law.....................      2,775      2,940      3,105      3,285      3,480      3,680      3,895
\1\ Proposed legislation will supplement the budget authority with receipts (estimated at $0.5 billion in 1998).

   The Federal Government provides a broad range of benefits and 
services, to veterans (and their survivors) who served in conflicts as 
long ago as the Spanish-American War and as recent as the Persian Gulf 
War. In providing these benefits and services, the Government recognizes 
the sacrifices that wartime and peacetime veterans made during their 
service in the military. The $40 billion a year in veterans benefits and 
services, and $4.7 billion in tax benefits, compensate for service-
related disabilities, provide medical care to low-income and disabled 
veterans, and help returning veterans prepare for reentry into civilian 
life through education and training. In addition, veterans benefits 
provide financial assistance to needy veterans of wartime service and 
their survivors.


   About six percent of veterans are military retirees. This group of 
veterans can receive both military retirement from the Defense 
Department (DOD) and veterans benefits from the Department of Veterans 
Affairs (VA). Active duty military personnel are eligible for veterans 
housing benefits, and they can make contributions to the Montgomery GI 
Bill program for education benefits that are paid later. To deliver 
these services to veterans, VA employs about 20 percent of the non-
Defense workforce of the Federal Government--almost 250,000 people. 
About 220,000 of these employees deliver medical services to veterans 
(as described in Chapter 22, Health).
   The veteran population is declining, with much of the decline among 
draft-era veterans, meaning that a rising share of veterans is coming 
from the All-Volunteer Force (see Chart 26-1). Thus, the types of needed 
benefits and services likely will change. Further, as the veteran 
population shrinks and technology improves, access to, and the quality 
of, service should continue to improve.
   The Veterans Benefits Administration (VBA) processes veterans claims 
for benefits in 58 regional offices across the country. Several factors, 
including the introduction of judicial review to the claims adjudication 
process in 1988 and DOD downsizing from 1992 to 1994, significantly 
increased the claims and appeals workload. Workload peaked in 1993 and 
1994, with 500,000 backlogged claims and 214 days needed to process a 

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   But, as the veteran population declines, the number of new claims and 
appeals will decline with it. At the end of 1996, the backlog shrunk to 
346,000 claims, and the number of days needed to process a new claim 
averaged 150. To further the progress to date, VBA is developing a 
comprehensive strategic plan that will reengineer the way it processes 
claims, including the post-decision review process, and integrate 
information technology into program administration.
   The following discussion describes the major components of benefits 
and services (other than health care) to which veterans are entitled.

 Income Security

   Along with Federal income security programs for the general 
population, such as Social Security and unemployment insurance, several 
VA programs help certain veterans and their survivors maintain their 
income when the veteran is disabled or deceased. Spending for this 
purpose will total an estimated $19.8 billion in 1998, including the 
funds that Congress approves each year to subsidize life insurance for 
certain veterans who are too disabled to get affordable coverage from 
private insurance.

   Service-Connected Compensation: Veterans with disabilities resulting 
from, or coincident with, military service receive monthly compensation 
payments scaled to the degree of disability. The payment does not depend 
on the veteran's income or age, or on whether the disability is the 
result of combat or a natural-life affliction. The amount depends on the 
average fall in earnings capacity that the Government presumes for 
individuals with the same degree of disability. Survivors of veterans 
who die from service-connected injuries receive payments in the form of 
dependency and indemnity compensation. Benefits are indexed annually by 
the same cost-of-living adjustment (COLA) as Social Security, which is 
2.7 percent for 1998.

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   The number of veterans and survivors of deceased veterans receiving 
compensation benefits will total an estimated 2.6 million in 1998, 
remaining at that level through 2002. While the overall veteran 
population will decline, the compensation caseload is expected to remain 
relatively constant due to changes in eligibility and enhanced outreach 
efforts. At the same time, mainly due to anticipated COLAs, spending for 
compensation benefits will rise from an estimated $16.8 billion in 1998 
to $18.8 billion in 2002.

   Non-Service-Connected Pensions: The Government provides pensions to 
lower-income, wartime-service veterans, or veterans who have become 
permanently and totally disabled after their military service. Survivors 
of wartime-service veterans may qualify for pension benefits based on 
financial need. Veterans pensions, which also increase annually with 
COLAs, will cost an estimated $3.2 billion in 1998. The number of 
pension recipients will continue to fall from an estimated 714,000 in 
1998 to 650,000 in 2002, as the population of wartime veterans drops.
   Burial and Other Benefits: Families of deceased veterans who received 
pension or compensation benefits and who are buried in private 
cemeteries may receive burial benefits to help defray funeral costs. For 
veterans buried in VA's National Cemeteries, the Government reimburses 
additional amounts to the National Cemetery System for headstones, 
markers, and graveliners. Over 90,000 veterans' survivors received a 
burial allowance in 1996. Spending for these benefits will total an 
estimated $119 million in 1988.
   Insurance Programs: Because most private insurance excludes coverage 
of war-time service, the VA administers life insurance programs. 
Veterans pay the total cost for this insurance through premiums, 
calculated by assuming that the veteran will see no combat. If insurance 
claims in any year exceed expectations due to combat, DOD pays the extra 
cost of coverage. These programs will continue to provide over $480 
billion of coverage to nearly 5.5 million veterans and active duty 
personnel in 1998.

 Veterans Eeducation, Training, and Rehabilitation

   Several Federal programs support job training and finance education 
for veterans and others. The Labor Department runs several programs 
exclusively for veterans. In addition, several VA programs provide 
education, training, and rehabilitation benefits to veterans and 
military personnel who meet specific criteria. The programs include the 
Montgomery GI bill (the largest of them), the post-Vietnam-era education 
program, the Vocational Rehabilitation program, and the Work-Study 
program. Spending for all VA programs in this area will total an 
estimated $1.4 billion in 1998.

   The Montgomery GI Bill (MGIB): The Government created MGIB as a test 
program, with more generous benefits than the post-Vietnam-era education 
program, to help veterans move to civilian life as well as to help the 
armed forces with their recruitment. The President and Congress made the 
program permanent in 1987. Service members electing to enter the program 
have their pay reduced by $100 a month during their first year of 
military service. The VA administers the program and pays the costs of 
basic benefits once the service-member leaves the military. Basic 
benefits now total about $15,000 (about 12 times the original reduction 
in the service members' pay).
   MGIB beneficiaries receive a monthly check based on whether they are 
enrolled in school on a full- or part-time basis. They are entitled to 
36 months worth of payment, but they must certify monthly that they are 
in school. DOD may provide additional benefits to help recruit certain 
specialties and critical skills. Nearly 350,000 veterans and service 
members will use these benefits in 1998. The MGIB also provides 
education benefits to reservists while they are in service. DOD pays 
these benefits, and the VA administers the program. In 1998, over 80,000 
reservists are expected to use this program. Over 90 percent of MGIB 
beneficiaries use their benefits to attend a college or university.

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 Veterans Housing

   Along with the mortgage assistance available to veterans through the 
Federal Housing Administration (FHA) insurance program, VA-guaranteed 
and direct loan programs will help an estimated 280,000 veterans get 
mortgages in 1998. Guaranteed commitments for mortgage loans in 1998 are 
expected to reach almost $29 million. The $192 million in estimated 
spending in 1998 reflects the estimated Federal subsidies that are 
implicit in the veterans' home loans issued during the year. Slightly 
over 40 percent of veterans who have owned homes have used the VA loan 
guaranty program. In 1996, 56 percent of all guaranteed loans went to 
first-time home buyers.

 National Cemetery System

   The VA provides burial in its National Cemetery System for eligible 
veterans, active duty military personnel, and their dependents--with the 
VA managing over 100 national cemeteries across the country. Spending 
for VA cemetery operations, excluding reimbursements from other 
accounts, will total an estimated $84 million in 1998. Over 70,000 
veterans and their family members were buried in National Cemeteries in 

 Related Programs

   Many veterans get help from other Federal income security, health, 
housing credit, education, training, employment, and social service 
programs that are available to the general population. A number of these 
programs have components specifically designed to assist veterans. Some 
veterans also receive preference for Federal jobs. In addition, starting 
in 1998, the children of Vietnam veterans will receive compensation if 
they are afflicted with spina bifida, which the Government will presume 
was caused by a veteran parent's exposure to herbicides.

 Military Retirement

   About 1.6 million military retirees and survivors will receive an 
estimated $28 billion in retirement benefits in 1988. Normal retirement 
eligibility occurs after 20 years of service. The initial annuity base 
for most current retirees is 2.5 percent of final pay for each year of 
service--50 percent at 20 years--up to a maximum 75 percent of final pay 
at 30 years. For those entering between September 1980 and July 1986, 
the Government will use the average of the highest three years of basic 
pay to calculate the annuity base, instead of final basic pay. Benefits 
for both groups are fully indexed to the Consumer Price Index (CPI).
   Members entering military service after August 1, 1986 face a cut in 
their initial retirement benefit if they retire before age 62 with less 
than 30 years of service. The initial formula for their annuity remains 
at 2.5 percent per year of service, but this multiplier is cut by one 
percent for each year of service below 30. The cut ends when the member 
reaches age 62. Also, benefits for these retirees rise at the rate of 
the CPI minus one percent, with a one-time catch-up at age 62 to restore 
the full purchasing power of the annuity. After age 62, the benefit is 
again adjusted by CPI minus one percent. In addition, to help shrink the 
size of the military forces, the Government has provided temporary 
authority for certain military members to retire with as little as 15 
years of service.

 Tax Incentives

   Along with direct Federal funding, certain tax benefits help 
veterans. The law keeps all cash benefits that the VA administers 
(disability compensation, pension, and GI bill benefits) free from tax. 
Together, these three exclusions will cost about $3 billion in 1998. The 
Federal Government also helps veterans obtain housing through veterans 
bonds that State and local governments issue, the interest on which is 
not subject to Federal tax. In 1998, this provision will cost the 
Government an estimated $35 million.