    [Budget of the U.S. Government]
    [VI. Investing in the Common Good: The Major Functions of the Federal Government]
    [26. Veterans Benefits and Services]
    [From the U.S. Government Publishing Office, www.gpo.gov]

                       26.  VETERANS BENEFITS AND SERVICES

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                       Table 26-1.  FEDERAL RESOURCES IN SUPPORT OF VETERANS BENEFITS AND SERVICES
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                                Estimate
                Function 700                1996   -----------------------------------------------------------------
                                           Actual      1997       1998       1999       2000       2001       2002
    ----------------------------------------------------------------------------------------------------------------
    Spending:
      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).

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       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
    claim.

    [[Page 200]]

       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.

    [[Page 201]]

       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.

    [[Page 202]]

     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
    1996.

     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.