[Senate Report 109-138]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 217
109th Congress                                                   Report
                                 SENATE
 1st Session                                                    109-138

======================================================================



 
      VETERANS' COMPENSATION COST-OF-LIVING ADJUSTMENT ACT OF 2005

                                _______
                                

               September 21, 2005.--Ordered to be printed

                                _______
                                

   Mr. Craig, from the Committee on Veterans' Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 1234]

    The Committee on Veterans' Affairs (hereinafter, 
``Committee''), to which was referred the bill (S. 1234) to 
increase, effective as of December 1, 2005, the rates of 
compensation for veterans with service-connected disabilities 
and the rates of dependency and indemnity compensation for the 
survivors of certain disabled veterans, having considered the 
same, reports favorably thereon, and recommends that the bill 
do pass.

                              INTRODUCTION

    On June 14, 2005, Committee Chairman Larry E. Craig 
introduced S. 1234, a bill to increase, effective as of 
December 1, 2005, the rates of compensation for veterans with 
service-connected disabilities and the rates of dependency and 
indemnity compensation for the survivors of certain disabled 
veterans. The bill was referred to the Committee on Veterans' 
Affairs.

                           COMMITTEE HEARING

    On June 23, 2005, the Committee held a hearing on 
legislation pending before the Committee. Among the measures on 
which the Committee received testimony was S. 1234. The 
Committee received testimony from, among others, 
representatives of the Department of Veterans Affairs 
(hereinafter, ``VA''), and from representatives of The American 
Legion, the Veterans of Foreign Wars, the Disabled American 
Veterans, AMVETS, and the Paralyzed Veterans of America.

                           COMMITTEE MEETING

    On July 28, 2005, the Committee met in open session to 
consider legislation pending before the Committee. Among the 
measures so considered was S. 1234. The Committee voted by 
unanimous voice vote to report favorably S. 1234, as 
introduced, to the Senate.

               SUMMARY OF THE COMMITTEE BILL AS REPORTED

    The Committee bill contains freestanding provisions that 
would require the Secretary of Veterans Affairs to increase, 
effective December 1, 2005, the rates of and limitations on 
certain benefits paid by VA by the same percentage as the cost-
of-living adjustment (hereinafter, ``COLA'') provided to Social 
Security recipients and VA pension beneficiaries that become 
effective on the same date. The COLA would apply to:
    1. basic compensation rates for veterans with service-
connected disabilities and the rates payable for certain severe 
disabilities;
    2. the allowance for spouses, children, and dependent 
parents paid to service-connected disabled veterans rated 30 
percent or more disabled;
    3. the annual clothing allowance paid to veterans whose 
compensable disability requires the use of a prosthetic or 
orthopedic appliance (including a wheelchair) that tends to 
tear or wear out clothing, or requires the use of a medication 
prescribed by a physician for a service-connected skin 
condition if the medication causes irreparable damage to the 
veteran's outer garments; and
    4. the dependency and indemnity compensation (hereinafter, 
``DIC'') rates paid to:
    (a) surviving spouses of veterans whose deaths were 
service-connected;
    (b) surviving spouses for dependent children;
    (c) surviving spouses who are so disabled that they need 
aid and attendance or are permanently housebound;
    (d) surviving spouses covered under 38 U.S.C. Sec. 1318(b); 
and
    (e) the children of veterans whose deaths were service-
connected if no surviving spouse is entitled to DIC, the child 
is age 18 through 22 and attending an approved educational 
institution, or the child is age 18 or over and became 
permanently incapable of self-support prior to reaching age 18.
    The Congressional Budget Office (hereinafter, ``CBO'') 
currently estimates that the COLA to be provided to Social 
Security recipients in 2006 will be 2.3 percent.

                               DISCUSSION

                               BACKGROUND

Disability compensation

    The service-connected disability compensation program under 
chapter 11 of title 38, United States Code, provides monthly 
cash benefits to veterans who have disabilities incurred or 
aggravated during active duty in the Armed Forces.
    The amount of compensation paid depends on the nature of 
the veteran's disability or combination of disabilities and the 
extent to which the disability impairs earning capacity. VA 
rates compensable disabilities according to its Schedule for 
Rating Disabilities on a graduated scale ranging from 0 to 100 
percent, in 10 percent increments. VA pays higher monthly rates 
(known as ``special monthly compensation'') to totally disabled 
veterans with certain specific, very severe disabilities or 
combinations of disabilities.
    According to its fiscal year 2006 budget, VA estimates that 
it will provide disability compensation to 2,688,248 veterans 
with service-connected disabilities in fiscal year 2006. Among 
the veterans estimated to receive such compensation are 12 
World War I veterans; 347,126 World War II veterans; 162,549 
Korean-conflict veterans; 944,799 Vietnam-era veterans; and 
639,690 veterans of the Persian Gulf War era.
    A veteran with a disability rated at 30 percent or more may 
receive additional compensation on behalf of the veteran's 
spouse, children, and dependent parents. These dependents' 
allowances are prorated according to the percentage of 
disability.

Dependency and indemnity compensation

    Under chapter 13 of title 38, United States Code, VA pays 
DIC to the survivors of servicemembers or veterans who died on 
or after January 1, 1957, from a disease or injury incurred or 
aggravated during military service. Survivors eligible for DIC 
include surviving spouses, unmarried children under the age of 
18, children age 18 or older who are permanently incapable of 
self-support, children between the ages of 18 and 22 who are 
enrolled in school, and certain needy parents. Under section 
5312 of title 38, parents' DIC rates are adjusted automatically 
at the same time and by the same percentage as Social Security 
and VA pension benefits. Surviving spouses, children, and 
parents who are receiving death compensation based on deaths 
before January 1, 1957, may elect to receive DIC instead of 
death compensation.
    For deaths prior to January 1, 1993, surviving spouses 
received DIC at rates determined by the pay grade (service 
rank) of the deceased veteran. For deaths on or after January 
1, 1993, surviving spouses currently receive $993 per month 
and, if the deceased veteran was totally disabled for 8 years 
prior to death, an additional $213 per month. Surviving spouses 
who had been receiving benefits under the prior DIC program are 
paid under whichever program will pay the higher benefit.
    A surviving spouse who is so disabled as to be housebound 
or in need of regular aid and attendance is eligible to receive 
an additional amount. A surviving spouse also may receive 
additional allowances on behalf of the veteran's surviving 
children.
    Children are entitled to DIC if there is no surviving 
spouse, if they are 18 years or older and became permanently 
incapable of self-support before reaching age 18, or if they 
are 18 to 22 years old and pursuing an approved course of 
education.
    In its fiscal year 2006 budget, VA estimates that it will 
pay DIC benefits to 335,081 survivors, a sum that includes 
surviving spouses, children, and needy surviving parents.
    Under section 1318(b) of title 38, VA pays benefits at DIC 
rates to the surviving spouses and children of veterans whose 
deaths are not service-connected if the veteran, immediately 
prior to his or her death, had been receiving (or had been 
entitled to receive) compensation at the 100 percent rate 
continuously for 10 or more years or for at least 5 years from 
the date of discharge or release from active duty. VA also pays 
DIC benefits to the surviving spouses and children of veterans 
who were former prisoners of war and, after September 30, 1999, 
whose deaths were not service-connected if the veterans had 
been receiving (or had been entitled to receive) compensation 
at the 100 percent rate continuously for not less than one year 
preceding death.

History of cost-of-living increases

    The Committee periodically reviews the service-connected 
disability compensation and DIC programs to ensure that the 
benefits provide reasonable and adequate compensation for 
disabled veterans and their families. Based on this review, the 
Congress acts periodically to provide a cost-of-living 
adjustment in compensation and DIC benefits. In fact, the 
Congress has provided annual increases in these rates for every 
fiscal year since 1976. The following table shows the 
percentage increases since 1975.

                         HISTORY OF SERVICE-CONNECTED DISABILITY COMPENSATION INCREASES
                                                (1975 TO PRESENT)
----------------------------------------------------------------------------------------------------------------
                                                                                     Increase       Cumulative
                  Fiscal year                            Effective date              (percent)      (1969=$100)
----------------------------------------------------------------------------------------------------------------
1976..........................................  August 1975.....................            11.8          158.55
1977..........................................  October 1976....................             8.0          171.23
1978..........................................  October 1977....................             6.6          182.53
1979..........................................  October 1978....................             7.3          195.86
1980..........................................  October 1979....................             9.9          215.25
1981..........................................  October 1980....................            14.3          246.03
1982..........................................  October 1981....................            11.2          273.58
1983..........................................  October 1982....................             7.4          293.82
1984..........................................  April 1983......................             3.5          304.11
1985..........................................  December 1984...................             3.2          313.84
1986..........................................  December 1985...................             3.1          323.57
1987..........................................  December 1986...................             1.5          328.42
1988..........................................  December 1987...................             4.2          342.22
1989..........................................  December 1988...................             4.1          356.25
1990..........................................  December 1989...................             4.7          372.99
1991..........................................  December 1990\1\................             5.4          393.13
1992..........................................  December 1991...................             3.7          407.68
1993..........................................  December 1992...................             3.0          419.91
1994..........................................  December 1993...................             2.6          430.83
1995..........................................  December 1994\2\................             2.8          442.89
1996..........................................  December 1995\2\................             2.6          454.41
1997..........................................  December 1996...................             2.9          467.59
1998..........................................  December 1997\2\................             2.1          477.41
1999..........................................  December 1998\2\................             1.3          483.62
2000..........................................  December 1999\2\................             2.4          495.23
2001..........................................  December 2000\2\................             3.5          512.56
2002..........................................  December 2001\2\................             2.6          525.89
2003..........................................  December 2002\2\................             1.4          535.88
2004..........................................  December 2003\2\................             2.1          547.13
2005..........................................  December 2004\2\................             2.7          561.90
2006..........................................  December 2005\2\................          \3\2.3       \3\574.82
----------------------------------------------------------------------------------------------------------------
\1\Payment of the December 1990 increase was delayed until January 1992 by section 8005(b) of Public Law 101-
  508.
\2\December 1994-1995 and 1997-2006 increases are rounded to the next lower dollar amount pursuant to sections
  2(c)(2) of Public Law 103-418 and Public Law 104-57, section 8031 of Public Law 105-33 and section 205 of
  Public Law 107-103, and section 706 of Public Law 108-183.
\3\Estimate.

                             COMMITTEE BILL

    The Committee bill would direct VA to compute and provide 
increases in the monthly rates of compensation and DIC, 
effective December 1, 2005. The rates would be increased by the 
same percentage as the Social Security and VA pension COLA that 
will take effect on that date. In accordance with section 8031 
of the Balanced Budget Act of 1997 (Public Law 105-33), amounts 
of compensation so computed that are not even multiples of $1 
will be rounded down to the next lower whole dollar amount. In 
2003, this provision was extended until 2013 by section 706 of 
Public Law 108-183.
    The increases in DIC automatically would result in 
identical percentage increases in benefits paid at DIC rates 
under section 1318 of title 38, United States Code, to the 
surviving spouses and children of veterans who had a service-
connected disability at the time of death for which they 
continuously were rated totally disabled for at least (1) 10 
years, (2) 5 years from the date of discharge from active duty, 
or (3) 1 year if the veteran was a former prisoner of war.
    Under section 156(e)(1)(A) of Public Law 97-377, the DIC 
increases also automatically would result in the same 
percentage increases in Social Security benefits that were 
terminated by section 2205 of the Omnibus Budget Reconciliation 
Act of 1981 (hereinafter, ``OBRA 1981'') (Public Law 97-35). 
Prior to OBRA 1981, those benefits had been paid to certain 
surviving spouses of those who died on active duty or from a 
service-connected disability on behalf of their children under 
18 and children over age 19 who were secondary-school students; 
OBRA 1981 reduced the eligibility cutoff age from 18 to 16 
years old.
    Section 314 of Public Law 100-322 amended section 156(a)(1) 
of Public Law 97-377 to restore the benefits eliminated by the 
OBRA 1981. The DIC increase also would apply to these restored 
benefits, effective December 1, 2000.
    The Congressional Budget Office (hereinafter, ``CBO''), in 
its most recent baseline, estimated that the Social Security 
COLA affecting fiscal year 2006 payments, and thus the COLA 
provided for by the Committee bill, will be 2.3 percent. The 
actual Social Security COLA could differ from this estimate. 
Rather than selecting any particular percentage adjustment at 
the time the Committee ordered the bill reported, the Committee 
followed its prior practice of setting the COLA by reference to 
the Social Security increase. The Committee believes this is 
the most equitable means of providing increases in these 
important service-connected benefits.

                             COST ESTIMATE

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the Committee, based on 
information supplied by the CBO, estimates that enactment of 
the Committee bill would, relative to current law, increase 
spending by $538 million in 2006 and by $720 million annually 
in subsequent years, but that such increases in spending are 
assumed in the budget resolution baseline and thus will have no 
budgetary effect relative to the baseline. Enactment of the 
Committee bill would not affect the budget of state, local, or 
tribal governments.
    The cost estimate provided by CBO, setting forth a detailed 
breakdown of costs, follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 3, 2005.
Hon. Larry E. Craig,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman. The Congressional Budget Office (CBO) 
has prepared the enclosed cost estimate for S. 1234, the 
Veterans' Compensation Cost-of-Living Adjustment Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Dwayne M. 
Wright.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

S. 1234--Veterans' Compensation Cost-of-Living Adjustment Act of 2005

    S. 1234 would increase the amounts paid to veterans for 
disability compensation and to their survivors for dependency 
and indemnity compensation by the same cost-of-living 
adjustment (COLA) payable to Social Security recipients. The 
increase would take effect on December 1, 2005, and the results 
of the adjustment would be rounded to the next lower dollar.
    The COLA that would be authorized by this bill is assumed 
in CBO's baseline, pursuant to section 257 of the Balanced 
Budget and Emergency Deficit Control Act, and savings from 
rounding it down were achieved by the Balanced Budget Act of 
1997 (Public Law 105-33) and extended to 2013 by the Veterans 
Benefits Act of 2003 (Public Law 108-183).
    Because the COLA is assumed in CBO's baseline, the COLA 
provision would have no budgetary effect relative to that 
baseline. Relative to current law, CBO estimates that enacting 
this provision would increase spending for these programs by 
$538 million in 2006. (The annualized cost would be $720 
million in subsequent years.) This estimate assumes that the 
COLA effective on December 1, 2005, would be 2.3 percent.
    S. 1234 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On June 29, 2005, CBO transmitted a cost estimate for H.R. 
1220, the Veterans' Cost-of-Living Adjustment Act of 2005, as 
ordered reported by the House Committee on Veterans' Affairs on 
June 23, 2005. H.R. 1220, as ordered reported, contains 
provisions that are not included in S. 1234--specifically, 
provisions that would increase the amount of additional 
assistance paid to surviving spouses with dependent children 
under age 18; direct the Department of Veterans Affairs (VA) to 
conduct a demonstration project to improve business practices 
within the Veterans Health Administration for recovering 
payments from third-party payors; and authorize VA to establish 
six centers to conduct research, education, and clinical 
activities related to Parkinson's disease. Differences in the 
estimated costs reflect differences in the two bills.
    On June 2, 2005, CBO transmitted a cost estimate for H.R. 
1220, as introduced on March 10, 2005. S. 1234 contains similar 
language to H.R. 1220, as introduced, and the associated costs 
are identical.
    The CBO staff contact is Dwayne M. Wright. This estimate 
was approved by Peter H. Fontaine, Deputy Assistant Director 
for Budget Analysis.

                      REGULATORY IMPACT STATEMENT

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee on Veterans' 
Affairs has made an evaluation of the regulatory impact that 
would be incurred in carrying out the Committee bill. The 
Committee finds that S. 1234 would not entail any regulation of 
individuals or businesses or result in any impact on the 
personal privacy of any individuals and that the paperwork 
resulting from enactment would be minimal.

                 TABULATION OF VOTES CAST IN COMMITTEE

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following is a tabulation of votes 
cast in person or by proxy by members of the Committee on 
Veterans' Affairs at its July 28, 2005, meeting. On that date, 
the Committee, by unanimous voice vote, ordered to report S. 
1234, a bill to increase, effective as of December 1, 2005, the 
rates of compensation for veterans with service-connected 
disabilities and the rates of dependency and indemnity 
compensation for the survivors of certain disabled veterans.

                             AGENCY REPORT

    On June 23, 2005, VA Under Secretary for Benefits, the 
Honorable Daniel L. Cooper, appeared before the Committee on 
Veterans' Affairs and submitted testimony on, among other 
things, S. 1234. Excerpts from this statement are reprinted 
below:


statement of daniel l. cooper, under secretary for benefits, department 
                          of veterans affairs


    Mr. Chairman and members of the Committee, I appreciate 
this opportunity to testify today on several bills concerning 
important programs administered by the Department of Veterans 
Affairs (VA).

           *       *       *       *       *       *       *

S. 1234
    Section 2 of S. 1234, the ``Veterans' Compensation Cost-of-
Living Adjustment Act of 2005,'' would direct the Secretary of 
Veterans Affairs to administratively increase the rates of 
disability compensation for veterans with service-connected 
disabilities, additional compensation for their dependents, the 
clothing allowance, and dependency and indemnity compensation 
for the survivors of veterans whose deaths are service related, 
effective December 1, 2005. As provided in the President's 
fiscal year (FY) 2006 budget request, the rate of increase 
would be the same as the cost-of-living adjustment (COLA) that 
will be provided under current law to veterans' pension and 
Social Security recipients. We believe this proposed COLA is 
necessary and appropriate to protect the benefits of affected 
veterans from the eroding effects of inflation. These worthy 
beneficiaries deserve no less.
    We estimate that enactment of this bill would cost $399 
million during FY 2006 and $5.5 billion over the period FYs 
2006-2015. However, because the cost is already assumed in the 
Budget baseline, enactment of this provision would not result 
in any additional cost.

           *       *       *       *       *       *       *


     CHANGES IN EXISTING LAW MADE BY THE COMMITTEE BILL AS REPORTED

    Since the Committee bill would not repeal or amend any 
provisions of current law, this report does not contain the 
material described in clauses (a) and (b) of paragraph 12 of 
rule XXVI of the Standing Rules of the Senate.

                                  
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