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Under the provisions of the "new GI Bill" that took effect on July 1, 1985, the Department of Defense is required to set aside current funds or "accrual charges" for its share of future payments of educational benefits for veterans. These funds are transferred to and held by the Veterans Administration, which also bears part of the cost of the program and is permitted to budget on the basis of actual outlays rather than accrual charges. Projections of future use of benefits by current service members thus affect both agencies' budgets in fiscal year 1986 and beyond.

In the course of the deliberations leading to enactment of the new GI Bill, the Congressional Budget Office (CBO) developed data and analytical techniques for estimating the percentage of benefits that service members will use. As presented in this staff working paper, CBO's estimates differ from the implicit projections of both the Department of Defense and the Veterans Administration. The differences have implications for those agencies' budget requests for fiscal year 1986 and beyond. In keeping with CBO's mandate for impartial and objective analysis, this report makes no recommendations.

This working paper was prepared by Ed Shephard of CBO's National Security Division, under the general supervision of Neil Singer and Robert Hale, and Kelly Lukins and Marianne Deignan of the Budget Analysis Division. The authors benefited from data kindly supplied by the Office of the Comptroller of the Department of Defense and the Veterans Administration. Helpful comments were received from Charles Seagrave and Kathleen Shepherd of BAD and John Enns of NSD. The report was edited by Paul Houts. G. William Darr prepared the report for publication.
 

August 1985
 
 

SUMMARY AND INTRODUCTION

The Veterans Educational Assistance Act of 1984 (referred to here as the "new GI Bill") was enacted as part of the 1985 Department of Defense (DoD) authorization bill (P.O. 98-525). It provides differing benefits for new entrants to active duty, certain members of the current active-duty forces who served during the Vietnam era, and the Selected Reserve. This paper compares CBO's budget projections for the new GI Bill in fiscal years 1986-1990 with those included in the April 1985 revision of the Administration's budget request. The comparison suggests that, relative to CBO's estimates, the Administration is overfunding the new GI Bill in the defense function (budget function 050) of the budget in fiscal years 1986 through 1990. In the budget as a whole, however, the GI Bill is underfunded in fiscal years 1986 through 1989 but overfunded in 1990.

In the defense function of the budget, funds are appropriated to be set aside or "accrued" to pay future costs of all but the basic benefits under the new GI Bill. By CBO's estimate, the Administration has set aside $49 million too much in 1986 and $186 million too much in 1986 through 1990 in the defense function (see function 050 in Table 1). Elsewhere in the budget, funds are appropriated for the basic benefits of the new GI Bill (in budget function 700, Veterans Benefits and Services) and other charges. By CBO estimates, funding in these areas is too low by $113 million in budget authority in 1986, but by 1990 it is too high by $77 million (see Table 1).

The differences between the CBO and Administration estimates occur because the Administration assumes substantially higher rates of benefit use under the new GI Bill. CBO's estimates of these rates are closer to historical experience.

The following sections provide a summary of the program's provisions, a description of the differences between the Administration's and CBO's underlying cost assumptions, and the budgetary implications of these differences.

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