STATEMENT OF
TIM MCCLAIN
GENERAL COUNSEL, DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
SENATE COMMITTEE ON VETERANS' AFFAIRS

May 2, 2002

Mr. Chairman and Members of the Committee:

Thank you for the opportunity to testify today on a number of legislative items of interest to veterans.

This bill would increase the beneficiary travel mileage rates to reimbursement rates (applicable to privately owned vehicles) established by the General Services Administration ( GSA). It would also include a new group of veterans among those entitled to beneficiary travel benefits under 38 U.S.C. § 111, specifically veterans whose travel is in connection with treatment for a non-service connected disability at a non-VA facility, if the treatment is recommended by VA medical personnel at a facility that is not able to provide the recommended treatment.

VA does not support S. 984. While VA's reimbursement rates are less than those established by GSA, any increase would decrease funds available for direct medical care. It is estimated that an increase in beneficiary mileage reimbursement rates to GSA's level of 36.5 cents would cost approximately $97 million that would have to come from medical care funding. Even a modest increase of 5 cents per mile would cost approximately $20 million. We cannot support diminishing VA's capacity to provide direct patient care to provide an added benefit to the very limited groups of veterans eligible for travel reimbursement benefits.

Both of these bills would enhance the special pension paid by VA to those who have been awarded the Congressional Medal of Honor, by increasing the monthly benefit to $1,000 (it is currently $600) and indexing the rate to annual increases in the cost of living. S. 2025 would, in addition, provide that the special-pension eligibility shall commence on the first day of the month beginning after the date of the act for which an individual is awarded the Medal of Honor. Currently, the period of eligibility does not begin until after the military service concerned certifies to VA that the Medal of Honor has been awarded and the recipient applies for the pension. Under S. 2025, all individuals in receipt of the special pension on the date of enactment would be entitled to lump-sum payments representing the additional amounts of pension that would have been payable had they been eligible from the first of the month following the acts for which they received the medals. We note that as of March 2002, there were only 143 Medal of Honor recipients drawing the special pension.

Last October we notified the Committee that we favor an increase of the monthly payments to $1,000 and the indexing of the rate, as provided in S. 1113. We also support the earlier effective dates for the awards called for in S. 2025. We are aware of situations in which there have been lengthy delays - through no fault of the recipients -- in the awarding of Medals of Honor. The proposed effective-date amendment would be more equitable than current law, which bases periods of eligibility on when the Government acts to award Medals of Honor. We believe, however, there may be an internal inconsistency in the language of sections 2(a) and 2(c) of S. 2025 concerning the calculation of retroactive payments which we do not believe was intended. We would be pleased to work with the Committee staff to revise the bill to correct this technical problem. We would defer to the views of the Department of Justice regarding the merits of the criminal-law amendments in S. 2025.

These proposals would increase direct spending; therefore, they are subject to the pay-as-you-go (PAYGO) provisions of the Omnibus Budget Reconciliation Act of 1990. We estimate the PAYGO costs associated with enactment of the rate increases in either S. 1113 or S. 2025 to be $670,000 for FY 2003, $3.2 million for the five-year period FY 2003 through FY 2007, and $6.1 million for the 10-year period FY 2003 through FY 2012. We have not yet estimated the costs of the effective-date amendment in S. 2025.

This bill would increase the income threshold used to define the group of low-income veterans who are exempted from paying the outpatient pharmacy co-payment. The exempted group would be expanded to include veterans who, for purposes of receiving VA health care, are deemed unable to defray necessary expenses of care, i.e., those with incomes below VA's "means-test" threshold. A provision of the bill would also prohibit the Secretary from increasing the pharmacy co-payment until VA begins collecting co-payments for outpatient care.

Currently, the low-income exemption applies only to those veterans whose incomes do not exceed the maximum annual rate of pension payable under 38 U.S.C. § 1521 were they eligible for such pension. This is a much smaller group composed of very low-income veterans. Although VA appreciates the desire to standardize the definition of "low-income" veteran for purposes of both health care eligibility and the pharmacy co-payment exemption, VA cannot support S.1408. The proposal would significantly reduce much-needed revenue upon which the Department relies to continue providing services. We also recommend deletion of the provision deferring increases in the amount of the pharmacy co-payment. VA is already implementing new regulations pertaining to both the pharmacy co-payment and the outpatient co-payment.

We estimate the PAYGO costs of S. 1408 to be $300 million dollars annually.

S. 1517 would enhance certain aspects of the Montgomery GI Bill ( MGIB). Specifically, the bill would amend the chapter 30 MGIB-Active Duty program by eliminating both the $1200 pay reduction currently required to participate in the chapter 30 MGIB program and the election required of those who choose not to participate. The Administration does not support this proposal.

S. 1517 would also add a new category of individuals under the chapter 30 program who would be entitled to transfer their entire entitlement or a portion of it to one or more of their dependents. Under this provision, individuals with not less than 15 years of active duty service would become eligible to transfer MGIB education benefits. While this provision would have significant PAYGO costs, our PAYGO estimate is still under development. Since this proposal does not support the readjustment goals of the MGIB, the Administration does not concur in its enactment.

S. 1517 also would extend the time limitation for using an individual's chapter 30 MGIB entitlement from 10 years after the date of discharge or release from active duty to 20 years. In like manner, it would provide for a 20-year delimiting period for members of the MGIB-Selected Reserve as well. The Administration does not support these provisions. In our view, extending the 10-year period is not consistent with the stated purposes of the MGIB. We believe that 10 years is sufficient time for most individuals to make the readjustment from military to civilian life.

Finally, S. 1517 would provide for increased MGIB education benefits for those members of the Selected Reserve who are called to active duty for more than one year for a contingency operation. The Administration also does not support this proposal.

This bill would authorize $2 million for fiscal year 2002 and such sums as may be needed for each subsequent fiscal year for VA to continue its efforts in responding to, and training of VA and other health-care professionals for, the medical consequences of bio-terrorism.

We support increasing VA's efforts in the area of emergency medical preparedness. However, we believe that the objectives of this legislation should be addressed in the context of other measures being considered that address VA's role in bio-terrorism preparedness. VA's current funding in these areas is appropriated in the Department of Health and Human Services budget for reimbursement to VA, in order to ensure close coordination. The Homeland Security Council is currently evaluating the distribution of resources and effort of each agency in the context of a national strategy.

S. 1576 would extend through December 31, 2011, VA's special authority to treat Gulf War veterans for any disability, notwithstanding there is insufficient medical evidence to conclude that such disability may be associated with such service. That authority will expire after December 31, 2002. VA supports this proposal.

S. 1680 would amend the Soldiers' and Sailors' Civil Relief Act of 1940 ( SSCRA) to treat certain National Guard duty as military service under that Act. This legislation would enable National Guard members who are called or ordered to service by their governor in support of Operation Enduring Freedom, or at the request of the President, to qualify for the protections afforded by the SSCRA. Examples of these protections are the six-percent interest rate limitation on pre-existing consumer debt, and stays of judicial proceedings in civil matters.

The only notable impact on VA would be in our loan guaranty programs. In these areas, VA itself would have to abide by the SSCRA's provisions. The impact of the proposed amendment in this regard would be minimal and the PAYGO cost to VA would be insignificant. Because the protections provided under the SSCRA are afforded to individuals serving in military service, the Department of Defense ( DoD), not VA, is the Federal agency with the primary interest in this Act. Therefore we defer to DoD on this bill. We understand that DoD will provide its views on S. 1680 to the Committee shortly.

Mr. Chairman, thank you for introducing S. 1905 at our request. It contains a variety of needed enhancements to veterans' programs and the ability of the Department to administer them. Among its most significant provisions, it would:

• Confer new authority for VA to provide medical care for newborn children of enrolled women veterans;
• Authorize us to provide dental care to more former prisoners of war; and
• Eliminate certain VA-specific restrictions on numbers of non-career SES members and on who may serve as Deputy Assistant Secretaries.

I strongly urge its favorable consideration.

S. 2003 would amend VA's anti-assignment statute, 38 U.S.C. § 5301, by adding language to prohibit agreements, and collateral security arrangements, between persons receiving monetary VA benefits and third parties. Third parties use these agreements to acquire rights to receive monetary benefits paid to VA beneficiaries.

Let me first say that, because 38 U.S.C. § 5301 generally bars assignment of VA benefits, VA regional offices have not, and do not, honor such agreements. Nevertheless, once funds are paid to a beneficiary, except where the veteran has been found mentally incompetent, VA lacks the ability to oversee how those funds are used. While we would certainly counsel veterans, their dependents and survivors to very carefully consider the full ramifications of assigning their benefits, we believe they should be free to decide how best to manage their own personal finances. We do not, therefore, support enactment of S. 2003.

S. 2043 would extend by five years (through December 31, 2008) VA's authority to provide non-institutional extended care services as part of the medical benefits package furnished to veterans. The bill would also extend through December 31, 2008, mandatory eligibility for nursing home care for veterans with a service-connected disability rated 70% or greater. Finally, S. 2043 would extend by five years the date by which the Secretary must report to Congress on the operation of its long-term care programs established under the Millennium Act. VA supports S. 2043 and the continuation of the Millennium Act non-institutional long-term care provisions.

S. 2044 would amend section 116 of the Millennium Act to direct that we increase funding for specialized mental health services for veterans. The measure directs that we expend $25 million for these programs, but it is not clear whether it would require $25 million for each of three successive years, or over a three-year period. The additional $25 million must also be over and above the baseline amount now being expended for these programs. However, it is unclear if we must expend an additional $25 million over the baseline each year for three successive years, or only over a three-year period. Finally, the measure directs that we consider these funds to be special-purpose funds that we must allocate outside the VERA allocation system.

Although VA appreciates the need to ensure adequate funding for these highly valuable and essential health-care programs, we strongly oppose this bill. We do not believe any individual health service should be treated differently from other essential treatment programs for allocation of appropriated resources. We also believe it is inappropriate to direct that we allocate funds for programs like this outside of the VERA system.

This legislation would designate the building housing VA's Regional Office in St. Petersburg, Florida as the "Franklin D. Miller Department of Veterans Affairs Regional Office Building." It would also require the Secretary to provide for an appropriate ceremony for, and commemoration of, the new designation on the first Memorial Day that follows enactment of the bill. Finally, the bill would require the Secretary to permanently display a copy of Mr. Miller's Medal of Honor citation in the building's lobby. We respectfully defer to the views of Congress on the naming of Federal property.

This bill would provide retroactive entitlement to Medal of Honor special pension to Mr. Ed W. Freeman. As indicated above, VA supports enactment of S. 2025, which would "make whole" special pensioners for whom the awarding of the Medal of Honor was delayed. We generally do not support private relief bills, so we would prefer that this issue be addressed through enactment of S. 2025. In general, VA opposes private bills that provide relief for veterans and their survivors beyond that available through existing law. We believe that individuals should not be singled out for treatment not afforded similarly situated persons.

Both S. 2074 and S. 2229 would increase the rates of compensation for service-disabled veterans and for dependency and indemnity compensation paid to survivors of veterans whose deaths were service-related, effective December 1, 2002. As provided in the President's FY 2003 budget request, the rate of increase would be the same as the COLA that will be provided under current law to veterans' pension and Social Security recipients, which is currently estimated to be 1.8 percent. The proposed COLA is necessary to protect the benefits of affected veterans and their survivors from the eroding effects of inflation. These worthy beneficiaries deserve no less.

We estimate that enactment of this COLA would cost $279 million during FY 2003, $1.66 billion over the period FY 2003-2007 and $3.45 billion over the period FY 2003-2012, which is included in the President's Budget. Therefore, the PAYGO cost is zero.

S. 2229, which you were kind enough to introduce at our request, would also revise the statutory requirement that VA continue to provide extended-care services at 1998 levels. As you know, current law requires VA to maintain staffing and level of extended care services provided in VA facilities at the levels provided during FY 1998. We propose to amend the law to require that VA maintain the overall level of extended care it provided during FY 1998 (i.e., the aggregate of care provided in VA facilities, care VA contracts for in community nursing homes, and care VA subsidizes in State homes). If VA were required to meet the current mandate regarding care in just VA facilities, it would need to divert to that program an estimated $161.2 million by the end of FY 2004 from other health-care purposes, including community nursing-home care and State nursing-home construction. This would greatly disserve veterans, who benefit from both choice and access to care closer to loved ones.

S. 2079 would effect four changes in current law. First, it would permit judicial review of amendments to VA's schedule of ratings for disabilities. Second, it would change the standard of review applied by the United States Court of Appeals for Veterans Claims ( CAVC) in challenges to findings of fact made by VA in adjudicating claims for benefits. Third, it would expand the jurisdiction of the United States Court of Appeals for the Federal Circuit to permit review of CAVC decisions on rules of law not involving the validity or interpretation of a statute or regulation. Fourth, it would authorize the CAVC to award reasonable fees and expenses under the Equal Access to Justice Act to non-attorney practitioners.

Review of Rating Schedule

Section 1 of S. 2079 would permit judicial review of VA's actions in adopting or revising provisions of its Rating Schedule. Such review is currently prohibited by 38 U.S.C. §§ 502 and 7252(b). Under S. 2079, such review could be sought either through a rule-making challenge filed directly with the Federal Circuit or as part of an appeal from a VA decision on a benefit claim, which is presented first to the CAVC and may thereafter be appealed to the Federal Circuit. The bill would permit direct challenges in the Federal Circuit only with respect to a revision of the Rating Schedule occurring after the date of enactment of this bill. However, the bill would impose no similar limitation on challenges brought in connection with an appeal from a VA benefit decision. Accordingly, all changes to VA's Rating Schedule made at any time in the past would apparently be subject to review in such appeals.

VA does not support this change. In the Veterans' Judicial Review Act, Congress prohibited judicial review of the Rating Schedule because of the disruptive effect such review may have on VA claims processing. This change unnecessarily revisits the issues that were resolved in the compromises that led to enactment of the VJRA. Those compromises were reached in recognition of the fact that empowering courts to review VA's rating schedule will result in additional time-consuming litigation concerning complex medical and vocational matters on which courts have no particular expertise or experience.

Pursuant to 38 U.S.C. § 1155, the disability ratings assigned in the Rating Schedule are based upon the "average impairments of earning capacity resulting from such injuries in civil occupations" and are to be revised by VA "in accordance with experience." As the statute contemplates, the provisions of VA's Rating Schedule are based on VA's judgment and accumulated experience in evaluating the medical, vocational, and economic factors relating to the effect of specific disabilities on earning capacity. Disputes concerning the content of the Rating Schedule would not involve the type of legal issues or case-specific fact issues that appellate courts are ordinarily called upon to decide. Rather, they would involve challenges to VA's informed judgment concerning the average economic effects of specific medical conditions.

Appellate courts are ill-equipped to assess the many medical, social, economic, and experiential factors that inform VA's judgment on these issues, and the CAVC and Federal Circuit would be particularly hampered in this endeavor by the lack of any procedures for developing an evidentiary record for such review. Even if an appellate court could acquire sufficient information to permit judicial review of these discretionary judgments, the process would be extremely time-consuming and burdensome on VA and the courts alike.

Apart from the disruptive effects that would ensue if a reviewing court modifies or invalidates portions of the Rating Schedule, judicial review may limit VA's flexibility to adopt beneficial rating provisions based primarily on its experience and expertise. Although 38 U.S.C. § 1155 indicates that VA's experience will be the primary guide in adopting changes to the Rating Schedule, judicial review would necessarily result in increased formalization and a greater need for specific medical and vocational evidence to support each rating. Rather than benefiting veterans, in our view, the rigidity that would likely follow from judicial review may adversely affect the historically liberal nature of VA's Rating Schedule.

For these reasons, determinations concerning the average impairment of earning capacity due to specific conditions should continue to be committed to VA's informed discretion. The costs that may be associated with this provision cannot be predicted, but would depend on the number of challenges filed under this provision and the outcome of such challenges.

Standard of Review for Findings of Fact

Section 2 of S. 2079 would change the standard applied by the CAVC in reviewing findings of fact made by the Board of Veterans' Appeals. Currently, the CAVC is authorized to set aside any "clearly erroneous" finding of material fact. S. 2079 would direct the CAVC to set aside any finding of material fact that is "not reasonably supported by a preponderance of the evidence."

The "clearly erroneous" standard is a well-known standard of appellate review. See Fed. R. Civ. P. 52(a). In contrast, the "preponderance" standard is ordinarily used as a standard of proof describing a party's evidentiary burden before a fact-finding body such as the Board of Veterans' Appeals. As the Supreme Court has noted, standards of proof and standards of appellate review serve very different functions and are not interchangeable. Concrete Pipe and Products of California, Inc. v. Construction Laborers Pension Trust for Southern California, 508 U.S. 602, 622-23 (1993). Standards of proof describe the degree of evidence needed to convince the finder of fact in the first instance. Standards of appellate review, on the other hand, describe the degree of confidence an appellate court must have in the fact finder's decision, and ordinarily accord some deference to the fact finder's decision.

There would be some incongruity in defining the CAVC's standard of review in terms of a standard of proof customarily employed only by initial fact finders. More troubling, however, is the fact that the "preponderance" standard would require the CAVC to decide claims without any deference to VA's findings of fact. Under the "benefit of the doubt" rule in section 5107(b) of title 38, United States Code, any findings of fact adverse to the veteran must be based on a preponderance of evidence. Section 2 of S. 2079 would direct the CAVC to independently decide whether a preponderance of evidence supports each factual finding, allowing no deference to the Board, which holds hearings, takes testimony, and seeks additional evidence as necessary.

This Committee's 1988 report on the Veterans' Judicial Review Act discussed the importance of according deference to the Board's "expertise as an arbiter of the specialized types of factual issues that arise in the context of claims for VA benefits." This approach comports with the ordinary practice of according deference to factual findings made by administrative agencies, in view of the agencies' expertise, familiarity with the types of evidence and evidentiary issues involved, and ability to evaluate the credibility of testimony and other forms of evidence. Under the Administrative Procedure Act, findings of fact by most agencies are reviewed under the deferential "substantial evidence" standard.

Even if the Committee believes that a standard less restrictive than the "clearly erroneous" standard is warranted, it should not take the drastic step of permitting de novo review of VA fact finding, as S. 2079 would. As this Committee noted in its report on the Veterans' Judicial Review Act, there are other intermediate review standards available, such as the "substantial evidence" standard. Permitting de novo review would derogate from the Board's primary expertise in weighing evidence, evaluating the credibility of evidence, and making factual determinations on complex medical issues. It may also be expected to increase the CAVC's responsibilities and caseload. Moreover, it would depart from established practice in American jurisprudence of tiered layers of judicial review and would uniquely deprive VA of the deference routinely accorded to factual findings of virtually all other agencies. The anomaly of a court performing precisely the same function as an agency and wielding the same fact-finding authority is both redundant and inconsistent with the traditional roles of the executive and judicial branches of government.

Finally, I want to make clear that the CAVC's current standard of review does not in any way deprive veterans of the benefit of the doubt accorded by law. Under current law, the CAVC routinely considers whether the Board has applied the "benefit of the doubt" standard, whether the Board has adequately explained the application of that standard to the facts of each case, and whether there is a plausible basis for the Board's conclusions under that standard. This review plainly ensures that the benefit of the doubt is accorded to veterans whenever applicable.

We cannot predict the costs that may be associated with this provision, as they would depend largely upon the outcome of individual cases.

Federal Circuit Review of Issues of Law

Section 3 of S. 2079 would authorize the United States Court of Appeals for the Federal Circuit to review decisions of the CAVC on a rule of law. Currently, the Federal Circuit may review CAVC decisions with respect to the validity or interpretation of a statute or regulation or with respect to a constitutional question. S. 2079 would clarify that the Federal Circuit may decide legal questions that do not involve a statute, regulation, or constitutional provision. Proponents of this provision have suggested that it is needed to permit review of judicially-created legal rules, such as those involving equitable tolling of time limits or the so-called "treating physician" rule adopted by courts in Social Security benefit claims. VA does not agree with that view. We do not believe that purely legal issues are insulated from review by the current statute. Notably, the Federal Circuit has decided challenges concerning judicially-created legal principles under the existing statute, including issues pertaining to equitable tolling and the treating physician rule. See Bailey v. West, 160 F.3d 1360 (Fed. Cir. 1998) (en banc); White v. Principi, 243 F.3d 1378 (Fed. Cir. 2001).

Although we do not believe this provision is necessary, VA has no objection to it. Permitting judicial review of purely legal matters is consistent with the purpose of the Veterans' Judicial Review Act and, we believe, with the Federal Circuit's current practice.

We would, however, recommend one change to this provision. S. 2079 would amend section 7292(c) of title 38, United States Code, to state that the Federal Circuit may review CAVC decisions on a rule of law. This would ensure that the Federal Circuit would retain exclusive jurisdiction over review of decisions of the CAVC. We believe it would also be necessary to make this change in section 7292(a), the provision the Federal Circuit has identified as prescribing its jurisdiction in those cases. See Forshey v. Principi, No. 99-7064 (Fed. Cir. Apr. 1, 2002).

There would be no significant costs associated with this provision.

Fees for Non-Attorney Practitioners

Section 4 of S. 2079 would authorize the CAVC to award reasonable fees and expenses for the services of non-attorney practitioners admitted to practice under that court's rules. Specifically, the bill would state that the CAVC's authority to award fees and expenses of attorneys under 28 U.S.C. § 2412(b) shall include the authority to award fees and expenses of non-attorney practitioners "as if such non-attorney practitioners were attorneys admitted to practice before the Court."

As an initial matter, we believe this bill should refer to subsection (d) of section 2412, rather than to subsection (b). The Federal Courts Administration Act of 1992 amended subsection (d) to give the CAVC authority to award reasonable fees and expenses of attorneys under that subsection. We are aware of no cases in which the CAVC has awarded fees and expenses under the separate authority of subsection (b) of section 2412.

VA has no objection to permitting payment of reasonable fees and expenses of non-attorney practitioners. We note that the CAVC currently has authority to award reasonable fees and expenses of non-attorney practitioners who are supervised by an attorney. This legislation would extend that authority to cases involving unsupervised non-attorney practitioners who have been admitted to practice under the CAVC's rules.

VA does not, however, support the language in section 4 providing for awards "as if [the] non-attorney practitioners were attorneys admitted to practice before the Court." This language may require that fees for non-attorney practitioners be commensurate with fees for attorneys. Although we recognize the valuable services provided by non-attorney practitioners before the CAVC, their services ordinarily are not compensated at the same level as services of a licensed attorney. The Equal Access to Justice Act contemplates that fees generally shall correspond to the market rates for the kind and quality of services furnished. Accordingly, the CAVC should retain the authority to pay fees for attorneys and non-attorneys at different rates.

There would be no significant costs associated with this provision.

Section 1 of S. 2132 would require the Secretary to establish four Emergency Medical Preparedness Centers within the Veterans Health Administration (VHA). VA employees would staff the proposed Centers, and the Centers would be administered jointly by the offices within the Department that are responsible for directing research and for directing medical emergency preparedness.

The Centers would have four specific purposes. First, they would carry out research and develop methods in detection, diagnosis, vaccination, protection, and treatment of injuries arising from the use of chemical, biological, radiological agents or incendiary or other explosive weapons or devices. Second, they would provide education, training, and advice on the medical consequences of the use of CBR agents or incendiary or other explosive weapons or devices. Third, the Centers would provide that same education, training, and advice to non-VA health-care professionals. These activities would be accomplished through either the National Disaster Medical System or interagency agreements. Fourth, in the event of a national emergency, they would provide laboratory, epidemiological, medical, or other assistance, as the Secretary considers appropriate, to Federal, State, and local health care agencies and personnel involved in, or responding to, the national emergency.

Each Center would be authorized to solicit and accept contributions of funds and other resources, including grants, to carry out their purposes and activities, subject to the Secretary's approval. Section 1 of this bill would also authorize to be appropriated $20 million for these Centers for each of fiscal years 2003 through 2007. By the bill's terms, such authorization is valid only for funds appropriated separately and solely for purposes of the Centers; otherwise, the authorization is null and void.

Section 1 of S. 2132 is similar to H.R. 3253 on which the Deputy Secretary testified on April 10, 2002, before the House Committee on Veterans' Affairs, Subcommittee on Health. However, it incorporates the recommendations VA suggested in its April testimony concerning H.R. 3253 and adds a number of improvements to the House version of the bill. We are grateful to this Committee for having incorporated our recommendations. We strongly support the goals of section 1 of S. 2132 and prefer it to H.R. 3253. However, the Executive Office of the President, through the Homeland Security Council ( HSC), is currently crafting a comprehensive coordinated Federal policy on Homeland Security. VA is actively participating in this HSC effort. It is expected that HSC will deliver this policy to the President this July. The precise roles and responsibilities VA will be assigned in the area of Homeland Security will be reflected in that policy. We expect that we will have much to contribute in this area based on our depth of expertise and infrastructure, as alluded to above.

Because the President's Homeland Security Policy is forthcoming, we would like to work with the Committee to ensure that section 1 of S. 2132 is consistent with the comprehensive Federal plan.

In addition, S. 2132 contains two provisions that would expand the purpose and operations of VA non-profit corporations. VA non-profit corporations function as flexible funding mechanisms that support VA research and education. VA non-profits receive and administer funds from outside sources, e.g., NIH grants and donations made by private sponsors, in support of approved VA research projects and education activities. However, the current statute expressly provides that VA may not transfer appropriated funds to the corporations. Section 2(a) of the bill would amend section 7362 of title 38 to permit the transfer of appropriated dollars from VA to a corporation pursuant to a contract or other agreement, including an agreement for actual research. In addition, section 2(b) of the bill would amend VA's sharing authority to treat VA non-profits like affiliated institutions for the purpose of sharing health-care resources related to research, education and training. These changes would broadly enable the corporations to sell services to the Department. The bill also provides that these arrangements would be outside the scope of Federal procurement law and, therefore, would not be subject to full and open competition.

VA objects to these proposals on the grounds that they would alter the fundamental nature of the relationship between VA and the non-profits, which is analogous to that created in a trust. Under current law the corporations exist as a flexible funding mechanism solely to support approved VA research and education. The amendments in section 2 of the bill would make the relationship between Department health-care facilities and VA non-profits more like that with outside contractors or university affiliates; more of an arms-length negotiation rather than one of incontrovertible fiduciary support. This change would also shift the emphasis of VA non-profits away from the primary focus of providing flexible funding support for VA research, education and training to conducting and selling these services to VA. This shift would present a troubling risk of ceding Department control of VA approved research or education to the non-profits.

Section 3 of the bill would amend the title 38 authorities related to VA non-profits by adding a new section 7364A to specifically state that corporation employees assigned to work on approved VA research or education and training shall be considered employees for purposes of Federal tort claim and medical malpractice coverage. VA strongly favors this provision. We note, however, that the phrase, "carried out with Department funds" in the proposed section 7364A(b)(2) might be interpreted to limit this coverage. Much of VA-approved research, or education and training is supported by external funds.

Mr. Chairman, thank you for introducing S. 2186 at our request. This legislation would establish a new Assistant Secretary to perform operations, preparedness, security and law enforcement and a new VA office of Operations Security and Preparedness. We believe this new office is essential if we are to meet our responsibilities of protecting veterans, employees, and visitors to our facilities.

S. 2187 would permit VA, on its own initiative, to care for those affected by a disaster or emergency and those responding to the emergency. The disaster or emergency must be either declared by the President or involve activation of the National Defense Medical System. The bill would also require other Federal agencies to reimburse VA for care provided to their officers, employees, and active duty members at rates agreed upon by the agencies. VA would not be required to charge for care provided to other individuals. Finally, the bill would allow VA to provide care in response to disasters and emergency situations before caring for all other beneficiaries except service-connected veterans and active duty military members referred during war or national emergency or who are responding or involved in a disaster or emergency.

We are very interested in this measure, but we need to work with both the committee and other Federal departments and agencies to fully understand the implications of the bill. We anticipate providing further views on the measure at a later time. We would note, however, that the bill also proposes to amend 38 U.S.C. § 1711(b). That provision is now codified at 38 U.S.C. § 1784. Finally, the bill would conflict with an administrative provision that appears in VA's annual appropriation act that requires reimbursement of costs except in specified situations. For the provision to be effective that provision of the appropriations act will also need amendment.

S. 2227 would clarify the effective date of changes to the method of computing retirement annuities for certain VA health-care personnel. Last January the Department of Veterans Affairs Health Care Programs Enhancement Act of 2001 (P.L. 107-135) became law. That bill changed the way part-time service performed before April 7, 1986, by certain VA health-care personnel is credited for annuity purposes. VA had recruitment and retention problems based upon the prior methodology of the annuity computation for VA nurses. These difficulties were addressed by the enactment of section 132 of P.L. 107-135. S. 2227 would extend the benefits of section 132 of P.L. 107-135 to individuals who retired before the law's enactment. The Administration opposes legislation that modifies the retirement-benefit computations for employees who are already retired.

This bill would provide that the Secretary may establish not more than 15 Centers for Mental Illness Research, Education, and Clinical Activities under 38 U.S.C. § 7320. VA has no objection to this provision.

This legislation would revive VA's authority, contained in section 3707 of title 38, to guarantee adjustable rate mortgage loans (ARMs). The bill would also amend this section to authorize VA to guarantee "hybrid" ARMs.

In 1992 the Congress authorized a three-year test program for VA to guarantee ARMs. That authority had a sunset date of September 30, 1995. Due to concerns about the cost of that program, the Congress let the ARM authority lapse.

The interest rate on ARMs authorized by the 1992 statute, which would be reauthorized by the bill, is adjusted annually, based on a national interest-rate index approved by VA. Each annual increase or decrease is limited to one percentage point. In no event, however, may the interest rate be increased to more than five percentage points above the initial contract interest rate.

The interest rate on hybrid ARMs, which would also be authorized by S. 2230, is fixed for an initial period of not less than three years. Thereafter, the rate would increase or decrease annually by up to one percentage point. The maximum lifetime increase of five percentage points would also apply to hybrid ARMs.

The Administration does not yet have a formal position on S. 2230. The availability of ARMs would expand veterans' ability to qualify for home loans, as some veterans could qualify for the lower initial payments on an ARM who could not qualify for the payments on fixed rate loans for the same dollar amount. The availability of hybrid ARMs would give veterans the additional option of having a fixed monthly payment for a certain number of years before payment adjustment would be a possibility. While veterans using their earned housing loan benefits should perhaps have the same options as borrowers using FHA and conventional loans, they already differ from the general public in that no downpayment is required. Adding a low upfront payment with the potential to escalate in the future to those veterans who do not qualify for fixed rate loans may lead to higher defaults and costs of the system. We need more time to analyze this bill and its implications.

VA estimates that enactment of this bill would have a PAYGO cost of $21 million for the first year, and a 10-year cost of $266 million.

S. 2231 would increase educational assistance benefits under VA's Survivors' and Dependents' Educational Assistance program (chapter 35), limit the number of months for those benefits, and increase funding to State Approving Agencies ( SAAs). Specifically, it would raise the chapter 35 educational assistance allowance to $900 per month for a full-time course for Fiscal Year ( FY) 2003 and to $985 for months after FY 2003. It would also raise the amounts payable for Special Restorative Training to $900 for FY 2003 and to $985 for the months thereafter. The proposed legislation would also decrease the entitlement available to chapter 35 recipients from the current 45 months to 36 months, in the case of those who first file an educational assistance claim under chapter 35 after the date of enactment. Given the relatively short time to consider these important issues regarding chapter 35, we would like to provide you our views at a later date, after we have had sufficient time to consider the matter.

The final provision of S. 2231 would increase the annual limit on funds available to compensate SAAs for work undertaken on behalf of VA, including approving educational institutions and programs for which veterans and other entitled participants receive VA-administered education benefits. On April 11, 2002, the Under Secretary for Benefits testified before the House Veterans' Affairs Subcommittee on Benefits in favor of H.R. 3731, a bill similar to this one. We, likewise, favor the increase to $18,000,000 contained in S. 1517. However, H.R. 3731 additionally would provide increases in SAA funding of 3 percent for FYs 2004 and 2005, with funding for 2006 and each succeeding fiscal year remaining fixed at the FY 2005 level.

Because of the cost-of-living pay increases mandated by State law, salaries for State employees have gone up since the last SAA funding increase in 1994. Additionally, over the last two years, the SAAs have been called upon to perform new and time-consuming duties as part of their mission. For example, Public Law 106-419, enacted on November 1, 2000, initiated the licensing and certification test payment program and allowed VA to delegate approval responsibility to SAAs even though it was not covered in their contracts.

We prefer the House version of this provision because it would increase SAA funding for the outyears.

Mr. Chairman, we do not yet have positions on three other bills on today's agenda:

• S. 2205, involving compensation for service-connected mastectomies and making permanent VA's authority to provide counseling and treatment for sexual trauma;
• S. 2209, which would establish a new insurance program for service-disabled veterans; and,
• S. 2237, involving enhanced compensation for veterans with hearing loss.

We will be presenting our views and estimates on these in writing to the Committee at a later time. It is worth noting, however, that all the bills on today's agenda together would have costs exceeding $2 billion over five years. VA continues to believe that it is important to use the President's Budget as a guide on how to proceed.

Mr. Chairman that concludes my prepared testimony. I will be pleased to respond to any questions you or the members of the committee may have.