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107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-472

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



 
        VETERANS' AND SURVIVORS' BENEFITS EXPANSION ACT OF 2002

                                _______
                                

  May 16, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Smith of New Jersey, from the Committee on Veterans' Affairs, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4085]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Veterans' Affairs, to whom was referred the 
bill (H.R. 4085) to increase, effective as of December 1, 2002, 
the rates of disablity compensation for veterans with service-
connected disabilities and the rates of dependency and 
indemnity compensation for survivors of certain service-
connected disabled veterans, and for other purposes, having 
considered the same, reports favorably thereon with amendments 
and recommends that the bill as amended do pass.

  The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Veterans' and Survivors' Benefits 
Expansion Act of 2002''.

SEC. 2. INCREASE IN RATES OF DISABILITY COMPENSATION AND DEPENDENCY AND 
                    INDEMNITY COMPENSATION.

  (a) Rate Adjustment.--The Secretary of Veterans Affairs shall, 
effective on December 1, 2002, increase the dollar amounts in effect 
for the payment of disability compensation and dependency and indemnity 
compensation by the Secretary, as specified in subsection (b).
  (b) Amounts To Be Increased.--The dollar amounts to be increased 
pursuant to subsection (a) are the following:
          (1) Compensation.--Each of the dollar amounts in effect under 
        section 1114 of title 38, United States Code.
          (2) Additional compensation for dependents.--Each of the 
        dollar amounts in effect under sections 1115(1) of such title.
          (3) Clothing allowance.--The dollar amount in effect under 
        section 1162 of such title.
          (4) New dic rates.--The dollar amounts in effect under 
        paragraphs (1) and (2) of section 1311(a) of such title.
          (5) Old dic rates.--Each of the dollar amounts in effect 
        under section 1311(a)(3) of such title.
          (6) Additional dic for surviving spouses with minor 
        children.--The dollar amount in effect under section 1311(b) of 
        such title.
          (7) Additional dic for disability.--The dollar amounts in 
        effect under sections 1311(c) and 1311(d) of such title.
          (8) DIC for dependent children.--The dollar amounts in effect 
        under sections 1313(a) and 1314 of such title.
  (c) Determination of Increase.--(1) The increase under subsection (a) 
shall be made in the dollar amounts specified in subsection (b) as in 
effect on November 30, 2002.
  (2) Except as provided in paragraph (3), each such amount shall be 
increased by the same percentage as the percentage by which benefit 
amounts payable under title II of the Social Security Act (42 U.S.C. 
401 et seq.) are increased effective December 1, 2002, as a result of a 
determination under section 215(i) of such Act (42 U.S.C. 415(i)).
  (3) Each dollar amount increased pursuant to paragraph (2) shall, if 
not a whole dollar amount, be rounded down to the next lower whole 
dollar amount.
  (d) Special Rule.--The Secretary may adjust administratively, 
consistent with the increases made under subsection (a), the rates of 
disability compensation payable to persons within the purview of 
section 10 of Public Law 85-857 (72 Stat. 1263) who are not in receipt 
of compensation payable pursuant to chapter 11 of title 38, United 
States Code.
  (e) Publication of Adjusted Rates.--At the same time as the matters 
specified in section 215(i)(2)(D) of the Social Security Act (42 U.S.C. 
415(i)(2)(D)) are required to be published by reason of a determination 
made under section 215(i) of such Act during fiscal year 2003, the 
Secretary of Veterans Affairs shall publish in the Federal Register the 
amounts specified in subsection (b), as increased pursuant to that 
section.

SEC. 3. RETENTION OF DEPENDENCY AND INDEMNITY COMPENSATION FOR 
                    SURVIVING SPOUSES REMARRYING AFTER AGE 65.

  (a) Exception to Termination of Benefits Upon Remarriage.--Paragraph 
(2) of section 103(d) of title 38, United States Code, is amended by 
striking ``if the remarriage'' and all that follows and inserting 
``if--
          ``(A) the remarriage occurs after the surviving spouse 
        attains age 65 ;
          ``(B) the remarriage has been terminated by death; or
          ``(C) the remarriage has been terminated by divorce, unless 
        the Secretary determines that the divorce was secured through 
        fraud or collusion.''.
  (b) Conforming Amendments.--Paragraph (4) of such section is 
amended--
          (1) by striking ``The first month'' and all the follows 
        through ``shall be'' and inserting the following ``When 
        eligibility for benefits for a surviving spouse is restored by 
        reason of this subsection, the first month of eligibility for 
        such benefits shall be''; and
          (2) in subparagraph (A), by striking ``described in'' and 
        inserting ``with a remarriage described in subparagraph (B) or 
        (C) of''.
  (c) Inclusion of Death Compensation Among Restored Benefits.--
Subparagraph (A) of paragraph (5) of such section is amended to read as 
follows:
          ``(A) Sections 1121 and 1311, relating to death compensation 
        and dependency and indemnity compensation, respectively.''.
  (d) Application for Benefits.--In the case of an individual who but 
for having remarried would be eligible for dependency and indemnity 
compensation under section 1311 of title 38, United States Code, or 
death compensation under section 1121 of such title, and whose 
remarriage was before the date of the enactment of this Act and after 
the individual had attained age 65, the individual shall be eligible 
for such compensation by reason of the amendments made by subsection 
(a) only if the individual submits an application for such compensation 
to the Secretary of Veterans Affairs not later than the end of the one-
year period beginning on the date of the enactment of this Act.
  (e) Coordination of Benefits.--Section 1311 of such title is amended 
by adding at the end the following new subsection:
  ``(e) In the case of an individual who is eligible for dependency and 
indemnity compensation under this section by reason of section 
103(d)(2)(A) of this title who is also eligible for benefits under 
another provision of law by reason of such individual's status as the 
surviving spouse of a veteran, then, notwithstanding any other 
provision of law, no reduction in benefits under such other provision 
of law shall be made by reason of such individual's eligibility for 
benefits under this section.''.

SEC. 4. UNIFORM HOME LOAN GUARANTY FEES FOR QUALIFYING MEMBERS OF THE 
                    SELECTED RESERVE AND ACTIVE DUTY VETERANS.

  (a) In General.--Paragraph (2) of section 3729(b) of title 38, United 
States Code, is amended--
          (1) by inserting ``(A)'' after ``(2)'';
          (2) by inserting ``for any loan closed after September 30, 
        2005'' after ``paragraph (1)''; and
          (3) by adding at the end the following:
  ``(B) The loan fee table referred to in paragraph (1) for any loan 
closed during the period beginning on October 1, 2002, and ending on 
September 30, 2005, is as follows:

                            ``LOAN FEE TABLE
------------------------------------------------------------------------
            Type of loan                   Veteran        Other obligor
------------------------------------------------------------------------
(A)(i) Initial loan described in                 2.00                NA
 section 3710(a) to purchase or
 construct a dwelling with 0-down,
 or any other initial loan described
 in section 3710(a) other than with
 5-down or 10-down (closed before
 October 1, 2008)...................
------------------------------------------------------------------------
(A)(ii) Initial loan described in                1.25                NA
 section 3710(a) to purchase or
 construct a dwelling with 0-down,
 or any other initial loan described
 in section 3710(a) other than with
 5-down or 10-down (closed on or
 after October 1, 2008).............
------------------------------------------------------------------------
(B)(i) Subsequent loan described in              3.00                NA
 section 3710(a) to purchase or
 construct a dwelling with 0-down,
 or any other subsequent loan
 described in section 3710(a)
 (closed before October 1, 2008)....
------------------------------------------------------------------------
(B)(ii) Subsequent loan described in             1.25                NA
 section 3710(a) to purchase or
 construct a dwelling with 0-down,
 or any other subsequent loan
 described in section 3710(a)
 (closed on or after October 1,
 2008)..............................
------------------------------------------------------------------------
(C)(i) Loan described in section                 1.50                NA
 3710(a) to purchase or construct a
 dwelling with 5-down (closed before
 October 1, 2008)...................
------------------------------------------------------------------------
(C)(ii) Loan described in section                0.75                NA
 3710(a) to purchase or construct a
 dwelling with 5-down (closed on or
 after October 1, 2008).............
------------------------------------------------------------------------
(D)(i) Initial loan described in                 1.25                NA
 section 3710(a) to purchase or
 construct a dwelling with 10-down
 (closed before October 1, 2008)....
------------------------------------------------------------------------
(D)(ii) Initial loan described in                0.50                NA
 section 3710(a) to purchase or
 construct a dwelling with 10-down
 (closed on or after October 1,
 2008)..............................
------------------------------------------------------------------------
(E) Interest rate reduction                      0.50                NA
 refinancing loan...................
------------------------------------------------------------------------
(F) Direct loan under section 3711..             1.00                NA
------------------------------------------------------------------------
(G) Manufactured home loan under                 1.00                NA
 section 3712 (other than an
 interest rate reduction refinancing
 loan)..............................
------------------------------------------------------------------------
(H) Loan to Native American veteran              1.25                NA
 under section 3762 (other than an
 interest rate reduction refinancing
 loan)..............................
------------------------------------------------------------------------
(I) Loan assumption under section                0.50              0.50
 3714...............................
------------------------------------------------------------------------
(J) Loan under section 3733(a)......             2.25           2.25''.
------------------------------------------------------------------------


  (b) Conforming Amendment.--Paragraph (4)(A) of such section is 
amended by inserting before the period at the end the following: ``, 
and the term `veteran' means any veteran eligible for the benefits of 
this chapter''.

SEC. 5. LIFE INSURANCE PROGRAMS.

  (a) Increase of Veterans' Mortgage Life Insurance Coverage to 
$150,000.--(1) Section 2106(b) of title 38, United States Code, is 
amended by striking ``$90,000'' and inserting ``$150,000''.
  (2) The amendment made by paragraph (1) shall apply with respect to 
insurance payable under section 2106 of title 38, United States Code, 
in the case of a veteran insured under that section who dies on or 
after the date of enactment of this Act.
  (b) Authority for Veterans' Mortgage Life Insurance To Be Carried 
Beyond Age 70.--Section 2106 of such title is amended--
          (1) in subsection (a), by inserting ``age 69 or younger'' 
        after ``any eligible veteran''; and
          (2) in subsection (i), by striking paragraph (2) and 
        redesignating paragraphs (3) and (4) as paragraphs (2) and (3), 
        respectively.

SEC. 6. INCREASE IN AGGREGATE ANNUAL AMOUNT AVAILABLE FOR STATE 
                    APPROVING AGENCIES FOR ADMINISTRATIVE EXPENSES FOR 
                    FISCAL YEARS 2003, 2004, AND 2005.

  Section 3674(a)(4) of title 38, United States Code, is amended by 
inserting before the period at the end of the first sentence the 
following: ``, and for each of fiscal years 2003, 2004, and 2005, 
$18,000,000''.

  Amend the title so as to read:

      A bill to amend title 38, United States Code, to provide 
a cost-of-living increase in the rates of compensation for 
veterans with service-connected disability and dependency and 
indemnity compensation for surviving spouses of such veterans, 
to expand certain benefits for veterans and their survivors, 
and for other purposes.

                              Introduction

    The reported bill reflects the Committee's consideration of 
several bills introduced during the 107th Congress, to include 
H.R. 1108, H.R. 2095, H.R. 2222, H.R. 3731, and H.R. 4085.
    On April 11, 2002, the Subcommittee on Benefits held a 
hearing and considered the following bills: H.R. 1108, to 
provide that remarriage of the surviving spouse of a veteran 
after age 55 shall not result in termination of dependency and 
indemnity compensation; H.R. 2095, the Reservist VA Home Loan 
Fairness Act of 2001; H.R. 2222, the Veterans Life Insurance 
Improvement Act of 2001; and H.R. 3731, to increase amounts 
available to state approving agencies to ascertain the 
qualifications of educational institutions for furnishing 
courses of education to veterans and eligible persons under the 
Montgomery GI Bill and under other programs of education 
administered by the Department of Veterans Affairs.
    On May 2, 2002, the Subcommittee on Benefits met and 
unanimously ordered H.R. 4085, as amended, reported favorably 
to the full Committee.
    On May 9, 2002, the full Committee met and ordered H.R. 
4085 reported favorably, as amended, to the House by unanimous 
voice vote.

                      Summary of the Reported Bill

    H.R. 4085, as amended, would:

    1. Provide, effective December 1, 2002, a cost-of-living 
adjustment to the rates of disability compensation for veterans 
with service-connected disabilities and to the rates of 
dependency and indemnity compensation for survivors of certain 
service-connected disabled veterans; the percentage amount 
would be equal to the increase for benefits provided under the 
Social Security Act, which is calculated based upon changes in 
the Consumer Price Index.

    2. Provide that remarriage of the surviving spouse of a 
veteran after attaining age 65 would not result in termination 
of dependency and indemnity compensation, eligibility for 
CHAMPVA medical care, education, and housing loan benefits; 
those surviving spouses who remarried at or after age 65 prior 
to enactment of the bill would have one year from date of 
enactment to reapply for benefits.

    3. Provide that, through fiscal year 2005, the home loan 
fees charged qualifying members of the Selected Reserve be 
equal to those fees charged active duty veterans.

    4. Increase Veterans' Mortgage Life Insurance coverage 
from $90,000 to $150,000.

    5. Allow veterans over the age of 70 to continue coverage 
under Veterans' Mortgage Life Insurance.

    6. Increase funding for state approving agencies in 
fiscal years 2003-2005 to $18 million per year.

                       Background and Discussion

    Increase in rates of disability compensation and dependency 
and indemnity compensation. Section 2 of the bill would 
increase, effective December 1, 2002, the rates of compensation 
for service-connected disabilities and the rates of dependency 
and indemnity compensation (DIC) for surviving spouses and 
children of veterans who die of service-connected causes, as 
well as the additional amounts for dependents and survivors, 
and clothing allowances for certain veterans. The percentage of 
increase would be the same as that received by Social Security 
recipients.
    The Committee annually 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 annually to provide a cost-of-living adjustment 
(COLA) in compensation and DIC benefits. The Congress has 
provided annual increases in these rates for every fiscal year 
since 1976.

    Retention of dependency and indemnity compensation for 
surviving spouses remarrying after age 65. Dependency and 
indemnity compensation (DIC) is a tax-free monthly benefit paid 
to the surviving spouse of a veteran who dies as a result of 
military service. While current law prevents payment of DIC 
during the course of a subsequent marriage, Public Law 105-178 
allowed reinstatement of this benefit to the surviving spouse 
if the remarriage is terminated. As the Honorable Michael 
Bilirakis stated in testimony before the Subcommittee on 
Benefits on April 11, 2002, ``DIC is the only federal annuity 
program that does not allow a widow who is receiving 
compensation to remarry at an older age and retain her 
annuity.'' It is the Committee's intent that an older surviving 
spouse who chooses to remarry should not be discouraged from 
doing so by the loss of DIC benefits.
    Section 3 would allow a surviving spouse, who remarry after 
attaining age 65, to retain dependency and indemnity 
compensation and related benefits. Spouses who remarried after 
attaining age 65 prior to enactment of the bill would have one 
year from date of enactment to apply for reinstatement of this 
benefit. Health insurance, home loan, and education benefits 
for these surviving spouses would also be restored. Moreover, 
the Committee has included language so that this additional 
amount will be paid to all remarried surviving spouses, and 
that no reduction of other benefits to which the surviving 
spouse may be entitled, such as Survivor Benefit Plan payments, 
would occur.
    The Committee has not been able to obtain accurate data 
with respect to the numbers of surviving spouses likely to be 
affected by this provision. However, for oversight purposes, 
the Committee expects the Department of Veterans Affairs to 
obtain and maintain data concerning the number and age of those 
surviving spouses who apply for reinstatement of their DIC 
benefits under this provision.

    Uniform home loan guaranty fees for qualifying members of 
the Selected Reserve and active duty veterans. Section 4 would 
amend the Loan Fee Table in section 3729(b) of title 38, United 
States Code, to provide for uniform funding fees charged to 
members of the Selected Reserve and active duty veterans for 
home loans under VA's Home Loan Guaranty Program. The fee would 
be reduced for the period beginning on October 1, 2002 and 
ending on September 30, 2005.
    Currently, members of the Select Reserve pay a 0.75 percent 
higher funding fee under the home loan program than other 
eligible veterans. According to VA, the average foreclosure 
rate for reservists since the start of the program in 1993 has 
been 2.71 percent, a low rate compared to 3.95 percent for 
other home loan beneficiaries. Thus, the additional funding fee 
is not justified on the basis of an increased risk. In order to 
evaluate the effect of this provision, the Committee expects VA 
to continue to obtain and maintain data concerning the number 
of reservists who participate in this program and to separately 
identify their foreclosure rates.

    Veterans' Mortgage Life Insurance coverage. Section 5(a) 
would increase the amount of coverage provided under Veterans' 
Mortgage Life Insurance (VMLI) from $90,000 to $150,000. VMLI 
is designed to provide financial protection to cover eligible 
veterans' home mortgages in the event of death. VMLI is issued 
to those severely disabled veterans who have received grants 
for Specially Adapted Housing from the Department of Veterans 
Affairs. Section 5(a) would increase the amount of VMLI allowed 
an eligible veteran to $150,000, which is payable if the 
veteran dies before the mortgage is paid off.
    Section 5(b) would permit service-connected veterans to 
continue their VMLI coverage beyond age 70. Under current law, 
the insurance is cancelled on the veteran's 70th birthday. 
Although no new policies would be issued after age 70, this 
section provides that the policy will not be terminated due to 
age. This is consistent with insurance practice under 
commercial policies.

    Increase in aggregate annual amount available for state 
approving agencies for administrative expenses for fiscal years 
2003, 2004, and 2005. Section 6 would increase the funding 
available for state approving agencies (SAAs) from $14 million 
a year to $18 million a year during fiscal years 2003 through 
2005.
    From fiscal years 1995 to 2000, SAA funding was capped--
with no annual increase--at $13 million. Public Law 106-419 
increased SAA funding to $14 million for fiscal years 2001 and 
2002. Under current law, the authorization amount would be 
reduced to $13 million as of October 1, 2002.
    State approving agencies review and evaluate education 
programs in each state, and subsequently approve or deny each 
program for use of VA education benefits under the Montgomery 
GI Bill and three other VA veterans' educational assistance 
programs. SAAs usually operate through state departments of 
education or postsecondary education commissions. SAAs also 
approve employer-sponsored on-the-job training and 
apprenticeship programs, some through state departments of 
labor.
    The need to increase funding for SAAs primarily reflects 
new statutory duties, under Public Law 107-14 and Public Law 
107-103, in occupational licensing and credentialing, as well 
as expanded outreach to veterans, servicemembers and employers.

                      Section-By-Section Analysis

    Section 1 would provide that this Act may be cited as the 
``Veterans' and Survivors' Benefits Expansion Act of 2002''.

    Section 2(a) would authorize the Secretary of Veterans 
Affairs to increase, effective December 1, 2002, the dollar 
amounts in effect for the payment of disability compensation 
and dependency and indemnity compensation.

    Section 2(b) would specify the programs to receive 
increased dollar amounts as compensation, additional 
compensation for dependents, clothing allowance, new DIC rates, 
old DIC rates, additional DIC for surviving spouses with minor 
children, additional DIC for disability, and DIC for dependent 
children.

    Section 2(c)(1) would increase the dollar amounts for those 
programs specified in subsection (b) based on the amount in 
effect on November 30, 2002.

    Section 2(c)(2) would specify that each amount shall be 
increased by the same percentage by which benefits are 
increased under title II of the Social Security Act (42 U.S.C. 
415(i)).

    Section 2(c)(3) would round down to the next lower dollar 
amount all compensation and DIC benefits, when the amount is 
not a whole dollar amount.

    Section 2(d) would provide a special rule authorizing the 
Secretary of Veterans Affairs to adjust administratively, 
consistent with the increases made under subsection (a), the 
rates of disability compensation payable to persons within the 
purview of section 10 of Public Law 85-857, who are not in 
receipt of compensation payable pursuant to chapter 11 of title 
38, United States Code.

    Section 2(e) would require the Secretary of Veterans 
Affairs to publish in the Federal Register the amounts 
specified in subsection (b), as increased pursuant to that 
section.

    Section 3(a) would amend paragraph 2 of section 103(d) of 
title 38, United States Code, to provide in subparagraph (A) 
that remarriage of a surviving spouse after attaining age 65 
shall not bar the furnishing of dependency and indemnity 
compensation, death compensation, medical care for survivors 
and dependents of certain veterans, educational assistance, and 
housing loan benefits. Subparagraphs (B) and (C) of paragraph 
(2) of section 103(d) are restatements of current law.

    Section 3(b) would provide that when eligibility for 
benefits is restored under subparagraph (B) or (C) of paragraph 
(2) of section 103(d), the first month of eligibility shall be 
the month after the remarriage has been terminated by death or 
divorce.

    Section 3(c) would amend subparagraph (A) of section 
103(d)(5) of title 38, United States Code, to add section 1121 
of title 38, United States Code, relating to death 
compensation, to section 1311 on dependency and indemnity 
compensation.

    Section 3(d) would provide that a surviving spouse who 
would have been eligible for dependency and indemnity 
compensation but for having remarried, would be eligible to 
have benefits reinstated if the remarriage took place after the 
surviving spouse attained 65 years of age before enactment of 
this Act, if application for such compensation is made not 
later than the end of the one year period beginning on the date 
of enactment of this Act.

    Section 3(e) would provide that in the case of an 
individual who is eligible for dependency and indemnity 
compensation under section 3(a) of the bill, and who is also 
entitled to benefits under any other provision of law, there 
shall be no reduction in benefits under such other provision of 
law, by reason of eligibility for dependency and indemnity 
compensation.

    Section 4(a) would amend paragraph (2) of section 3729(b) 
of title 38, United States Code, to eliminate the additional 
0.75 percent funding fee charged to members of the Select 
Reserve for the period beginning on October 1, 2002 and ending 
on September 30, 2005, and establish a separate loan fee table 
for VA home loans guaranteed between October 1, 2002 and 
September 30, 2005.

    Section 4(b) would amend section 3729(b)(4) of title 38, 
United States Code, by adding the definition of ``veteran'' for 
purposes of the loan table in effect between October 1, 2002 
and September 30, 2005 as any veteran eligible for the benefits 
of this chapter.

    Section 5(a)(1) would amend section 2106(b) of title 38, 
United States Code, by increasing coverage under the Veterans' 
Mortgage Life Insurance program from $90,000 to $150,000.

    Section 5(a)(2) would provide that amendments made by this 
section shall apply to deaths occurring on or after the date of 
enactment of this Act.

    Section 5(b) would amend section 2106 of title 38, United 
States Code, to provide that Veterans' Mortgage Life Insurance 
may be issued only to eligible veterans who are age 69 or 
younger.

    Section 6 would amend section 3674(a)(4) of title 38, 
United States Code, to provide $18 million for each of fiscal 
years 2003, 2004, and 2005.

                    Performance Goals and Objectives

    The reported bill would authorize veteran and survivor 
benefits enhancements and program improvements under laws 
administered by the Secretary of Veterans Affairs. Their 
performance goals and objectives are established in annual 
performance plans and are subject to the Committee's regular 
oversight.

              Statement of the Views of the Administration


Statement of Daniel L. Cooper, Under Secretary for Benefits, Department 
  of Veterans Affairs Before the House Veterans' Affairs, Subcommittee 
  on Benefits, Thursday, April 11, 2002

    Mr. Chairman and Members of the Subcommittee, thank you for 
the opportunity to testify today on several legislative items 
of interest to the Department of Veterans Affairs (VA). 
Accompanying me today are Robert Epley, Associate Deputy Under 
Secretary for Policy and Program Management, and John Thompson, 
Deputy General Counsel.
    Before I discuss the bills the Subcommittee is considering 
today, I would like to note that, as you know, these measures 
would affect direct spending and receipts and, therefore, would 
be subject to pay-as-you-go (PAYGO) rules. Accordingly, the 
support VA expresses here for the subject bill provisions is 
contingent on accommodating the provisions within the budget 
submitted by the President.

                               H.R. 1108

    First, Mr. Chairman, I would like to provide VA's views on 
H.R. 1108. This bill would amend 38 U.S.C. Sec. 103(d), to 
remove the bar on the payment of Dependency and Indemnity 
Compensation (DIC) benefits to surviving spouses who remarry 
after age 55. VA supports enactment of this legislation.
    The DIC program provides tax-free monthly benefits to the 
surviving spouses of veterans who die in or as a result of 
military service. Current law denies DIC during periods of 
surviving spouses' subsequent marriages or (in cases not 
involving remarriage) during periods when they live with 
another person and hold themselves out openly to the public to 
be that persons' spouses.
    DIC was created for two purposes: to replace family income 
lost due to the servicemember's or veteran's death and to serve 
as reparation for the death. In 1956, the Servicemen's and 
Veterans' Survivor Benefits Act replaced the preexisting death 
compensation program and the $10,000 Servicemen's Indemnity Act 
payment with DIC. The House Select Committee on Survivor 
Benefits explained, in a 1955 report, H.R. Rep. No. 84-993, 
that, ``these two separate and distinct survivor benefit 
programs . . . would become one. To this limited extent one of 
the objectives of the committee, greater simplicity, would be 
accomplished and the long-term interest and equity of survivors 
protected.'' This Act established a monthly DIC rate for widows 
consisting of a fixed rate plus a percentage of the basic pay 
prescribed for the deceased servicemember's pay grade and 
length of service. It is apparent from this Committee Report 
that the fixed rate represented the ``indemnity'' or reparation 
element of the compensation and the percentage of the deceased 
servicemember's basic pay represented the ``dependency'' or 
income-replacement element. In this manner, DIC was intended to 
meet, at least in part, the Government's obligation to those 
who died in the defense of our country. An expansion of 
eligibility for DIC would well serve this purpose for the 
following reasons.
    Marital decisions often involve consideration of economic 
consequences, and often those consequences are different for 
older surviving spouses, who may no longer be in the job market 
and who may have insufficient income apart from DIC to maintain 
a basic standard of living regardless of whether they remarry. 
The beneficiaries targeted by this proposal are particularly 
disadvantaged by loss of DIC upon remarriage because they are 
often retired or contemplating retirement, may be disabled, and 
may be living on a fixed income. Those whose deceased-veteran 
spouses had been severely disabled may have foregone careers of 
their own in order to care for them. Thus, they are often 
unable to offset lost DIC by earnings or other income. 
Furthermore, when a surviving spouse of advanced age remarries, 
termination of DIC may impose severe financial hardship because 
the new spouse, similarly advanced in age, is generally 
preparing for retirement or is already retired, may be 
disabled, and may be living on a fixed income. In other words, 
the new spouse also may have limited income and may be unable, 
because of age or disablement, to augment it. To the extent the 
DIC program was intended to provide a replacement for a 
veteran's contribution to household support, this contribution 
is still necessary for a surviving spouse of advanced age even 
if the surviving spouse remarries, because remarriage often 
does not adequately provide for his or her subsistence needs. 
Further, to the extent that DIC provides indemnification for 
the veteran's death, the basis for compensation is not 
eliminated by the surviving spouse's remarriage.
    The new provision would assist surviving spouses by 
allowing those over age 55 to maintain their standards of 
living, thus removing any economic disincentive to remarriage. 
A veteran's surviving spouse would be able to enter into a 
second marriage without fear of economic deprivation, and the 
elderly couple would be permitted to live together in comfort 
and dignity--legally married.
    Benefits for surviving spouses of military retirees through 
the Department of Defense's (DoD) Survivor Benefit Plan do not 
terminate if remarriage takes place at age 55 or thereafter. In 
addition, we note that Social Security survivors' benefits do 
not terminate if remarriage takes place at age 60 or 
thereafter. The proposed amendment would thus better align DIC 
benefits with benefits provided to surviving spouses of 
military retirees under DoD's Survivor Benefit Plan and to 
surviving spouses under the Social Security program.
    This amendment is subject to the PAYGO limitations of the 
Omnibus Budget Reconciliation Act of 1990. If enacted, it would 
increase direct spending in VA benefits programs. VA estimates 
that enactment of this provision would result in benefit costs 
of $269 million for the five-year period Fiscal Year (FY) 2003 
through FY 2007 and $749 million for the ten-year period FY 
2003 through FY 2012.

                               H.R. 2095

    The next bill I will discuss, Mr. Chairman, is H.R. 2095. 
This measure would reduce the VA home loan funding fee paid by 
Reservists to the same level at most other veterans. VA 
supports this proposal to eliminate the additional 0.75 percent 
of the loan amount currently imposed on Reservists to obtain VA 
housing loan benefits.
    In 1992, the Congress granted VA housing loan entitlement 
to persons whose only military service was in the Selected 
Reserve (including the National Guard). To be eligible for 
these benefits, Reservists must have completed 6 years of 
honorable service in the Selected Reserve, or have been 
released earlier for a service-connected disability. 
Entitlement for Reservists sunsets September 30, 2009. In most 
cases, Reservists pay a funding fee that is 0.75 percent higher 
than the fee charged veterans who served on extended active 
duty. For example, Reservists who have never used VA housing 
benefits before would pay a 2.75 percent fee to obtain a no-
downpayment loan to purchase a home. Generally, veterans with 
qualifying active duty would pay a 2 percent fee to obtain the 
same loan. Veterans entitled to compensation for service-
connected disabilities are exempt from the fee.
    Under H.R. 2095, Reservists would pay the same fee 
currently charged other veterans.
    In recent years, there has been an increased emphasis on 
the use of Reservists as part of the Armed Forces actively 
employed for national defense. Many members of the Reserves and 
National Guard were activated following the terrorist attacks 
of September 11, 2001. They have played and continue to play a 
vital role in support of our active forces and in homeland 
security. In addition, Reservists have been deployed to other 
trouble spots around the world such as Bosnia, Kosovo, and the 
Persian Gulf. In recognition of the importance of the Selected 
Reserve to our current defense efforts, VA supports this 
measure.
    VA estimates that enactment of H.R. 2095 would result in 
PAYGO costs of approximately $3.27 million in the first year 
and approximately $32.66 million through FY 2009.

                               H.R. 2222

    Mr. Chairman, VA supports the enactment of H.R. 2222. This 
bill would make improvements to various life insurance programs 
for veterans. The bill's estimated PAYGO costs are $93.9 
million over five years.
    Section 2 of H.R. 2222 would authorize the payment of 
unclaimed National Service Life Insurance (NSLI) and United 
States Government Life Insurance (USGLI) proceeds to an 
alternate beneficiary.
    Under current law, there is no time limitation under which 
a named beneficiary of an NSLI or USGLI policy is required to 
file a claim for proceeds. Consequently, when the insured dies 
and the beneficiary does not file a claim for the proceeds, VA 
is required to hold the unclaimed funds indefinitely in order 
to honor any possible future claims by the beneficiary. VA 
holds the proceeds as a liability. While extensive efforts are 
made to locate and pay these individuals, there are cases where 
the beneficiary simply cannot be found. Under current law, we 
are not permitted to pay the proceeds to a contingent or 
alternate beneficiary unless we can determine that the 
principal beneficiary predeceased the policyholder. 
Consequently, payment of the proceeds to other beneficiaries is 
withheld.
    A majority of the existing liabilities of unclaimed 
proceeds were established over ten years ago. As time passes, 
the likelihood of locating and paying the principal beneficiary 
becomes more remote. In fact, the older the liability becomes, 
the more unlikely it is that it will ever be paid even though 
other legitimate heirs of the insured have been located.
    Section 2 of H.R. 2222 would grant the Secretary authority 
to authorize payment of NSLI and USGLI proceeds to an alternate 
beneficiary when the proceeds have not been claimed by the 
named beneficiary within two years following the death of the 
policyholder or within two years of this bill's enactment, 
whichever is later. The principal beneficiary would have two 
years following the death of the insured to file a claim. 
Afterwards, a contingent beneficiary would then have two years 
to file a claim. Payment would be made as if the principal 
beneficiary had predeceased the insured. If there were no 
contingent beneficiary to receive the proceeds, payment would 
be made to those equitably entitled, as determined by the 
Secretary. As occurs under current law, no payment would be 
made if payment would escheat to a State. Such payment would be 
a bar to recovery of the proceeds by any other individual.
    Section 2 of the bill would apply retroactively as well as 
prospectively, and is similar to the time-limitation provisions 
of the Servicemembers' and Veterans' Group Life Insurance 
programs and the Federal Employees Group Life Insurance 
program.
    Insofar as payment to beneficiaries is made from the 
insurance trust funds, there are no direct appropriated benefit 
costs associated with this section of the bill. The liabilities 
are already set aside and would eventually be paid, either as 
payment to beneficiaries that eventually claim the proceeds, or 
released from liability reserves and paid as dividends.
    There are approximately 4,000 existing policies in which 
payment has not been made due to the fact that we cannot locate 
the primary beneficiary, despite extensive efforts. Over the 
years, the sum of moneys held has aggregated to approximately 
$23 million. On a yearly basis, about 200 additional policies 
(with an average face value of $9600, or approximately $1.9 
million annually) are placed into this liability because the 
law prohibits payment to a contingent beneficiary or to the 
veteran's heirs. It is estimated that approximately two-thirds 
of the 4,000 policies will eventually be paid as a result of 
this legislation. Additionally, in anticipation of the fact 
that VA will not be able to pay about one-third of these 
policies, nearly $7 million has already been released to 
surplus and made available for dividend distribution.
    VA estimates that the enactment of this section would 
result in PAYGO costs of $15 million during FYs 2003-2007 and a 
total of $25 million during FYs 2003-2012.
    Adjudication of these 4,000 policies would entail 
administrative costs of approximately $154,000, representing 
two full-time employee equivalence (FTE) in claims processing 
and support. Approximately 94 percent of this cost would be 
reimbursed to the Veterans Benefits Administration's General 
Operating Expense (GOE) account from the surplus of the trust 
funds, leaving about $9,000 in government costs (which assumes 
that about six percent of the policies are Service-Disabled 
Veterans Insurance, which has no surplus and for which 
appropriated funds are used to cover administrative costs).
    Section 3 of H.R. 2222 would reduce the premium rates for 
Service-Disabled Veterans Insurance (S-DVI) by prospectively 
changing the mortality table upon which premiums are based. The 
S-DVI program was intended to provide service-disabled veterans 
with the ability to purchase insurance coverage at ``standard'' 
premium rates. S-DVI premiums are currently based on an old 
mortality table, i.e., the 1941 Commissioners Standard Ordinary 
(CSO) Mortality Table with 2.25 percent interest. In 1951, when 
this program began, these premium rates were competitive with 
commercial insurance policy rates. Insofar as life expectancy 
has significantly improved over the past fifty years, a more 
recent mortality table would reflect lower mortality and, 
hence, lower premium rates. Section 3 would provide that S-DVI 
premiums be based on the 1980 CSO Basic Mortality Table with an 
interest rate of five percent. While just changing to a more 
recent mortality table would assist new entrants into the 
program, it would not render any assistance to those already 
insured under the program unless the new mortality table, with 
its inherent lower premiums, was made available to them also.
    Section 3 of this bill would provide service-connected 
disabled veterans parity with the average American's ability to 
purchase adequate amounts of life insurance at competitive 
rates. This section of H.R. 2222 would ensure that service-
connected disabled veterans have the ability to obtain life 
insurance at standard premium rates without regard to their 
physical disabilities. Our goal is to provide insurance 
protection to veterans who have lost their ability to purchase 
commercial insurance at standard (healthy) rates because of 
their service-connected disabilities. Participants receive a 
subsidy equal to the difference between the premiums they pay--
which account for age but not disabilities--and the actual cost 
of coverage.
    VA estimates that the enactment of section 3 of H.R. 2222 
would result in PAYGO costs of $66 million during FY 2003-2007 
and a total of $150.7 million during FYs 2003-2012.
    Section 4 of H.R. 2222 would increase the maximum coverage 
under the Veterans' Mortgage Life Insurance (VMLI) program to 
$200,000. VMLI provides mortgage life insurance coverage to 
certain severely service-disabled veterans who have received 
specially-adapted housing grants from VA. The insurance is 
intended to pay off the outstanding balance of the mortgage in 
the event of the veteran's death. The current maximum amount of 
VMLI allowed an eligible veteran is $90,000.
    The maximum amount of mortgage life insurance was last 
increased on December 1, 1992, when it was raised from $40,000 
to $90,000. This resulted in the VMLI program covering a high 
percentage (91 percent) of the total mortgage balances that 
these severely disabled veterans held. With the increase in 
housing costs over the past nine years, the percentage of total 
mortgage balances covered has decreased significantly.
    As of the start of this fiscal year, the VMLI program was 
providing $201 million of coverage while the outstanding 
mortgage balances for these veterans totaled $255 million. The 
coverage percentage has declined from 91 percent to 79 percent. 
This points to the inadequacy of the VMLI current maximum of 
$90,000. If the maximum coverage amount were increased to 
$200,000, the program would cover 98 percent of the total 
mortgage balances outstanding. The need for the increase is 
even more compelling if viewed from the perspective of the 
number of veterans in the VMLI program who have their entire 
mortgage balances insured. At the current level of $90,000, 
only 62 percent of participants have their entire mortgage 
balance covered. This means that in 38 percent of the cases, if 
the veteran died, the survivors would still have mortgages 
remaining on their homes. If the maximum were raised to 
$200,000, 98 percent of participants would be able to have 
their mortgages fully covered.
    The VMLI program is subsidized with appropriated funds 
since these veterans are charged standard premium rates. An 
increase in the maximum coverage amount to $200,000 would 
affect 1,286 of the 3,385 veterans covered by the program. 
While the premiums charged these veterans would increase, the 
subsidy required from the government would also rise. A 
consulting team of Systems Flow, Economic Systems, Macro 
International, and Hay Group recently completed a Program 
Evaluation of Benefits for Survivors of Veterans with Service-
Connected Disabilities, and many of the provisions of the 
proposed bill, including the provisions of this section, are 
consistent with the recommendations of that evaluation.
    VA estimates that the enactment of section 4 of H.R. 2222 
would result in PAYGO costs of $10.8 million during FYs 2003-
2007 and a total of $28.4 million during FYs 2003-2012.
    Section 5 of H.R. 2222 would provide that Veterans' 
Mortgage Life Insurance (VMLI) may be carried by the insured 
beyond age 70, but would limit new issues to ages 69 and below. 
These policy provisions are fairly comparable to those of 
commercial life insurance policies, except for the VMLI 
provision that coverage terminates at age 70. As part of the 
Program Evaluation of Benefits for Survivors of Veterans with 
Service-Connected Disabilities, the contracting company, 
Systems Flow, compiled a report, ``VA Insurance and DIC 
Programs--Profile of Users and Non-Users and Beneficiaries,'' 
of the VA insurance and DIC programs. This report included a 
finding that, among users whose VMLI insurance was terminated, 
12 percent of them had their insurance terminated due to their 
reaching age 70. Because of such terminations, VA is not 
providing financial security to the veterans' families.
    Insofar as premium income for the VMLI program only covers 
about 25 percent of claims costs, this is a relatively heavily 
subsidized program. However, since it is only open to a small 
group of veterans (those eligible for specially-adapted 
housing), the increase in the subsidy to allow coverage past 
age 70 is relatively nominal. The provisions of this section 
are consistent with the recommendations of the before-mentioned 
Program Evaluation Report.
    VA estimates that the enactment of section 5 of H.R. 2222 
would result in PAYGO costs of $2.1 million during FYs 2003-
2007 and a total of $5.3 million during FYs 2003-2012.

                               H.R. 3731

    The final bill I will be discussing today, Mr. Chairman, is 
H.R. 3731. This bill provides for an increase in the annual 
limit on funds available to compensate State approving agencies 
(SAA's) 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. VA supports this bill.
    H.R. 3731 would increase the annual limit on funds 
available to compensate SAA's from $14,000,000 in FY 2002 to 
$18,000,000 in FY 2003. The amounts for FYs 2004 and 2005 would 
increase by 3 percent each year ($18,540,000 in 2004, 
$19,096,000 in 2005). Funding for FY 2006 and each succeeding 
fiscal year would remain fixed at the FY 2005 level. (If there 
is no change to the current law, the $14,000,000 level of 
funding will revert to $13,000,000 for FY 2003 and thereafter.) 
This bill also specifies that the various SAAs would receive 
the same proportion of payments under the newly allocated 
funding limits as they would receive if those funding limits 
did not exist.
    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 the approval responsibility under the program to 
the SAAs. The SAAs accepted this additional responsibility even 
though it was not covered in their contracts.
    In recent years, a number of SAAs have worked closely with 
private industry and State and local governments to encourage 
placement of veterans in apprenticeship and on-job training 
programs. However, many other SAAs that wanted to do more 
outreach could not do so due to a lack of resources. Now, 
newly-enacted Public Law 107-103 requires SAAs, in addition to 
VA, to actively promote the development of VA programs of on-
job training (including apprenticeship programs). Furthermore, 
that law requires SAAs to conduct outreach programs and provide 
outreach services to eligible persons and veterans about 
education and training benefits available under applicable 
Federal and State laws. Clearly, increased funding is needed to 
enable the SAAs to carry out these additional duties 
effectively.
    VA estimates that enactment of this provision would result 
in PAYGO costs of $5 million for FY 2003, $29 million for the 
five-year period FY 2003 through FY 2007, and $59 million for 
the ten-year period FY 2003 through FY 2012.
    Thank you, Mr. Chairman. I will be pleased to answer any 
questions you or other members of the Subcommittee may have.

               Congressional Budget Office Cost Estimate

    The following letter was received from the Congressional 
Budget Office concerning the cost of the reported bill:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 13, 2002.
Hon. Christopher H. Smith
Chairman, Committee on Veterans' Affairs,
House of Representatives, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4085, the 
Veterans' and Survivors' Benefits Expansion Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Michelle S. 
Patterson, who can be reached at 226-2840.

            Sincerely,
                                            Dan L. Crippen,
                                                          Director.

    Enclosure.

Congressional Budget Office Cost Estimate              May 13, 2002     
                                        


H.R. 4085, Veterans' and Survivors' Benefits Expansion Act of 2002, As 
  ordered reported by the House Committee on Veterans' Affairs on May 9, 
  2002

Summary

    H.R. 4085 contains provisions that would affect a range of 
veterans' programs, including disability compensation, 
dependency and indemnity compensation (DIC), housing, 
insurance, and readjustment benefits. CBO estimates that 
enacting this bill would increase direct spending by $25 
million in 2003, $123 million over the 2003-2007 period, and 
$260 million over the 2003-2012 period. Direct spending could 
also increase in fiscal year 2002 should the bill be enacted 
before the end of this fiscal year, but CBO estimates that any 
such outlays would be insignificant because it takes the 
Department of Veterans Affairs (VA) several months to process 
most benefit claims.
    H.R. 4085 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.

Estimated Cost to the Federal Government

    The estimated budgetary impact of H.R. 4085 is shown in the 
following table. This estimate assumes the legislation will be 
enacted by October 1, 2002. The costs of this legislation fall 
within budget function 700 (veterans benefits and services).


----------------------------------------------------------------------------------------------------------------
                                                                      By Fiscal Year, in Millions of Dollars

                                                               -------------------------------------------------
                                                                  2003      2004      2005      2006      2007
----------------------------------------------------------------------------------------------------------------

                                           CHANGES IN DIRECT SPENDING

Dependency and Indemnity Compensationa
  Estimated Budget Authority..................................        13        15        16        18        19
  Estimated Outlays...........................................        13        15        16        18        19
Housing Loan Guaranty Fees
  Estimated Budget Authority..................................         6         6         6         0         0
  Estimated Outlays...........................................         6         6         6         0         0
Veterans Mortgage Life Insurance
  Estimated Budget Authority..................................         1         2         2         2         3
  Estimated Outlays...........................................         1         2         2         2         3
State Approving Agencies
  Estimated Budget Authority..................................         5         5         5         0         0
  Estimated Outlays...........................................         5         5         5         0         0
  Total Changes
    Estimated Budget Authority................................        25        28        29        20        22
    Estimated Outlays.........................................        25        28        29        20        22
----------------------------------------------------------------------------------------------------------------
a H.R. 4085 also would increase DIC payments by the same COLA payable to Social Security recipients. That change
  would have a cost, relative to current law, but the effect is already assumed in CBO's baseline.

  

Basis of Estimate

    The bill would affect direct spending in several veterans' 
programs, including disability compensation, DIC, housing, 
insurance, and readjustment benefits.

Dependency and Indemnity Compensation

    Section 3 would allow a surviving spouse who remarries 
after age 65 to continue receiving DIC payments. The provision 
would apply retroactively, allowing surviving spouses who have 
already remarried after age 65 to resume receiving DIC payments 
but only if they apply for the benefit within one year after 
this bill is enacted. CBO estimates that the total cost to 
provide DIC payments to surviving spouses who remarry over age 
65 would be $13 million in 2003, $81 million over the 2003-2007 
period, and $203 million over the 2003-2012 period.
    Under current law, VA provides DIC payments to the 
surviving spouse of certain deceased veterans. If a surviving 
spouse remarries, DIC payments cease. Should the subsequent 
marriage end, either because of divorce or death of the new 
spouse, DIC payments can resume. In fiscal year 2001, about 
300,000 surviving spouses received such payments. CBO estimates 
that in that year, about 180 surviving spouses over age 65 (or 
about 0.06 percent of all surviving spouses receiving DIC) 
remarried and stopped receiving DIC payments as a result. CBO 
projects that, under current law, the number of remarriages 
would gradually increase each year as the overall population of 
DIC recipients increases and would exceed 260 a year by 2012.
    CBO estimated the costs for three groups of surviving 
spouses-those over age 65 who would remarry under current law, 
those over age 65 who would choose not to remarry under current 
law but would remarry if H.R. 4085 were enacted, and those who 
remarried after age 65 before enactment of this bill.

    Surviving Spouses Over Age 65 Who Would Remarry Under 
Current Law. CBO estimates that over the 2003-2012 period, 245 
surviving spouses over age 65 would remarry each year on 
average under current law. Under this bill, federal spending 
for DIC would increase because those surviving spouses would 
now receive DIC payments that would have stopped under current 
law. The average DIC payment in fiscal year 2001 was $11,942. 
Such payments are adjusted annually for increases in the cost 
of living. After accounting for expected mortality of the 
remarried surviving spouses as well as their new spouses, CBO 
estimates that the additional cost to provide DIC payments to 
surviving spouses over age 65 who would remarry under current 
law would be $3 million in 2002, $42 million over the 2003-2007 
period, and $145 million over the 2003-2012 period.

    Surviving Spouses Over Age 65 Who Would Choose Not to 
Remarry Under Current Law. Under this bill, some surviving 
spouses over age 65 might choose to remarry who would not have 
done so under current law. CBO estimates there would be no 
additional cost to provide DIC payments to those individuals. 
Because those surviving spouses would choose to remain 
unmarried and receive DIC payments continuously under current 
law, providing DIC payments if they remarry would result in no 
additional costs to the program.

    Surviving Spouses Who Remarried After Age 65 Before 
Enactment of the Bill. Section 3 also would apply 
retroactively, allowing surviving spouses who remarried after 
age 65 before enactment of this legislation to resume receiving 
DIC once this legislation was enacted. The bill institutes a 
deadline, however, that requires all those eligible to apply 
for this benefit within one year after the enactment date. 
After accounting for expected mortality of the remarried 
surviving spouses as well as their new spouses, CBO estimates 
that about 800 surviving spouses who remarried after age 65 
would apply within the time limit and resume receiving DIC 
payments. That number represents about 30 percent of the total 
number of retroactive cases that CBO estimates would be 
eligible to reapply for DIC payments. CBO estimates that the 
additional cost to provide DIC payments to this population 
would be $10 million in 2003, $39 million over the 2003-2007 
period, and $58 million over the 2003-2012 period. Such costs 
could obviously be much higher or lower, depending on the 
portion of eligible people that apply for this retroactive 
benefit. Based on data provided by VA about the number of 
claims a full-time employee can process in a year, CBO 
estimates that no additional personnel would need to be hired 
to handle the added applications for benefits expected under 
this section.

Cost-of-Living Adjustment (COLA)

    Section 2 would increase the amounts paid to veterans for 
disability compensation and to their survivors for DIC by the 
same COLA payable to Social Security recipients. The increase 
would take effect on December 1, 2002, 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 the 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). The authority to round down the COLA increase was 
extended to 2011 by the Veterans Education and Benefits 
Expansion Act of 2001 (Public Law 107-103). Because the COLA is 
assumed in the baseline, the COLA provision would have no 
budgetary effect relative to the baseline. Relative to current 
law, CBO estimates that enacting this provision would increase 
spending for these programs by about $295 million in 2003. (The 
annualized cost would be about $400 million in subsequent 
years.) This estimate assumes that the COLA effective on 
December 1, 2001, would be 1.9 percent.

Home Loan Guaranty Fees

    Section 4 would lower certain fees paid by members of the 
selected reserves who use the VA home loan program for the 
first time over the 2003-2005 period. Under current law, 
reservists pay fees ranging from 2.75 percent to 2 percent of 
the loan amount, depending on the down payment made. The bill 
would lower these fees by 75 basis points to the same range 
used for active-duty veterans-a range of 2 percent to 1.25 
percent. Based on an average loan amount of $131,000, a 
caseload of 6,000 loans a year, and a fee cut of 75 basis 
points, CBO estimates that under the bill, VA would lose 
collections of about $6 million a year over the 2003-2005 
period. Lowering the fees would also save an average borrower 
roughly $980, but CBO estimates these savings would not be 
significant enough to encourage additional loans or larger loan 
amounts.

Life Insurance Program

    Veterans Mortgage Life Insurance (VMLI) provides coverage 
to certain severely disabled veterans who have received grants 
for specially adapted housing from VA. VMLI pays off the 
outstanding balance of the mortgage upon the veteran's death. 
Under current law, the maximum coverage allowed under VMLI is 
$90,000. Section 5 would increase this amount to $150,000. By 
doing so, this provision would increase the number of veterans 
who have their entire mortgage balance covered by insurance 
from 62 percent to 90 percent. According to VA, about 3,000 
veterans participate in the program. Since the premiums charged 
to these veterans are based on the mortality rates of 
comparable nondisabled individuals, the program requires a 
subsidy from VA to cover the costs of the claims. While the 
proposed change in coverage would increase the premiums paid by 
the policyholders, it would also increase the amount of the 
subsidy required from VA. CBO used data provided by VA that 
compared the projected subsidies to the VMLI program if the 
current coverage level was maintained against the estimated 
subsidies needed if the coverage was expanded to $150,000. The 
difference represents the additional subsidy that would be 
required from VA. CBO estimates that enacting this provision 
would cost about $1 million in 2003, $8 million over the 2003-
2007 period, and $19 million over the 2003-2012 period.
    Section 5 also would allow veterans who already have VMLI 
to maintain coverage regardless of age. Under current law, VMLI 
coverage terminates at age 70. A recent survey conducted for VA 
found that 12 percent of veterans whose VMLI was terminated had 
their coverage terminated due to the age restriction. Based on 
data from VA, CBO estimates that the increased subsidy required 
under this provision would cost less than $1 million a year.

State Approving Agencies

    Section 6 would increase the amount available to state 
approving agencies by $5 million each year in 2003, 2004, and 
2005. CBO expects this change would increase direct spending by 
$15 million over the 2003-2005 period.

Pay-as-you-go Considerations

    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in outlays that are 
subject to pay-as-you-go procedures are shown in the following 
table. For the purposes of enforcing pay-as-you-go procedures, 
only the effects through fiscal year 2006 are counted.



----------------------------------------------------------------------------------------------------------------
                                                         By Fiscal Year, in Millions of Dollars
                                    ----------------------------------------------------------------------------
                                      2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012
----------------------------------------------------------------------------------------------------------------
Changes in outlays.................      0     25     27     29     20     22     24     25     27     29     32
Changes in receipts................                                 Not Applicable
----------------------------------------------------------------------------------------------------------------

  

Intergovernmental and Private-sector Impact

    H.R. 4085 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would not affect the budgets of 
state, local, or tribal governments.

Previous CBO Estimates

    On August 14, 2001, CBO transmitted a cost estimate for 
H.R. 2095, the Reservist VA Home Loan Fairness Act of 2001, as 
introduced on June 7, 2001. Section 4 of H.R. 4085 is similar 
to H.R. 2095, but H.R. 2095 would permanently lower fees paid 
by reservists and would have higher costs.
    On February 28, 2002, CBO transmitted a cost estimate for 
H.R. 2222, the Veterans Life Insurance Improvement Act of 2001, 
as introduced on June 19, 2001. Section 5 of H.R. 4085 is 
similar to sections 4 and 5 of H.R. 2222, but H.R. 2222 would 
increase the maximum coverage of VMLI to $200,000 and thus 
would have higher costs.
    On April 19, 2002, CBO transmitted a cost estimate for H.R. 
1108, as introduced on March 20, 2001. Section 3 of H.R. 4085 
is similar H.R. 1108, except that the latter would provide DIC 
to surviving spouses who remarry after age 55. H.R. 4085 also 
would put a time limit on applications from surviving spouses 
who remarried before enactment of the bill; H.R. 1108 would 
not.

Estimate prepared by:

  Federal Costs:
    Veterans Compensation, DIC, and Insurance: Michelle S. 
            Patterson
    Veterans Housing: Sunita D'Monte
    State Approving Agencies: Sarah Jennings
  Impact on State, Local, and Tribal Governments: Elyse Goldman
  Impact on the Private Sector: Sally Maxwell

Estimate approved by:

  Peter H. Fontaine
  Deputy Assistant Director for Budget Analysis

                     Statement of Federal Mandates

    The preceding Congressional Budget Office cost estimate 
states that the bill contains no intergovernmental or private 
sector mandates as defined in the Unfunded Mandates Reform Act.

                 Statement of Constitutional Authority

    Pursuant to Article I, section 8 of the United States 
Constitution, the reported bill is authorized by Congress' 
power to ``provide for the common Defense and general Welfare 
of the United States.''

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                     TITLE 38, UNITED STATES CODE

           *       *       *       *       *       *       *


                      PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


                           CHAPTER 1--GENERAL

           *       *       *       *       *       *       *


Sec. 103. Special provisions relating to marriages

  (a) * * *

           *       *       *       *       *       *       *

  (d)(1) * * *
  (2) The remarriage of the surviving spouse of a veteran shall 
not bar the furnishing of benefits specified in paragraph (5) 
to such person as the surviving spouse of the veteran [if the 
remarriage has been terminated by death or divorce unless the 
Secretary determines that the divorce was secured through fraud 
or collusion.] if--
          (A) the remarriage occurs after the surviving spouse 
        attains age 65 ;
          (B) the remarriage has been terminated by death; or
          (C) the remarriage has been terminated by divorce, 
        unless the Secretary determines that the divorce was 
        secured through fraud or collusion.

           *       *       *       *       *       *       *

  (4) [The first month of eligibility for benefits for a 
surviving spouse by reason of this subsection shall be] When 
eligibility for benefits for a surviving spouse is restored by 
reason of this subsection, the first month of eligibility for 
such benefits shall be the month after--
          (A) the month of the termination of such remarriage, 
        in the case of a surviving spouse [described in] with a 
        remarriage described in subparagraph (B) or (C) of 
        paragraph (2); or

           *       *       *       *       *       *       *

  (5) Paragraphs (2) and (3) apply with respect to benefits 
under the following provisions of this title:
          [(A) Section 1311, relating to dependency and 
        indemnity compensation.]
          (A) Sections 1121 and 1311, relating to death 
        compensation and dependency and indemnity compensation, 
        respectively.

           *       *       *       *       *       *       *


                       PART II--GENERAL BENEFITS

           *       *       *       *       *       *       *


CHAPTER 13--DEPENDENCY AND INDEMNITY COMPENSATION FOR SERVICE-CONNECTED 
                                DEATHS

           *       *       *       *       *       *       *


         SUBCHAPTER II--DEPENDENCY AND INDEMNITY COMPENSATION

           *       *       *       *       *       *       *


Sec. 1311. Dependency and indemnity compensation to a surviving spouse

  (a) * * *

           *       *       *       *       *       *       *

  (e) In the case of an individual who is eligible for 
dependency and indemnity compensation under this section by 
reason of section 103(d)(2)(A) of this title who is also 
eligible for benefits under another provision of law by reason 
of such individual's status as the surviving spouse of a 
veteran, then, notwithstanding any other provision of law, no 
reduction in benefits under such other provision of law shall 
be made by reason of such individual's eligibility for benefits 
under this section.

           *       *       *       *       *       *       *


     CHAPTER 21--SPECIALLY ADAPTED HOUSING FOR DISABLED VETERANS

           *       *       *       *       *       *       *


Sec. 2106. Veterans' mortgage life insurance

  (a) The United States shall automatically insure any eligible 
veteran age 69 or younger who is or has been granted assistance 
in securing a suitable housing unit under this chapter against 
the death of the veteran unless the veteran (1) submits to the 
Secretary in writing the veterans' election not to be insured 
under this section, or (2) fails to respond in a timely manner 
to a request from the Secretary for information on which the 
premium for such insurance can be based.
  (b) The amount of insurance provided a veteran under this 
section may not exceed the lesser of [$90,000] $150,000 or the 
amount of the loan outstanding on the housing unit. The amount 
of such insurance shall be reduced according to the 
amortization schedule of the loan and may not at any time 
exceed the amount of the outstanding loan with interest. If 
there is no outstanding loan on the housing unit, insurance is 
not payable under this section. If an eligible veteran elects 
not to be insured under this section, the veteran may 
thereafter be insured under this section, but only upon 
submission of an application, payment of required premiums, and 
compliance with such health requirements and other terms and 
conditions as may be prescribed by the Secretary.

           *       *       *       *       *       *       *

  (i) Insurance under this section shall terminate upon 
whichever of the following events first occurs:
          (1) * * *
          [(2) The veteran's seventieth birthday.]
          [(3)] (2) Termination of the veteran's ownership of 
        the property securing the loan.
          [(4)] (3) Discontinuance of payment of premiums by 
        the veteran.

           *       *       *       *       *       *       *


              PART III--READJUSTMENT AND RELATED BENEFITS

           *       *       *       *       *       *       *


CHAPTER 36--ADMINISTRATION OF EDUCATIONAL BENEFITS

           *       *       *       *       *       *       *


SUBCHAPTER I--STATE APPROVING AGENCIES

           *       *       *       *       *       *       *


Sec. 3674. Reimbursement of expenses

  (a)(1) * * *

           *       *       *       *       *       *       *

  (4) The total amount made available under this section for 
any fiscal year may not exceed $13,000,000 or, for each of 
fiscal years 2001 and 2002, $14,000,000, and for each of fiscal 
years 2003, 2004, and 2005, $18,000,000. For any fiscal year in 
which the total amount that would be made available under this 
section would exceed the amount applicable to that fiscal year 
under the preceding sentence except for the provisions of this 
paragraph, the Secretary shall provide that each agency shall 
receive the same percentage of the amount applicable to that 
fiscal year under the preceding sentence as the agency would 
have received of the total amount that would have been made 
available without the limitation of this paragraph.

           *       *       *       *       *       *       *


             CHAPTER 37--HOUSING AND SMALL BUSINESS LOANS

           *       *       *       *       *       *       *


               SUBCHAPTER III--ADMINISTRATIVE PROVISIONS

           *       *       *       *       *       *       *


Sec. 3729. Loan fee

  (a) * * *
  (b) Determination of Fee.--(1) * * *
  (2)(A) The loan fee table referred to in paragraph (1) for 
any loan closed after September 30, 2005 is as follows:

                             LOAN FEE TABLE
------------------------------------------------------------------------
                                 Active duty                    Other
         Type of loan              veteran      Reservist      obligor
------------------------------------------------------------------------
(A)(i) Initial loan described          2.00          2.75            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other initial loan described
 in section 3710(a) other than
 with 5-down or 10-down
 (closed before October 1,
 2011)........................
------------------------------------------------------------------------
(A)(ii) Initial loan described         1.25          2.00            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 0-down, or any
 other initial loan described
 in section 3710(a) other than
 with 5-down or 10-down
 (closed on or after October
 1, 2011).....................
------------------------------------------------------------------------
(B)(i) Subsequent loan                 3.00          3.00            NA
 described in section 3710(a)
 to purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan
 described in section 3710(a)
 (closed before October 1,
 2011)........................
------------------------------------------------------------------------
(B)(ii) Subsequent loan                1.25          2.00            NA
 described in section 3710(a)
 to purchase or construct a
 dwelling with 0-down, or any
 other subsequent loan
 described in section 3710(a)
 (closed on or after October
 1, 2011).....................
------------------------------------------------------------------------
(C)(i) Loan described in               1.50          2.25            NA
 section 3710(a) to purchase
 or construct a dwelling with
 5-down (closed before October
 1, 2011).....................
------------------------------------------------------------------------
(C)(ii) Loan described in              0.75          1.50            NA
 section 3710(a) to purchase
 or construct a dwelling with
 5-down (closed on or after
 October 1, 2011).............
------------------------------------------------------------------------
(D)(i) Initial loan described          1.25          2.00            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 10-down (closed
 before October 1, 2011)......
------------------------------------------------------------------------
(D)(ii) Initial loan described         0.50          1.25            NA
 in section 3710(a) to
 purchase or construct a
 dwelling with 10-down (closed
 on or after October 1, 2011).
------------------------------------------------------------------------
(E) Interest rate reduction            0.50          0.50            NA
 refinancing loan.............
------------------------------------------------------------------------
(F) Direct loan under section          1.00          1.00            NA
 3711.........................
------------------------------------------------------------------------
(G) Manufactured home loan             1.00          1.00            NA
 under section 3712 (other
 than an interest rate
 reduction refinancing loan)..
------------------------------------------------------------------------
(H) Loan to Native American            1.25          1.25            NA
 veteran under section 3762
 (other than an interest rate
 reduction refinancing loan)..
------------------------------------------------------------------------
(I) Loan assumption under              0.50          0.50          0.50
 section 3714.................
------------------------------------------------------------------------
(J) Loan under section 3733(a)         2.25          2.25          2.25
------------------------------------------------------------------------

  (B) The loan fee table referred to in paragraph (1) for any 
loan closed during the period beginning on October 1, 2002, and 
ending on September 30, 2005, is as follows:

                             LOAN FEE TABLE
------------------------------------------------------------------------
                                                                Other
                Type of loan                     Veteran       obligor
------------------------------------------------------------------------
(A)(i) Initial loan described in section             2.00            NA
 3710(a) to purchase or construct a dwelling
 with 0-down, or any other initial loan
 described in section 3710(a) other than
 with 5-down or 10-down (closed before
 October 1, 2008)...........................
------------------------------------------------------------------------
(A)(ii) Initial loan described in section            1.25            NA
 3710(a) to purchase or construct a dwelling
 with 0-down, or any other initial loan
 described in section 3710(a) other than
 with 5-down or 10-down (closed on or after
 October 1, 2008)...........................
------------------------------------------------------------------------
(B)(i) Subsequent loan described in section          3.00            NA
 3710(a) to purchase or construct a dwelling
 with 0-down, or any other subsequent loan
 described in section 3710(a) (closed before
 October 1, 2008)...........................
------------------------------------------------------------------------
(B)(ii) Subsequent loan described in section         1.25            NA
 3710(a) to purchase or construct a dwelling
 with 0-down, or any other subsequent loan
 described in section 3710(a) (closed on or
 after October 1, 2008).....................
------------------------------------------------------------------------
(C)(i) Loan described in section 3710(a) to          1.50            NA
 purchase or construct a dwelling with 5-
 down (closed before October 1, 2008).......
------------------------------------------------------------------------
(C)(ii) Loan described in section 3710(a) to         0.75            NA
 purchase or construct a dwelling with 5-
 down (closed on or after October 1, 2008)..
------------------------------------------------------------------------
(D)(i) Initial loan described in section             1.25            NA
 3710(a) to purchase or construct a dwelling
 with 10-down (closed before October 1,
 2008)......................................
------------------------------------------------------------------------
(D)(ii) Initial loan described in section            0.50            NA
 3710(a) to purchase or construct a dwelling
 with 10-down (closed on or after October 1,
 2008)......................................
------------------------------------------------------------------------
(E) Interest rate reduction refinancing loan         0.50            NA
------------------------------------------------------------------------
(F) Direct loan under section 3711..........         1.00            NA
------------------------------------------------------------------------
(G) Manufactured home loan under section             1.00            NA
 3712 (other than an interest rate reduction
 refinancing loan)..........................
------------------------------------------------------------------------
(H) Loan to Native American veteran under            1.25            NA
 section 3762 (other than an interest rate
 reduction refinancing loan)................
------------------------------------------------------------------------
(I) Loan assumption under section 3714......         0.50          0.50
------------------------------------------------------------------------
(J) Loan under section 3733(a)..............         2.25          2.25
------------------------------------------------------------------------


                                                            

           *       *       *       *       *       *       *
  (4) For the purposes of paragraph (2):
          (A) The term ``active duty veteran'' means any 
        veteran eligible for the benefits of this chapter other 
        than a Reservist, and the term ``veteran'' means any 
        veteran eligible for the benefits of this chapter.

           *       *       *       *       *       *       *