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                                                       Calendar No. 218
109th Congress                                                   Report
                                 SENATE
 1st Session                                                    109-139

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



 
               VETERANS' BENEFITS IMPROVEMENT ACT OF 2005

                                _______
                                

               September 21, 2005.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 1235]

    The Committee on Veterans' Affairs (hereinafter, 
``Committee''), to which was referred the bill (S. 1235) to 
amend chapters 19 and 37 of title 38, United States Code, to 
extend the availability of $400,000 in coverage under the 
servicemembers' life insurance and veterans' group life 
insurance programs, and for other purposes, having considered 
the same, reports favorably thereon with an amendment in the 
nature of a substitute and an amendment to the title, and 
recommends that the bill, as amended, do pass.

                              Introduction

    On June 14, 2005, Committee Chairman Larry E. Craig 
introduced S. 1235, a bill to extend the availability of 
$400,000 in coverage under the Servicemembers' Group Life 
Insurance (hereinafter, ``SGLI'') and Veterans' Group Life 
Insurance (hereinafter, ``VGLI'') programs, and for other 
purposes. The bill was referred to the Committee on Veterans' 
Affairs.
    On January 25, 2005, Senator Norm Coleman introduced S. 
151, a bill to require an annual plan on outreach activities of 
the Department of Veterans Affairs (hereinafter, ``VA''). 
Senator Mark L. Pryor is an original cosponsor of S. 151. 
Committee Members Lindsey Graham and Johnny Isakson, and 
Senators Jim Bunning, Tim Johnson, Byron L. Dorgan, Benjamin E. 
Nelson, Mary L. Landrieu, Rick Santorum, Bill Nelson, Trent 
Lott, Mike DeWine, Frank R. Lautenberg, and Susan M. Collins, 
were later added as cosponsors. The bill was referred to the 
Committee on Veterans' Affairs.
    On February 17, 2005, Senator Rick Santorum introduced S. 
423, a bill to make a stillborn child an insurable dependent 
for purposes of the SGLI program. Senator Mary L. Landrieu is 
an original cosponsor of S. 423. Senator Saxby Chambliss was 
later added as a cosponsor. The bill was referred to the 
Committee on Veterans' Affairs.
    On March 8, 2005, Committee Ranking Minority Member Daniel 
K. Akaka introduced S. 552, a bill to make technical 
corrections to the Veterans Benefits Improvement Act of 2004. 
The bill was referred to the Committee on Veterans' Affairs.
    On April 27, 2005, Ranking Minority Member Akaka introduced 
S. 917, a bill to make permanent the pilot program for direct 
housing loans for Native American veterans. The bill was 
referred to the Committee on Veterans' Affairs.
    On June 16, 2005, Committee Member Ken Salazar introduced 
S. 1259, a bill to extend the requirement for reports from the 
Secretary of Veterans Affairs on the disposition of cases 
recommended to the Secretary for equitable relief due to 
administrative error, and for other purposes. The bill was 
referred to the Committee on Veterans' Affairs.
    On June 20, 2005, Committee Member Patty Murray introduced 
S. 1271, a bill to provide improved benefits for veterans who 
are former prisoners of war. The bill was referred to the 
Committee on Veterans' Affairs.

                           Committee Hearing

    On June 23, 2005, the Committee held a hearing on, among 
other bills, S. 1235, S. 151, S. 423, S. 552, S. 917, S. 1259, 
and S. 1271. Testimony was heard from: Senators Wayne Allard 
and Mark L. Pryor; The Honorable Daniel L. Cooper, Under 
Secretary for Benefits, U.S. Department of Veterans Affairs; 
Mr. Steve Smithson, Assistant Director, Veterans Affairs and 
Rehabilitation, The American Legion; Mr. Quentin Kinderman, 
Deputy Director, National Legislative Service, Veterans of 
Foreign Wars; Mr. Rick Surratt, Deputy National Legislative 
Director, Disabled American Veterans; Mr. Carl Blake, Associate 
National Legislative Director, Paralyzed Veterans of America; 
and Mr. Richard Jones, National Legislative Director, AMVETS.

                           Committee Meeting

    After carefully reviewing the testimony from the foregoing 
hearing, the Committee met in open session on July 28, 2005, 
and voted by unanimous voice vote to report favorably S. 1235, 
as amended, to include provisions derived from S. 151, S. 423, 
S. 552, S. 917, S. 1259, S. 1271, and S. 1235, as introduced, 
and an amendment offered by Committee Member Barack Obama and 
agreed to by unanimous voice vote.

               Summary of the Committee Bill as Reported

    S. 1235, as reported (hereinafter, ``the Committee bill''), 
contains various amendments to title 38, United States Code, 
and a freestanding provision, that would:
    (a) Extend the availability of $400,000 in life insurance 
coverage under the SGLI and VGLI programs;
    (b) Permit lesser amounts of SGLI coverage to be secured in 
increments of $50,000;
    (c) Require the notification of the spouse of a 
servicemember when such member elects a reduced amount of SGLI 
coverage or names a beneficiary other than the member's spouse 
or child;
    (d) Extend from one to two years after active duty 
separation the period within which a totally disabled veteran 
may receive premium-free insurance coverage and elect to 
convert coverage from SGLI to VGLI;
    (e) Classify servicemembers' stillborn children as 
insurable dependents under the SGLI program;
    (f) Permit the Secretary of Veterans Affairs to prescribe 
interest rate adjustment caps for purposes of certain 
adjustable rate mortgage (hereinafter, ``ARM'') loans 
guaranteed by VA;
    (g) Make technical corrections to the Veterans Benefits 
Improvement Act of 2004 with respect to housing assistance for 
active duty servicemembers;
    (h) Provide permanent authority for VA to make direct 
housing loans to Native American veterans to purchase, 
construct, or improve dwellings on trust land;
    (i) Require an annual plan on the outreach activities of 
VA;
    (j) Extend through December 31, 2009, the reporting 
requirement of equitable relief cases;
    (k) Codify additional diseases which are presumed to be 
associated with prisoner-of-war status; and
    (l) Require the Secretary of Veterans Affairs to develop 
and implement policy and training initiatives to standardize 
the assessment of post traumatic stress disorder (hereinafter, 
``PTSD'') disability compensation claims.

                               Discussion


Section 101: Group life insurance

            Background
    Instituted in 1965, SGLI is a VA-supervised life insurance 
program that provides group coverage for members on active duty 
in the uniformed services (Army, Navy, Air Force, Marine Corps, 
and Coast Guard), members of the Commissioned Corps of the 
United States Public Health Service and the National Oceanic 
and Atmospheric Administration, Reserve and National Guard 
members, Reserve Officer Training Corps members engaged in 
authorized training, service academy cadets and midshipmen, 
Ready Reserve and Retired Reserve members, and Individual Ready 
Reserve members who are subject to involuntary recall to active 
duty service. VA purchases a group policy on behalf of 
participating members from a commercial provider. The current 
provider is, and has been since 1965, The Prudential Insurance 
Company of America (hereinafter, ``Prudential''). Prudential 
administers the SGLI program through its Office of 
Servicemembers' Group Life Insurance. VA's fiscal year 2006 
budget submission projects that 2,436,000 individuals will be 
covered under SGLI during fiscal year 2006.
    Full coverage under SGLI is provided automatically at the 
maximum coverage amount when an individual begins covered 
service. Partial coverage at prorated premium rates is 
available for Reserve and National Guard members for active and 
inactive duty training periods. To be covered in an amount less 
than the maximum, or to decline coverage altogether, a member 
must make a written election to that effect. Coverage amounts 
may be reduced in multiples of $10,000. A member may also name, 
at any time, a beneficiary or beneficiaries of his or her 
choice. Following commercial insurance practice, decisions 
about coverage amounts and the naming of beneficiaries are made 
at the sole discretion of members insured under SGLI.
    The Veterans' Insurance Act of 1974, Public Law 93-289, 
established a new program of post-separation insurance known as 
VGLI. Like SGLI, VGLI is supervised by VA but administered 
through Prudential. VGLI provides for the post-service 
conversion of SGLI to a renewable term policy of insurance. 
Persons eligible for full-time coverage include former 
servicemembers who were insured full time under SGLI and who 
were released from active duty or the Reserves, Ready 
Reservists who have part-time SGLI coverage and who incur 
certain disabilities during periods of active or inactive duty 
training, and members of the Individual Ready Reserve and 
Inactive National Guard. Like SGLI, VGLI is issued in multiples 
of $10,000 up to the maximum coverage amount, but in no case 
can VGLI coverage exceed the amount of SGLI coverage a member 
had in force at the time of separation from active duty service 
or the Reserves.
    Current law provides for a 120-day period after separation 
from active duty service or the Reserves for a member to 
receive premium-free SGLI coverage and elect to convert 
coverage to VGLI. Members who are totally disabled at the time 
of their separation from service have up to one year after 
separation to apply to receive premium-free SGLI coverage 
during that year and to convert their coverage to VGLI.
    Taking advantage of the conversion option is especially 
critical for totally disabled veterans who, because of their 
disabilities, may not be insurable at competitive commercial 
rates after military service. Through a targeted outreach 
effort to this population, VA has learned that many totally 
disabled veterans do not convert their coverage to VGLI because 
they may have neglected post-separation financial planning due 
to the effects of their disabilities, or because they were 
simply unaware of the extension option. As Under Secretary for 
Benefits Daniel L. Cooper stated at the Committee's June 23, 
2005, hearing: ``Extending the SGLI post-service coverage 
period to two years would enable some totally disabled veterans 
who would be unable to obtain commercial life insurance to 
obtain VGLI. Extending the period would also allow VA to 
conduct additional outreach to totally disabled veterans and 
inform them about the opportunity to convert their SGLI to 
VGLI.''
    Maximum SGLI and VGLI coverage amounts are set in law and 
have increased over the years. Coverage amounts have increased 
to account for the effects of inflation and to provide members 
with insurance coverage that reflects a multiple of their 
earnings that is similar to what is recommended in the 
insurance industry. The original SGLI coverage amount was 
$10,000, but has since increased to $400,000. The latest 
increases for both SGLI and VGLI, from $250,000 of coverage to 
$400,000, occurred through the enactment of section 1012 of the 
Emergency Supplemental Appropriations Act for Defense, the 
Global War on Terror, and Tsunami Relief, 2005 (hereinafter, 
``Supplemental Appropriations Act''), and took effect on 
September 1, 2005. However, the increases in coverage amounts 
are temporary. Pursuant to subsection (i) of section 1012 of 
the Supplemental Appropriations Act, all amendments made by 
section 1012 will expire on September 30, 2005, and the law as 
it existed prior to the enactment of the Supplemental 
Appropriations Act will be revived. Thus, the new maximum 
coverage amounts, unless extended by another Act of Congress, 
will only be in effect for 30 days--from September 1, 2005, to 
September 30, 2005.
    The Supplemental Appropriations Act made other SGLI program 
changes which will only be in effect for that same 30-day 
period. Those changes include allowing lesser amounts of SGLI 
and VGLI coverage to be elected in increments of $50,000 as 
opposed to $10,000; extending $150,000 in coverage on a 
premium-free basis, to insured and uninsured members who are 
deployed to designated combat zones; requiring the written 
consent of the spouses of married members before an election 
may be made to decline or reduce SGLI coverage; requiring that 
written notification be given to the designated beneficiaries 
or next-of-kin of non-married members who elect to decline or 
reduce SGLI coverage; and requiring the written notification to 
spouses of members who elect to name a beneficiary, or 
beneficiaries, of SGLI insurance proceeds.
    The Supplemental Appropriations Act provisions requiring 
that certain notification of insurance decisions be given to 
spouses and other beneficiaries, and giving spouses the right 
to override some of those decisions by withholding written 
consent, was opposed by advocates in the veterans' community. 
Concern was expressed regarding any policy of notification at 
the Committee's June 23, 2005, hearing. As was stated by Rick 
Jones of AMVETS: ``as an adult, the servicemember's decision 
regarding initial coverage, the amount of coverage and 
insurance beneficiary or beneficiaries should be the 
individual's alone, unless the person freely chooses to discuss 
the decision with family members or others.''
            Committee bill
    Section 101 would make permanent the $400,000 coverage 
amounts for SGLI and VGLI, and would make permanent the 
requirement that lesser amounts of insurance coverage be 
elected in $50,000 increments. In addition, in an attempt to 
balance the longstanding rights of members to make unfettered 
insurance decisions with the rights of spouses to be informed 
of financial decisions that may impact on a family's future 
financial stability, section 101 would require the appropriate 
agency Secretary to make a good faith effort to notify the 
spouse of members who elect to reduce amounts of insurance 
coverage or name a beneficiary other than the member's spouse 
or child. Finally, section 101 would extend from one to two 
years, after separation from active duty service, the period 
within which totally disabled members may receive premium-free 
SGLI coverage and convert coverage to VGLI.
    Section 101(d) would address effective-date issues caused 
by potential enactment dates and would harmonize the section 
101 provisions with those of the Supplemental Appropriations 
Act. First, to promote consistency in statutes affecting SGLI 
that will ultimately be extended beyond September 30, 2005, the 
language of section 101(d) stipulates that those elements of 
the Supplemental Appropriations Act that will not be extended, 
in whole, beyond the September 30, 2005, termination date would 
not be treated for any purposes as having gone into effect. The 
effective date of section 101(a) of the Committee bill would be 
September 1, 2005, and the effective date of sections 101(b) 
and (c) would be October 1, 2005. Should the provisions of 
section 101(a) be enacted after September 1, 2005, and before 
October 1, 2005, they would amend the law in effect on May 10, 
2005, the day before the enactment of the Supplemental 
Appropriations Act.

Section 102: Treatment of stillborn children as insurable dependents 
        under servicemembers' group life insurance program

            Background
    Section 4 of the Veterans' Survivor Benefits Improvements 
Act of 2001, Public Law 107-14, established a program of family 
insurance coverage under SGLI under which an SGLI-insured 
member's insurable dependents--defined as the member's spouse 
and children--could also be insured. A member's spouse may be 
insured in an amount up to $100,000. Coverage of a member's 
children is automatic and is in the amount of $10,000 for each 
child.
    A case brought before the United States District Court for 
the Southern District of Indiana, Warnock v. Office of 
Servicemembers' Group Life Insurance, No. 1:03-cv-1329-DFH, 
2004 U.S. Dist. LEXIS 8533, at 2 (S.D. Ind. April 28, 2004), 
raised an issue as to whether a member's stillborn child is 
covered as an insurable dependent under SGLI. The plaintiff, 
Michael Patrick Warnock, argued that the stillbirth of his 
child at 38 weeks gestational age should be covered under SGLI. 
The Court ruled, in dismissing Mr. Warnock's lawsuit for 
failure to state a claim upon which relief could be granted, 
that applicable statutes and the SGLI policy do not extend life 
insurance coverage to stillborn infants. Nevertheless, the 
Court stated that ``Congress could write the statute, or an 
insurer could write a policy, to cover future stillbirths.''
    At the Committee's June 23, 2005, hearing, Under Secretary 
for Benefits Daniel L. Cooper testified that VA supported 
enacting legislation covering stillborn children as insurable 
dependents under SGLI as follows: ``Insuring stillborn infants 
under SGLI would directly benefit those servicemembers and 
their families who tragically experience a stillbirth, by 
providing financial assistance at a time of need. This benefit 
would help defray medical care and burial or cremation costs 
incurred by a servicemember because of a stillbirth. A funeral 
for such a child can cost as much as $3,000.''
            Committee bill
    Section 102 would cover a member's ``stillborn child'' as 
an insurable dependent under the SGLI program. The Committee 
does not expect the term ``stillborn child'' to cover the 
deaths of children at any gestational age or under every 
circumstance. Rather, the Committee would expect VA to issue 
regulations that would define the term consistent with the 
definition used for deaths that are to be reported as ``fetal 
deaths'' under Section 15 of the Model State Vital Statistics 
Act drafted by the Centers for Disease Control's National 
Center for Health Statistics. The Model Act requires fetal 
deaths involving fetuses weighing 350 grams or more or, if 
weight is unknown, of 20 or more completed weeks of gestation 
to be reported to the State Office of Vital Statistics or as 
otherwise directed by the State Registrar. Furthermore, the 
Committee does not intend the definition to include induced 
terminations of pregnancy, except to save the life of the 
mother.

Section 201: Adjustable rate mortgages

            Background
    Section 405 of Public Law 108-454 authorized VA, through 
fiscal year 2008, to guarantee so-called ``hybrid'' ARM loans, 
which are loans that carry a fixed rate of interest for an 
initial period followed by annual interest rate adjustments 
thereafter. That statute also attempted to put into place 
interest rate cap protections similar to those in place for the 
Federal Housing Administration's (hereinafter, ``FHA'') hybrid 
ARM loan program. These interest rate caps are common in the 
commercial lending market and serve to protect borrowers 
against precipitous increases in interest rates.
    For VA hybrid ARM loans with an initial rate of interest 
fixed for less than five years, the initial and subsequent 
annual interest rate adjustments are limited to one percentage 
point. For hybrid ARM loans with an initial rate of interest 
fixed for five or more years, VA has the authority to set an 
appropriate interest rate cap for the initial interest rate 
adjustment (the current industry standard is a two percentage 
point cap), and annual adjustments thereafter are subject to a 
one percentage point cap. Finally, VA has the authority to 
prescribe the maximum number of percentage points above the 
initial fixed rate of interest that would limit, over the term 
of a mortgage, interest rate adjustments.
    The annual rate cap of one percentage point that applies to 
hybrid ARM loans with an initial rate of interest fixed for 
five or more years is overly restrictive and is inconsistent 
with the terms offered on FHA-insured hybrid ARM loans. 
According to testimony submitted by the Mortgage Bankers 
Association at the Committee's hearing on June 23, 2005, VA and 
FHA loans with similar terms are typically pooled and sold in 
the secondary mortgage market as mortgage-backed securities. 
The Government National Mortgage Association guarantees the 
cash flow to the investors on pools of FHA and VA loans, 
lowering the risk of these pools to investors and, thus, 
lowering the cost of financing to mortgage lenders and home 
buyers. Therefore, in order to lower the cost of financing to 
veterans who wish to buy homes with a VA hybrid ARM loan, the 
terms on VA's guarantee of hybrid ARM loans necessarily must 
conform to the terms of hybrid ARM loans insured by FHA.
            Committee bill
    Section 201 would give VA the flexibility to prescribe an 
appropriate annual rate adjustment cap for VA hybrid ARM loans 
with an initial rate of interest fixed for five or more years.

Section 202: Technical corrections to Veterans Benefits Improvement Act 
        of 2004

            Background
    A specially adapted housing grant of up to $50,000 is 
available to certain severely disabled veterans for costs 
associated with building, buying or remodeling adapted homes or 
paying indebtedness on homes already acquired. Section 401 of 
Public Law 108-183, the Veterans Benefits Act of 2003, extended 
the availability of specially adapted housing grants to 
servicemembers with severe disabilities who remain on active 
duty if their injuries occurred, or diseases were contracted, 
in the line of duty. It was intended that servicemembers 
receive the specially adapted housing grants in the same manner 
as veterans who were already authorized to receive such grants.
    Due to a technical drafting error, section 401 of the 
Veterans Benefits Improvement Act of 2004, Public Law 108-454, 
repealed the authorization for severely disabled members of the 
Armed Forces to receive specially adapted housing grants from 
VA while still on active duty.
            Committee bill
    Section 202 would restore the authorization for certain 
severely disabled members of the Armed Forces to receive 
specially adapted housing grants from VA while still on active 
duty.

Section 203: Permanent authority for housing loans for Native American 
        veterans

            Background
    Public Law 102-547 established a pilot program through 
which VA provides direct loans to Native American veterans 
residing on trust lands. The Native American Veteran Direct 
Loan Program provides loans for the purchase, construction, or 
improvement of dwellings on Native American trust lands, and 
for the refinancing of existing loans. A total of 470 loans 
have been made through this program since its inception through 
June 30, 2005. The authorization for the program will terminate 
on December 31, 2008.
    The rate of home ownership for Native Americans is roughly 
half that of the general U.S. population. Lower Native American 
home ownership rates exist partially because mortgage lenders 
generally require as a condition of securing a loan that 
applicants own the parcel of land on which the home resides. 
Land ownership for many veterans in Indian Country, Alaska, and 
Hawaii is not possible because existing homes, or land 
available for new home construction, are located on trust 
lands. Most mortgage lenders decline loan applications from 
Native American veterans residing on trust lands because 
Federal law prohibits lenders from taking possession of those 
lands in the event of default. VA's direct loan program 
provides these veterans with another source of financing to 
avoid this problem.
            Committee bill
    Section 203 would permanently authorize the Native American 
Veteran Direct Loan Program.

Section 301: Annual plan on outreach activities

            Background
    VA has a statutory mandate to perform outreach activities 
to certain categories of veterans. For example, section 2022 of 
title 38, United States Code, requires VA's Mental Health and 
Readjustment Counseling Service to conduct joint outreach 
efforts to veterans at risk of homelessness. Sections 7722 and 
7727 of title 38, United States Code, require the Veterans 
Benefits Administration to conduct outreach activities which 
include sending letters to separating servicemembers, 
distributing full information about veterans' benefits to 
veterans and their dependents, and outreach to assist claimants 
with the preparation and presentation of claims for benefits.
    Section 805 of the Veterans Benefits Improvement Act of 
2004, Public Law 108-454, requires VA to prepare and submit to 
Congress a report ``setting forth a detailed description of (1) 
[VA] outreach efforts * * * to inform members of the uniformed 
services and veterans (and their family members and survivors) 
of the benefits and services to which they are entitled * * * 
and (2) the current level of awareness * * * of those benefits 
and services * * *.'' There is currently no statutory mandate 
for VA to formulate an annual plan to conduct its outreach 
activities.
            Committee bill
    Section 301 would require VA to prepare annually (and 
submit to Congress) a plan for the upcoming year's outreach 
activities. Such a plan would incorporate the recommendations 
of the report mandated by Public Law 108-454, and would be 
prepared after consultations with veterans' service 
organizations, State and local officials, and other interested 
groups and advocates.

Section 302: Extension of reporting requirements on equitable relief 
        cases

            Background
    Section 503 of title 38, United States Code, authorizes the 
Secretary of Veterans Affairs to provide monetary relief to 
persons whom the Secretary determines were deprived of VA 
benefits by reason of administrative error by a Federal 
government employee. The Secretary may also provide relief 
which the Secretary determines is equitable to a VA beneficiary 
who has suffered loss as a consequence of an erroneous decision 
made by a Federal government employee. The Secretary is 
required to submit to Congress a report, no later than April 1 
of each year, containing a statement as to the disposition of 
each case recommended to the Secretary for equitable relief 
during the preceding calendar year. The Secretary is not 
required to submit a report to Congress after December 31, 
2004.
            Committee bill
    Section 302 would extend the equitable relief reporting 
requirement through December 31, 2009.

Section 303: Inclusion of additional diseases and conditions in 
        diseases and disabilities presumed to be associated with 
        prisoner of war status

            Background
    Section 1112(b) of title 38, United States Code, contains 
two lists of diseases that are presumed to be related to an 
individual's experience as a prisoner of war. The first 
presumptive list requires no minimum internment period and 
includes diseases associated with mental trauma, or acute 
physical trauma, which could plausibly be caused by even a 
single day of captivity. That list includes psychosis, any of 
the anxiety states, dysthymic disorder (or depressive 
neurosis), organic residuals of frostbite (if the Secretary 
determines that a veteran was interned in conditions consistent 
with the occurrence of frostbite), and post-traumatic 
osteoarthritis. The second list has a 30-day minimum internment 
requirement. The second list includes avitaminosis, beriberi, 
chronic dysentery, helminthiasis, malnutrition, pellagra, any 
other nutritional deficiency, cirrhosis of the liver, 
peripheral neuropathy, irritable bowel syndrome, and peptic 
ulcer disease.
    VA's Workgroup on Medical Presumptive Conditions in Former 
POWs that has established procedures, guidelines, and standards 
to determine whether additional diseases should be added to a 
presumptive list. On June 28, 2005, VA issued a final rule, see 
70 Fed. Reg. 37,040, which added two additional diseases to 
those presumed related to the prisoner-of-war experience: (1) 
atherosclerotic heart disease or hypertensive vascular disease 
(including hypertensive heart disease) and their complications 
(including myocardial infarction, congestive heart failure, and 
arrhythmia); (2) stroke and its complications.
            Committee bill
    Section 303 would codify the two diseases VA established 
through its final rule published on June 28, 2005, as 
presumptively related to the prisoner-of-war experience. These 
diseases would be included under the list requiring a minimum, 
30-day internment period.

Section 304: Post traumatic stress disorder claims

            Background
    On May 19, 2005, the VA Inspector General released a report 
titled ``Review of State Variances in VA Disability 
Compensation Payments.'' The Inspector General's report found 
that state variances in average levels of compensation are 
explained, in part, by variances in VA adjudications of PTSD 
claims. The review found that in 25 percent of the 2,100 PSTD 
cases reviewed, there were inconsistencies in the methods used 
by VA to develop and verify evidence of a claimed service-
related stressor event that caused the claimed PTSD condition. 
The Inspector General report recommended that VA expand its 
national quality assurance program to ensure consistency and 
accuracy nationwide on PTSD claims development and rating. The 
Inspector General also identified the need to improve the 
quality of medical examinations that provide the basis for 
accurate disability ratings, and to adequately train staff to 
improve the accuracy and timeliness of claims adjudication.
            Committee bill
    Section 304 would require VA to develop and implement 
policy and training initiatives to standardize the assessment 
of PTSD disability compensation claims.

                             Cost Estimate

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the Committee, based on 
information supplied by the Congressional Budget Office 
(hereinafter, ``CBO''), estimates that enactment of the 
Committee bill would, relative to current law, increase direct 
spending for veterans' programs by less than $500,000 in fiscal 
year 2006, but decrease such spending by less than $500,000 
over the fiscal year 2006-2010 period. In addition, 
discretionary spending resulting from S. 1235 would be $95 
million in fiscal year 2006 and approximately $200 million over 
the fiscal year 2006-2010 period, assuming appropriation of the 
necessary amounts. Enactment of the Committee bill would not 
affect the budget of state, local, or tribal governments.
    The cost estimate provided by CBO, setting forth a detailed 
breakdown of costs, follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 9, 2005.
Hon. Larry E. Craig,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1235, the Veterans 
Benefits Improvement Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sunita 
D'Monte.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

S. 1235--Veterans Benefits Improvement Act of 2005

    Summary: S. 1235 would make changes to several veterans 
programs, primarily to the servicemembers' group life insurance 
and housing programs. CBO estimates that implementing this bill 
would cost $95 million in 2006 and about $200 million over the 
2006-2010 period, assuming appropriation of the necessary 
amounts. In addition, CBO estimates that enacting this 
legislation would increase direct spending for veterans 
programs by less than $500,000 in 2006, but decrease such 
spending by less than $500,000 over the 2006-2010 period and by 
$2 million over the 2006-2015 period.
    S. 1235 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 S. 1235 is shown in the following table. 
The costs of this legislation fall within budget functions 050 
(national defense) and 700 (veterans benefits and services).

----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2006      2007      2008      2009      2010
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level.................................        95        64        34         7         1
Estimated Outlays.............................................        95        64        34         7         1

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority....................................         *         *         *         *         *
Estimated Outlays.............................................         *         *         *         *         *
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted early in fiscal year 2006 and that the 
necessary amounts will be appropriated for each year. Most of 
the legislation's budgetary effects would fall within the 
discretionary spending category, but there are also a few 
provisions that would affect direct spending.
    CBO estimates that discretionary spending resulting from S. 
1235 would total about $200 million over the 2006-2010 period, 
assuming appropriation of the necessary amounts. In addition, 
CBO estimates that enacting this legislation would increase 
direct spending for veterans programs by less than $500,000 in 
2006, but lower such spending by less than $500,000 over the 
2006-2010 period and by $2 million over the 2006-2015 period.

Spending subject to appropriation

    Servicemembers' Group Life Insurance (SGLI) Coverage. 
Section 101 would make permanent the current authority that 
increased the maximum coverage under SGLI from $250,000 to 
$400,000 for all servicemembers, effective September 1, 2005. 
That authority is currently in place only through fiscal year 
2005.
    Under current law, the Department of Defense (DoD) is 
required to reimburse the Department of Veterans Affairs (VA) 
for the costs of benefit claims for deaths that exceed levels 
set by VA each year. VA calculates these levels based on 
mortality rates expected under peacetime conditions and refers 
to these costs as hazard costs. In 2004, DoD reimbursed VA $105 
million to cover these costs.
    For this estimate, CBO assumes that force levels in theater 
for Operation Enduring Freedom and Operation Iraqi Freedom for 
2006 will remain at levels expected for 2005 (about 200,000 
servicemembers) and then decline gradually over several years 
to about 50,000 by 2010. Based on that assumption regarding 
force levels, current death rates observed in those two 
operations, and information provided by DoD regarding the death 
rates for the remainder of the force, CBO estimates that DoD 
would need to reimburse VA for 640 claims in 2006. CBO also 
estimates that the number of claims exceeding VA levels would 
decline to about 40 by 2009 and that the number of claims for 
benefits would not exceed levels set by VA after 2009. Based on 
information from VA, CBO assumes that DoD would be responsible 
for reimbursing VA for the maximum benefit amount of $400,000 
per claim under this provision. Thus, CBO estimates that DoD 
would reimburse VA $95 million for hazard costs in 2006 and 
$199 million over the 2006-2009 period, subject to the 
availability of appropriated funds.
    Native American Home Loan Program. Section 203 would 
permanently extend the Native American Veteran Housing Loan 
Pilot Program, which is scheduled to expire at the end of 
calendar year 2008. CBO estimates that VA's administrative 
expenses, a discretionary cost, would continue after 2008 under 
the bill. We estimate that those costs would average $650,000 a 
year over the 2009-2010 period, assuming the availability of 
appropriated funds. CBO estimates that enacting this provision 
also would decrease direct spending for veterans' housing 
programs by less than $500,000 a year over the 2009-2015 
period, as discussed below under ``Direct Spending.''
    Other Provisions. The following provisions would have an 
insignificant impact on spending subject to appropriation:
     Section 102 would add stillborn children to the 
list of insurable dependents under the SGLI program. Under 
current law, only servicemembers' spouses and dependent 
children are eligible to be insured. Based on information from 
VA, CBO estimates that implementing this provision would not 
affect federal costs since the SGLI program would absorb all 
costs associated with this provision by adjusting insurance 
premiums as necessary.
     Section 301 would require VA to prepare an annual 
plan for the outreach activities to identify veterans who are 
not registered with VA as well as inform veterans and their 
dependents of the available services and benefits through VA. 
Based on information from VA, CBO estimates that implementing 
this provision would cost less than $500,000 a year, subject to 
appropriation of the necessary amounts.

Direct Spending

    CBO estimates that S. 1235 would increase direct spending 
for veterans programs by less than $500,000 in 2006, but lower 
direct spending for veterans programs by less than $500,000 
over the 2006-2010 period and by $2 million over the 2006-2015 
period.
    Native American Home Loan Program. Section 203 would 
permanently extend the Native American Veteran Housing Loan 
Pilot Program. Under the program, which is scheduled to expire 
at the end of calendar year 2008, VA makes direct loans to 
veterans living on trust lands for the purchase, construction, 
or improvement of a home. In 1993, Public Law 102-389 provided 
appropriations of $4.5 million for the subsidy cost of these 
loans. Since the program's inception, VA has made almost 500 
loans at an estimated subsidy cost of $2.2 million. Although 
the program initially incurred subsidy costs, it currently has 
a negative subsidy rate of 13.8 percent and an estimated annual 
loan level of about $2.5 million. Based on information from VA, 
CBO estimates that enacting S. 1235 would lower direct spending 
by less than $500,000 a year over the 2009-2015 period.
    Specially Adapted Housing (SAH) Grants. VA currently 
administers two grant programs to assist severely disabled 
veterans in acquiring housing that is adapted to their 
disabilities, or in modifying their existing housing. Section 
202 would allow members of the armed forces who become severely 
disabled to receive these grants while still on active duty.
    Based on information from VA and DoD, CBO estimates that 
each year about 20 servicemembers separate from the armed 
forces and qualify to receive an SAH grant. Under section 202, 
these members could receive SAH grants averaging $45,000, as 
much as six months earlier than under current law. Thus, about 
half of the recently separated veterans who would have received 
SAH grants in 2007 could receive those grants in 2006, 
increasing 2006 outlays by $450,000. Since the additional 
grants paid in 2007 and in subsequent years would be offset by 
an equivalent number of grants shifted back one year earlier, 
CBO estimates that enacting this proposal would not increase 
outlays after 2006.
    Other Provisions. The following provisions would have an 
insignificant impact on direct spending:
     Section 201 would remove a requirement in current 
law that restricts the annual adjustments to interest rates on 
adjustable-rate mortgages to 1 percentage point, and give VA 
discretion in setting such requirements. Based on information 
from VA, CBO estimates that enacting this provision would not 
significantly affect default rates or direct spending for 
veterans' housing programs.
     Section 303 would add heart disease and stroke to 
the list of diseases currently presumed to be service-connected 
for certain veterans' who were prisoners-of-war (POWs). On 
October 7, 2004, VA issued a regulation amending Part 3 of 
title 38 of the Code of Federal Regulations to add these two 
diseases to the list for which entitlement to service-
connection is presumed for former POWs. The regulation became 
permanent on June 28, 2005. Since the regulation has already 
taken effect, the provision would have no cost.
     Section 304 would direct the Secretary of Veterans 
Affairs to develop and implement policy and training 
initiatives to standardize the assessment of disability claims 
for post traumatic stress disorder (PTSD). On May 19, 2005, the 
VA's Office of the Inspector General (IG) issued a report 
assessing the variance in veterans' disability compensation 
payments among states. In that report, the IG concluded that 
PTSD claims were being inconsistently rated. According to VA, 
the department is currently drafting regulations to standardize 
procedures for assessing compensation claims for PTSD. Since 
the department is already taking steps to standardize 
procedures for rating these claims, CBO estimates that enacting 
this provision would have no significant impact on direct 
spending for veterans' disability compensation.
    Intergovernmental and private-sector impact: S. 1235 
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 May 5, 2005, CBO transmitted a 
cost estimate for H.R. 1773, the Native American Veteran Home 
Loan Act, as introduced on April 21, 2005. Section 203 of S. 
1235 is similar to H.R. 1773, and the estimated costs and 
savings are identical.
    On June 2, 2005, CBO transmitted a cost estimate for S. 
1042, the National Defense Authorization Act for Fiscal Year 
2006, as reported by the Senate Committee on Armed Services on 
May 17, 2005. Section 101 of S. 1235 is similar to section 641 
of S. 1042 as both provisions would make permanent the 
authority to increase the maximum amount of SGLI coverage from 
$250,000 to $400,000. Section 641 of S. 1042 would also direct 
DoD to pay the cost of premium payments for up to $150,000 of 
SGLI coverage for servicemembers serving in an operation or 
area that DoD designates as a combat operation or a zone of 
combat, whereas S. 1235 would not. Differences in the estimated 
costs reflect differences in the two bills.
    On July 15, 2005, CBO transmitted a cost estimate for H.R. 
3200, the Servicemembers' Group Life Insurance Enhancement Act 
of 2005, as ordered reported by the House Committee on 
Veterans' Affairs on July 14, 2005. Section 101 of S. 1235 is 
similar to section 3 of H.R. 3200, and the estimated costs are 
identical.
    Estimate prepared by: Federal Costs: Housing: Sunita 
D'Monte and Sarah T. Jennings. Life Insurance and Other 
Programs: Dwayne M. Wright. Impact on State, Local, and Tribal 
Governments: Melissa Merrell. Impact on the Private Sector: 
Joshua Lee.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      Regulatory Impact Statement

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

                 Tabulation of Votes Cast by Committee

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following is a tabulation of votes 
cast in person or by proxy by members of the Committee on 
Veterans' Affairs at its July 28, 2005, meeting. On that date, 
the Committee, by unanimous voice vote, approved an amendment 
offered by Committee Member Obama to S. 1235, as amended. The 
Committee then, by unanimous voice vote, ordered S. 1235, as 
amended, a bill to amend title 38, United States Code, to 
extend the availability of $400,000 in life insurance coverage 
to servicemembers and veterans, to make a stillborn child an 
insurable dependent for purposes of the SGLI program, to make 
technical corrections to the Veterans Benefits Improvement Act 
of 2004, to make permanent a pilot program for direct housing 
loans for Native American veterans, and to require an annual 
plan on outreach activities of the Department of Veterans 
Affairs, and for other purposes, reported favorably to the 
Senate.

                             Agency Report

    On June 23, 2005, VA's Under Secretary for Benefits, the 
Honorable Daniel L. Cooper, appeared before the Committee on 
Veterans' Affairs and submitted testimony on, among other 
things, S. 1235 as introduced, and also on the following 
additional bills from which provisions in S. 1235, as amended, 
are derived: S. 151, S. 423, S. 552, S. 917, S. 1259, and S. 
1271. Furthermore, in a letter from Secretary of Veterans 
Affairs, R. James Nicholson, to the Committee Chairman on July 
28, 2005, additional views were provided with respect to, among 
other bills, S. 917, S. 1259, and S. 1271. Excerpts from the 
June 23, 2005, statement and the July 28, 2005, letter are 
reprinted below:

Statement of Daniel L. Cooper, Under Secretary for Benefits, Department 
                          of Veterans Affairs

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


                                 s. 151


    S. 151, the ``Veterans Benefits Outreach Act of 2005,'' 
would require the Secretary of Veterans Affairs to prepare each 
year a plan for VA outreach activities for the following year. 
This bill would require that each annual plan include VA's 
plans for efforts to identify veterans who are not enrolled or 
registered with VA for benefits or services, as well as VA's 
plans for informing veterans and their dependents of changes to 
VA benefit programs, including eligibility for medical and 
nursing care and services. The Secretary, in developing an 
annual plan, would also be required to consult with officials 
of recognized veterans service organizations, officials of 
State and local education and training programs, 
representatives of non-governmental organizations that carry 
out veterans outreach programs, representatives of State and 
local veterans employment organizations, businesses and 
professional organizations, and other individuals and 
organizations that assist veterans in adjusting to civilian 
life. Furthermore, S. 151 would require the Secretary to take 
into account lessons learned from implementation of prior 
annual plans. Finally, S. 151 would require the Secretary to 
incorporate the recommendations for improvement of veterans 
outreach and awareness activities included in the report 
submitted to Congress by the Secretary pursuant to section 805 
of the Veterans Benefits Improvement Act of 2004.
    VA supports enactment of S. 151. Some of the outreach VA 
performs would be more difficult to plan, because it is in 
reaction to changes in statute or regulation, Congressional or 
media interest, or other current events; we nevertheless 
support enactment of this bill. We believe that no one should 
be deprived of an available veterans benefit because he or she 
did not know that such a benefit was available. Costs would be 
negligible.


                                 s. 423


    S. 423 would amend section 1965 of title 38, United States 
Code, to make a stillborn child an insurable dependent for 
purposes of the Servicemembers' Group Life Insurance (SGLI) 
program. The term ``stillborn natural child'' would not include 
any fetus or child extracted for purposes of an abortion.
    VA supports enactment of S. 423. Insuring stillborn infants 
under SGLI would directly benefit those servicemembers and 
their families who tragically experience a stillbirth, by 
providing financial assistance at a time of need. This benefit 
would help defray medical care and burial or cremation costs 
incurred by a servicemember because of a stillbirth. A funeral 
for such a child can cost as much as $3000.
    Private insurers do not generally insure stillborn 
children. In fact, private insurance coverage for a child 
typically does not begin until the fourteenth day after a live 
birth. Nevertheless, VA supports departing from the general 
industry practice on this issue because SGLI coverage for 
stillbirths would support servicemembers and their families, 
ease their suffering and distress during a family crisis, and 
improve morale.
    The total cost to the SGLI program for adding stillborn 
coverage would be $4 million annually based on an estimate of 
400 stillbirths per year with a benefit of $10,000 per 
stillbirth. The SGLI program would absorb all costs associated 
with implementation of S. 423. There would be no new cost to 
the Government.


                                 s. 552


    S. 552 would make a technical correction to section 2101 of 
title 38, United States Code, as amended by section 401 of the 
Veterans Benefits Improvement Act of 2004, Public Law 108-454, 
regarding eligibility for specially adapted housing benefits. 
VA favors enactment of S. 552.
    Section 401 of Public Law 108-454 granted eligibility for 
the ``full'' $50,000 Specially Adapted Housing grant to 
veterans with a total and permanent service-connected 
disability as a result of the loss or loss-of-use of both upper 
extremities at or above the elbow. Unfortunately, section 401 
also contained a technical drafting error that had the effect 
of repealing a recently enacted benefit.
    Public Law 108-183, enacted December 16, 2003, granted 
eligibility for Specially Adapted Housing benefits to members 
of the Armed Forces who were still serving on active duty and 
who incurred qualifying disabilities in line of duty. That 
provision enabled severely-injured servicemembers awaiting 
medical discharge to receive a VA grant to adapt their homes to 
meet their special needs without having to wait for their 
discharges to become final. In amending section 2101 of title 
38, United States Code, section 401 of Public Law 108-454 
inadvertently deleted the language added by Public Law 108-183. 
S. 552 would restore the language added to section 2101 in 2003 
retroactive to the enactment of Public Law 108 454.
    Enactment of S. 552 would have no significant cost impact.


                                 s. 917


    S. 917 would make the Native American Direct Loan program 
permanent. This program began as a pilot program in October 
1992. VA has made over 450 loans under this program to Native 
American veterans. This program is currently set to expire 
December 31, 2008. Discussion is ongoing within the executive 
branch regarding this bill. We will inform the Committee of our 
position as soon as possible.


                                s. 1235


    Section 2 of S. 1235, the ``Veterans' Benefits Improvement 
Act of 2005,'' would, effective October 1, 2005, make several 
changes to the SGLI and Veterans' Group Life Insurance (VGLI) 
programs. Section 2(a) would require the Secretary of Defense 
to make a good-faith effort to notify a servicemember's spouse 
whenever the servicemember reduces the amount of his or her 
SGLI coverage or designates someone other than his or her 
spouse as a beneficiary. If a servicemember marries or 
remarries after making such an election, the Secretary of 
Defense would not be required to provide the notification. Only 
elections made after marriage or remarriage would be subject to 
the notice requirement. Failure of the Secretary of Defense to 
provide timely notification would not affect the validity of 
any election by the servicemember.
    Because this bill would not extend the current law that 
goes into effect September 1, 2005, but instead defines a new 
program that would start when the current program expires on 
September 30, 2005, there are some potentially difficult 
administrative challenges that would unnecessarily burden both 
servicemembers and the Government. For example, married members 
who named a beneficiary other than a spouse or child under 
current law and whose spouses consented would once again have 
to fill out the paperwork required to designate the 
beneficiary, and the Government would have to notify the 
spouse. The Administration would like to work with Congress to 
ensure that these issues are addressed.
    We note as well that, under 38 U.S.C. Sec. 1968(a)(1), SGLI 
coverage terminates 120 days after separation or release from 
active duty or active duty for training, unless the 
servicemember is totally disabled on that date, in which event 
SGLI coverage terminates one year after separation or release 
from active duty or active duty for training. Also, section 
1977(d) of title 38, United States Code, states that ``any 
designation of beneficiary or beneficiaries for [SGLI] filed 
with a uniformed service until changed, shall be considered a 
designation of beneficiary or beneficiaries for [VGLI], but not 
for more than sixty days after the effective date of the 
insured's [VGLI].'' It is unclear whether the notification 
provision of section 2, which refers to a ``member'' of a 
uniformed service, would apply to any change in beneficiary 
designation that a servicemember would make within the 120-day 
period after discharge but prior to cessation of SGLI coverage 
or that a VGLI insured would make within the 60-day period 
referenced in section 1977(d). Also, if section 2(a) were 
applicable to VGLI beneficiary designations, it would be 
difficult to implement because the Office of Servicemembers' 
Group Life Insurance does not maintain data regarding a VGLI 
insured's marital status. We recommend that, if section 2(a) is 
enacted, it explain whether it is applicable to any change in 
beneficiary during these two periods of time.
    Section 2(a) and (c) would increase the maximum amount of 
SGLI and VGLI to $400,000. These provisions would extend the 
increase to $400,000 made by section 1012 of Pub. L. No. 109-
13, which will terminate on September 30, 2005. Section 2(a) 
would also permit a servicemember to elect an amount of SGLI 
less than the maximum available provided the amount of coverage 
on the member is evenly divisible by $50,000, rather than 
$10,000, as currently provided by law. VA supports enactment of 
these provisions because they provide the opportunity for 
servicemembers to increase insurance protection for their 
families. Permitting coverage in multiples of $50,000 would 
simplify the administration of the SGLI program and would align 
with the proposal by the Administration.
    Section 2(b) would amend 38 U.S.C. Sec. 1968(a)(1)(A) and 
(4) to extend from one year to two years the period in which a 
totally disabled SGLI insured can convert SGLI to VGLI. VA 
supports this provision because many totally disabled insureds 
cannot complete post-separation financial planning within one 
year due to the severity of their disabilities. Extending the 
SGLI post-service coverage period to two years would enable 
some totally disabled veterans who would be unable to obtain 
commercial life insurance to obtain VGLI. Extending the period 
would also allow VA to conduct additional outreach to totally 
disabled veterans and inform them about the opportunity to 
convert their SGLI to VGLI. There would be no cost to the 
Government; additional costs would be borne by the SGLI 
program.
    Section 3 of S. 1235 contains a technical drafting error. 
As written, it would strike from section 3707(c)(4) of title 
38, United States Code, language that does not appear in that 
provision. We believe section 3 was intended to amend section 
3707A(c)(4) of title 38, United States Code, which pertains to 
Hybrid Adjustable Rate Mortgages (Hybrid ARMs).
    Currently, section 3707A(c)(4) limits annual interest rate 
adjustments, after the first such adjustment, on Hybrid ARMs to 
one percentage point. Assuming that the amendment proposed by 
section 3 of the bill were made to section 3707A(c)(4) rather 
than section 3707(c)(4), the annual interest rate adjustment 
after the first adjustment on VA Hybrid ARMs could be for such 
percentage points as prescribed by the Secretary. VA favors 
such an amendment to section 3707A.
    Most hybrid ARMs insured by the Department of Housing and 
Urban Development currently allow subsequent annual interest 
rate adjustments in excess of one percentage point. Because VA 
Hybrid ARMs are limited to one percentage point, the Government 
National Mortgage Association (also known as ``Ginnie Mae'') 
has not been willing to pool VA Hybrid ARMs. That has limited 
the availability of VA Hybrid ARMs. VA believes that veterans 
using their earned housing loan entitlement should have access 
to the same financing alternatives, such as Hybrid ARMs, that 
are available under Federal Housing Administration and 
conventional loan programs.


                   s. 1138, s. 1252, s. 1259, s. 1271


    Unfortunately, we did not receive the text of S. 1252, the 
``Disabled Veterans Insurance Improvement Act,'' S. 1259, the 
``Veterans Employment and Transition Services Act,'' or S. 
1271, the ``Prisoner of War Benefits Act of 2005,'' in time to 
be able to state our views on those bills. We will be happy to 
provide the Committee with official views and estimates once 
the necessary executive branch coordination has been completed. 
S. 1138, a bill to authorize placement in Arlington National 
Cemetery of a monument honoring veterans who fought in World 
War II as members of Army Ranger Battalions, was also recently 
added to the hearing agenda. We will provide our comments on 
this bill to the Committee after completing necessary executive 
branch coordination.

      Letter From Secretary of Veterans Affairs R. James Nicholson

                                                     July 28, 2005.
Hon. Larry E. Craig,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: As requested at the June 23, 2005, 
legislative hearing before the Senate Committee on Veterans' 
Affairs, I am pleased to provide the views of the Department of 
Veterans Affairs (VA) on those bills for which we did not 
previously submit comments, including S. 917, a bill to make 
permanent the pilot program for direct housing loans for Native 
American veterans, S. 1138, a bill to authorize placement in 
Arlington National Cemetery of a monument honoring veterans who 
fought in World War II as members of Army Ranger Battalions, S. 
1252, the ``Disabled Veterans Insurance Improvement Act of 
2005,'' S. 1259, the ``Veterans Employment and Transition 
Services Act,'' and S. 1271, the ``Prisoner of War Benefits Act 
of 2005.'' VA's views on each of these bills are discussed 
below. To the extent that VA supports enactment of aspects of 
these bills that have cost implications, it is assumed that the 
costs would be accommodated within the scope of the President's 
budget request.

                                 S. 917

    This bill would make the Native American Direct Loan 
program permanent. Under this program, which was enacted as a 
pilot program in October 1992, VA has made over 450 loans to 
Native American veterans living on trust lands. This program is 
currently set to expire on December 31, 2008.
    VA believes the Native American Direct Loan program has 
proven to be a viable benefit which provides financing to a 
unique class of veterans residing in areas where private 
funding is not generally available. VA looks forward to working 
with the Congress to extend this program. We are advised, 
however, that the Department of Justice has some constitutional 
concerns. We would be pleased to work with the Committee staff 
and the Department of Justice to address those issues and 
develop legislation that the Administration can support.
    VA estimates that enactment of S. 917 would produce a 
first-year discretionary saving of $708 thousand and a 10-year 
discretionary saving of approximately $23 million.


                                s. 1259


    Section 2 of S. 1259, the ``Veterans Employment and 
Transition Services Act,'' would amend section 503(c) of title 
38, United States Code, to extend from December 31, 2004, to 
December 31, 2009, the requirement that the Secretary of 
Veterans Affairs annually report to Congress on the disposition 
of cases recommended to the Secretary for equitable relief.
    VA estimates that there would be no new cost to the 
Government associated with enactment of this provision. 
Accordingly, VA does not object to section 2 of S. 1259.


                                s. 1271


    Section 2(a) of S. 1271, the ``Prisoner of War Benefits Act 
of 2005,'' would amend section 1112 of title 38, United States 
Code, to eliminate the requirement currently in section 
1112(b)(1)(B) that a veteran have been detained or interned as 
a prisoner of war (POW) for at least 30 days to be entitled to 
a presumption of service connection for the diseases listed in 
section 1112(b)(3). Section 2(a) would also add four diseases 
to the list of diseases in section 1112(b) that may be presumed 
to be service connected for former POWs. Those additional 
diseases are heart disease, stroke, diabetes (type 2), and 
osteoporosis.
    Section 2(b) of S. 1271 would authorize the Secretary to 
establish a presumption of service connection for former POWs 
for any disease for which VA has determined, based on sound 
medical and scientific evidence, that ``a positive association 
exists between the experience of being a [POW] and the 
occurrence of [the] disease in humans.'' Section 2(b) would 
also require VA to issue certain regulations and, in 
determining whether a positive association exists, to consider 
recommendations from the Advisory Committee on Former Prisoners 
of War and any other relevant scientific information.
    Just a few years ago, section 1112(b) limited the 
presumption of service connection for specified diseases 
associated with POW experience to veterans who were former POWs 
and were detained or interned for not less than 30 days. 
However, section 201 of the Veterans Benefits Act of 2003, Pub. 
L. No. 108 183, Sec. 201, 117 Stat. 2651, 2656, eliminated the 
30-day requirement for psychosis, any anxiety state, dysthymic 
disorder, organic residuals of frostbite, and post-traumatic 
osteoarthritis. In implementing that amendment in its 
regulations, VA noted that the diseases that remained subject 
to the 30-day requirement, such as diseases associated with 
malnutrition, are generally incurred over a prolonged period of 
internment. Interim Final Rule, Presumptions of Service 
Connection for Diseases Associated with Service Involving 
Detention or Internment as a Prisoner of War, 69 Fed. Reg. 
60,083, 60,088 (2004). Nevertheless, because heart disease and 
stroke could be associated either with malnutrition during 
prolonged captivity or with stress due to torture or abuse, 
which can occur during brief periods of captivity, VA added 
heart disease and stroke to the regulatory list of diseases 
that do not require at least 30 days of detention or interment 
to be presumed incurred in service in a former POW. Id. This 
illustrates VA's belief that there should be no generally 
applicable minimum detention or internment requirement, but 
that such a requirement may be appropriate for certain diseases 
if the evidence indicates that they are associated only with 
prolonged captivity. Accordingly, VA supports elimination of 
the arbitrary 30-day minimum internment requirement, provided 
that VA retains authority to impose a minimum period of 
detention or internment for certain diseases if such minimum 
period is adequately supported by sound scientific or medical 
evidence.
    Having determined that sound medical or scientific evidence 
supports an association between atherosclerotic heart disease 
or hypertensive vascular disease (including hypertensive heart 
disease) and their complications (including myocardial 
infarction, congestive heart failure, and arrhythmia) and POW 
internment and a positive association between stroke and its 
complications and POW internment, VA added those diseases to 
the regulatory list of diseases presumed service connected in a 
former POW. Id. at 60,085-87, 60,090. Therefore, VA supports 
section 2(a) of S. 1271 to the extent that it codifies VA's 
existing regulations concerning heart disease and stroke. 
However, VA is not aware of any sound scientific or medical 
evidence of a positive association between type 2 diabetes or 
osteoporosis and internment as a POW. Accordingly, at this 
time, VA opposes the provisions in section 2(a) of S. 1271 that 
would establish presumptive service connection for type 2 
diabetes and osteoporosis.
    Based on the amendments that would be made by section 2 of 
S. 1271, VA estimates that approximately 2,400 former POWs and 
1,168 surviving spouses of former POWs would be affected by 
this legislation and apply for benefits. Assuming a one hundred 
percent grant rate, we further estimate that benefit costs 
would be $6.5 million in the first year, $102.2 million for 5 
years, and $223.1 million for ten years. Administrative costs 
are estimated to be an additional $765 thousand during the 
first year and $1.6 million for 5 years.
    VA opposes the procedure in section 2(b) of S. 1271 for 
establishing presumptive service connection for diseases 
associated with POW internment. Regulatory procedures for 
identifying diseases associated with POW internment already 
exist. Pursuant to the Secretary's authority in section 501(a) 
of title 38, United States Code, to prescribe all rules and 
regulations necessary or appropriate to carry out the laws 
administered by VA, including regulations with respect to the 
nature and extent of proof and evidence and the method of 
taking and furnishing them in order to establish the right to 
benefits, VA promulgated regulations establishing a new 
procedure for establishing POW presumptions. 69 Fed. Reg. 
60,083. This procedure, which is codified at 38 C.F.R. 
Sec. 1.18, is substantially similar to existing procedures for 
the herbicide, Gulf War, and radiation presumptions, with minor 
differences necessary to reflect considerations unique to 
former POWs. VA's establishment of presumptive service 
connection for heart disease and stroke, which was done under 
VA's regulatory procedure, demonstrates that the new procedure 
is effective.
    The proposed amendments would require VA to issue various 
regulations in response to recommendations received from the 
Advisory Committee on Former Prisoners of War. Under 38 U.S.C. 
Sec. 541(a)(2), the Committee comprises former POWs, disabled 
veterans, and health care professionals. Under current law, the 
Secretary must regularly consult with the Committee and seek 
its advice on the compensation, health care, and rehabilitation 
needs of former POWs. 38 U.S.C. Sec. 541(b). Not later than 
July 1 of each odd-numbered year through 2009, the Committee 
must submit to the Secretary a report recommending, among other 
things, administrative and legislative action. 38 U.S.C. 
Sec. 541(c)(1). The procedure outlined in section 2(b) of S. 
1271 would require the Secretary to make a decision regarding 
the appropriateness for a presumption within 60 days of 
receiving a Committee recommendation, issue proposed 
regulations within 60 days following that decision, and issue a 
final rule within 90 days of issuing the proposed rule. This 
procedure is similar to the procedure that Congress established 
for herbicide and Gulf War presumptions, both of which 
generally concern VA rulemaking following the receipt of a 
report from the National Academy of Sciences. See 38 U.S.C. 
Sec. Sec. 1116, 1118. However, unlike the herbicide and Gulf 
War procedures, S. 1271 would require strict guidelines for 
rulemaking in response to Committee recommendations, which do 
not provide a thorough scientific review and analysis upon 
which to establish presumptions. Under current 38 CFR 
Sec. 1.18, the Secretary may contract with the appropriate 
expert body, such as National Academy of Sciences' Institute of 
Medicine, for the necessary analysis of current science. We 
believe this regulation provides a more scientifically sound 
basis for creation of presumptions than that contemplated by S. 
1271.
    The Office of Management and Budget advises that there is 
no objection to the submission of this report from the 
standpoint of the Administration's programs.
    Sincerely yours,
                                                 R. James Nicolson.

    Changes in Existing Law Made by the Committee Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the Committee bill, as reported, are shown as follows (existing 
law proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, 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. 101. Definitions

    For the purposes of this title--
          (1) * * *

           *       *       *       *       *       *       *

          (4)(A) The term ``child'' means (except for purposes 
        of chapter 19 of this title (other than with respect to 
        a child who is an insurable dependent under [section 
        1965(10)(B)] subparagraph (B) or (C) of section 
        1965(10) of such chapter) and section 8502(b) of this 
        title) a person who is unmarried and--

           *       *       *       *       *       *       *


CHAPTER 5. AUTHORITY AND DUTIES OF THE SECRETARY

           *       *       *       *       *       *       *



                   SUBCHAPTER II. SPECIFIED FUNCTIONS

521. Assistance to certain rehabilitation activities.
522. Studies of rehabilitation of disabled persons.
523. Coordination and promotion of other programs affecting veterans and 
          their dependents.
523A. Annual plan on outreach activities.
525. Publication of laws relating to veterans.
527. Evaluation and data collection.
529. Annual report to Congress.
530. Annual report on program and expenditures for domestic response to 
          weapons of mass destruction.
531. Requirement relating to naming of Department property.

           *       *       *       *       *       *       *


Subchapter I--General Authorities

           *       *       *       *       *       *       *



Sec. 503. Administrative error; equitable relief

           *       *       *       *       *       *       *


    (c) Not later than April 1 of each year, the Secretary 
shall submit to Congress a report containing a statement as to 
the disposition of each case recommended to the Secretary for 
equitable relief under this section during the preceding 
calendar year. No report shall be required under this 
subsection after [December 31, 2004] December 31, 2009.

           *       *       *       *       *       *       *


Sec. 523A. Annual plan on outreach activities

    (a) Annual Plan Required.--The Secretary shall prepare each 
year a plan for the outreach activities of the Department for 
the following year.
    (b) Elements.--Each annual plan under subsection (a) shall 
include the following:
          (1) Plans for efforts to identify veterans who are 
        not enrolled or registered with the Department for 
        benefits or services under the programs administered by 
        the Secretary.
          (2) Plans for informing veterans and their dependents 
        of modifications of the benefits and services under the 
        programs administered by the Secretary, including 
        eligibility for medical and nursing care and services.
    (c) Coordination in Development.--In developing an annual 
plan under subsection (a), the Secretary shall consult with the 
following:
          (1) Directors or other appropriate officials of 
        organizations approved by the Secretary under section 
        5902 of this title.
          (2) Directors or other appropriate officials of State 
        and local education and training programs.
          (3) Representatives of non-governmental organizations 
        that carry out veterans outreach programs.
          (4) Representatives of State and local veterans 
        employment organizations.
          (5) Businesses and professional organizations.
          (6) Other individuals and organizations that assist 
        veterans in adjusting to civilian life.
    (d) Incorporation of Assessment of Previous Annual Plans.--
In developing an annual plan under subsection (a), the 
Secretary shall take into account the lessons learned from the 
implementation of previous annual plans under such subsection.
    (e) Incorporation of Recommendations to Improve Outreach 
and Awareness.--In developing an annual plan under subsection 
(a), the Secretary shall incorporate the recommendations for 
the improvement of veterans outreach and awareness activities 
included in the report submitted to Congress by the Secretary 
pursuant to section 805 of the Veterans Benefits Improvement 
Act of 2004 (Public Law 108-454).

           *       *       *       *       *       *       *


                       PART II. GENERAL BENEFITS

CHAPTER 11. COMPENSATION FOR SERVICE-CONNECTED DISABILITY OR DEATH

           *       *       *       *       *       *       *



Subchapter II. Wartime Disability Compensation

           *       *       *       *       *       *       *



Sec. 1112. Presumptions relating to certain diseases and disabilities

           *       *       *       *       *       *       *


    (b)(1) * * *

           *       *       *       *       *       *       *

          (3) The diseases specified in this paragraph are the 
        following:
                  (A) Avitaminosis.
                  (B) Beriberi (including beriberi heart 
                disease).
                  (C) Chronic dysentery.
                  (D) Helminthiasis.
                  (E) Malnutrition (including optic atrophy 
                associated with malnutrition).
                  (F) Pellagra.
                  (G) Any other nutritional deficiency.
                  (H) Cirrhosis of the liver.
                  (I) Peripheral neuropathy except where 
                directly related to infectious causes.
                  (J) Irritable bowel syndrome.
                  (K) Peptic ulcer disease.
                  (L) Atherosclerotic heart disease or 
                hypertensive vascular disease (including 
                hypertensive heart disease) and their 
                complications (including myocardial infarction, 
                congestive heart failure and arrhythmia).
                  (M) Stroke and its complications.

           *       *       *       *       *       *       *


CHAPTER 19. INSURANCE

           *       *       *       *       *       *       *



          Subchapter III. Servicemembers' Group Life Insurance


Sec. 1965. Definitions

    For the purpose of this subchapter--
          (1) * * *

           *       *       *       *       *       *       *

          (10) The term ``insurable dependent'', with respect 
        to a member, means the following:
                  (A) The member's spouse.
                  (B) The member's child, as defined in the 
                first sentence of section 101(4)(A) of this 
                title.
                  (C) The member's stillborn child.

           *       *       *       *       *       *       *


Sec. 1967. Persons insured; amount.

    (a)(1) * * *

           *       *       *       *       *       *       *

          (2)(A) A member may elect in writing not to be 
        insured under this subchapter.
          (B) A member may elect in writing not to insure the 
        member's spouse under this subchapter.
          (C) With respect to a policy of insurance covering an 
        insured member, the Secretary concerned shall make a 
        good-faith effort to notify the spouse of the member, 
        at the last address of the spouse in the records of the 
        Secretary concerned, if the member elects, prior to 
        discharge from the military, naval, or air service, 
        to--
                  (i) reduce amounts of insurance coverage of 
                the member; or
                  (ii) name a beneficiary other than the 
                member's spouse or child.
          (D) The failure of the Secretary concerned to provide 
        timely notification under subparagraph (C) shall not 
        affect the validity of an election by a member.
          (E) If an unmarried member marries after having made 
        one or more elections to reduce or decline insurance 
        coverage or to name beneficiaries, the Secretary 
        concerned is not required to notify the spouse of such 
        marriage of such elections. Elections made after such 
        marriage are subject to the notice requirements under 
        subparagraph (C).
          (3)(A) Subject to subparagraphs (B) and (C), the 
        amount for which a person is insured under this 
        subchapter is as follows:
                  [(i) In the case of a member, $250,000.]
                  (i) In the case of a member, $400,000.
                  (ii) In the case of a member's spouse, 
                $100,000.
                  (iii) In the case of a member's child, 
                $10,000.
          (B) A member may elect in writing to be insured or to 
        insure the member's spouse in an amount less than the 
        amount provided for under subparagraph (A). The member 
        may not elect to insure the member's child in an amount 
        less than $10,000. The amount of insurance so elected 
        shall, in the case of a [member or spouse] member, be 
        evenly divisible by $50,000 and, in the case of a 
        member's spouse, be evenly divisible by $10,000.

           *       *       *       *       *       *       *

    (d) Whenever a member has the opportunity to make an 
election under subsection (a) not to be insured under this 
subchapter, or to be insured under this subchapter in an amount 
less than the maximum amount of [$250,000] $400,000, and at 
such other times periodically thereafter as the Secretary 
concerned considers appropriate, the Secretary concerned shall 
furnish to the member general information concerning life 
insurance. Such information shall include--

           *       *       *       *       *       *       *


Sec. 1968.  Duration and termination of coverage; conversion.

    (a) * * *

           *       *       *       *       *       *       *

          (1) With respect to a member on active duty or active 
        duty for training under a call or order to duty that 
        does not specify a period of less than 31 days, 
        insurance under this subchapter shall cease--
                  (A) 120 days after the separation or release 
                from active duty or active duty for training, 
                unless on the date of such separation or 
                release the member is totally disabled, under 
                criteria established by the Secretary, in which 
                event the insurance shall cease [one year] 2 
                years after the date of separation or release 
                from such active duty or active duty for 
                training, or on the date the insured ceases to 
                be totally disabled, whichever is the earlier 
                date, but in no event before the end of the 120 
                days after such separation or release; or

           *       *       *       *       *       *       *

          (4) With respect to a member of the Ready Reserve of 
        a uniformed service who meets the qualifications set 
        forth in subparagraph (B) or (C) of section 1965(5) of 
        this title, insurance under this subchapter shall cease 
        120 days after separation or release from such 
        assignment, unless on the date of such separation or 
        release the member is totally disabled, under criteria 
        established by the Secretary, in which event the 
        insurance shall cease [one year] 2 years after the date 
        of separation or release from such assignment, or on 
        the date the insured ceases to be totally disabled, 
        whichever is the earlier date, but in no event before 
        the end of 120 days after separation or release from 
        such assignment.

           *       *       *       *       *       *       *


Sec. 1977.  Veterans' Group Life Insurance

    (a)(1) Veterans' Group Life Insurance shall be issued in 
the amounts specified in section 1967(a) of this title. In the 
case of any individual, the amount of Veterans' Group Life 
Insurance may not exceed the amount of Servicemembers' Group 
Life Insurance coverage continued in force after the expiration 
of the period of duty or travel under section 1967(b) or 
1968(a) of this title. No person may carry a combined amount of 
Servicemembers' Group Life Insurance and Veterans' Group Life 
Insurance in excess of [$250,000] $400,000 at any one time.
    (2) If any person insured under Veterans' Group Life 
Insurance again becomes insured under Servicemembers' Group 
Life Insurance but dies before terminating or converting such 
person's Veterans' Group Insurance, Veterans' Group Life 
Insurance shall be payable only if such person is insured for 
less than [$250,000] $400,000 under Servicemembers' Group Life 
Insurance, and then only in an amount which, when added to the 
amount of Servicemembers' Group Life Insurance payable, does 
not exceed [$250,000] $400,000.

           *       *       *       *       *       *       *


      CHAPTER 21. SPECIALLY ADAPTED HOUSING FOR DISABLED VETERANS


Sec. 2101.  Veterans eligible for assistance

    (a) Acquisition of Housing With Special Features.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) The regulations prescribed under [subsection (c)] 
        subsection (d) shall require that assistance under 
        paragraph (1) may be provided to a veteran only if the 
        Secretary finds that--

           *       *       *       *       *       *       *

    (c) Assistance to Members of the Armed Forces.--
          (1) The Secretary may provide assistance under 
        subsection (a) to a member of the Armed Forces serving 
        on active duty who is suffering from a disability 
        described in subparagraph (A), (B), (C), or (D) of 
        paragraph (2) of that subsection if such disability is 
        the result of an injury incurred or disease contracted 
        in or aggravated in the line of duty in the active 
        military, naval, or air service. Such assistance shall 
        be provided to the same extent as assistance is 
        provided under that subsection to veterans eligible for 
        assistance under that subsection and subject to the 
        requirements of paragraph (3) of that subsection.
          (2) The Secretary may provide assistance under 
        subsection (b) to a member of the Armed Forces serving 
        on active duty who is suffering from a disability 
        described in subparagraph (A) or (B) of paragraph (2) 
        of that subsection if such disability is the result of 
        an injury incurred or disease contracted in or 
        aggravated in the line of duty in the active military, 
        naval, or air service. Such assistance shall be 
        provided to the same extent as assistance is provided 
        under that subsection to veterans eligible for 
        assistance under that subsection and subject to the 
        requirements of paragraph (3) of that subsection.
    [(c)] (d) Regulations. Assistance under this section shall 
be provided in accordance with such regulations as the 
Secretary may prescribe.

           *       *       *       *       *       *       *


PART III. READJUSTMENT AND RELATED BENEFITS

           *       *       *       *       *       *       *


CHAPTER 37. HOUSING AND SMALL BUSINESS LOANS

           *       *       *       *       *       *       *



   [Subchapter V. Native American Veteran Housing Loan Pilot Program]

        Subchapter V._Housing Loans for Native American Veterans

                                      [3761.  Pilot program.]
                                      3761.  Authority for housing 
                                      loans for Native American 
                                      veterans.
                                      3762.  Direct housing loans to 
                                      Native American veterans.
                                      3763.  Native American Veteran 
                                      Housing Loan Program Account.
                                      3764.  Definitions.

           *       *       *       *       *       *       *


Subchapter I. General

           *       *       *       *       *       *       *



Sec. 3707A.  Hybrid adjustable rate mortgages

    (a) * * *

           *       *       *       *       *       *       *

    (c) Interest rate adjustment provisions of a mortgage 
guaranteed under this section shall--
          (1) * * *

           *       *       *       *       *       *       *

          (4) in the case of any single annual interest rate 
        adjustment after the initial contract interest rate 
        adjustment, be limited to a maximum increase or 
        decrease of [1 percentage point] such percentage as the 
        Secretary may prescribe.

           *       *       *       *       *       *       *


   [Subchapter V. Native American Veteran Housing Loan Pilot Program]


        Subchapter V._Housing Loans for Native American Veterans


[Sec. 3761.  Pilot program.]

  Sec. 3761.  Authority for housing loans for Native American veterans

    [(a) The Secretary shall establish and implement a pilot 
program under which the Secretary may make direct housing loans 
to Native American veterans. The purpose of such loans is to 
permit such veterans to purchase, construct, or improve 
dwellings on trust land. The Secretary shall establish and 
implement the pilot program in accordance with the provisions 
of this subchapter.
    [(b) In carrying out the pilot program under this 
subchapter, the Secretary shall, to the extent practicable, 
make direct housing loans to Native American veterans who are 
located in a variety of geographic areas and in areas 
experiencing a variety of economic circumstances.
    [(c) No loans may be made under this subchapter after 
December 31, 2008.]
    (a) The Secretary shall make direct housing loans to Native 
American veterans in accordance with the provisions of this 
subchapter.
    (b) The purpose of loans under this subchapter is to permit 
Native American veterans to purchase, construct, or improve 
dwellings on trust land.

Sec. 3762.  Direct housing loans to Native American veterans

    (a) The Secretary may make a direct housing loan to a 
Native American veteran under this subchapter if--

           *       *       *       *       *       *       *

    (b)(1) Subject to paragraph (2), the Secretary shall ensure 
that each memorandum of understanding that the Secretary enters 
into with a tribal organization shall provide for the 
following:
          (A) * * *

           *       *       *       *       *       *       *

          (E) That the tribal organization agrees to such other 
        terms and conditions with respect to the making of 
        direct loans to Native American veterans under the 
        jurisdiction of the tribal organization as the 
        Secretary may require [in order to ensure that the 
        pilot program established under this subchapter is 
        implemented in a responsible and prudent manner].

           *       *       *       *       *       *       *

    (c)(1)(A) Except as provided in subparagraph (B), the 
principal amount of any direct housing loan made to a Native 
American under this section may not exceed $80,000.
    (B) The Secretary may make loans exceeding the amount 
specified in subparagraph (A) in a geographic area if the 
Secretary determines that housing costs in the area are 
significantly higher than average housing costs nationwide. The 
amount of such increase [shall be the amount that the Secretary 
determines is necessary in order to carry out the pilot program 
under this subchapter in a manner that demonstrates the 
advisability of making direct housing loans to Native American 
veterans who are located in a variety of geographic areas and 
in geographic areas experiencing a variety of economic 
conditions.] shall be such amount as the Secretary considers 
appropriate for the purpose of this subchapter.

           *       *       *       *       *       *       *

    (d)(1) The Secretary shall establish credit underwriting 
standards to be used in evaluating loans made under this 
subchapter. [In establishing such standards, the Secretary 
shall take into account the purpose of this program to make 
available housing to Native American veterans living on trust 
lands.]

           *       *       *       *       *       *       *

    (i)(1) The Secretary shall, in consultation with tribal 
organizations (including the National Congress of American 
Indians and the National American Indian Housing Council), 
carry out an outreach program to inform and educate Native 
American veterans [of the pilot program provided for under this 
subchapter and the availability of direct housing loans for 
Native American veterans who live on trust lands.] of the 
availability of direct housing loans for Native American 
veterans under this subchapter.
    (2) Activities under the outreach program shall include the 
following:
          (A) Attending conferences and conventions conducted 
        by the National Congress of American Indians in order 
        to work with the National Congress in providing 
        information and training to tribal organizations and 
        Native American veterans regarding the availability of 
        housing benefits [under the pilot program and in 
        assisting such organizations and veterans in 
        participating in the pilot program.] under this 
        subchapter.

           *       *       *       *       *       *       *

          (E) Assisting tribal organizations and Native 
        American veterans [in participating in the pilot 
        program] in participating in the making of direct loans 
        under this subchapter.

           *       *       *       *       *       *       *

    [(j) Not later than February 1 of each year through 2006, 
the Secretary shall transmit to the Committees on Veterans' 
Affairs of the Senate and House of Representatives a report 
relating to the implementation of the pilot program under this 
subchapter during the fiscal year preceding the date of the 
report. Each such report shall include the following:
          [(1) The Secretary's exercise during such fiscal year 
        of the authority provided under subsection (c)(1)(B) to 
        make loans exceeding the maximum loan amount.
          [(2) The appraisals performed for the Secretary 
        during such fiscal year under the authority of 
        subsection (d)(2), including a description of--
                  [(A) the manner in which such appraisals were 
                performed;
                  [(B) the qualifications of the appraisers who 
                performed such appraisals; and
                  [(C) the actions taken by the Secretary with 
                respect to such appraisals to protect the 
                interests of veterans and the United States.
          [(3) The outreach activities undertaken under 
        subsection (i) during such fiscal year, including--
                  [(A) a description of such activities on a 
                region-by-region basis; and
                  [(B) an assessment of the effectiveness of 
                such activities in encouraging the 
                participation of Native American veterans in 
                the pilot program.
          [(4) The pool of Native American veterans who are 
        eligible for participation in the pilot program, 
        including--
                  [(A) a description and analysis of the pool, 
                including income demographics;
                  [(B) a description and assessment of the 
                impediments, if any, to full participation in 
                the pilot program of the Native American 
                veterans in the pool; and
                  [(C) the impact of low-cost housing programs 
                operated by the Department of Housing and Urban 
                Development and other Federal or State agencies 
                on the demand for direct loans under this 
                section.
          [(5) The Secretary's recommendations, if any, for 
        additional legislation regarding the pilot program.]

           *       *       *       *       *       *       *