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[Senate Report 107-215]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 508
107th Congress                                                   Report
                                 SENATE
 2nd Session                                                    107-215

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      VETERANS' COMPENSATION COST-OF-LIVING ADJUSTMENT ACT OF 2002

                                _______
                                

                 July 22, 2002.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 2074]

    The Committee on Veterans' Affairs, to which was referred 
the bill (S. 2074), to increase, effective as of December 1, 
2002, the rates of compensation for veterans with service-
connected disabilities and the rates of dependency and 
indemnity compensation for the survivors of certain disabled 
veterans, having considered the same, reports favorably thereon 
with amendments, and recommends that the bill, as amended, do 
pass.

                             Committee Bill

    The text of the original bill, as amended, as reported is 
as follows:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Veterans' Compensation Cost-
of-Living Adjustment Act of 2002''.

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

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

SEC. 3. PUBLICATION OF ADJUSTED RATES.

    At the same time as the matters specified in section 
215(i)(2)(D) of the Social Security Act (42 U.S.C. 
415(i)(2)(D)) are required to be published by reason of a 
determination made under section 215(i) of such Act during 
fiscal year 2003, the Secretary of Veterans Affairs shall 
publish in the Federal Register the amounts specified in 
subsection (b) of section 2, as increased pursuant to that 
section.

                              Introduction

    The Committee on Veterans' Affairs (hereinafter, the 
``Committee'') hereby reports a bill to increase, effective as 
of December 1, 2002, the rates of compensation for veterans 
with service-connected disabilities and the rates of dependency 
and indemnity compensation (hereinafter, ``DIC'') for the 
survivors of certain disabled veterans.

                           Committee Hearing

    On May 2, 2002, the Committee held a hearing on legislation 
pending before the Committee. Among the measures on which the 
Committee received testimony was S. 2074, a bill to increase, 
effective as of December 1, 2002, the rates of compensation for 
veterans with service-connected disabilities and the rates of 
DIC for the survivors of certain disabled veterans. The 
Committee received testimony from, among others, 
representatives of the Department of Veterans Affairs 
(hereinafter, ``VA''), and from representatives of The American 
Legion, the Veterans of Foreign Wars, the Disabled American 
Veterans, and the Paralyzed Veterans of America.

                           Committee Meeting

    On June 6, 2002, the Committee met in open session to 
consider legislation pending before the Committee. Among the 
measures so considered was S. 2074, a bill to increase, 
effective as of December 1, 2002, the rates of compensation for 
veterans with service-connected disabilities and the rates of 
DIC for the survivors of certain disabled veterans. The 
Committee voted by unanimous voice vote to report S. 2074, as 
introduced, favorably to the Senate.

                     Summary of S. 2074 as Reported

    The Committee bill contains freestanding provisions that 
would require the Secretary of Veterans Affairs to increase, 
effective December 1, 2002, the rates of and limitations on 
certain benefits paid by VA by the same percentage as the cost-
of-living adjustment (hereinafter, ``COLA'') provided to Social 
Security recipients and VA pension beneficiaries that become 
effective on the same date. The COLA would apply to:
          1. basic compensation rates for veterans with 
        service-connected disabilities and the rates payable 
        for certain severe disabilities;
          2. the allowance for spouses, children, and dependent 
        parents paid to service-connected disabled veterans 
        rated 30 percent or more disabled;
          3. the annual clothing allowance paid to veterans 
        whose compensable disability requires the use of a 
        prosthetic or orthopedic appliance (including a 
        wheelchair) that tends to tear or wear out clothing, or 
        requires the use of a medication prescribed by a 
        physician for a service-connected skin condition if the 
        medication causes irreparable damage to the veteran's 
        outer garments; and
          4. the dependency and indemnity compensation rates 
        paid to:
                  (a) surviving spouses of veterans whose 
                deaths were service connected;
                  (b) surviving spouses for dependent children;
                  (c) surviving spouses who are so disabled 
                that they need aid and attendance or are 
                permanently housebound;
                  (d) surviving spouses covered under 38 U.S.C. 
                Sec. 1318(b); and
                  (e) the children of veterans whose deaths 
                were service connected if no surviving spouse 
                is entitled to DIC, the child is age 18 through 
                22 and attending an approved educational 
                institution, or the child is age 18 or over and 
                became permanently incapable of self-support 
                prior to reaching age 18.
The Congressional Budget Office (hereinafter, ``CBO'') 
currently estimates that the COLA to be provided to Social 
Security recipients will be 1.9 percent.

                               Background

Disability Compensation

    The service-connected disability compensation program under 
chapter 11 of title 38, United States Code, provides monthly 
cash benefits to veterans who have disabilities incurred or 
aggravated during active duty in the Armed Forces.
    The amount of compensation paid depends on the nature of 
the veteran's disability or combination of disabilities and the 
extent to which the disability impairs earning capacity. VA 
rates compensable disabilities according to its Schedule for 
Rating Disabilities on a graduated scale ranging from 0 to 100 
percent, in 10-percent increments. VA pays higher monthly rates 
(known as ``special monthly compensation'') to totally disabled 
veterans with certain specific, very severe disabilities or 
combinations of disabilities.
    As of February 2002, VA was providing disability 
compensation to 2,364,237 veterans with service-connected 
disabilities. Among the veterans receiving such compensation 
were 17 World War I veterans; 449,120 World War II veterans; 
164,060 Korean-conflict veterans; 784,899 Vietnam-era veterans; 
and 388,543 veterans of the Persian Gulf War era.
    A veteran with a disability rated at 30 percent or more may 
receive additional compensation on behalf of the veteran's 
spouse, children, and dependent parents. These dependents' 
allowances are prorated according to the percentage of 
disability. In 2001, 758,367 veterans received additional 
compensation for dependents, with an average of 1.51 dependents 
per case, or 1,143,940 total dependents.

Dependency and Indemnity Compensation

    Under chapter 13 of title 38, VA pays dependency and 
indemnity compensation to the survivors of servicemembers or 
veterans who died on or after January 1, 1957, from a disease 
or injury incurred or aggravated during military service. 
Survivors eligible for DIC include surviving spouses, unmarried 
children under the age of 18, children age 18 or older who are 
permanently incapable of self-support, children between the 
ages of 18 and 22 who are enrolled in school, and certain needy 
parents. Under section 5312 of title 38, parents' DIC rates are 
adjusted automatically at the same time and by the same 
percentage as Social Security and VA pension benefits. 
Surviving spouses, children, and parents who are receiving 
death compensation based on deaths before January 1, 1957, may 
elect to receive DIC instead of death compensation.
    For deaths prior to January 1, 1993, surviving spouses 
received DIC at rates determined by the pay grade (service 
rank) of the deceased veteran. For deaths on or after January 
1, 1993, surviving spouses currently receive $935 per month 
and, if the deceased veteran was totally disabled for 8 years 
prior to death, an additional $202 per month. Surviving spouses 
who had been receiving benefits under the prior DIC program are 
paid under whichever program will pay the higher benefit.
    A surviving spouse who is so disabled as to be housebound 
or in need of regular aid and attendance is eligible to receive 
an additional amount. A surviving spouse also may receive 
additional allowances on behalf of the veteran's surviving 
children.
    Children are entitled to DIC if there is no surviving 
spouse, if they are 18 years or older and became permanently 
incapable of self-support before reaching age 18, or if they 
are 18 to 22 years old and pursuing an approved course of 
education.
    As of September 31, 2001, VA was paying DIC benefits to, or 
on behalf of, 290,112 surviving spouses, 29,152 children, and 
9,444 needy surviving parents.
    Under section 1318(b) of title 38, VA pays benefits at DIC 
rates to the surviving spouses and children of veterans whose 
deaths are not service connected if the veteran, immediately 
prior to his or her death, had been receiving (or had been 
entitled to receive) compensation at the 100-percent rate 
continuously for 10 or more years or for at least 5 years from 
the date of discharge or release from active duty. VA also pays 
DIC benefits to the surviving spouses and children of veterans 
who were former prisoners of war and after September 30, 1994, 
whose deaths were not service-connected if the veterans had 
been receiving (or had been entitled to receive) compensation 
at the 100-percent rate continuously far not less than one year 
preceding death.

History of Cost-of-Living Increases

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

 History of Service-Connected Disability Compensation Increases, 1975 to
                                 Present
------------------------------------------------------------------------
                                            Increase        Cumulative
  Fiscal Year        Effective Date        (percent)      (1969 = $100)
------------------------------------------------------------------------
          1976   August 1975..........            11.8           158.55
          1977   October 1976.........             8.0           171.23
          1978   October 1977.........             6.6           182.53
          1979   October 1978.........             7.3           195.86
          1980   October 1979.........             9.9           215.25
          1981   October 1980.........            14.3           246.03
          1982   October 1981.........            11.2           273.58
          1983   October 1982.........             7.4           293.82
          1984   April 1983...........             3.5           304.11
          1985   December 1984........             3.2           313.84
          1986   December 1985........             3.1           323.57
          1987   December 1986........             1.5           328.42
          1988   December 1987........             4.2           342.22
          1989   December 1988........             4.1           356.25
          1990   December 1989........             4.7           372.99
          1991   January 1991 1.......             5.4           393.13
          1992   December 1991........             3.7           407.68
          1993   December 1992........             3.0           419.91
          1994   December 1993........             2.6           430.83
          1995   December 1994 2......             2.8           442.89
          1996   December 1995 2......             2.6           454.41
          1997   December 1996........             2.9           467.59
          1998   December 1997 2......             2.1           477.41
          1999   December 1998 2......             1.3           483.62
          2000   December 1999 2......             2.4           495.23
          2001   December 2000 2......             3.5           512.56
          2002   December 2001 2......             2.6           525.89
          2003   December 2002 2......           3 1.9           535.88
------------------------------------------------------------------------
1 Payment of the December 1990 increase was delayed until January 1991
  by section 7 of Public Law 102-3.
2 December 1994, 1995, 1997, 1998, 1999, 2000, 2001, and 2002 increases
  are rounded to the next lower dollar amount pursuant to sections
  2(c)(2) of Public Law 103-418 and Public Law 104-57, and section 8031
  of Public Law 105-33.
3 Estimate.

                             Committee Bill

    The Committee bill would direct VA to compute and provide 
increases in the monthly rates of compensation and DIC, 
effective December 1, 2002. The rates would be increased by the 
same percentage as the Social Security and VA pension COLA that 
will take effect on that date. In accordance with section 8031 
of the Balanced Budget Act of 1997 (Public Law 105-33), amounts 
of compensation so computed that are not even multiples of $1 
will be rounded down to the next lower whole dollar amount. 
This provision was extended in 2001 by Public Law 107-103 
section 205 until 2011.
    The increases in DIC automatically would result in 
identical percentage increases in benefits paid at DIC rates 
under section 1318 of title 38 to the surviving spouses and 
children of veterans who had a service-connected disability at 
the time of death for which they continuously were rated 
totally disabled for at least either (1) 10 years, (2) 5 years 
from the date of discharge from active duty, or (3) 1 year if 
the veteran was a former prisoner of war.
    Under section 156(e)(1)(A) of Public Law 97-377, the DIC 
increases also automatically would result in the same 
percentage increases in Social Security benefits that were 
terminated by section 2205 of the Omnibus Budget Reconciliation 
Act of 1981 (hereinafter, ``OBRA 1981'') (Public Law 97-35). 
Prior to OBRA 1981, those benefits had been paid to certain 
surviving spouses of those who died on active duty or from a 
service-connected disability on behalf of their children under 
18 and children over age 19 who were secondary-school students; 
OBRA 1981 reduced the eligibility cutoff age from 18 to 16 
years old.
    Section 314 of Public Law 100-322 amended section 156(a)(1) 
of Public Law 97-377 to restore the benefits eliminated by the 
OBRA 1981. The DIC increase also would apply to these restored 
benefits, effective December 1, 2000.
    CBO, in its most recent baseline, estimated that the FY 
2002 Social Security COLA, and thus the COLA provided for by 
the Committee bill, will be 1.9 percent. The actual Social 
Security COLA could differ from this estimate. Rather than 
selecting any particular percentage adjustment at the time the 
Committee ordered the bill reported, the Committee followed its 
prior practice of setting the COLA by reference to the Social 
Security increase. The Committee believes this is the most 
equitable means of providing increases in these important 
service-connected benefits.

                             Cost Estimate

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the Committee, based on 
information supplied by CBO, estimates that, compared to the 
CBO baseline, there would be no costs or savings resulting from 
enactment of the Committee bill.
    The cost estimate provided by CBO follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 13, 2002.
Hon. John D. Rockefeller IV,
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. 2074, the Veterans' 
Compensation Cost-of-Living Adjustment Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Milissa E. 
Zimmerman.
            Sincerely,
                                         Barry B. Anderson,
                                      for Dan L. Crippen, Director.
    Enclosure.

S. 2074, Veterans' Compensation Cost-of-Living Adjustment Act of 2002 
        (As ordered reported by the Senate Committee on Veterans' 
        Affairs on June 6, 2002)

    S. 2074 would increase the amounts paid to veterans for 
disability compensation and to their survivors for dependency 
and indemnity compensation by the same cost-of-living 
adjustment (COLA) payable to Social Security recipients. The 
increase would take effect on December 1, 2002, and the results 
of the adjustment would be rounded to the next lower dollar.
    The COLA that would be authorized by this bill is assumed 
in the baseline, pursuant to section 257 of the Balanced Budget 
and Emergency Deficit Control Act, and savings from rounding it 
down were achieved by the Balanced Budget Act of 1997 (Public 
Law 105-33). The authority to round down the COLA increase was 
extended to 2011 by the Veterans Education and Benefits 
Expansion Act of 2001 (Public Law 107-103). Because the COLA is 
assumed in the baseline, the COLA provision would have no 
budgetary effect relative to the baseline. Relative to current 
law, CBO estimates that enacting this provision would increase 
spending for these programs by about $295 million in 2003. (The 
annualized cost would be about $400 million in subsequent 
years.) This estimate assumes that the COLA effective on 
December 1, 2002, would be 1.9 percent.
    S. 2074 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On May 13, 2002, CBO transmitted a cost estimate for H.R. 
4085, the Veterans' and Survivors' Benefits Expansion Act of 
2002, as ordered reported by the House Committee on Veterans' 
Affairs on May 9, 2002. Section 2 of H.R. 4085 would provide 
the same COLA as S. 2074 would. The estimated costs of S. 2074 
and section 2 of H.R. 4085 are the same.
    The CBO staff contact for federal costs is Melissa E. 
Zimmerman. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                      Regulatory Impact Statement

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee on Veterans' 
Affairs has made an evaluation of the regulatory impact that 
would be incurred in carrying out the Committee bill. The 
Committee finds that 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 in Committee

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following is a tabulation of votes 
cast in person or by proxy by members of the Committee on 
Veterans' Affairs at its June 6, 2002, meeting. On that date, 
the Committee, by unanimous voice vote, ordered S. 2074, a bill 
to increase, effective as of December 1, 2002, the rates of 
compensation for veterans with service-connected disabilities 
and the rates of dependency and indemnity compensation for the 
survivors of certain disabled veterans reported favorably to 
the Senate.

                             Agency Report

    On May 2, 2002, the Honorable Tim McClain, General Counsel, 
Department of Veterans Affairs, appeared before the Committee 
and submitted testimony on, among other things, S. 2074, a bill 
to increase, effective as of December 1, 2002, the rates of 
compensation for veterans with service-connected disabilities 
and the rates of dependency and indemnity compensation for the 
survivors of certain disabled veterans. Excerpts from this 
statement are reprinted below:

   PREPARED STATEMENT OF TIM MCCLAIN, GENERAL COUNSEL, DEPARTMENT OF 
                            VETERANS AFFAIRS

    Mr. Chairman and Members of the Committee, thank you for 
the opportunity to testify today on several legislative items 
of great interest to veterans.

           *       *       *       *       *       *       *

    S. 2074 . . . would increase the rates of compensation for 
service-disabled veterans and for dependency and indemnity 
compensation paid to survivors of veterans whose deaths were 
service-related, effective December 1, 2002. As provided in the 
President's FY 2003 budget request, the rate of increase would 
be the same as the COLA that will be provided under current law 
to veterans' pension and Social Security recipients, which is 
currently estimated to be 1.8 percent. The proposed COLA is 
necessary to protect the benefits of affected veterans and 
their survivors from the eroding effects of inflation. These 
worthy beneficiaries deserve no less.
    We estimate that enactment of this COLA would cost $279 
million during FY 2003, $1.66 billion over the period FY 2003-
2007 and $3.45 billion over the period FY 2003-2012, which is 
included in the President's Budget. Therefore, the PAYGO cost 
is zero.

           *       *       *       *       *       *       *

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

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

                                    
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