2017 Veterans Affairs Budget: Breaking Down the Numbers

Politicians from both sides of the political spectrum tend to use budget data in much the same way a magician conjures a rabbit out of a top hat.  Sadly, the Department of Veterans Affairs (the VA”) budget – in the hands of a politician – often becomes an instrument of posturing for voters rather than a management tool to efficiently allocate limited funds and resources to our Veteran population.

In analyzing the 2017 VA Budget, it is useful to analyze a few broad parameters to help pinpoint the “macro” issues.  Certainly, the VA can operate more efficiently, but this assumes that the VA management is committed to insure that Veterans receive the best care possible.

Unfortunately, management efficiency within the VA is beyond the scope of this very preliminary analysis of the 2017 VA budget.

SFTT’s focus is on how well – in “macro” terms – the 2017 VA budget actually benefits Veterans.

Discretionary vs Mandated Spending at the VA

According to the Department of Veterans Affairs, “The President’s 2017 Budget includes $182.3 billion for VA in 2017.  This includes $78.7 billion in discretionary resources and $103.6 billion in mandatory funding.  Our (sic the VA) discretionary budget request represents an increase of $3.6 billion, or 4.9 percent, over the 2016 enacted level.”

Department of Veterans Affairs

In effect, discretionary spending at the VA has been spared the axe of many other government programs.  As stated above, discretionary spending at the VA is projected to increase 4.9%.  This analysis will focus only on discretionary spending to determine whether the proposed increase actually benefits Veterans.

Discretionary spending represents only 43% of the total VA budget, while some 57% is allocated toward “mandatory programs” that support Veterans who meet predetermined criteria.   Needless to say, eligibility for Veterans to tap into those “mandatory” programs are largely determined by the VA. Many question the rationale and the process used by VA administrators to determine eligibility and the level of compensation.

Analyzing the Discretionary Spending Increases at the VA

All too often we confuse an “increased budget” with better service or improved end-user outcomes.  In the case of the VA the “end-user” is a Veteran who avails himself or herself of VA services.

To explain this apparent paradox, I cite the following example.  For instance, if the entire 4.9% budget increase is allocated to existing staff, then Veterans will receive NO better service or end-user outcomes UNLESS operating efficiencies occur within the VA.  In effect, you are relying on the VA’s NEW management to perform a better job than their predecessors rather than expecting the increased budget allocation to improve the lives of Veterans.

The same logic could be applied to price increases for drugs, third-party consulting services and other discretionary contractual obligations.

The budget is cleverly designed to avoid breaking out staff salary expenses.  Instead it focuses on programs such as “Benefits Claims Processing,” “Medical Care, and “Information Technology.”  Therefore,  it is rather difficult (if not impossible) to breakout budgeted expenses to obtain a better understanding to the cost-benefit relationships.

What is clear, is that the Department of Veterans Affairs hires well over 350,000 full-time employees and staffing has increased by roughly 10% over the past two years.  The good news is that over 32% of VA staffing are Veterans:

Veterans Affairs Budget

Without getting into the details of the budget, it is difficult to know whether taxpayer dollars are being spent efficiently within the VA.  With an average annual salary of approximately $50,000 (estimated national average), total VA staff expenses should exceed $18 billion.  To this, one needs to tack on an additional 30% (estimated) in staff-related expenses (social security, severance pay, pension plan, unemployment insurance, etc).

Therefore, it is reasonable to assume that roughly one-third of the “discretionary” budget is allocated toward staff.  It would be most interesting to know, how much money is allocated to third-party contractors, consultants and part-time employees.

Fitch reports that on average, “staff expenses” represent 54% of total operating expenses of privately run hospitals.  As such, the “scratch-pad” analysis above suggests that the VA is woefully understaffed (i.e. 1/3 of discretionary expenses) or that staff expenses and outside contractor expenses are much higher as a percentage of total discretionary spending.

The issue is not to question whether these staffing and compensation levels are appropriate, but to determine whether the end-user (i.e. the Veteran) is receiving the full benefit of this budgetary increase.

I suspect not, but it is next to impossible to determine how funds are allocated and whether they are done so efficiently.

While the new administration appears to be sending the “right” message to the VA, the current budget seems rather superficial and I detect little that represents a major change in direction of a huge government entity that seems more interested in defending its turf than representing the interests of all Veterans.

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