VA budget shortfall could deepen 2025 funding headaches

A $12 billion shortfall facing the Department of Veterans Affairs (VA) could further complicate an already heated partisan debate over how to fund the government for 2025.

There is already a gap between the spending levels in funding bills House Republicans crafted and where Democrats say spending should be, factoring in a side deal struck between GOP leadership and the White House last year.

And lawmakers signal the VA budget shortfall just adds to the headaches.

“How this all gets resolved is super complicated,” Zach Moller, a former Senate Democratic budget aide who is now director of the economic program at the centrist think tank Third Way, said. “Does this $12 billion come from other things in VA?”

The VA asked Congress last month to provide about $3 billion in funding for mandatory benefits for the fiscal year ending in September, as well as roughly $12 billion in additional funding for fiscal year 2025 for medical care.

There is some bipartisan momentum in Congress to address the more immediate ask, as officials warn millions of veterans’ benefits are at risk in the coming weeks. If the VA doesn’t receive that funding by Sept. 20, it says veterans’ compensation and pension benefit payments, as well as their readjustment benefits, could be delayed in October.

“Literally checks won’t go out unless we fix this in September,” Sen. John Boozman (R-Ark.), the top Republican on the subcommittee that crafts the annual VA funding bill, told The Hill, adding that members on both sides see the problem as “something that is going to get done, that needs to get done.”

An effort to fast-track a fix for the $3 billion shortfall was blocked before Congress left town last week, as some Republicans raised scrutiny over the management of funds at the VA.

And both sides are already digging in their heels on discretionary funding for fiscal year 2025.

The Fiscal Responsibility Act (FRA), the law that resulted from the deal struck by President Biden and then-Speaker Kevin McCarthy (R-Calif.) last year, sets a funding cap of about $711 billion for nondefense programs for fiscal year 2025.

House Republicans wrote their spending bills at that level, but Democrats say that undercuts a bipartisan handshake deal to allocate around $60 billion in further funding for nondefense programs.

“There's a budget cap for nondefense discretionary as a whole, and so VA medical has to live within that,” Bobby Kogan, senior director of federal budget policy for the Center for American Progress, said. “So, all else equal, whatever was going to happen for this coming year, that means there's $12 billion less room for everything else.”

The VA has cited the PACT Act, a landmark law that passed with bipartisan support in 2022, as the key driver behind the budget shortfall, pointing to increases in enrollment in VA health care, appointments and applications benefits.

In the past year alone, an agency spokesperson said more than 410,000 veterans “have enrolled in VA care over the last 365 days, an increase of 27 percent year over year – and the most since 2017.” 

“In total, since the PACT Act was passed, more than 710,000 Veterans have enrolled in VA health care, which represents a more than 34 percent increase in Veterans enrolling compared to an equivalent period before the legislation was signed,” the representative added.

The Biden administration requested roughly $154 billion for the VA for next year, including a proposal for $130 billion in discretionary budget authority. The VA hasn’t said what adjustments would need to be made if Congress does not provide the additional funding for the next fiscal year.

Discussing the nearly $12 billion ask from the VA, Boozman said last week that “the discretionary component is way over.”

“That's the discussion that’s being had because it’s so much money, it eats up the discretionary dollars,” Boozman said. 

His comment also comes after top Senate negotiators announced earlier this summer that they would be padding funding for defense and nondefense programs with emergency funds in their fiscal 2025 bills – meaning a wider gulf between both chambers when it’s time for them to hash out a deal on bicameral spending bills in the months ahead.

“We've continued to find ourselves in a situation that the ‘25 cap was untenable. It was untenable under the numbers that were put in the law. It was untenable including the handshake agreement,” Moller said, adding that the Senate Appropriations Committee has been “very clear that it's untenable” given the recent bipartisan agreement.

“We're stacking plates up on one another, and we're trying to walk it to the dishwasher,” he said. “I'm very worried somebody's gonna tip over and we’re in trouble.”