We believe it only reasonable that similar increases be provided in the rates of veterans' service-connected disability compensation including the additional compensation payable for dependents. Accordingly, we submitted to the Speaker of the House on March 8, 1972, a draft bill, which is now pending before your committee as H.R. 13799. That measure proposes disability compensation rate increases approximating 6 percent.

We recommend, of course, favorable consideration of that cost-ofliving disability compensation measure.

Repeal of law requiring withholding of compensation payments: A related proposal before your subcommittee, H.R. 14086, would eliminate the withholding of disability compensation and retirement pay for certain veterans being furnished hospital treatment or domiciliary care by the Veterans' Administration.

Under existing law, the service-connected disability compensation or retirement pay of any veteran having neither wife, child, nor dependent parent, who is being furnished hospital treatment, institutional, or domiciliary care by the Veterans' Administration, is reduced to $30 monthly, or 50 percent of the benefit, whichever is greater, commencing with the first day of the seventh calendar month following the month of admission for treatment or care.

Upon authorized release from such treatment or care, the veteran is paid in lump sum the amount by which his benefit was reduced. This constitutes a withholding with later payment to the veteran. H.R. 14086 would delete the described withholding provision.

Time and experience have shown that the withholding of compensation and retirement pay in the case of a single hospitalized veteran has caused undue hardship, since his needs are not necessarily substantially met merely because he is receiving bed and board from the Veterans' Administration.

While such withheld amounts are payable to him upon release from hospitalization, there exists the temporary dislocation and possible inability to satisfy continuing obligations caused by his reduced income while hospitalized. Even though hospitalized, the single veteran has continuing obligations, such as payments on a house, rent, furniture, automobile, et cetera.

These expenses often cannot be met while he receives reduced benefits. Thus, the current system often leaves a veteran with the difficult choice of remaining in the hospital until well, and losing his home and personal possessions, or of leaving the hospital prematurely in order to meet his continuing obligations.

Further, such a system, we feel, tends to discourage a single veteran with health problems from attempting to establish a meaningful household for himself outside the hospital environment, with the concomitant assumption of financial obligations, and thus, tends to encourage chronic illness.

Moreover, the reduction provision discriminates again, and financially disadvantages, the single veteran, since no reduction is made in benefits for veterans with dependents.

We note that no provision is proposed for the disposition of money being withheld from veterans pursuant to the provision of existing law which would be removed by enactment of this measure. In order to preclude confusion and indecision as to the appropriate manner of

handling such withheld benefit amounts our report on H.R. 14086 included a draft amendment providing for disposition of such amounts under varying conditions.

In summary, we feel that, measured against its disadvantages, the subject withholding provision does not in general serve the best interests of the single hospitalized veterans concerned, and moreover does not justify the administrative costs involved. Consequently, we recommend favorable consideration of H.R. 14086 if amended as suggested. Pension Liberalization for Widows of Spanish-American War Veterans. We understand that the subcommittee also wishes our views on a pension proposal relating to Spanish-American War widows.

The program established for that war provides what is known as a service pension, which is payable to veterans and their widows without regard to financial need. In addition, where beneficial, a SpanishAmerican War veteran may irrevocably elect, if he can qualify, to receive pension under the program provided for veterans of later wars. In the case of such a veteran who is in need of regular aid and attendance, payment of the greater pension amount is automatic, without any action on the veteran's part. Legislative history reflects that the alternative system was extended to the veterans of the Spanish-American War for equitable reasons.

Thought is now being given to adoption of comparable provisions for widows of Spanish-American War veterans. We feel that, for similar reasons, it would be appropriate to afford these widows a like opportunity to obtain greater benefits under the pension system available to widows of veterans of later wars. Accordingly, we would interpose no objection to legislation to accomplish that purpose, which I understand was just introduced as H.R. 15083.

I would now like to turn to three other legislative matters which are remedial in nature. These would extend to the Administrator the authority to grant relief from hardships arising from administrative error or other actions of the Government and would also correct certain existing inequities.

Remission of Forfeitures.-H.R. 10505 is identical to the Administration proposal forwarded to the Speaker of the House with our letter of August 2, 1971. The bill would authorize the Administrator to review certain forfeiture actions imposed by the VA prior to September 2, 1959, because of the submission of fraudulent evidence in connection with gratuitous veteran's benefits, and to grant remission of those forfeitures if they would not have been imposed under the law in effect after September 1959.

From 1921 until 1959, the Veterans' Administration had authority to administratively forfeit the rights of veterans and dependents to gratuitous VA benefits for the submission of a false or fraudulent statement made in connection therewith. Those provisions of law still appear in section 3503 (a) through (c) of title 38, United States Code. This forfeiture for fraud was in addition to the penalties imposed by Federal criminal statues. In 1959, the law was amended discontinuing the administrative forfeiture for fraud in domestic cases where the person who submitted the fraudulent statement would be subject to criminal prosecution for such act. The change was predicated upon the conclusion that criminal conviction should constitute sufficient penalty. There were approximately 4,100 forfeitures for fraud prior to 1959. We have become aware of a number of cases in which the forfeiture

penalty, in retrospect, is obviously too severe. Since the 1959 remedial act is specifically limited to situations arising thereafter, authority is sought under this proposal to review those cases and grant remission of those forfeitures imposed prior to 1959 which would not be forfeited under the 1959 law.

This would, in effect, extend the philosophy of the 1959 enactment to cover similar cases which arose prior to that amendment. We urge your favorable consideration of this bill. Since we do not know the extent of benefits to which individuals would be entitled after remission of their forfeiture, we are unable to estimate the cost of this

measure.

Equitable relief from Administrative Error. Since 1966, with the enactment of section 301, Public Law 89-785, the Administrator has been empowered under section 210 (c) (2) to provide equitable relief to any person to whom "benefits administered by the Veterans' Administration have not been provided by reason of administrative error" by officials or employees of the Government.

This provision applies, however, in limited cases and only where basic entitlement to the particular benefit already existed, and where because of administrative error, a claim therefor was improperly denied.

It should be borne in mind, that prior to this enactment the only means of providing relief from administrative error of this sort was by private legislation. This remedy, of course, was time-consuming and burdensome for the Congress.

However, even with the present liberalized provision in section 210 (c) (2) there is no authority under which the Administrator may grant any form of relief where the agency has erroneously determined that eligibility existed and a veteran, his dependent, or some third person, without knowledge, has relied and changed his position to his detriment.

This situation is illustrated by a case involving an erroneous issuance of a certificate of entitlement for an automobile and adaptive equipment for a disabled veteran under chapter 39 where basic entitlement did not in fact exist. The veteran, having applied for and been granted benefits, albeit erroneously, purchases the new car and trades in his old car. The dealer makes delivery of the new car in reliance upon the erroneous certificate.

The Veteran incurs a further indebtedness which he may not be able to afford and would not have incurred, but for the erroneous issuance by the Veterans' Administration of a certificate of eligibility. Other similar situations have arisen resulting in losses to innocent veterans, their dependents, or third parties.

This proposed legislation, contained in H.R. 14865, would permit the Administrator to extend relief to veterans, their dependents, and other innocent third persons, from the consequences of reliance on such an administrative error where loss is suffered without knowledge of the error. The Administrator would be authorized to provide such relief as he determines equitable, including the payment of moneys, to the person or persons whom he determines equitably entitled.

One more point in this regard. The current equitable relief provisions in section 210 (c) (2) have been most conservatively constructed and applied. The implementing regulations require a personal deter

mination by the Administrator on a recommendation which may originate only with the Department head and it must be reviewed by the General Counsel.

If the legislation proposed is enacted, the Veterans' Administration plans to implement it by applying the same restrictive procedures. Although no data is available upon which to base an estimate of the fiscal impact of this bill and some expenditure of funds would result, it is not anticipated that such amount would be significant.

Waiver of Recovery of Overpayment.—The last item for consideration by your subcommittee is H.R. 15105 which is a proposal introduced at the request of the Veterans' Administration. It applies to both the general authority in section 3102 (a) of title 38, United States Code, to waive recovery of overpayments, and the authority for waiver of an indebtedness to the Veterans' Administration after a default and loss occurs with respect to a loan guaranteed, insured, or made under chapter 37.

Section 3102(a) now provides, in substance, that the Administrator may waive a recovery of payments or overpayments on the basis of a determination that the payee was without fault in creating the overpayment, and, either that a recovery would defeat the purpose of benefits or would be against equity and good conscience.

Two basic changes regarding the general waiver authority which would be effected by the first section of the bill are: (1) removal of fault on the part of the payee as a bar to waiver; and (2) deletion of the present alternative standard for waiver-"recovery would defeat the purpose of benefits otherwise authorized." Thus, "equity and good conscience" would remain as the only substantive standard for a waiver of recovery.

Equity and good conscience, however, would not apply, if, in the opinion of the Administrator, there exists in connection with the request for waiver an indication of fraud, misrepresentation, material fault, or lack of good faith on the part of the person or persons having an interest in obtaining a waiver of overpayment or recovery of collections. Except for a minor difference which I will mention later, the waiver authority sought is the same used by the Comptroller General in waiving an indebtedness arising out of overpayment of pay.

In our proposal, we require material fault be present to bar recovery, whereas only fault is used in the General Accounting Office statute. We believe that the criterion of material fault is necessary to overcome a longstanding construction by the Veterans' Administration of the word "fault" in section 3102 (a) of title 38, which has been interpreted to mean than any indication of fault on the part of the payee, regardless of how slight, requires denial of waiver.

In some cases, this strict construction has resulted in undue hardship. This strict construction in cases where there is only slight fault on the part of the pavee and contributory fault of a much greater extent on the part of the Government has resulted in there being no balancing of fault in granting of relief.

The governing principles and guidelines which would be set out in regulations promulgated to implement the measure would not be restricted by certain narrow concepts of some court decisions. We would include undue financial hardship as a criterion within the basic regulatory provisions for making determinations under the single standard of equity and good conscience. Adoption of this proposal would afford

the necessary latitude to accomplish equity as between the Government and recipients of overpayments or improper payments.

The proposed new subsection (b) to be added to section 3102 would clarify the Administrator's authority to waive an indebtedness of a veteran or his wife which resulted from a default and loss of the property securing a loan guaranteed, insured, or made to the veteran, and thus, would consolidate the Administrator's waiver authority to apply the single criterion of equity and good conscience.

The interpretive regulations implementing section 1820 (a) (4), as amended by Public Law 88-151, have been the subject of continuing controversy. Enactment of this proposal will resolve the matter in a manner which, we believe, will be more acceptable to all concerned.

The purpose of subsection 3 (a) of the proposal is to liberalize the authority now contained in section 1817 of title 38, United States Code, to permit the Administrator to release the original veteran-borrower from liability on the Veterans' Administration guaranteed, insured, or direct loan after the veteran conveyed title to residential property securing such loan, provided the veteran disposed of the property in a manner which would have qualified him for release if he had applied therefor incident to his sale or transfer of the property.

There are many instances where a veteran disposes of property, without applying for a release from liability on the note and mortgage, and the position of the Veterans' Administration would be substantially the same as it would have been if he had previously obtained a release from liability to the Government under the present section 1817.

We contemplate promulgation of implementing regulations to the effect that a release from liability may be granted, if: (1) the transferee, either immediate or remote, would have qualified from a credit standpoint; (2) but only if, legal liability exists against a transferee who would have qualified from a credit standpoint.

It should also be borne in mind, that even if a veteran-seller is unable to qualify for a release of liability under the proposed subsection 1817 (b), the Administrator may nevertheless grant him a waiver of that liability under the proposed subsection 3102(b), if collection of such indebtedness would be against equity and good conscience. It is not anticipated that these provisions would be retroactive.

No new appropriations would be required, but additional waivers would result in some loss of appropriated funds, and in the loan guaranty area, the increase in waived or released debts would reflect an insignificant cost to the loan guaranty revolving fund.

Mr. Chairman, this concludes our statement. We will be pleased to respond to any questions you may have.

Mr. DORN. Thank you, Mr. Owen, for a very fine statement. Mr. Montgomery, have you any questions?

Mr. MONTGOMERY. Thank you, Mr. Chairman. I, also, think it is a very fine statement. It is a little bit complicated, but the last few bills are rather technical, and I am still not sure I understand exactly what you are driving at.

What is the cost for the bill providing the 6 percent increase? Mr. OWEN. It would be $170 million.

Mr. MONTGOMERY. $170 million. When would that be effective?

Mr. Owen. It would be the first day of the second month after enactment.