When George Bush was vice president, he advised President Ronald Reagan to make the Veterans Administration a Cabinet-level department. Last week, for the second year in a row, President Bush put the taxpayers' money where his mouth was.

The Department of Veterans Affairs won its second annual increase of nearly $1 billion from the Bush White House. Most of the added funds will go toward operating the VA's 172 hospitals, the nation's largest hospital system.

Veterans advocates said the record $33.2 billion budget is not enough and charged it contains one major flaw.

The budget fails to account for the higher costs the VA is certain to encounter as a result of Operation Desert Storm. If the Defense Department uses the veterans hospitals to care for casualties of the Persian Gulf War, officials conceded that the VA's expenses are likely to soar.

"Not only is the quality of VA health care and services for current veterans questionable under this budget, but also the care and services for future veterans," said Joseph E. Andry, national commander of the Disabled American Veterans. "This budget does not prepare us for returning casualties from the Persian Gulf."

VA officials counter "there is no way to predict the volume" of casualties from the conflict and point out that the administration will seek a supplemental appropriation later in the year to cover the war.

Many of the VA's added costs will be charged to the Pentagon, said Dennis R. Boxx, a department spokesman. But he acknowledged the VA is certain to run up expenses once the most severely injured are discharged from the military and made wards of the VA.

The VA also is likely to face added costs from the expedited claims handling and burial benefits VA Secretary Edward J. Derwinski has promised Desert Storm personnel. If needed, he has said the VA will add staff on weekends and holidays at its 113 cemeteries for burials of service personnel killed in the conflict.

Veterans groups point out the department's budget calls for adding only 33 new workers to run the VA's huge array of benefits and trimming 37 workers from the force of 1,237 at its cemeteries.

The House Veterans Affairs Committee, which will open hearings on the budget Feb. 20, sought to play down the significance of the added funds, quoting VA officials as conceding that "the increase will, at best, hold the line at {fiscal} '91 medical spending levels."

"It keeps our heads above water," acknowledged Boxx. "Any government agency can use more money," he said. "We're pleased with the budget."

John Hanson, an American Legion official, said the nation's largest veterans group is wary of one major change that the VA says would initially save $15 million a year, but would ultimately cost $400 million more.

Under the change, the survivors of generals and other officers would no longer be assured higher death benefits than the survivors of Army privates and other enlisted personnel who die on active duty or as a result of an illness contracted in the military.

Death payments are one of the last benefits the VA offers that is based on a service member's rank and officials contend it unfairly discriminates against the survivors of enlisted personnel.

Under the current procedures, the widow of a four-star general is entitled to a monthly death benefit of $1,524 while the widow of a recruit gets $594. The VA proposal calls for paying all qualifying survivors at the rate paid the survivors of mid-level (E-6) enlisted service members, currently $702 a month.

Any survivor currently receiving benefits higher than those would continue to be paid at the higher, rank-based rates and those receiving benefits based on a rank lower than an E-6 rank would gradually be raised to the E-6 level.

Boxx said the VA will seek separate legislation allowing it to make the change and that if Congress quickly approves it could include the survivors of Desert Storm casualties.

Hanson said the Legion traditionally has opposed such proposals and it is also likely to oppose legislation that would automatically link increases in veterans compensation payments to increases in the Consumer Price Index. Congress has to vote any veterans increase on an annual basis, a process that the VA considers cumbersome.

"The COLA {cost-of-living allowance} has been a real powerful locomotive for {other, new} programs that tend to get lost in the legislative shuffle," Hanson said. "It {the COLA proposal} just doesn't help in the long run."

Despite the lackluster reception the House Veterans Affairs Committee gave the new budget, VA officials said the increase matches almost exactly a request the committee's leaders made in a Nov. 13 letter to Bush.

Chairman G.V. "Sonny" Montgomery (D-Miss.) and Rep. Bob Stump (R-Ariz.) then asked for "a billion-dollar increase."

"With this amount and with the billion-dollar increase you proposed for the current fiscal year, we can begin to turn around the serious deficiencies" in the hospitals, they said.