Lawmakers reach a compromise to help California soldiers ordered to repay enlistment bonuses

House and Senate negotiators announced a compromise Tuesday that would permit the Pentagon to forgive debts owed by thousands of California National Guard soldiers who received improper bonuses during the height of the wars in Iraq and Afghanistan.

The agreement, included in a defense bill due to be voted on by the House on Friday and the Senate next week, seeks to strike a balance between the Pentagon’s concerns about fraud in the bonus system and lawmakers’ attempts to resolve a scandal that has hurt thousands of military veterans and sparked a public furor.

The compromise calls on the Pentagon to forgive the enlistment bonuses and student loan benefits unless the soldier who received the money “knew or reasonably should have known” that he or she was ineligible for it.

The provision stops short of requiring the Pentagon to forgive debts owed by all California Guard soldiers as long as they fulfilled the terms of their enlistment contracts and did not commit fraud — a far more sweeping waiver that members of the California delegation had proposed.

But by placing the burden on the Pentagon to contact the soldiers and prove that each was ineligible, the compromise provision is likely to result in forgiveness of the debts for most of the 9,700 soldiers ordered to repay some or all of their reenlistment incentive payments from 2004 to 2015, according to lawmakers.

“This largely meets the needs of the soldiers who accepted their bonuses in good faith, as the vast majority of them did,” said Rep. Adam B. Schiff (D-Burbank). “It should give these soldiers peace of mind during the holidays that the Pentagon won’t claw them back.”

Under the compromise, if the Pentagon forgives a soldier’s debts, it would have to inform credit agencies to correct any adverse effect on credit scores that could affect applications for car loans, mortgages and other debts.

The Times reported last month that the Pentagon was demanding repayment of enlistment bonuses given to California Guard soldiers to help fill enlistment quotas for the wars. Many of the soldiers served in combat, and some returned with severe injuries.

Many of the soldiers were told to repay bonuses of $15,000 or more years after they had completed their military service. Student loan repayments, which were also given out improperly to soldiers with educational loans, sometimes totaled as much as $50,000.

In response to a public outcry, and at the urging of the White House, Defense Secretary Ashton Carter ordered a suspension of the repayment program on Oct. 26 and set up an internal appeals process to review the debts by July.

The congressional compromise would make it mandatory that the Pentagon completes its review on that timetable.

It would also require the Defense Department to refund any repayments already made by soldiers as long as they were not guilty of fraud.

But Pentagon officials emphasized that they could not fully forgive all the soldiers’ debts, which totaled tens of millions of dollars, because some of the benefits were accepted fraudulently and because that solution would create a precedent that soldiers in other states could use to escape repaying bonuses they were not entitled to.

Soldiers ordered to repay bonuses began receiving letters last week from the National Guard Bureau, the Pentagon agency that oversees the California Guard, telling them the recoupment effort had been suspended because of Carter’s action.

But the agency warned that the Pentagon had not made a final decision on waiving their debts.

“Please note that this suspension is a temporary measure that will allow the collection of the debts to be reviewed by” the Defense Department, said Col. Roy J. Macaraeg, comptroller of the Army National Guard. “Your debt has not been waived, canceled or remitted by this notice.”

By codifying the Pentagon review in law, however, lawmakers would prevent the incoming Trump administration from failing to review all the soldiers cases by July, lawmakers and aides said.

Some of the bonuses were awarded as part of an illegal scheme that saw several recruiters convicted of fraud and other crimes in 2011, they noted. Pentagon officials also warned that forgiving all the debts could hurt future efforts to stem waste, fraud and abuse in the military.

The bill says that “recoupment is unwarranted “ unless the review determines “by a preponderance of the evidence” that the soldier “knew or should have known that the member was ineligible for the bonus pay.”

Congressional aides said that language should serve to provide relief to most of the affected soldiers while not condoning fraud.

“The burden of proof is on the department, not on the individual soldier,” said a senior House Armed Services Committee aide, who briefed reporters on the defense bill Tuesday on condition he not be identified.

He said that the expedited review of each soldier’s case that Carter announced in October “was a pretty good process” and that lawmakers did not want to “mandate an outcome.”

Schiff said that if the compromise provision did not result in most soldiers having their debts forgiven, California lawmakers in Congress would revisit the issue next year.

“If there’s anything we need to do, we’ll be back at it,” he said.

The Pentagon began ordering California Guard soldiers to repay enlistment bonuses after the Sacramento Bee reported in 2010 that a federal investigation had found that thousands of recipients were ineligible or were approved despite incomplete paperwork.

Army Master Sgt. Toni Jaffe, the California Guard’s incentive manager, pleaded guilty in 2011 to filing false claims of $15.2 million and was sentenced to 30 months in federal prison. Three officers also pleaded guilty to fraud and were put on probation after paying restitution.

Recoupment of the bonuses has been under way ever since, with little attention until recently.

Soldiers identified by California Guard audits as having received improper payments were told to repay the money and threatened with wage garnishments, tax liens and interest charges if they did not. An appeals process that allowed them to contest the debts was lengthy and difficult, officials acknowledged.

david.cloud@latimes.com

Twitter: @davidcloudLAT

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