The design funding must still be approved by Congress, and additional funding would need to be approved before any bulldozers started rolling.
In the administration's proposal, the project would cost a total of $560 million. It would involve demolishing the existing main hospital and replacing it with a new inpatient tower and surgical suites. The plan also calls for renovating the existing outpatient clinic, expanding space for clinical and administrative services and adding new parking spaces.
The Omaha medical center is part of the VA Nebraska-Western Iowa Health Care System, which serves more than 167,000 veterans in Nebraska and western Iowa as well as some parts of Kansas and Missouri.
The hospital, near 42nd and Center Streets, opened in 1951. A report released last year said the center needed more than $500 million of work to address parking and space shortages and correct significant deficiencies.
"After 60 years, the electrical distribution system, the heating, ventilation and air condition systems and the piping systems are failing," the administration says in budget documents submitted to Congress.
Some neighbors complained last year when the VA put modular buildings on the site to ease the space crunch.
The administration says its proposal would "correct all deficiencies at this site."
The administration offers Congress several alternatives to building a new facility, including contracting out the functions of the Omaha campus. That would not be preferred, the administration says, because there is limited capacity in the community to provide acute care beds and mental health programs.
Another option would be to build new inpatient and surgical facilities and renovate the existing hospital for all other clinical functions. That, however, would correct only some of the infrastructure deficiencies and address only half the space needs.
Members of Nebraska's congressional delegation have been pushing for years to address problems at the Omaha facility.
In 2008, Sen. Ben Nelson, D-Neb., invited then-Secretary of Veterans Affairs James Peake to tour the medical center with Nelson and Rep. Lee Terry, R-Neb.
"Caring for our military veterans remains one of America's highest priorities, and I applaud this commitment to a major modernization," Nelson said. He said the budget proposal "recognizes that the current hospital's serious infrastructure deficiencies must be addressed."
The Senate Veterans' Affairs Committee held a field hearing on the topic last summer at the request of Sen. Mike Johanns, R-Neb., a committee member.
"Our veterans deserve the very best care available," Johanns said Monday. "The staff and administration of the Omaha VA Medical Center do a first-class job caring for our veterans, and now they will have a facility to match."
Terry called the budget proposal "a significant down payment that will benefit our dedicated veterans" and said he will continue to push for a new and improved facility.