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MEMORANDUM

To: The Honorable Senator Richard Devlin, Co-ChairThe Honorable Representative Peter Buckley, Co-ChairThe Honorable Representative Dennis Richardson, Co-ChairJoint Committee on Ways and Means

From: Michael Jordan, Chief Operating Officer

Date: February 14, 2012

Subject: Governors Response to the Co-Chairs Budget

As part of the Co-Chairs budget plan that was released just prior to session, the Co-Chairsincluded $28 million in unspecified reductions to Executive Branch agencies to be covered in thefollowing areas:

1. Cancel Personal Services Contracts $ 2.0 million2. Eliminate Managers/Support/Public Affairs positions $ 25.0 million3. Reduce Agency Advertising $ 1.0 million

$ 28.0 million

In order to provide clarity on the impact of these unspecified reductions, the Co-Chairs expresseda desire for Michael Jordan and the Enterprise Leadership Team (ELT) to develop a plan toachieve these savings. While the Executive Branch agencies appreciate the Legislature givingagencies a savings target, they do not believe the Legislature should direct how those reductionsare implemented. For the past two weeks, ELT agencies have been working to develop a plan onhow to achieve the desired savings. While the ELT plan achieves the $28 million savings, itdoes not rely solely on eliminating managers, support and public affairs positions. The plan alsoincludes many reductions that will directly impact agency service levels.

As a broad overview, the ELT directors split their work into three parts: (1) Identifying agencyspecific reductions, (2) Identifying additional program reductions that could be taken beyond theCo-Chairs budget, and (3) Developing enterprise level initiatives that could save money across

all state agencies. While the specifics of the Co-Chairs $28 million reduction plan by agency areincluded in Attachment 1, the reductions can broadly be summarized as follows:

Agency Specific Reductions $ 20.7 million Additional Program Reductions/Savings $ 6.2 million Enterprise level Savings $ 1.1 million

$ 28.0 million

Department of Administrative ServicesOffice of the Chief Operating Officer

155 Cottage Street NE U10

Salem, OR 97301PHONE: 503-378-3106

FAX: 503-373-7643

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While the Executive Branch can manage these reductions for the 2011-13 biennium, they willcertainly result in reductions to client services. Overall, this plan eliminates or holds vacant justover 250 positions. In particular, without long term sentencing reform, closing adult prison bedsis purely a short-term strategy.

Beyond the $28 million Unspecified Reduction

Beyond the $28 million unspecified reduction, several areas of concern with the Co-Chairsbudget have arisen over the last several weeks as we have looked at the detail within the Co-Chairs plan. Attachment 2 attempts to track all of the cuts for various Executive Branchagencies. This attachment starts with the Sub-Committee recommendations, then incorporatesthe Co-Chairs adjustments, and finally adds the impacts of the unspecified $28 million inreductions. It is important to note administrative reductions are spread throughout all threelevels, and not solely isolated to the unspecified reductions

The concerns fall into two main categories. First, when combined with the subcommittee plans,

the Co-Chairs budget relies on a significant amount of one-time funding in order to reach itsobjective. Overall, there is about $97 million in one-time funds built into the Co-Chairs budget,including:

Subcommittee Plan

2010 CHIP Bonus $ 1.0 mil 2011 CHIP Bonus $22.5 mil Redirect Unallocated Insurer Tax $10.0 mil Redirect Insurer Tax resulting from lower healthy kids caseload $ 3.0 mil Redirect Insurer Tax resulting from eliminating outreach $ 1.8 mil Tobacco Use Reduction Account Fund Sweep $ 1.5 mil Redirecting half of Dammasch Trust Fund $ 5.8 mil SNAP Bonus $ 5.1 mil

Co-Chairs Additional Items

DEQ Vehicle Inspection Program Fund Sweep $ 3.0 mil Employment Department Penalty and Interest Account Fund Sweep $ 1.1 mil Department of Revenue Tax Amnesty Account $ 1.0 mil DOJ Phillip Morris Lawsuit Settlement $41.2 mil

$97.0 mil

While this is a large amount, it is not unreasonable given the level of reductions the Legislature

has already implemented in developing the budget for 2011-13. When the Legislature came intosession during the 2011 session, they had to cover a budget deficit that was over $3.5 billion.Since the regular session ended, the quarterly revenue forecasts have dropped the General Fundand Lottery Funds revenue projections by a combined $340 million. While the use of one-timefunds will delay some hard decisions until the 2013 session, it is not out of context with theoverall budget situation. Prior to the last revenue forecast and the 2012 session, the tentativebudget projections for 2013-15 showed a budget that was roughly in balance.

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The second category of concerns arises from some of the specific cuts included with the Co-Chairs budget plan. Many of the concerns listed below are not solely with the Co-Chairs budgetitself, but the implicit reductions developed by the Ways and Means Subcommittee Co-Chairsthat became the baseline from which the Co-Chairs began their work. While most of the itemslisted below are small, they represent some of the most difficult cuts in the social services safety

net, represent short term choices in our public safety system that could endanger correctionalofficers, or represent key transformational initiatives that are critical to continue.

Social Services Safety Net

Avoid further reductions in child outpatient mental health $ 2.3 mil Avoid denying TANF eligibility until job creation is more robust $ 0.4 mil Avoid ending post-TANF benefits early until job creation is more robust $ 0.2 mil Maintain Domestic Violence infrastructure grants $ 1.0 mil Continue co-location of Domestic Violence Advocates $ 1.1 mil Avoid reductions in the TANF Refugee program $ 0.5 mil

Public Safety Avoid closing Santiam Correctional Institution $ 1.6 mil Avoid unspecified cuts that shift more DOC inmates to temporary beds $ 3.0 mil Maintain resources in the Emergency Board for OYA educational costs $ 1.7 mil

Education

Continue developing the Oregon Education Investment Board data base $ 0.1 mil Continue second year funding for Early Head Start $ 0.6 mil

Other Issues

Add resources in the Dept of Forestry to assist with O&C land issues $ 0.2 mil Governors Office reductions taken by the Sub-committees $ 0.4 mil Restore sub-committee reductions to the Land Use Board of Appeals

and the Columbia River Gorge Commission $ 0.1 mil

All of the items above total $13.2 million. In the context of the $3.5 billion hole faced by theLegislature during the last regular session, this level of disagreement is fairly small. In mostcases, the Governor agrees with the reductions included in the Co-Chairs budget, such as the ratereductions to Long Term Care providers that will be more commensurate with those seen byother health care professionals. Again, the cuts listed above can be taken, but there are policyreasons they should be reconsidered.

There are several options to cover this gap. The first option would be to cut other programsback. We believe $2.0 million is available within the Oregon Student Assistance Commissionbecause first year spending is $2.0 million lower than anticipated in the budget. Likewise, theELT plan did not cut the Oregon University System, but if the Legislature made a proportionatecut to that organization, it would total just over $4.0 million. Finally, the co-chairs budgetincludes no reductions to K-12 education. If the second year appropriation for the State SchoolFund was reduced by 0.5 percent, it would generate savings of about $14.2 million.

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Another option to cover the items listed above would be to use additional ending balanceresources or the recent mortgage settlement negotiated by the Attorney General. Either of thesetwo approaches would increase the amount of one-time funding in the budget, but are the likelyavenues being sought by advocate groups.

Finally, there are two remaining items that raise concerns, but the ELT is proposing alternativesolutions. The first item is an unspecified $5.0 million cut in the Department of Correctionsoperations. As mentioned above, these unspecified cuts will lead to creating temporary bedswhich are purely short term savings. Instead of this reduction, community corrections could bereduced by this same amount without triggering county opt-out clauses. The last item includesthree reductions in Department of Human Services programs for people with developmentaldisabilities that total $2.3 million. DHS has been notified of a pending lawsuit that could impactthese services and would prefer to restore these cuts with additional Fairview Trust Fund money.