1. Local Government Theresa McHugh State Budget Director Department of Administrative Services Budget and Management Division 503-378-4691 A copy of this presentation can be found at: http://www.bam.das.state.or.us/

2. 1990’s: State enjoyed huge economic growth and diversification Total gross state product increased by 98% from 1991-2001. High-tech industry growth. Population growth – 11 th fastest growing state. Personal income grew at annual rate of 5.6%, exceeding the nation. Exports increased by a compound annual rate of 5.8%. State General Fund grew from $4,628.1 million in 1989-91 to $10,121.8 million in 1999-2001 – dollars primarily went to K-12, Oregon Health Plan, and Public Safety. Kicker returned for personal income tax filers 7 times, totaling over $1.5 billion; for corporate tax filers 5 times, totaling over $400 million.

3. Decennial Population Growth (in percent): 1990 – 2000 CLATSOP WASHINGTON MULTNOMAH COLUMBIA DOUGLAS LANE LINCOLN POLK YAMHILL TILLAMOOK MARION COOS DESCHUTES MALHEURHARNEYLAKEKLAMATHJACKSON JOSEPHINE CURRY HOOD RIVER BENTON LINN JEFFERSON CROOK WALLOWA UMATILLA MORROW GILLIAM WASCO SHERMAN WHEELER GRANT BAKER UNION > 20 % Source: U.S. Census Bureau, 1990 and 2000 Censuses CLACKAMAS Office of Economic Analysis Population Change 10 – 20 % Less than 10 % Oregon: 20.4%

4. Poverty Rate, 1999 CLATSOP WASHINGTON MULTNOMAH COLUMBIA DOUGLAS LANE LINCOLN POLK YAMHILL TILLAMOOK MARION COOS DESCHUTES MALHEURHARNEYLAKEKLAMATHJACKSON JOSEPHINE CURRY HOOD RIVER BENTON LINN JEFFERSON CROOK WALLOWA UMATILLA MORROW GILLIAM WASCO SHERMAN WHEELER GRANT BAKER UNION > 15 % Source: U.S. Census Bureau, Census 2000 CLACKAMAS Office of Economic Analysis % of persons under poverty 10 – 15 % Less than 10 % Oregon: 11.6%

5. Unemployment Rate by Region, October 2003 (Not seasonally adjusted; Portland PMSA includes Vancouver, WA) Source: Oregon Employment Department, November 2003 Office of Economic Analysis 7.5% 6.7% 6.9% 6.7% 7.0% 5.9% Oregon: 6.9% (seasonally adjusted: 7.6%)

6. Covered Employment by SIC Division, 2002 (top three for each region are highlighted) Employment Distribution OregonPortland PMSA Willamette Valley CoastSouthernCentralEastern Nat. Resources & Mining 3.0%1.6%4.4% 3.4%4.7%7.7% Construction5.0%5.1%4.5%4.1%4.6%5.7%3.8% Manufacturing 12.8%13.3% 10.0%12.1%11.2% 12. 9% Trade, Transp. & Utilities 19.9%20.7%17.1%18.5%22.0%19.2%20.6% Information2.3%2.6%2.0%1.5%1.9%1.8%1.2% Financial Activities5.4%6.7%4.1%3.1%3.9%4.4%2.9% Prof. & Business Services 11.0% 13.4% 8.9%5.7%7.8%7.6%5.1% Edu. & Health Services11.4%11.2%12.3%9.5% 13.3% 11.2%9.3% Leisure & Hospitality9.5%8.8%8.6% 17.5% 10.7% 12.8% 8.1% Other Services3.7%3.8%3.7%3.6%3.7%3.1%3.0% Government 16.1% 12.6% 21.0%22.0%16.5%18.5%25.3% Total100.0% Source: Oregon Employment Department Office of Economic Analysis

7. 2003-05 All Funds Expenditures Total: $ 38,010.7 Million

8. All Funds Expenditures 2001-03 Close of Session Total: $34,077.0 Million 2001-03 Final Total: $37,836.3 Million 1989-91 Legislatively Adopted Total: $ 14,360.4 Million 1999-2001 Legislatively Adopted Total: $29,576.8 Million *Includes Consumer and Business Services

9. General Fund Forecast Comparison Fiscal Years, in Millions

10. Lottery Resources Available to the State Office of Economic Analysis $ 0 $100 $200 $300 $400 $500 $600 $700 $800 85-8787-8989-9191-9393-9595-9797-9999-0101-03 Proj. 03-05 Proj. 05-07 Proj. 07-09 Proj. (Millions) Resources Available for Allocation Parks and Natural Resource Fund (15%) & Gambling Addiction (1%) Education Endowment Fund (15-18%) Debt Service Note: Resources do not include Video Lottery proceeds dedicated to the Counties. Beginning balance is included. 2003-09 debt service figures do not reflect any Education Endowment Fund or reserve earnings designated for debt service on education bonds.

11. 2001-03 Close of Session forecast projects $12.1 billion General Fund/Lottery Funds ($11.45 GF/$0.65 LF). Legislature approves expenditures of $12 billion. Preliminary 2003-05 forecast is approximately $13 billion (GF plus Lottery). Quarterly General Fund forecasts demonstrate effects of recession: 2001-032003-05 September 200111,159.412,313.0 December 200110,747.511,944.8 March 200210,604.011,973.9 June 200210,098.211,528.3 September 20029,718.611,392.5 December 20029,585.610,880.5 Five special sessions plus a rebalance during the 2003 regular session to rebalance the budget using one-time resources, program reductions, and additional revenues.

12. Approved General Fund & Lottery Funds 2 of 2

13. 2003-05 Governor Kulongoski prepares his recommended budget based on December forecast of $11.4 billion. By May, the forecast for 2003-05 has dropped by over an additional $1 billion. Legislature balances budget using a combination of one-time resources, program reductions, and revenue increases, including temporary increases to personal and corporate income tax. Final Legislatively Approved Budget is $11.5 billion General Fund/Lottery Funds, with an ending balance of approximately $100 million. Legislature approves a potential disappropriation and potential increased spending on K-12.

14. 2003-05 Legislatively Adopted General Fund and Lottery Funds Budget *Includes Oregon Health Sciences University Expenditures Total: $11,490.0 Million Revenues Total: $11,530.7 Million

15. General Fund and Lottery Funds by Program Area * Excludes additional PERS savings of $191.5 million that is used to balance the Governor’s Revised Budget and includes new discretionary resources. State School Fund Level

16. 2003-05 Total: $11,490.0 Million 1989-91 Total: $4,804.6 Million General Fund and Lottery Funds Expenditures by Category 2001-03 Total: $11,973.9 Million

17. Expenditures by Category 2003-05 Total: $11,490.0 million

18. 2003-05 Full-Time Equivalent Positions Total: 47,067.3

19. Full-Time Equivalent Positions 1989-91 Legislatively Adopted Total: 44,474.8 1999-2001 Legislatively Adopted Total: 45,779.4 2001-03 Close of Session Total: 47,211.7 2001-03 Final Total: 47,069.8 *Includes Consumer and Business Services

20. What has caused the General Fund expenditure growth since 1989? Primary –Population –Initiatives –Policy decisions Secondary –Inflation –Lawsuits

21. State and Local Resources for K-12 School Funding Billions of Dollars

22. K-12 Funding 2003-05 budget provides $5.21 billion. –$67 million of this is dependent on an increase in Lottery resources as a result of House Bill 3159 Lottery expansion and on administrative actions yet to be determined. An additional $100 million may be available in the second year of the biennium if the General Fund/Lottery Funds revenue forecast goes up. –First $100 million of General Fund excess goes to statewide ending balance. State School Fund then receives half of any excess over that. –All Lottery excess over the $67 million already anticipated in expansion goes to the State School Fund. –Total of these two potential sources is capped at $100 million.

23. K-12 School Funding

24. School Funding as Proportion of General/Lottery/Other State Resources Note: “Other State Resources” includes education Lottery bonds, MUPL, and Education Stability Find.

25. Post-Secondary Education Funding Percent of General Fund and Lottery Funds 1983-85 through 2003-05

26. Community College Districts Property Tax Imposed Per Student FTE

27. Estimated Impact of Measure 11 on Oregon's Prison System

28. Department of State Police 2003-05 Governor’s Balanced Budget Sworn Positions

29. Policy Decisions Oregon Health Plan (OHP) The Office of Medical Assistance Programs budget has increased significantly since 1989-91. The General Fund and tobacco funded portion has increased from approximately $201 million to $1.21 billion.

30. Potential 2003-05 Disappropriation Methodology Additional Reductions: $14.3 Other Funds to K-12 Education., $23 Tobacco Tax Funds to the Oregon Health Plan.

31. Ballot Measure 30 Reductions to be Implemented Department of Human Services: Eliminate new program that would provide prescription drug benefits to disabled seniors with incomes below 135 percent of the Federal Poverty Level - $7.1 million. Eliminate Children's Health Insurance Program (CHIP) expansion from 185 percent of the Federal Poverty Level to 200 percent - $1.0 million. Eliminate Oregon Health Plan Standard program effective August 1, 2004 - $36.7 million. Eliminate about 67 percent of that increased funding for acute psychiatric care hospitals - $12.0 million. Cut funding for Oregon Children’s Plan - $1.0 million. Eliminate staff to monitor juvenile diabetes in Oregon and educate physicians - $0.1 million. Cut development of a comprehensive standards on how to provide emergency medical care to children - $0.1 million. Cut Emergency Assistance program - $2.8 million. Cut program that provides childcare to parents are attaining a degree or advanced certification - $0.9 million. Reduce System of Care Flex Funds are used in the child welfare system - $2.2 million.

32. Ballot Measure 30 Reductions to be Implemented State Commission on Children and Families: Reduce Healthy Start, Crisis Relief Nurseries and state administration - $4.8 million. Department of Higher Education: Increase tuition and reduce academic programs - $7.5 million. Department of Community Colleges and Workforce Development: Reduce second year funding distributed among Oregon’s 17 community college districts - $6.8 million. K-12 State School Fund: Cut second year funding - $284.6 million. Department of Corrections: Reduce funding for Community Corrections, cut administrative costs and delay opening of special unit at Coffee Creek - $24.6 million. Oregon Youth Authority: Postpone opening 50 close custody beds and budget savings - $5.8 million. District Attorneys and Their Deputies: Cut salary supplements for deputy district attorneys - $0.8 million. Judicial Department: Prioritize circuit court cases - $13.0 million. Public Defense Services Commission: Reduce demand for public defense services - $9.9 million.

33. Priority Programs to be Preserved (with no Special Session Actions) State Police Forensic Services Health Benefits for Pregnant Women Health Benefits for Children Health Benefits for Seniors and Disabled Adults Prescription Drugs for Seniors and Disabled Adults Gambling Addiction Treatment Community Corrections Model Maintaining Regional Youth Correctional Facilities

34. Governor’s Recommended Budget Must be balanced to current revenue forecast – start with the question how much money is available under current law? Must fulfill all legally required expenditures first – e.g., debt service on outstanding issuances. Allocate remainder based on priorities and evaluation of minimum dollar amount needed to meet expected performance level. Governor must identify separately from the balanced budget any priorities for increased expenditure and identify the proposed revenue source. Governor must identify the lowest priority items that could be reduced if resources go down or the legislature chooses other priorities.

35. Budget Framework Principles that Transcend Administrations Start with mandatory items. Implement core missions: –Focus on the essentials. –Emphasize programs with widely-distributed benefits. Target investment where it will provide the most impact in the long run: –Focus on prevention. K-12 Education must be the top priority. Reduce overhead costs.

36. 2005-07 Budget instructions to agencies by February 2004 must incorporate: –Information on Governor’s priorities and expectations. –Appropriate modified zero-based directions. –Expected deliverables on performance measures and outcomes. –Specific data requests. Forecast for 2005-07 indicates General Fund growth of 10.8% over 2003- 05. Identification of absolute expenditure requirements – e.g., debt service.

37. Other Issues General Risk Reserves/Other Fund Balances PERS/Labor Kicker Additional Lawsuits Bond Rating Annual Sessions Accountability/ oversight vs. Reduced Administration Regulatory Reform Economic Recovery Pent-up Budget Demand Potential Initiatives One-time Revenues