LFO Analyst: Bailey

The Department of Administrative Services (DAS) is the central administrative agency that supports other agencies of state government and coordinates statewide services. DAS has numerous divisions responsible for a variety of disparate functions, resulting from the merger of the Executive Department and the Department of General Services in 1993-95. Since 1993-95, state grants supporting the Oregon Historical Society and Oregon Public Broadcasting have been passed through the DAS budget. DAS also distributes lottery funds to counties for the prevention and treatment of gambling addiction, and collects and distributes mass transit assessments.

The Department's operating revenue comes primarily from fees charged for services provided to state agencies and from the statewide assessment. DAS operates centrally located motor pools, operates and maintains facilities, and provides printing, information technology consultation, and computer services. The Department establishes rates for these direct services and charges agencies based on how much of the service they use. DAS also provides indirect services to state agencies, such as the services provided by the Director's Office, Budget and Management Division, and Human Resource Services Division. Because a unit rate and usage volume cannot be determined directly, DAS recovers the cost of these services through a "statewide assessment," which is included in all state agencies' budgets as a line item expense titled "State Government Service Charges." DAS established this statewide assessment in 1993 to capture Federal and Other Funds to support activities that, prior to that time, had been supported entirely by the General Fund. Although services that are supported by the assessment cannot be directly measured and identified to each agency receiving the service, DAS makes an effort to allocate the assessment equitably. The following schedule shows the basis of some of the statewide assessments.

When agencies allocate DAS assessments, they charge an appropriate portion of the assessment to the General Fund, to Other Funds, and to Federal Funds. On a statewide basis, about 30 percent of the DAS assessment is charged to the General Fund. DAS, however, expends this revenue as Other Funds. The Department's primary Other Fund revenues from both direct charges and the statewide assessments are summarized below:

The Department also receives a General Fund appropriation that supports four areas: criminal justice forecasting in the Director's Office, the Governor's Natural Resources Policy Office, about one-half of the Office of Health Plan Policy and Research, and all of the Office of Education and Workforce Policy. The only lottery included in the Department's 1999-01 budget is $5.8 million for county-administered programs for the prevention and treatment of gambling addiction.

DAS continues to include a large number of divisions responsible for relatively unrelated administrative functions for state government. The Department's size and wide range of responsibility increases the difficulty of effectively managing it. The Department, nevertheless, must address a number of issues in the upcoming biennium. Some of these issues are as follows:

• Provision of statewide teleconferencing services. During the 1997-99 biennium, DAS collected a surcharge on long distance telephone service to address the immediate revenue and cash flow problems. DAS still must address the issues of upgrading or replacing its equipment and relying on local sites that are not as conducive for use by some segments of the population as by others. Moreover, satellite-based transmission of video services is becoming increasingly expensive, and a transition to land-based transmission seems imminent.
• DAS and its Information Resources Management Division will have major leadership responsibilities this biennium in guiding agencies through the strategies and plans to solve the "Year 2000" computer problems facing all agencies. It is also tasked with the responsibility to oversee development and implementation of business continuation plans by state agencies. Work in these areas is being accelerated to help state agencies find successful solutions and avoid serious operational problems in their automated systems and applications.

The Governor's budget reflected a 9.5 percent increase in total expenditures over the 1997-99 legislatively approved budget. The budget continued most programs at their current service level, which included adjustments for inflation and other one-time adjustments. Policy packages were presented in many of the divisions. The recommended budget included the new Community Development Office, which was approved by the 1997 Legislature to improve coordination among agencies that interact with citizens and communities related to community development issues. Special payments included grants for the Oregon Historical Society, Oregon Public Broadcasting, the allocation for gambling addiction, and distribution of the mass transit collections.

The legislatively adopted budget is 1.6 percent less in total funds than 1997-99 estimated expenditures. The General Fund appropriation, however, shows an increase of 34.2 percent, which is caused primarily by increases in two of the Governor's policy offices and special payments approved by the legislature.

The Legislative Assembly approved all programs in the Governor's budget with funding reductions across all divisions. The Assembly reduced the General Fund appropriation by $243,500 and Other Funds expenditure limitation by $7.3 million to capture administrative efficiencies. The reduction in Other Funds resulted in $2.4 million in reduced assessments to other state agencies. These reductions were captured in SB 5547.

Other major changes include the elimination of $1.2 million Lottery Funds for the Geographic Information Systems and $613,000 Lottery Funds for treatment of problems related to gambling addiction. SB 118 transferred the gambling addiction treatment program to the Department of Human Services.

The following presentation consolidates all of the operating divisions including capital improvements into one section but presents separately the capital construction budget as well as the budgets for the new Community Development Office, three policy offices, and Special Payments.

Budget and Management Division (38.5 FTE Positions) -- This Division is responsible for reviewing agency budget requests and developing and tracking the Governor's budget through the legislative process. The Division still relies on the outdated Automated Budget Information System (ABIS) for technical support. However, during this 1999-01 budget process, the Division is pilot testing a new budget system that other states have used.

The Governor's budget continued this division at the current service level and included a policy package for $7.5 million to develop and implement a statewide budget preparation system, which is the next phase in developing integrated financial management systems. This package included 10 positions, which are expected to be phased out by July 2001. The budget system will be financed with Certificates of Participation. State agencies will pay for this system in the Budget and Management assessment over the next three biennia.

State Controller's Division (45.0 FTE Positions) -- The primary role of the State Controller's Division is to provide technical accounting management and financial reporting services to state agencies, including policies and controls, through a financial system that allows statewide accounting, financial reporting, and payroll activities. The Division has completed the implementation of the Statewide Financial Management System (SFMS) for all state agencies. SFMS was started in the 1991-93 biennium, and the final agencies went on this new system during the 1997-99 biennium. The Division provides training, advice, and support to accounting and purchasing system users of the new SFMS. The Governor's budget continued the State Controller's Division at the current service level, which included increases for inflation and the higher rate for PERS, and reductions in government service charges. This was a 21.1% reduction from the 1997-99 legislatively approved budget. There were no policy packages for this Division.

Information Resources Management Division (154.67 FTE Positions) -- The Division, which encompasses computer and information services, telecommunications, and video teleconferencing, is responsible for central review and coordination of the acquisition by state agencies of all major telecommunication and information technology systems including hardware and software.

The Governor's budget continued this Division's activities at the current service level with adjustments for inflation and other program adjustments. Because the Department eliminated the surcharge on long distance bills, it had insufficient revenue to continue video and online services. Also, GIS functions could not be continued because the fee for service revenue was insufficient to support these functions. Therefore, the current service level includes the reduction of $7.5 million Other Funds and deletion of 22 positions.

The Governor's budget included 15 policy packages that would add $12.8 million Other Funds and 52.0 FTE. Three of the packages, totaling $5,742,296 and 21.0 FTE would allow the Division to continue to provide video and online service to distance learning customers and other users while the State transitions from satellite-based transmission to a terrestrial-based system. Revenue to fund these packages would be derived from users of the services, primarily the Oregon University System. Two policy packages amounting to $1,953,895 and 9.0 FTE provided for GIS coordination and the data library. The package for coordination and data library functions funded three positions that support the statewide GIS database through the assessment. Two additional limited duration positions funded with Ballot Measure 66 lottery funds ($200,000) would support coordination of specific natural resource needs related to GIS. The user support package would fund four positions previously in the separate GIS section with $1,000,000 of Ballot Measure 66 lottery funds. These positions would support project work needed to assist with implementation of the Oregon Plan.

Another policy package added $2.1 million and 2.0 FTE to separate voice and data networks to improve security and to purchase hardware and software for the Burns Archive Center. The positions would support the additional work at the Burns site. The budget also included a package for $314,886 and two limited duration positions so the Statewide "Year 2000" (Y2K) Office could provide oversight and direction for state agencies in addressing the computer problems that must be solved during this biennium. The Statewide Y2K Office is also guiding agencies in their preparation of "business continuation" plans.

The Governor's budget also included three packages to effect the transfer of the Oregon Telecommunications Forum from the Governor's Office to this division and to enhance corporate services of the division. The net effect of these packages was an addition of $452,683 and 3.0 FTE. The five remaining policy packages added $2.2 million and 15.0 FTE for the following services: web design and web server hosting for agencies including an Electronic Commerce Service Bureau; increased state technical education classes, state agencies directory assistance, computer consulting service that agencies must now obtain from higher priced private contractors, and implementation of the State of Oregon Enterprise Network as proposed by the Information Resources Management Council. This Network would provide high-speed voice, video, and data services for Oregon's public educational entities, libraries, state and local governments, and other non-profit information partners. In total, the total Other Funds 1999-01 operating budget was an increase of 15.12% over the 1997-99 legislatively approved budget.

Human Resource Services Division (54.25 FTE Positions) -- This Division provided personnel-related services centrally to help agencies obtain and retain a skilled workforce. Through administrative rules and policies, the Division defines and manages the state's human resources system based upon equal employment opportunity and a merit-based compensation system. The Division maintains the state's classification and compensation systems and the centralized position and personnel database (PPDB), which captures position and employee information for all employees other than higher education academic staff.

The Governor's budget continued the Division's programs at the current service level with adjustments for vacancy savings, inflation, and increases in the PERS rate. The base budget was reduced for one-time expenses. The budget included two policy packages, one that added $612,204 and 4.0 FTE to provide minimal staff for training needs, labor relations, classification, compensation, and recruitment responsibilities. The other package added one position and $140,874 to support a state-hiring program to increase the employment of disabled and severely disabled individuals in state service. The total budget was 8.3 percent higher than the 1997-99 legislatively approved budget.

Public Employees Benefit Board (14.0 FTE Positions) - The Public Employees Benefit Board (PEBB) started operations January 1, 1998, when the State Employee Benefits Board and the Bargaining Unit Benefits Board were abolished. PEBB contracts for and administers health and dental insurance for state employees and their dependents, representing over 100,000 Oregonians. The Board also selects and administers life and disability insurance coverage for eligible state employees. A major part of the Board's responsibility is developing benefit packages to meet the needs of customers of the two previous boards and preparing benefits information and answering inquiries from employees and their dependents about coverage. The Board is faced with specific enrollment of every state employee during the 1999-01 biennium. This is necessary because the benefit choices will have changed and the all contracts with benefit providers will be with the new PEBB. The PEBB Board, like its two predecessor boards, is funded through an administrative charge added to the employees' health insurance premiums. The Governor's budget was continued at the current service level, which was a 12.07 percent reduction from the 1997-99 legislatively approved budget.

Transportation, Purchasing and Printing Services (233.19 FTE Positions) -- This Division is organized into the following units with the indicated number of positions (FTE):

The Division reflects the merger of three separate divisions--Purchasing Division, Transportation and Distribution Division, and Printing Services Division--that existed within the former Department of General Services. The primary role of this Division is to provide cost effective central services to state agencies and local governments in the following areas: purchasing, motor pool/fleet services, printing, surplus property, and mail processing and distribution.

This Division's programs would continue at the current service level in the Governor's budget. The budget also included six policy packages. One package added $347,860 and 3.0 FTE to improve public contracting. Two policy packages added $339,133 and 4.0 FTE to handle increased workload in state printing and federal surplus property. Another policy package accommodated the transfer of staff and related service and supply expenses to complete the consolidation of the Department of Human Resources' mailing services with DAS. The other two policy packages added $252,000 to services and supplies to cover rent of the new Eugene Motor Pool approved in June by the Emergency Board, and $1.3 million to continue expenditure limitation for increased expenses identified by the Division and approved at the September Emergency Board meeting.

Facilities Division (182.0 FTE Positions) -- This Division provides services related to facilities management, lease negotiation and supervision, project management, space planning and parking management, building operations and maintenance, and landscape maintenance for agencies occupying state-owned space. Major acquisition, construction, capital improvement, and maintenance projects are planned and managed by this Division. The Division is funded from a variety of sources but its major sources are the uniform rent assessed on all tenant agencies and parking fees. The uniform rent rate for office space in 1999-01 is $0.98 per square foot, an increase of $0.11 per square foot over the 1997-99 rate. Uniform rent includes a depreciation component that is deposited in a Capital Projects Account, the balances of which are used for major rehabilitation of building space, as conditions require.

The 1999-01 Governor's recommended budget continued the Facilities Division at the current service level with increases for inflation, cost of goods and services, and the higher PERS rate. There was only one policy package for this Division. It would provide $1,094,000 Other Funds expenditure limitation for a contract with the Salem Transit Authority for a transit pass program.

Risk Management Division (23.27 FTE Positions) -- Risk Management purchases insurance for the state and is responsible for the management of the state's Self-Insurance Fund in order to maintain adequate balances for known and projected losses and to purchase excess coverage for the state. The Division regularly obtains independent actuaries' forecasts of workers' compensation, property, and liability costs. These forecasts are derived from the state's actual loss and cost experience, and they are used to set agency loss assessments and to budget for legal defense costs. The Division investigates and resolves claims against the state and its employees. Risk Management also devises strategies that encourage agencies to minimize loss-related costs. More than 70 percent of the Division's budget, established to purchase insurance and pay claims from the Insurance Fund, is nonlimited. The revenue source for the Division's operating expenditures is the Insurance Fund.

The Governor's recommended budget continued the Risk Management Division at the current service level with adjustments for vacancy savings, inflation-driven increases in services and supplies, and changes in state government service charges. The budget provided two policy packages, one of which added $146,114 and 1.0 FTE to deal with Year 2000 computer issues and to administer the owner-controlled insurance programs. The other package added $5.5 million expenditure limitation for anticipated increases in legal fees related to Year 2000 issues.

Internal Support Division (54.95 FTE Positions) - Internal Support Division (ISD) serves as the internal administrative arm of the Department. In addition to serving the ten DAS divisions, this unit also provides budgeting and accounting services to small agencies that are not large enough to justify having these services internally. All budgeting, accounting, personnel and payroll, computer, and purchasing activities of the Department are centralized in ISD. The Governor's Budget continued the Division at the current service level with adjustments for inflation, price list changes in state government services charges, and the rate increase for PERS. One policy package added $615,712 Other Funds and 2.0 FTE to address workload increases in personnel and computer services areas.

Debt Service -- Debt service is a Nonlimited budget item determined by the amount and timing of Certificates of Participation issued by the various divisions on behalf of state agencies. Debt service is spread throughout the various Divisions that have responsibility for project administration. Facilities Division, for example, had $22.4 million debt service projected for 1999-01 to cover principal and interest on the various rehabilitation and new building projects. Buildings that have outstanding debt service include the Capitol Mall underground parking structure, the Human Resources Building, and the rehabilitation of the Public Services and the Labor and Industries buildings. There was also $5.3 million within the Controller's Division budget for retirement of SFMS project costs, and $1.1 million for various telecommunication and information system upgrade projects administered through the Information Resources Management Division.

Capital Improvements - The Capital Improvement Program, developed to complement the Major Construction/Acquisition Program, provides for remodeling and renovation projects that cost less than $500,000. The capital improvement activities are funded out of the Capital Projects Account, the Department's depreciation reserve fund, and are in addition to construction expenditures financed from the sale of Certificates of Participation. The Governor's recommended budget contained 16 projects totaling $4.4 million Other Funds. Examples and the estimated cost of some of the 1999-01 projects include the following:

1. Heating, ventilation, and air conditioning (HVAC) improvements including replacement of pneumatic controls with a direct digital system, conversion of refrigerant, controls modifications, and replacement of HVAC components in the Human Resources, Portland State Office, Revenue, Print Plant, and Salem Motor Pool buildings. These projects total an estimated $956,185.
2. Roof improvements at the Labor and Industries Building - $205,398.
3. Lighting improvements at the Albina Building, the Blind Commission, and the Pendleton State Office Buildings - $154,128.
4. Mall pedestrian improvements and capitol mall drainage projects - $412,426.

The Legislative Assembly reduced the Other Funds expenditure limitation for Capital Improvements

by $174,956 for administrative efficiencies.

The Major Construction/Acquisition Program includes major remodeling, renovation, and new construction or acquisition projects over $500,000. In passing SB 28, the Legislative Assembly approved significant changes in the state's approach to major construction and deferred maintenance. The legislation establishes an advisory committee to provide guidance on agencies' efforts to properly maintain and protect their investments in capital assets, and it mandates state agencies to prepare four-year capital construction budgets.

The Governor's recommended budget included 20 projects at an estimated cost of $8.1 million. Some of the major projects are Phase II of the steam plan decentralization, General Services Building electrical, heating, ventilation and air conditioning improvements, Justice Building planning, Commerce Building renovation planning, and State Fair Capital Projects.

The legislatively adopted budget for major construction is $1.8 million less than the Governor's budget. The Legislative Assembly reduced the planning funds for the Justice Building by $1.4 million and general planning funds by $125,000. Funding for DAS' oversight of improvements at the State Fair was eliminated. All other projects were approved at the level in the Governor's budget.

During the 1997-99 biennium, the Legislative Assembly approved $400,000 to start up the Community Development Office (CDO) to provide integrated and coordinated service among state agencies that deal with community development issues. The Departments of Transportation, Economic Development, Housing and Community Services, Land Conservation and Development, and Environmental Quality each loaned the CDO a senior staff person who functioned as policy advisors in their areas of expertise. The mission of the Community Development Office is to collaboratively bring together state agency programs, local government officials, and representatives from citizen and business resources.

The Governor's budget phased out $409,665 for limited duration positions that were not used during the 1997-99 biennium. Otherwise, the budget continued programs adjusted for inflation-driven increases in services and supplies as well as increases in state government service charges. The budget included one policy package that added $1.5 million Other Funds and seven positions (7.0 FTE) to continue and expand the work of the CDO These positions would function as regional coordinators for the Community Solutions Team. Funding to support the positions and office expenses would come from the Oregon Department of Transportation's TEA-21 Federal Funds.

The legislature reduced the Community Development Office's budget by $20,060 General Fund, $61,316 Other Funds and one position (1.0 FTE) for administrative efficiencies. It also approved the remaining six positions in the policy package as limited duration positions to provide an opportunity to evaluate the success of the regional coordinator concept in the Community Solutions Team.

The Governor's Natural Resource Office addresses important natural resource issues that have a major affect on the state. The primary role of the office is to formulate policy choices regarding forests, salmon, watershed, land use, transportation, and growth management.

The Governor's budget continued the Natural Resource Office at the current service level and included two policy packages. The first package added $983,425 General Fund and 3.0 FTE to coordinate the Healthy Streams Partnership and Willamette/Lower Columbia portions of the Oregon Plan for Salmon and Watersheds, which was approved by the 1997 Legislature. The second package added $225,420 General Fund and one position (1.0 FTE) to continue an office in Washington, DC to monitor and advocate for federal appropriations and legislation that benefits Oregon natural resource agencies. This office was established during the 1997 biennium with a borrowed position that is no longer available.

The legislatively adopted budget approved the Governor's Natural Resource Office programs; however, the Healthy Streams Partnership policy package was reduced by $717,426 General Fund. Because members were uneasy about the plans for extending the Oregon Plan in the Willamette area, the legislature approved $184,824 General Fund as a special purpose appropriation to the Emergency Fund. This amount is the cost of one position that would be responsible for the work related to implementing that part of the Oregon Plan. The budget adds $200,000 General Fund to allow this office to purchase geographic information system services related to the Plan. Administrative efficiencies generated an additional $60,998 General Fund reduction, and passage of SB 5547 included a further General Fund reduction of $1,698 for Department of Administrative Services and Employment Relations Board assessment adjustments.

The Governor's Office of Education and Workforce Policy was established in July 1997. This office continues some of the functions of the Office of Educational Policy and Planning and Workforce Quality Council, which were eliminated in 1997. The office assists the Governor in developing and implementing education and workforce policy. It is housed in DAS, like the Governor's Natural Resource Office and the Office of Health Plan Policy and Research.

The Governor's budget continued the office at the current service level with adjustments for inflation and price list changes. The Governor proposed one policy package of $82,000 Other Funds that would allow the Office to purchase five new computers and contract for a field consultant. This package would be funded with carry-over revenue from the 1997-99 biennium.

The Legislative Assembly reduced Education and Work Force Policy programs by $46,274 General Fund and $3,824 Other Funds for administrative efficiencies. SB 5547 also provided reductions of $864 for adjustments in Department of Administrative Services' assessments and a $20 reduction in the Employment Relations Board assessment.

The 1993 Legislative Assembly established the Office of the Health Plan Administrator (later changed to the Office of Health Plan Policy and Research) to evaluate implementation of the Oregon Health Plan and recommend future options. In 1995, the Legislative Assembly merged the Office of Health Policy and its responsibility for the collection of data on hospital discharges, revenues, and changes in rates to assist with health planning. Administration of the Oregon Health Council, the Oregon Health Services Commission, and the Oregon Health Resources Commission were also transferred to this Office. Primary responsibilities of these commissions are policy advice on health care issues, maintenance of the prioritized list of health services and the introduction, diffusion, and utilization of medical technology, respectively. The Office of Health Plan Policy and Research is the only agency with statewide coordinating responsibilities.

The 1999-01 budget for this office continued services at the 1997-99 level with adjustments for a decrease in mass transit tax, inflation-driven increases, the higher PERS rate, and program adjustments to phase out a one-time study and grant funds. The continuation also included a shift of four positions in the base budget from Other Fund revenue to General Fund. The revenue was from grants and contracts and would not be available for the 1999-01 biennium. This budget included two policy packages. One package reclassified two staff positions that were working out of class in the 1997-99 biennium. There was no increase from this package, however, because it was accomplished by reducing services and supplies by the same amount that was added to personal services. The other package added $265,899 Other Funds and 1.25 FTE to continue a grant that began in the 1997-99 biennium. With the grant, which ends September 30, 2000, the office will analyze options and costs of health insurance and reforms to the health system.

The legislatively adopted budget continued all programs proposed in the Governor's recommended budget. The only adjustment was a $250,000 General Fund reduction in the proposed fund shift from Other Funds. SB 5547 provided a minor General Fund reduction for adjustments in DAS and Employment Relations Board assessments.

A pioneer cemetery, as defined by statute, is any burial place that contains the remains of one or more persons who died before January 1, 1940. In 1995, the legislature created the Pioneer Cemetery Commission responsible for coordination of restoration, renovation, and maintenance of Oregon's pioneer cemeteries.

The budget for the Commission supported per diem and travel reimbursement for members. The Governor's recommended budget transferred Commission support from DAS to the Department of Parks and Recreation.

The Governor's recommended budget was approved, and funding for this board was considered with the Parks and Recreation Department budget.

Special payments is a catch-all category that reports payments for services not directly related to the mission of the Department of Administrative Services. The table above reflects payments passed through DAS to counties and other governmental units for gambling addiction ($5.9 million Lottery Funds) and the mass transit tax that DAS collects and distributes ($10.9 million Other Funds-Nonlimited).

DAS also distributes grants to Oregon Public Broadcasting, the Oregon Historical Society, and Oregon Health Sciences University. For statewide reporting purposes, both the Oregon Historical Society and Oregon Public Broadcasting are included under the Economic and Community Development program area, and OHSU is included with Higher Education.

The Governor's budget for gambling addiction includes a policy package that increases funding by $612,764, which was the estimated amount that would be generated by a plan to allocate 1 percent of net lottery proceeds to provide treatment for gambling addiction problems.

The Governor's budget recommended the following pass-through amounts:

• $864,450 General Fund for the Oregon Historical Society; (HB 5003)
• $3,350,509 General Fund for Oregon Public Broadcasting; (HB 5056) and
• $107,896,926 General Fund for Oregon Health Sciences University (HB 5048).

The legislature approved the current service level budget of $5.3 million Lottery Funds for distribution to counties for gambling addiction treatment programs. It also included $450,000 General Fund appropriation for payment to the Grants Pass Irrigation District for installing fish screens at the Savage Rapids Dam. The appropriation for the Oregon Historical Society was increased by $400,000 General Fund to compensate for reductions the Society has experienced in past biennia. Other special payments were approved at the level proposed in the Governor's budget.

The Legislative Assembly passed bills not included in the Governor's budget that affect the Department of Administrative Services' budget. SB 118 dedicates at least one percent of net lottery proceeds for gambling treatment beginning in the 2001-03 biennium. That bill transferred the program and funding from the Department of Administrative Services to the Department of Human Services, reducing DAS's Lottery Funds expenditure limitation by $5.3 million. It also forgave repayment of the General Fund loan approved by the Emergency Board at its April 1998 meeting. Since the increased resources from the one percent allocation would not materialize until next biennium, relief from repayment of the General Fund loan would allow the program to continue at current service levels.

SB 5511 included a General Fund appropriation to the Department of Administrative Services for the Irvington Covenant Community Development Corporation to provide job training for high risk youth and production of low income housing.

SB 1131 provides $287 General Fund to support construction of the Oregon Korean War Memorial in Wilsonville. This amount represents a dollar for each Oregonian who died or is still missing as a result of military service during the Korean War.

LFO Analyst: Bender

The Commission on Asian Affairs was established by the legislature in 1995 to promote trade and tourism between Oregon and Pacific Rim countries, to identify and examine the needs of Asian Americans, and to encourage the economic development of the Asian American community.

An Other Funds expenditure limitation is provided to encourage grants, donations and other non-state support to fund Commission activities. The Commission is authorized to receive donations and grants, and to conduct revenue-generating activities to finance its expenses. These revenues were the sole source of Commission support in 1995-97. The Commission has been far less successful raising funds than originally hoped, and donations have been falling over time.

The legislature did not provide General Fund support when it established the Commission in 1995. The Commission was to be self-supporting. In 1997, the legislature added state support to the Commission's financing. The legislature appropriated $25,000 of General Fund to the Commission's budget - the same amount it provided to all four advocacy commissions. To allow the Commission the opportunity to operate at the higher level supported in the Governor's recommended budget, the legislature increased the Other Funds limitation by $110,000 over the Governor's level. The $25,000 of General Fund support was to be used as seed money to enable the Commission to develop and implement a viable fundraising plan. The legislature also appropriated approximately $300,000 of General Fund to the Department of Administrative Services for diversity issues. This money was transferred to the four advocacy commissions. The Commission's portion of these funds, along with its $25,000 direct General Fund appropriation, provided it with $101,814 of state support in the 1997-99 biennium.

The Commission anticipated raising approximately $150,000 in donations during the 1995-97 biennium, more than enough to cover its expenses. Actual donations, however, were only slightly above $26,000. In the 1997-99 biennium, donations have fallen further and total less than $4,000 (to date). The Commission attributes the fall in donations to declining enthusiasm among private donors after the initial efforts made to get it established. The Commission continues to lease an office in downtown Portland. For much of the biennium, the Commission employed a paid, full-time executive director. That position has become vacant, and has not been filled. A volunteer is now working as executive director, but the Commission plans to hire paid a paid staff person for this position soon.

The Governor's budget reversed the 1997 Legislative Assembly's decision to make the Commission reliant on donations. The budget provided direct General Fund support of $135,000, and eliminated the General Fund transfer through the Human Resources Services Division. This was the same amount of support that the Governor had recommended in his 1997-99 biennium budget, but represented a 33 percent increase over what the state actually provided the Commission in 1997-99. The recommended amount would have enabled the Commission to pay all of the personal services cost of the executive director position and cover general office expenses out of its General Fund appropriation. The budget included a $20,000 Other Funds expenditure limitation as an incentive to allow the Commission to spend outside money that it is able to raise.

The legislature adopted the Governor's Recommended Budget with only minor modifications. General Fund support was reduced by 4 percent ($5,400) because of limited General Fund resources and to meet other budget priorities. The same 4 percent reduction was taken in the three other advocacy commission budgets as well. An additional $275 of General Fund was removed to match a reduction in state government service charges to the Commission.

The Department of Administrative Services (DAS) budget contains an additional assessment reduction for extremely small agencies. This reduction will lower the Commission's state government service charges by $9,735 more than the amount referred to in the prior paragraph. The General Fund appropriation to the Commission was not reduced in response to these DAS assessment reductions. Therefore, the Commission will now have these funds available to meet other expenses.

LFO Analyst: Bender

The Commission on Black Affairs was established by executive order in 1980 and by statute in 1983 to work for the "implementation and establishment of economic, social, legal and political equality for Blacks in Oregon." The Commission is comprised of 11 members, two of whom are legislators. Duties of the Commission are to:

• monitor existing programs and legislation designed to meet the needs of the African American population;
• identify and research problem areas and issues affecting the African American community and recommend actions to the Governor and Legislative Assembly;
• serve as a liaison between the African American community and government entities; and
• encourage African American representation on state boards and commissions.

An Other Funds expenditure limitation is provided to encourage grants, donations and other non-state support to fund Commission activities. The legislature increased this limit by $5,000 in 1995 and by a further $110,000 in 1997 as an incentive for the Commission to obtain outside funding. Historically, the Commission has had limited success in generating funds from non-state sources, and has raised less than $300 in donations and grants so far this biennium. In the 1997-99 biennium, the Commission also received $74,929 of state support as Other Funds. These funds were part of a General Fund appropriation to the Human Resources Services Division of the Department of Administrative Services for diversity issues. The Division transferred the funds appropriated to it roughly equally among the four advocacy commissions. For budget purposes, the Commission received these state funds as Other Funds, since they were passed through another agency's budget.

In 1997, the legislature changed the focus of the Commission's funding from General Fund support to reliance on donations. The legislature reduced General Fund support of the Commission's budget to $25,000 - the same amount it provided to all four advocacy commissions. To allow the Commission the opportunity to operate at levels supported in the Governor's recommended budget, the Other Funds expenditure limitation was increased by $110,000 to offset the General Fund reduction. The $25,000 of General Fund support was to be used as seed money to enable the Commission to develop and implement a viable fundraising plan. The legislature also appropriated approximately $300,000 of General Fund to the Department of Administrative Services for diversity issues. This money was transferred to the four advocacy commissions. The Commission's portion of these funds, along with its $25,000 direct General Fund appropriation, provided it with $99,929 of state support in the 1997-99 biennium, a drop of 23 percent from what it had previously received.

This Commission has not been successful in raising Other Funds. The Commission has raised less than $300 of outside funding this biennium, and is not currently engaged in fundraising activities. The Commission has instead chosen to focus its efforts on receiving increased state support. In response to budget constraints, the Commission has eliminated its office at Portland State University, and reduced the Executive Director position to half time. The executive director works out of his residence in Scotts Mills, and occasionally travels to Portland or Salem if Commission business so requires. Funding for the Executive Director position is expected to run out by March 1999.

The Governor's budget reversed the 1997 Legislative Assembly's decision to make the advocacy commissions reliant on donations. The budget provided direct General Fund support of $135,000, and eliminated the General Fund transfer through the Human Resources Services Division. This was the same amount of support that the Governor had recommended in his 1997-99 biennium budget, but represents a 35 percent increase over what the state actually provided the Commission in 1997-99. The recommended amount would enable the Commission to pay all of the personal services cost of the executive director position and cover general office expenses out of its General Fund appropriation. The budget included a $20,000 Other Funds expenditure limitation as an incentive to allow the Commission to spend outside money that it is able to raise.

The legislature adopted the Governor's Recommended Budget with only minor modifications. General Fund support was reduced by 4 percent ($5,400) because of limited General Fund resources and to meet other budget priorities. The same 4 percent reduction was taken in the three other advocacy commission budgets as well. An additional $2,905 of General Fund was removed to match a reduction in state government service charges to the Commission.

The Department of Administrative Services' (DAS) budget contains an additional assessment reduction for extremely small agencies. This reduction will lower the Commission's state government service charges by $12,488 more than the amount referred to in the prior paragraph. The General Fund appropriation to the Commission was not reduced in response to these DAS assessment reductions. Therefore, the Commission will now have these funds available to meet other expenses.

LFO Analyst: Bailey

The Capitol Planning Commission was created to establish and implement a long-range development plan for state-owned properties in Marion and Polk Counties. The Commission reviews state agency capital development and facility proposals and coordinates planning to determine compatibility with area plans, local planning guidelines, and local interests. The Commission has developed a long-term, master plan for the Capitol Mall area. The Commission consists of nine members; three are appointed by the Governor, and six are "ex officio" members. An executive director (0.8 FTE) and a staff support (0.83 FTE) position provide administrative support for the Commission.

Funding is provided through an assessment against state agencies based on the amount of space owned or occupied by the agency in the geographic area under the Commission's jurisdiction (Marion and Polk Counties). The assessment is collected by the Department of Administrative Services as part of the state government service charge.

The nature of the Commission's activities is shifting away from an emphasis on review of major capital building projects toward issues such as surplus property, property disposal, creative building uses, joint use of facilities, and the feasibility of leasing compared with purchasing state facilities.

The Governor's 1999-01 budget continued the functions of the Capitol Planning Commission at the current service level with adjustments for inflation and increases in government service charges. This budget also included one policy package ($3,750 Other Funds) for services that will allow the Commission access to the Internet for receipt and distribution of electronic data, correspondence, and documentation. This package also allowed resources to provide maintenance agreements on the Commission's photocopy machine and computers.

The Legislative Assembly approved a budget of $245,084 Other Funds and two positions (1.63 FTE).

LFO Analyst: MacGlashan

This program provides labor relation adjudication and dispute resolution in the state service (state agencies and employees), determines bargaining units, and conducts representation elections.

The State Government Labor Relations program is 100 percent financed from a monthly assessment on covered positions in state agencies. The 1999-01 projected revenues of $1,046,760 in the Governor's budget are based on the 1997-99 assessment rate of $1.43 per employee per month and 30,500 covered state employees. Approximately one-third of state agency assessments is paid from General Fund sources.

The 1999 Legislature approved a $0.10 reduction in the monthly assessment per covered employee. The legislature anticipated that the 1997-99 ending fund balance will be higher that what was assumed in the Governor's budget and this will make up part of the estimated $76,000 of foregone revenues in 1999-01. The legislature also based this reduction on a higher number of covered employees than that originally forecast by the agency.

Senate Bill 750, adopted by the 1995 Legislature, significantly changed the Public Employee Collective Bargaining Act. These changes have contributed both to ERB workload increases and reductions. The full net effect of the change on ERB operations is yet to be determined.

The Governor's recommended budget continued current services in the State Government Labor Relations program. The budget was an increase of 8.8 percent over 1997-99 estimated expenditures.

The legislature adjusted the Governor's recommended budget for changes in assessments from the Secretary of State's Audits Division, the Department of Administrative Services, and for the agency's ERB-covered employees.

This program provides resolution of labor relations disputes for local government and covered private employers and labor organizations through use of mediation and adjudication, determines bargaining units, and conducts representation elections.

There are four primary sources of revenue in this program in addition to the General Fund: contract mediation fees ($1,000); grievance and Unfair Labor Practice (ULP) fees ($500); interest based bargaining training fees (up to $2,500); and filing fees for ULP complaints ($250) and answers ($100). All of these fees were established or increased by 1995 legislation. Demand for mediation and training services has declined causing the 1997-99 estimated revenues to fall by almost $100,000 (27%) below the amount anticipated in the 1997-99 Legislatively Adopted Budget.

Miscellaneous revenues for copies, transcripts and tapes are expected to generate about $15,000 for the 1999-01 biennium.

For 1991-93 through 1997-99, cumulative reductions in General Fund appropriations total 47 percent. As a result, this program has become increasingly dependent on fees for its services. Yet demand for services has fallen and, since 1995-97, the agency has made reductions in staff in response to insufficient revenues. These staff reductions affect the ability of the agency to respond to requests for services. The agency also believes the imposition of fees has had an adverse impact on small local governments' and employers' ability to use the agency's services, further reducing revenues.

As a result of 1994's Measure 8, many union contracts were extended from their original expiration dates, thus eliminating some demand for mediation services. As these contracts come up for re-negotiation, the agency anticipates it may see an increase in workload. The changes brought about by SB 750 and discussed under the State Government Employee Relations program are also applicable to this program.

The Governor's Recommended Budget re-established a previously abolished support position in response to workload demand ($65,311 General Fund). The budget was an increase of 19.2 percent over 1997-99 estimated expenditures.

The legislature eliminated the recommended support position from the Governor's budget. It also adjusted the budget for changes in assessments from the Secretary of State's Audits Division, the Department of Administrative Services, and for the agency's ERB-covered employees.

LFO Analyst: Bender

The Government Standards and Practices Commission, formerly called the Oregon Government Ethics Commission, was established as the result of a referendum in the 1974 General Election. The Commission's mission is to impartially administer the regulatory provisions of government standards and practices, lobby regulation, and public meeting laws. The Commission is required by law to meet specific timelines for the conduct of investigations. The Commission also educates public officials and lobbyists on the provisions of the Government Standards and Practices Law, the Public Meetings Law, and lobbying regulations. Clientele groups of the Commission include all public officials who serve the state or any of its political subdivisions (whether elected or appointed - compensated or not compensated), registered lobbyists and their employers, and any citizen who requests a review of the conduct of a public official or lobbyist.

Other Funds are from reimbursements for the cost of printing and distributing Commission documents, and will total approximately $4,700 in the 1999-01 biennium. The Commission also collects revenues from fines and forfeitures. These are not included in the agency budget, however, as these revenues are transferred to the General Fund and are not available for Commission operations.

In 1993, the legislature established a $50 lobbyist registration fee dedicated to funding the "administration and enforcement of the powers and duties of the commission." The new fee was collected until October 1994, when a lawsuit resulted in a court order enjoining the Commission from collecting it. The Commission had collected $24,400 prior to the court order. In November 1998, the lawsuit was finally settled when the Oregon Supreme Court ruled the fee unconstitutional. This ruling should have no effect on the Commission's budget, however, since its budget does not anticipate any registration fee revenue. The Commission also believes that the ruling will not require it to refund any previously collected fees.

The number of complaints filed with the Commission had been increasing over time. This number still appears to be increasing, but now at a slower rate. Statute requires the Commission not only to act on complaints but also to educate public officials and registered lobbyists on their responsibilities under the Government Standards and Practices Law and the Public Meetings Law. The agency has been expanding its efforts in this area, and has increased the number of presentations on these topics by over 50 percent in the past two years.

A major variable in the Commission's budget is the level of Attorney General charges. These can vary greatly depending upon whether the Commission faces any contested cases. Generally, the budget makes no allowance for exceptional contested case costs. When these costs occur the Emergency Board handles them. The Commission has had no contested cases in the 1997-99 biennium, and there are no now existing cases that are expected to become contested next biennium.

The Governor's budget did not contain funding for exceptional contested case costs. Continuing prior practice, these funds were excluded from the budget, and the Commission would need an Emergency Fund allocation if they materialize. The Governor's budget funded the Commission at the current service level, and also provided $32,400 of additional General Fund for a technology enhancement package. The additional funds would be used to acquire a Year 2000-compliant computer system, and to allow the agency to establish email and a website on the Internet. Almost all of the funds were considered to be a one-time investment and would not be included in the agency's base budget in the future.

The legislatively adopted budget contains a $10,942 General Fund reduction from the current service level. However, $1,620 of the reduction will be matched by reduced state government service charges to the agency and the remaining $9,322, equal to about 1.4 percent of the budget, will be met through agency efficiencies. The eliminated funds had originally been included to fund temporary appointments and to meet some inflation in service and supply costs.

The budget also includes the technology enhancement package, but funding for the package was reduced by approximately 16 percent to adjust for declining computer prices.

LFO Analyst: Weyand

The Office of the Governor provides overall direction to state agencies within the Executive Branch to ensure compliance with statutes and efficient and effective management. The Office includes a State Affirmative Action Officer, a Citizen's Representative Office, a Minority and Women Business Advocate, and Telecommunications Policy staff, and provides clerical support for appointing members to boards and commissions.

The Office of the Governor is supported mainly by the General Fund (GF). Other Funds (OF) consist of revenue transfers from the Departments of Administrative Services and Consumer and Business Services to finance the Affirmative Action and Minority and Women Owned Business programs and the Telecommunication Policy staff. The Affirmative Action Program is funded from a Personnel Division assessment estimated at $408,760 for the biennium. The Minority Business Enterprises program is funded from assessments on agencies that have capital construction funded in their budgets - estimated at $350,000 for the biennium. The Office also receives funds from the sale of subscriptions for directories of certified firms. The Telecommunications Policy staff are funded by transfers from the Information Resources Management Division (IRMD).

The budget is driven by the number of staff and programs operated out of the Governor's Office. In 1993-95, the legislatively adopted budget was reduced to $4.4 million by eliminating 6.5 FTE and under-funding Personal Services by $190,000. In 1995-97, two positions were added back and the Governor borrowed three positions from other agencies. Again in 1997-99, two more positions were added and the Governor continued to borrow positions from other agencies during the current biennium. The 1997-99 total approved budget amounted to $6.1 million.

The Governor's budget request was essentially a current service level request with some minor changes. The Governor's office would transfer two Telecommunications Policy staff to IRMD. The net reduction of $455,349 Other Funds would be offset by a corresponding increase in IRMD's budget. The budget proposed to reclassify four positions at a total cost of $46,555 ($27,454 GF and $19,101 OF) which included a salary differential for a bilingual classification. The Governor also proposed technological improvements to the office's telephone system at a General Fund cost of $25,297.

The legislatively adopted budget of $6.1 million is the Governor's recommended budget less a four percent reduction in services and supplies.

LFO Analyst: Bender

The Commission on Hispanic Affairs was established by executive order in 1980 and by statute in 1983 to work for the "implementation and establishment of economic, social, legal and political equality for Hispanics in Oregon." The Commission is comprised of 11 members, two of whom are legislators. Commission responsibilities are to:

• monitor existing programs and legislation designed to meet the needs of the Hispanic population;
• identify and research problem areas and issues affecting the Hispanic community and recommend actions to the Governor and Legislative Assembly;
• serve as a liaison between the Hispanic community and government entities; and
• encourage Hispanic representation on state boards and commissions.

The Commission generates Other Funds revenue through donations and grants, and by offering Spanish language classes to state employees. These funds help the Commission carry out its mandated functions. In the 1997-99 biennium, the Commission also received $76,814 of state support as Other Funds. These funds were part of a General Fund appropriation to the Human Resources Services Division of the Department of Administrative Services for diversity issues. The Division transferred the funds appropriated to it roughly equally among the four advocacy commissions. For budget purposes, the Commission received these state funds as Other Funds, since they were passed through another agency's budget.

In 1997, the legislature changed the focus of the Commission's funding from General Fund support to reliance on donations. The legislature reduced General Fund support of the Commission's budget to $25,000 - the same amount it provided to all four advocacy commissions. To allow the Commission the opportunity to operate at levels supported in the Governor's recommended budget, the Other Funds limitation was increased by $110,000 to offset the General Fund reduction. The $25,000 of General Fund support was to be used as seed money to enable the Commission to develop and implement a viable fundraising plan. The legislature also appropriated approximately $300,000 of General Fund to the Department of Administrative Services for diversity issues. This money was transferred to the four advocacy commissions. The Commission's portion of these funds, along with its $25,000 direct General Fund appropriation, provided it with $101,814 of state support in the 1997-99 biennium, a drop of 17% from what it had previously received.

The Commission has not historically been successful in raising Other Funds. In the 1997-99 biennium, however, it will raise approximately $23,000 through a program to teach Spanish language classes to state employees. The agency will continue this activity in the 1999-01 biennium and raise roughly the same amount. This activity has netted some Other Funds for the Commission above the cost of providing the classes. These net funds are used to support the Commission's mandated functions and have helped the Commission operate through the biennium and meet its personnel and services and supplies needs. The Commission also met costs by holding the Executive Director position vacant for four months, and by hiring the new director at a lower salary than the former director received.

The Governor's budget reversed the 1997 Legislative Assembly's decision to make the advocacy commissions reliant on donations. The budget provided direct General Fund support of $135,000, and eliminated the General Fund transfer through the Human Resources Services Division. This was the same amount of support that the Governor had recommended in his 1997-99 biennium budget, but represents a 33 percent increase over what the state actually provided the Commission in 1997-99. The recommended amount would enable the Commission to pay the Executive Director and to cover general office expenses out of its General Fund appropriation. The Governor's budget also added a 0.50 FTE position to allow the Commission to establish an education program on HB 2433, which last session changed the standards for search and seizure procedures by law enforcement agencies. The program was not funded, however, and the Commission would have to pay for it out of its Other Funds. The Commission was concerned about the impact of HB 2433 on the Hispanic community, and the program would educate Hispanics and law enforcement on their rights and responsibilities under the new law.

The legislature adopted the Governor's recommended budget with only minor modifications. The new agency position was approved on a limited duration basis. General Fund support was reduced by 4 percent ($5,400) because of limited General Fund resources and to meet other budget priorities. The same 4 percent reduction was taken in the three other advocacy commission budgets as well. An additional $3,348 of General Fund was removed to match a reduction in state government service charges to the Commission.

The Department of Administrative Services' (DAS) budget contains an additional assessment reduction for extremely small agencies. This reduction will lower the Commission's state government service charges by $11,620 more than the amount referred to in the prior paragraph. The General Fund appropriation to the Commission was not reduced in response to these DAS assessment reductions. Therefore, the Commission will now have these funds available to meet other expenses.

LFO Analyst: MacGlashan

The State Library engages in three broad functions: 1) to provide research services to state government; 2) to supply reading materials to print-disabled persons; and 3) to improve the overall quality of library services throughout the state by consulting with local libraries, distributing Federal Library Services Technology Act (LSTA) funds, and administering the Ready to Read Grant program for local libraries.

Other Funds revenues are generated from the assessment on state agencies, donations, grants, and miscellaneous receipts. The assessment to an agency is based primarily on the agency's FTE count (Higher Education is not assessed) and on actual agency usage. Other Funds provide partial funding for all sections, except Information Services, where it provides 100 percent of revenue. Federal Funds are used totally for Library Development Services. General Fund partially finances all sections except Information Services.

Measures 47 and 50 had a dramatic impact on Oregon public libraries. Beginning in early 1997, staff was laid off in many communities, service hours were cut, and book purchases were seriously curtailed. Many of these libraries have recovered since then, mostly through the passage of local option levies, although some libraries are still struggling. A study by a citizens' group called Oregonians for Libraries documented the reduction in operating hours in 33 public libraries. The study shows the reduction in public service hours per week ranges from two hours to 18 hours at main locations and as much as 61 hours at branch locations.

The Governor's recommended budget for the State Library was approximately $11.2 million total funds. This would be a 6.5 percent increase above the 1997-99 estimated budget. The budget allowed the Library to continue all current services, plus add $93,000 for systems furniture and .75 FTE for Talking Book and Braille Services (TBABS) staff ($45,030).

The legislature approved the State Library's budget at $11.5 million. This is a 9.5 percent increase over 1997-99 estimated expenditures. The budget maintains all current services. It provides for the Ready to Read program at the 1997-99 level of $0.75, or 75 cents, per child. There is a $45,030 Other Funds increase for additional funding for one position (.75 FTE) for the TBABS volunteer program. The position was shifted from the Library Services section to TBABS. A systems furniture package in the Governor's budget was approved but reduced to $71,305. Senate Bill 634 added $350,000 for local grants to enhance the Ready to Read Program which targets pre-school children.

This program oversees the overall administration of the agency. Responsibilities include providing leadership, policy development and strategic planning, working with constituent groups, managing financial and personnel functions, and setting and assessing performance measures.

The State Library building is undergoing its first major renovation since it was dedicated in 1939. The project includes renovation for seismic retrofitting, HVAC installation, electrical upgrades, restroom and office modifications and addition of a west-side public entrance.

The Governor's recommended budget continued the current level of services.

The Governor's recommended budget was reduced for changes in assessments from the Secretary of State's Audits Division, the Department of Administrative Services, and the Employment Relations Board.

This is the program area responsible for assisting local libraries and improving the overall quality of library services in the state. Library Development Services assists approximately 1,600 public, academic, and school libraries. The program provides the following services:

• promotes the establishment and consolidation of libraries;
• assists libraries with literacy, job-skill preparation services and children's readiness-to-learn activities;
• distributes federal grants to local libraries;
• collects and distributes statistics concerning Oregon libraries; and
• administers the state's Ready to Read Grant program for local libraries.

The Ready to Read program is funded totally by General Fund. The 1997 Legislature authorized a 50 percent increase in program funding. This increased the program budget from $0.50 per child to $0.75, a total of $1.1 million.

Grants to local libraries are funded with Federal Funds. In the past, the majority of Federal Funds were obtained from the Library Services and Construction Act (LSCA), Titles I, II, and III administered by the US Department of Education. LSCA funding was replaced with the Library Services Technology Act (LSTA) funds. Under the state maintenance of effort requirements of the new LSTA, states must maintain the average of expenditures in the past three years in state-funded programs relevant to the priorities of LSTA. Any reduction in state funding results in an identical percentage reduction in funding under the LSTA. Oregon is projected to receive a total of $3.3 million in combined funds from LSTA and LSCA in 1997-99. Total grants from LSTA for 1999-01 are anticipated to be $3.6 million.

An aspect of the Library's mission is to provide assistance to improve local library service for all Oregonians. Approximately 167,000 Oregonians do not have access to public library services and another 178,000 Oregonians' library services fall below minimum standards.

The Library is responsible for administering state and federal grants for local libraries to improve services. Within the first twelve months of the 1997-99 biennium, the Library administered 120 state aid and 75 federal LSTA grants. Total grants awarded to cities and counties are projected to be $1.5 million.

The Ready to Read Grant program provides library services to Oregon's children. The 1999 estimate for services to children will increase by 12.4 percent. Growth is projected to increase 5-6 percent per year during the 1999-01 biennium. The program assisted over 100 libraries in reaching out to children.

The Governor's recommended budget continued the current level of services.

The budget was approved at $5.3 million, a 13.4 percent increase over the 1997 estimated expenditures. Of the total, $350,000 was approved in Senate Bill 634 for local grants for the Ready-to-Read program, which focuses on pre-school children.

Talking Book and Braille Services (TBABS) provides a wide variety of reading materials in recorded or Braille formats to serve Oregonians with limited vision or other disabilities which prevent them from using conventional books and other printed materials.

In 1999-01, General Fund covers 90 percent of the TBABS budget and the remaining 10 percent is funded through Other Funds. The Other Funds represent donations from a fund raising program.

TBABS is a partnership between the Library of Congress and the State Library. The books, tapes, recorders and postage are provided at no cost to Oregon through the federal program. The State Library's responsibility is to provide storage, processing, inventory and maintenance of books, tapes and recorders. Approximately 1,400 books and audio books are mailed daily to customers. An equivalent number of items are received each day. Incoming books/tapes must be inspected, rewound (2-3 tapes per book) and inventoried before being reshipped. The total number of individual volumes and tapes handled per day is over 6,000. The Library also works with local public libraries to assist them in meeting the needs of the target population. An estimated 46,000 people in Oregon have sight or other disabilities that limit their ability to use standard printed materials. Approximately 7,200 (15.6 percent) of these people use the TBABS service. The projected growth for new customers is 3.6 percent during the 1999-01 biennium.

Full time staff (9.4 FTE) and volunteers process and distribute materials. Volunteer staffing is 44 percent of total hours worked.

The recommended budget added .75 FTE at a General Fund cost of $45,030.

The Library requested $45,030 General Fund to fund additional staff for the TBABS program. The position is a shift in .75 FTE from the Library Services to TBABS. Due to General Fund constraints, the package was approved using Other Funds from sources including miscellaneous receipts and donations. State agency assessment can not be used as a fund source for the TBABS program.

Information Services provides research assistance and electronic and printed resources research services to state government. The general public obtains special information concerning patents, trademarks, state government publications, Oregon history, and genealogy.

Information Services develops and maintains the Oregon Public Access Catalog (ORPAC) and WORKsmart, the Library's statewide on-line information systems. They also provide technical support and maintenance for the State Library's other automated systems. They catalog, inventory, circulate, and retrieve all library materials. The unit coordinates a database of periodical holdings of Oregon libraries.

Information Services (except for incidental revenue from other sources) is now fully financed by an assessment on all state agencies for their library use. An agency's assessment is based on both its full-time-equivalent positions (FTE) and its library use.

Library Services distributed approximately 17,000 state government publications to designated state documents depository libraries throughout Oregon. Due to the Library's streamlined focus and the increased interest in Internet, there is a 44 percent decrease in acquiring and distributing hard copies of state documents.

There is an increased demand for information using either the Library's phone-in program (CALLsmart) or through its Internet service (WORKsmart). CALLsmart is used by employees of state agencies. The first twelve months of the current biennium, Library staff answered 15,720 requests for information from state government agencies through CALLsmart and in-person requests.

The Library's WebPage, which is accessed through WORKsmart, allows libraries, state agencies and other governmental entities to access state documents, federal documents and other items that were previously available only in hard copy. There are approximately 3,400 state employees who are registered users of WORKsmart. From December 1997 through November 1998, WORKsmart received 38,526 inquiries.

The recommended budget continued current services and added $93,000 for acquisition of systems furniture.

The Library requested $93,000 for purchase of systems furniture for their newly remodeled facility. The adopted budget provides $71,305 for this purpose.

LFO Analyst: Jordan

The Oregon Liquor Control Commission (OLCC) regulates the manufacture, possession, sale, and distribution of alcoholic beverages in Oregon.

The Commission is entirely supported by Other Fund revenues generated from liquor sales (87%), privilege taxes on malt beverages and wines (Beer and Wine Tax) (11%), license fees and fines, server education fees, and miscellaneous income (2%). By law, part of the privilege tax revenues is first allocated for payments to the Mental Health Alcoholism and Drug Services Account and the Wine Advisory Board. The remaining privilege tax revenues, along with all other revenues (primarily from liquor sales) is first used to finance Commission operations (including liquor purchases). The excess balance ($150 million in the 1997-99 biennium) is apportioned to the state General Fund (56%), and to city (34%) and county (10%) general funds. The 1999-01 budget projects that $95 million will be transferred to the General Fund.

Even though OLCC operations are supported by Other Fund revenues, the agency's expenditures directly affect the General Fund. Each dollar spent by the Commission represents 56 cents in liquor revenues that will not go into the state's General Fund, and 44 cents that will not go to local governments. For this reason, an appropriate balance is sought between keeping operating costs as low as possible and making expenditures that are necessary to enhance the generation of revenue while maintaining a controlled distribution environment.

OLCC projects that per capita consumption of distilled spirits and case sales volume will remain stable with a slight upturn during the biennium of one-half of one percent over 1997 per capita consumption. The combination of population growth, greater customer demand for premium, higher-priced products and rising wholesale liquor prices will cause a modest 3.5 percent increase in total dollar liquor sales.

Per capita malt beverage consumption is projected to increase 2.8 percent during the biennium while wine consumption is expected to increase an average of three percent per year through 2001. This will be accompanied by an annual 1.4 percent increase in population through 2001. Actual privilege tax collections in 1997-99 are estimated to be $26 million, a $4 million increase over the 1997-99 legislatively adopted budget. Because of these factors, total privilege tax revenues for the 1999-01 biennium are expected to increase 3.8 percent over the 1997-99 estimated collection.

The focus of the Commission, since 1991, has been on achieving internal operating efficiencies rather than reducing external services. Staff has been reduced by 27.9 FTE (11.5%) since the 1991-93 biennium. During the same period of time, Oregon has experienced a 13.3 percent increase in population, a 23 percent increase in tourism spending on eating and drinking, and a 30 percent increase in the number of liquor licenses. The Commission continues to incorporate newer technology to meet its larger workload and customer service needs.

The recommended budget was $70.9 million, 13.5 percent higher than the 1997-99 estimated expenditures. The budget continued all existing services including the position that was established at the September 1998 Emergency Board meeting for the Alcohol Server Education Program ($64,687). Four positions were transferred to the Employment Department for a statewide central hearings panel. An increase of $104,902 was included to support centralizing the hearings panel. The budget added four new positions and four limited duration positions ($661,775) to support regulation and enforcement programs, and included $2.5 million for warehouse and office building improvements, business and general data system upgrades using certificates of participation (COP's). Total debt service for the COP's was estimated at $316,571, of which $200,709 is nonlimited interest and $115,862 issuance costs.

The legislatively adopted budget totals $72 million, 1.5% higher than the Governor's recommended budget. The legislature increased the base budget to reflect the increased cost of credit card processing and the increase in projected liquor sales resulting in an increase in agent's compensation by $1.1 million. At the same time, the legislature reduced the Commission's budget $246,760 eliminating the Regulatory Seller Certificate Program, and decreasing Attorney General, Secretary of State Audits Division, Department of Administrative Services and Employment Relations Board assessments due to efficiency reductions in those budgets.

Responsibilities of the Merchandising Program all relate to liquor sales and distribution. As a "control state," Oregon has granted the Commission sole authority to sell distilled spirits by the bottle. By marking up the wholesale price 106%, the Commission generates funds to finance its expenses and to produce revenue for state and local government general funds. There are two main divisions of the Program:

• Purchasing & Distribution Division (39.42 FTE) responsibilities include analyzing trends in customer buying and new product availability; purchasing and securely warehousing the liquor; arranging for the shipment of products to the state's retail liquor stores; and settling claims for damaged or defective goods. The Division ensures adequate liquor inventories and a varied selection to satisfy consumer demand.
• Store Operations Division (10.0 FTE) oversees operation of the statewide retail liquor store system, which consists of 234 retail outlets run by contract agents. Funding for agents' compensation is in a separate expenditure limitation, although it is related to the Merchandising Program.

The Governor's budget was $6,940,961, one percent less than the 1997-99 estimated expenditures. This budget recognized a reduction of $1.2 million for one-time expenditures the Merchandise Inventory Management System and Year 2000 funding and the discontinuance of the Point of Sales support. The recommended budget was increased $123,400 to provide additional ongoing system maintenance support of the new Merchandising Inventory Management System (MIMS). The recommended budget included an additional $475,000 to add components to the new Merchandising Inventory Management System that will enable the agency to take advantage of new features of the MIMS including bar coding and scanning capabilities funded by certificates of participation (COP's). Debt Service Interest for the COP's was $64,392, of which $44,015 is nonlimited interest and $20,337 is COP issuance costs. The budget was adjusted for increases in personal services and inflation.

The legislature approved a budget of $7.1 million total funds and 48.42 FTE. The budget is 2.1 percent higher than the Governor's recommended budget due to the increased cost of credit card fees ($146,895). The legislature also approved shifting the entire cost of processing credit cards ($1.3 M) to the Nonlimited budget to acknowledge that the expenditures are driven by customer demand and consist of expenses over which OLCC has minimal control.

The Regulatory Program is responsible for regulating the manufacture, distribution and sale of alcoholic beverages. The program issues liquor licenses and ensures compliance with liquor laws and OLCC regulations. The Program consists of two divisions:

• Regulatory Field Services Division (62 FTE) staff conduct license investigations, respond to complaints, investigate liquor law violations, and work with local groups to resolve problems. There are six regional working groups.
• Regulatory Process Division (34.5 FTE) staff maintain records; issue and renew licenses; coordinate staff involvement in contested case hearings, develop, review, and amend administrative rules, provide technical support and training to Field Services staff, and administer the alcohol server education program. The Metropolitan Compliance Unit, which handles complex and high risk license and enforcement cases in the Portland Metro area, is included in the Regulatory Process Division.

Currently, the priority focus for the Regulatory Program is underage drinking. Over 77 percent of all liquor law arrests are of minors and 8 percent of all DUII arrests are minors. The Commission's Minor Decoy Program, initiated in 1996, has shown licensed businesses have a 30 percent failure rate when minors attempt to purchase alcohol. There has been a 30 percent increase of licensed premises over the past five years with no increase in staff. The licensing workload resulted in a shift of resources from priority regulation problems. A backlog of Alcohol Server Education provider performance issues motivated the Commission to approach the Emergency Board in September 1998 for the establishment of one position to respond to complaints and apply enforcement requirements relating to instructor performance.

The Governor's budget was $14.1 million, 2.8 percent higher than the 1997-99 estimated expenditures. The budget funded implementation of a new regulatory business information system ($1.1 million) through the sale of COP's. Interest for debt service was estimated to be $153,826, of which $105,147 is COP interest and $48,679 is issuance cost. Two permanent positions and two limited duration positions were recommended to improve regulatory activities related to the state's most serious alcohol problem, underage drinking ($470,997). The budget also supported the position that was established at the September 1998 Emergency Board meeting for the Alcohol Server Education program ($64,687); one permanent position and one limited duration position ($190,758) supporting a legislative concept to mandate training of all package and liquor store clerks/sellers accompanied by a fee of no more than $13.

The legislature approved a budget of $13.9 million total funds and 102.0 full-time-equivalent positions. The adopted budget is 1.1 percent less than the Governor's recommended budget resulting from the elimination of the Regulatory Seller Certificate Program ($190,758).

The Support Services Program consists of three subdivisions:

• Administration (14.6 FTE) is responsible for overall administration of the agency, ensures that Commission and legislative policies are carried out, develops administrative rules, and conducts hearings.
• Administrative Services (29.5 FTE) includes human resources management, information systems support, motor pool fleet management, non-liquor purchasing, hearings on contested cases, mail delivery, and other routine support services.
• Fiscal Services (24.5 FTE) develops and implements systems that provide fiscal accountability for Commission operations, produces and maintains fiscal records, and develops and monitors execution of the agency's budget.

The Governor's budget was $11.9 million, 15.8 percent higher than the 1997-99 estimated expenditures. The budget included $275,000 to fund improvements to the agency's business technology systems through COP's. Debt Service was estimated at $37,307, of which $25,501 is COP interest and $11,806 is COP issuance cost. The budget reflected a shift of $584,099 from personal services to supplies and services to reimburse the Employment Department for the Governor's recommended central Hearing Officer Panel. In addition, 4.0 FTE were transferred to the Employment Department for the central Hearing Officer Panel. The central Hearing Officer Panel will cost the OLCC an additional $104,902.

The legislature essentially approved the Governor's recommended budget at $11.9 million and 60.0 full-time equivalent positions, reducing Attorney General charges, Secretary of State audit, Department of Administrative Services and Employment Relations Board assessments ($246,760) resulting from efficiency savings achieved in those budgets. The expenditure limitation for the Hearing Officer Panel was adopted in separate legislation, House Bill 2525.

This program includes an expenditure limitation from liquor revenues to pay contract agents who operate the state's 234 retail liquor outlets. Agents are paid monthly using a formula based primarily on store sales and on whether the store is exclusive (i.e., sells only liquor and related items) or non-exclusive (store is run in conjunction with another business, such as a drug or grocery store). Out of the compensation, agents pay liquor store rent, insurance, telephone, utilities, business taxes, employee salaries and benefits, and other operating costs. From the remainder, they pay their own salaries, benefits and personal taxes.

The rate of monthly compensation for agents was originally determined annually. In 1979 the Commission started calculating compensation monthly as a percentage of actual monthly sales. Biennial adjustments were made to this basic formula until 1980. Periodically, the legislature revises the formula for agents' compensation. The goal is to provide basic support while encouraging sound retail practices and rewarding sales performance. During the 1997 session the formula, which had been in effect since 1993, was revised to provide the following compensation:

• Non-exclusive stores: 13 percent of the first $10,000 of monthly sales; plus 6.15 percent of all monthly consumer sales (up from 5.66% in 1993-95); and 4.8 percent of all monthly dispenser sales (up from 4.42% in 1993-95); plus up to $118 monthly for deferred compensation if matched by the agent.
• Exclusive stores: based on six sales classifications, 13 percent of the first $10,000 of monthly sales for annual sales up to $210,000; and five compensation bases ranging from $1,560 to $2,600 per month for sales between $210,000 to more than $1.65 million per year; plus 6.15 percent of all monthly consumer sales (up from 5.66% in 1993-95); 4.8 percent of all monthly dispenser sales (up from 4.42% in 1993-95); plus up to $150 monthly for deferred compensation to the extent matched by the agent.

The 69^th Legislative Assembly increased the rate of agents' compensation from 8.2 to 8.54 percent of liquor sales. Agents' compensation increases when consumption increases or as prices increase. The Commission expects population growth and rising prices to increase total dollar liquor sales by 3.5 percent in the 1999-01 biennium. Agents' compensation would also increase by the same percentage. Some agents continue to incur costs (primarily store leasing and personnel) that are rising at a faster rate, and this is putting pressure on these agents' operations.

The Governor's budget continued funding agents' compensation at the current rate of 8.54 percent of total liquor sales.

The legislature approved an expenditure limitation of $38.5 million. The budget is a 2.9 percent increase compared to the Governor's recommended budget. The legislature approved an increase in agent's compensation of $1.1 million to reflect revised estimates of increases in liquor sales.

The Capital Improvement Program reflects Commission costs of major deferred maintenance and improvements to Commission facilities. The Commission owns an office and warehouse complex in Milwaukie, which serves as the distribution center for all bottled distilled liquor and houses most agency personnel.

In the past, the Commission and the legislature have focused on implementing capital improvements that facilitate the generation of additional revenue or avoid the potential for lost revenue due to facilities or equipment breakdown. These improvements have included a major replacement of the warehouse conveyor system, warehouse heating system and parking lot upgrades.

The Governor's budget provided $605,000 to improve facilities safety and efficiency utilizing certificates of participation. Debt Service was estimated at $61,046, of which $26,046 is COP interest and $35,000 is COP issuance cost.

The legislature approved an expenditure limitation of $671,046 total budget. The budget is increased by $40,000 to reflect updated estimates for the warehouse roof repairs.

LFO Analyst: Weyand

The Public Employees Retirement System administers the retirement system for all state and public school district employees; and most city, county and special district employees in Oregon. The agency also administers deferred compensation programs for state employees and employees of local governmental units.

The Public Employees Retirement System is responsible for all fiduciary activities performed on behalf of system members. This includes receipt of contributions into the retirement trust and deferred compensation trust funds, retirement counseling, retirement benefit determination, and benefit payment. In prior biennia, the System had two budgetary programs, the Retirement Program and the Deferred Compensation Program. To better utilize all agency resources, the current budget has only one budgetary program, the Public Employees Retirement System.

The System's Other Funds revenues come from employer and employee contributions to the retirement system ($1.7 Billion), retirement trust fund interest earnings ($15.8 Billion), and a charge of 0.15 of one percent of deferred compensation trust fund assets and other administrative fees assessed employers ($1.5 million) for health fund and social security administration activities. Since 1979, most of the employee contributions to the pension trust fund have been paid by employers as negotiated compensation.

The demographics of Oregon public employees suggest that retirement counseling and benefit determination will continue to increase over the next decade. During the current biennium, the number of retirements processed increased far beyond original estimates, due in large measure to earnings credits to employee accounts. PERS found it necessary to seek increased expenditure limitation from the Emergency Board to service the surge of retirements. PERS now provides pension services to approximately 185,000 non-retired members and 75,000 retirees compared to approximately 173,000 and 65,000, respectively, in the prior biennium. Since the last biennium, the number of participants in the Deferred Compensation program has grown from 10,000 to 16,000.

Additional regulatory requirements and statutory changes affecting pensions have also made the administration of pension plans more complex. Changes to statutory benefits have caused PERS pension plan participants to be grouped as Tier One and Tier Two members. The increasing pension cost to employers has triggered discussion of yet another statutory change that would create another tier of participants.

The increasingly complex administration of pension benefits, and the expectation of servicing an ever growing number of retirees and deferred compensation participants has caused PERS to undertake a substantial reengineering and systems development project. Expected to be completed in 2005 at a cost estimated between $31-$38 million, the project should enable PERS to deal with the increased demand for services without an equivalent increase in staff resources.

The Governor's budget funded the continuation of the reengineering and systems development project and maintained the current level of services. It also provided funds ($1.8 million) and 17 new positions (17.33 FTE) to meet the growing demand for services created by the increasing number of members and the complexities of services provided. The upward reclassification of 24 existing positions also was recommended because of changing job requirements ($276,000). Included also were funds ($1 million) for new services to be provided by seven additional staff (5.5 FTE). Legislation authorizing the new services was being introduced in the 1999 Session. The new services would be to allow members to purchase retirement credit and make other applicable purchases via payroll deduction on a pre-tax basis, and to allow persons hired into PERS qualifying positions to "rollover" funds from other tax qualified retirement plans into a PERS account.

The adopted budget for Other Funds expenditure limitation is $41.5 million and funds 17.33 additional FTE. The budget does not fund two option packages that anticipated additional workload required by legislation introduced during the session. The budget does continue to fund PERS' reengineering and systems development project, and provides staff necessary to deal with the tremendous increase in workload. The budget was reduced $335,730 to reflect savings due to reductions in Attorney General charge rates and expected audit costs.

This program accounted for the one-time expenditures related to the construction of the PERS headquarters building.

The construction project was financed by the sale of certificates of participation (COP's). Repayment of the COP's is included in the Nonlimited expenditures for the Public Employees Retirement System. The 1999-01 budgeted debt service is $1.4 million.

LFO Analyst: Jordan

This Commission regulates all aspects of the pari-mutuel industry in Oregon at the Portland Meadows Race Track, the Multnomah Greyhound Park, the Oregon State Fairgrounds, and at several county fair race sites. The Commission also regulates the off-site simulcasting of races. The program ensures the integrity of the sport; the safety of the contestants, public and animals; the fairness to all parties; revenue production; and a positive impact on the economy. Regulatory activities of the Commission include licensing, inspections, and investigations of irregularities.

Revenues are derived from three sources: 1) the state share of the pari-mutuel receipts ($2.7 million), 2) unclaimed winnings ($700,000), and 3) license fees and licensee fines ($100,000). The state's share is one percent of the total bets for horse races and 1.6 percent of the total bets for dog races. Revenues from the state's share declined from $8.6 million in the 1991-93 biennium to $3.0 million in 1995-97. Revenues received in excess of the Commission's expenses are transferred to the General Fund. The amount that was transferred to the General Fund also declined from $3.2 million to $1.7 million during the same period. The 1999-2001 budget does not provide for any revenue transfer to the General Fund due to the decline in the state's share of pari-mutuel wagers. In addition, the legislature in the past two biennia supplemented revenue with lottery ($300,000 in 1995) and General Fund ($493,800 in 1997) for purses at county fair race meets.

The Commission forecasts a static level of total pari-mutuel wagering into the 1999-2001 biennium. Nonetheless, the racing industry in Oregon continues to struggle. The industry is experiencing problems nationwide, and in Oregon these problems are exacerbated by increased competition from expanding Oregon lottery games and Indian gaming. Both the Commission's revenues and operations would be greatly affected if either of the two Oregon tracks were to discontinue operating.

To reduce financial pressures on the tracks, the legislature has recently reduced the state's share of pari-mutuel wagers. In 1993, the share for horse racing was reduced from 3 percent to 1 percent and the share for greyhound racing was reduced from 6 percent to 3 percent. In 1995, the legislature further reduced the share for greyhound racing from 3 percent to 1.6 percent and allowing up to 75 video lottery machines at each of the two state tracks. The Governor vetoed the legislation. In the 1996 Special Session, the legislature again reduced the share on greyhound racing (without the video lottery provision), and this time the Governor signed the bill. In 1997, the legislature attempted to preserve the racing industry in Oregon by approving $3.8 million of Lottery Funds and $1 million of Other Funds to support racing activities, but the Governor vetoed the bill (HB 2870) that provided this funding. Because the viability of the racing industry continued to be threatened, the Emergency Board approved a $1.6 million increase in expenditure limitation ($493,800 General Fund, $1.1 million Other Funds) to supplement race meet purses, to make racing track safety repairs, and establish simulcast feeds to off-track betting sites.

The pari-mutuel state share is projected to fall to about $2.7 million in 1999-01 (a 67% drop from 1991-93). Because operating costs now exceed the state's share of pari-mutuel wagering, the transfer to the General Fund is eliminated. Off-track and out-of-state simulcasting is making up an increasingly larger proportion of betting receipts. The Commission and the pari-mutuel industry has struggled with the issue of allocating simulcasting rights since 1991 and has been unable to find a satisfactory policy for all interests given the statutory framework that they work with.

The Governor's budget added five positions and $27.9 million Other Funds in support of the Commission's legislative concept to control simulcasting activity in the state.

The legislature approved a budget of $3.2 million Other Funds and 18.97 full-time-equivalent positions. The budget is 89.8 percent less than the Governor's recommended budget resulting from the elimination of a proposal for state controlled race simulcasting and distribution of simulcasting revenues to racetracks. The budget is also adjusted for a reduction in Attorney General fees, audit charges, and Department of Administrative Services assessments.

LFO Analyst: MacGlashan

The Department of Revenue administers the state's Income Tax and Property Tax programs. In addition, the Department collects revenue from a variety of sources and transfers it, less administrative costs, to various state and local agencies. These revenue sources include taxes on: a) cigarettes and other tobacco products; b) amusement devices; c) payroll (for local mass-transit); c) timber, oil, and gas severance; and d) the harvesting of forest products. The Department also collects and distributes hazardous substance fees, court fines and assessments, and taxpayer check-off donations; serves as the collection agency for fines, forfeitures, and assessments owed to state agencies; and administers two property tax relief programs for senior citizens. Altogether, the taxes the Department administers generate 95% of General Fund revenue and 90% of local government revenue.

The Department is mainly supported by the General Fund (GF). Other Funds (OF) revenue is derived from charges to the various Other Funds tax, fee, fines and assessment programs to cover the Department's administrative costs. Charges are based on time studies that determine the cost to each division of administering these programs.

Other Funds also are received from Senior Citizen's Property Tax repayments as well as from the Assessor Funding Program and charges to counties for mapping services. The Assessor Funding Program provides funds to both the Department and to county governments from interest paid on delinquent property taxes and from a recording fee levied when real property is transferred.

The Department projects modest population and economic growth for the 1999-01 biennium. Over the past three biennia, the Department has been successful in addressing funding constraints and increased workloads by developing and enhancing automated systems, implementing an aggressive employee training program, reorganizing, and revising operating procedures.

Prior legislation has changed the Department's responsibilities and budget. The 1995 Legislature transferred the handling of tax appeals from the Department to a newly created Tax Magistrate Division in the Oregon Tax Court. Appeals filed on or after September 1, 1997 are handled by the Tax Magistrate Division. Costs associated with the Appeals Section are completely phased-out by the 1999-01 biennium.

In 1989, the legislature created the Assessor Funding Program to supplement funding of property tax assessment and taxation functions. The Department uses its portion of the funding for appraising industrial properties valued between $1 million and $5 million, for training county personnel, and for conducting performance reviews of county programs. This program and funding sunsets halfway through the 1999-01 biennium.

Currently, 89 percent of Oregon's income taxes are paid voluntarily; the Department collects another 2 percent through audit and collection; and the remaining 9% are not paid and represent the "Tax Gap."

The Governor's budget added a taxpayer compliance package at a cost of $4.6 million ($4.2 million GF and $491,279 OF) and 39.5 FTE to improve tax collections through assistance, education and enforcement activities, including the use of automation to make filing returns easier for the public. The package was expected to generate approximately $8.1 million General Fund for the state and $1.6 million Other Funds for local governments. The Governor's budget was a net 6.2 percent increase over the 1997-99 legislatively approved budget and 1997-99 estimated expenditures (8.3% GF increase and 8.4% OF decrease).

The legislatively adopted budget is an 11.5 percent increase over 1997-99 estimated expenditures (14.8% GF increase and 10.5% OF decrease). The legislature modified the taxpayer compliance package in the Governor's budget by reducing certain administrative support positions and deferring portions of the package pending reports by the Department to the Emergency Board. The legislature also approved an additional 19 positions (18.0 FTE) with the goal of increasing General Fund revenues in 1999-2001 by an additional $8 million at a cost of $1.7 million, resulting in a net increase of $6.3 million. In total, the legislature invested $5.6 million General Fund to generate $16.1 million General Fund revenues, for a net gain of $10.5 million.

The Executive Section is responsible for overall administration of the agency and for coordinating the agency's legislative, rulemaking, and internal audit functions.

The Governor's budget continued this section's operations at its current level.

The legislature modified the Governor's recommended General Fund budget with a small reduction ($114) in Attorney General costs and an increase ($113,842) for revised charges from the Secretary of State's Audits Division.

The Administrative Services Division provides personnel, communications, research, and publication services for the agency and accounts for the receipt and distribution of all tax revenues. Responsibilities also include conducting research for revenue projections.

In the 1997-99 biennium, the Appeals Section was phased-out as appeals were moved to the Tax Magistrate Division of the Oregon Tax Court. Higher Attorney General charges that were anticipated as cases were transferred to the more formal Magistrate Division setting have not materialized due to the lower-than-expected number of appeals.

As part of the tax compliance package, the Governor's budget added a full-time personnel officer and a 0.5 FTE management analyst at a cost of $137,423 ($115,246 GF and $22,177 OF) to address the increased activity expected in this section.

The legislature, finding no direct impact in the short-term on revenue generation, eliminated the package contained in the Governor's budget. It also made a small adjustment ($813 Total Funds) for reduced Attorney General costs.

The Information Processing Division provides computer processing systems and support services to the agency's other departments, processes incoming tax returns, scans returns for errors, processes and banks tax payments, enters and transfers taxpayer data to computer storage, maintains information files, and provides help to taxpayers by telephone (Tax Help Section) and through information publications. This Division also provides the Department's purchasing, budgeting and accounting.

The Division's activities are carried out in a high-volume, production-type environment. As the Division adds new systems and becomes more dependent on automation, well-trained and experienced information systems staff are needed to maintain computer systems. According to the Department, the rapid increase in computer-related salaries in the private sector has made it difficult to attract and retain skilled information systems staff.

As part of the tax compliance package, the Governor's budget added 12 full-time information systems specialists and two support staff at a cost of $1.9 million ($1.7million GF and $238,126 OF) to work on new and existing systems to improve electronic tax collections and the Department's tax processing work.

The legislature removed the package in the Governor's budget but created a $1.7 million General Fund special purpose appropriation in the Emergency Fund. The Department was directed to report to the Emergency Board on how the new and impro>

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The Property Tax Division oversees the property tax system and ensures that counties comply with all property tax laws and rules. To these ends, the Division develops procedures, advises and trains county staff, and conducts reviews of county actions. Responsibilities also include conducting appraisals on all industrial manufacturing plants valued at $1 million or more; appraising all utility, communication, and transportation properties; and administering several timber tax programs.

House Bill 2049 from the 1997 legislative session extended the Assessor Funding Program to June 30, 2000. The funds for this program come from two sources: a) an interest rate charged on delinquent property tax accounts, with a portion (generally 25%) of the interest collected transferred to the program; and b) a $20 recording fee collected on property transfers. Collections from these sources vary with changes in real estate activity and interest rates. From 1990 to 1997, this program has distributed $77.4 million to counties to help meet their assessment and taxation administrative costs and $8.9 million to the Department for administrative expenses.

The Department views the Assessor Funding Program as an important tool in implementing Measure 50, which requires that property values be on the assessment rolls at real market value. During the 1997-99 interim, the Department participated in a work group considering how best to fund this program. As a result of the group's efforts, the Department submitted legislation during the 1999 legislative session to continue funding the program with 1) the interest on delinquent property tax accounts and 2) the recording fee applied to an extended base.

The Governor's budget continued the current level of service, with no assumption of an extension of the Assessor Funding Program past its sunset date. Extension of the existing Assessor Funding Program through the 1999-01 biennium would produce revenues of $14.2 million, of which $1.4 million could offset any General Fund used to support the program. Additionally, Attorney General costs were re-estimated for 1999-01, resulting in a General Fund reduction of $249,905.

The legislature reduced the Governor's budget by $330,392 General Fund and $30 Other Funds for revised Attorney General costs and eliminated three vacant positions (2.01 FTE) for a savings of $95,242 General Fund and $108,792 Other Funds. Additionally, the legislature provided $5 million General Fund for the County Assessment Function Funding Assistance Account to provide financial assistance to counties in administering their property tax systems.

House Bill 2139, passed by the 1999 Legislature and signed by the Governor, continues the Assessor Funding Program. It provides for an extension of the current interest rate charged on delinquent property taxes and reduces the recording fee from $20 to $11 but applies this fee to an expanded base of documents. The measure provides that the Department shall receive up to 10 percent of the moneys in the County Assessment and Taxation Fund to pay for its appraisal of industrial properties and oversight of the property tax system. Neither the Governor's nor the legislature's budget reflects the impact of this legislation; therefore, the Department will have to request additional expenditure limitation and position authority from the Emergency Board to expend the funds provided to this program after June 30, 2000.

The legislature passed and the Governor signed into law House Bill 3575, which creates a new program for levying property tax on forestland and assessing a privilege tax on timber harvested. The measure has an estimated $501,000 General Fund impact on the Department's 1999-01 budget. The legislature appropriated $360,000 General Fund to the Department to cover the costs of House Bill 3575 relating to a working group to review forestland values and real market values for highest and best use forestland.

The Personal Tax and Compliance Division administers the personal income tax program. Responsibilities include auditing and encouraging voluntary compliance for the personal income tax, collecting delinquent personal income taxes, and collecting local option taxes. In addition, the Division administers the Elderly Rental Assistance Program.

The Division's workload is increasing over time as the state's population grows and more personal income tax returns are filed. Workloads are also increasing, as more taxpayer data becomes available from federal and other sources. The Division has added new automated systems to help handle this growth.

The Governor's budget added 19 positions (18.0 FTE), including six revenue agents, four tax auditors, two management positions and seven administrative specialist positions, at a cost of $2.1 million ($2 million GF and $94,548 OF) as part of the taxpayer compliance package.

The legislature eliminated two support positions (2.0 FTE, $143,176 GF and $7,535 OF) from the taxpayer compliance package based upon the current ratio of support positions to other positions within the Department. It added nine new positions (8.5 FTE) at a cost of $844,907 General Fund and $44,353 Other Funds to improve revenue collections; deferred purchase of a $255,000 General Fund telefile system pending the Department's report to the Emergency Board on the impact of this technology on staffing requirements; and made reductions of $217,091 General Fund and $34 Other Funds for revised Attorney General costs.

The legislature passed and the Governor signed into law House Bill 3560, which revises the Oregon individual income tax charitable checkoff program. This measure has an estimated impact of $109,000 Other Funds on the Department's 1999-01 budget. If the Department cannot absorb these costs within its legislatively adopted budget, it will need to request additional expenditure limitation from the Emergency Board.

The Business Division administers several tax programs, including corporate income and excise taxes, the employer withholding tax, the transit payroll and self-employment taxes, the fiduciary and inheritance taxes, and other agency accounts and special programs. Responsibilities include auditing tax returns and collecting delinquent taxes and other delinquent accounts. The Division also provides debt collection services for state and local agencies and for state and municipal courts in all 36 counties.

Currently, the Division is collecting on 156,000 accounts with 156 state and local agencies. The number of delinquent accounts is expected to increase. The Division is using more automation to help handle workload growth.

The Governor's budget added 6.0 FTE, including four revenue agents and two support staff, at a cost of $454,757 ($318,329 GF and $136,428 OF) as part of the taxpayer compliance package.

The legislature eliminated one of the support staff positions (1.0 FTE, $45,007 GF and $19,289 OF) from the taxpayer compliance package based upon the current ratio of support positions to other positions within the Department. It added seven new positions (7.0 FTE) at a cost of $595,111 General Fund and $71,045 Other Funds to enhance revenue collections. Reductions of $7,424 General Fund and $770 Other Funds were made for revised Attorney General costs.

Through the Department of Revenue, Oregon is a member of the Multistate Tax Commission, which is composed of several states which have joined together to promote uniformity in state taxation of corporate income. Dues to the Commission are proportional to the amount of tax revenue each state collects. The budget reflects the nonlimited expenditure for dues to the organization.

The Commission is beginning a new compliance program that will increase costs to Oregon by an estimated $26,000.

The Governor's budget continued the current service level, including the new compliance program.

The legislature approved the Governor's recommended budget.

The Elderly Rental Assistance program provides direct tax relief to elderly, low-income renters. Benefits are based on income levels and the amount of rent, fuel, and utilities paid. The benefits are available to renters age 58 or over with household income under $10,000, household assets (if under age 65) that do not exceed $25,000, and gross rent in excess of 20 percent of household income.

The agency expects a lower number of eligible households and a lower cost per household for the 1999-01 biennium.

The Governor's budget was a 6 percent decrease (-$624,701 GF) from the 1997-99 legislatively approved budget and 1997-99 estimated expenditures as a result of the Department's forecast of the number and costs of eligible households.

The legislature reduced the Governor's recommended budget by $750,000 General Fund and appropriated this amount to the Emergency Board, pending caseload information from the Department.

The Senior Citizens' Property Tax Deferral program allows homeowners age 62 and over who meet program income limits to defer payment of property taxes and special assessments until the owner dies, sells the property, or stops using it as a principal residence. The state pays the tax and obtains a lien on the property for the tax and for accrued interest at the rate of 6 percent per year. The deferred taxes and interest are collected when the property is disqualified. Moneys received as other properties are disqualified and their deferred taxes are paid finance the taxes the state pays under the program.

The General Fund makes up any shortfall; however, the program currently is self-supporting and no shortfall is anticipated this biennium.

A one-dollar General Fund appropriation was provided for the program to highlight the state's responsibility for payments should they become necessary. The Governor's budget included a transfer of approximately $12 million in program reserves to the General Fund, leaving a 1999-01 ending balance of approximately $28 million.

The legislature adopted the Governor's recommended budget for this program. In addition, based on updated information on the program reserves, the legislature approved an additional $5 million transfer to the General Fund, leaving an estimated ending balance of approximately $23 million at June 30, 2001.

House Bill 2901 passed by the 1999 Legislature and signed by the Governor expands program eligibility to disabled persons with household incomes of less than $27,500. The fiscal impact on the reserves of the program will not be realized until after July 1, 2001, the effective date of the expansion. The Department estimates that the reserves will decrease by approximately $10 million for the 2001-03 biennium as a result of this legislation. The Department also predicts there will be a need for General Fund support to the program in the 2003-05 biennium as a result of House Bill 2901.

LFO Analyst: Weyand

The Office of the Secretary of State is one of three established at statehood. The Secretary is auditor of public accounts, chief elections officer and manager of the state's records, a role that includes preserving official acts of the Legislative Assembly and the executive branch. The Secretary of State serves with the Governor and State Treasurer on the State Land Board, managing state-owned lands for the benefit of the Common School Fund. With the Governor and the State Treasurer, the Secretary of State also serves on the Prison Industries Board, which oversees prison work programs.

Other Funds revenues are dedicated to the programs that generate them. Service charges from other state agencies fund the Audits Division, and Corporation filing fees fund the Corporation Division. The Archives Division receives Other Funds revenue from the sale of administrative rules and the Oregon Blue Book. It also charges other state agencies for storage of their records. Internal service divisions' Other Funds are revenue transfers from those divisions they support.

The Secretary of State is a separately elected, constitutional office. However, the Office has adopted the 1999-01 budget development guidelines established by the Department of Administrative Services. The operations (and budgets) of two of its divisions are affected by forces outside of their control. These are the Elections Division and the Corporation Division. The Elections Division's budget is almost all General Fund and is affected by ballot measures, special elections, election litigation, and the voters' pamphlet's volume and complexity. The Corporation Division is affected by services demanded by the public. The Division is responsible for processing filings of business entities, trademarks, Uniform Commercial Code (UCC) financing statements, and responding to requests for information on existing businesses, UCC filings, notaries and notary commissions, and requests for information to start a business. Operations of the other divisions and offices are less affected by outside forces and their budgets are somewhat more controllable as a result.

The Executive Office includes the Secretary and the Secretary's immediate staff. The office provides policy direction and daily management of the agency. The executive staff are responsible for strategic planning, policy development, and legislative and press relations. In addition, the office staffs the State Land Board.

The Executive Office budget request was to fund current service level requirements only, and was under the Governor's limit. The $111,000 increase over 1997-99 costs was due to increased personnel costs ($91,000), predominately from the roll-up of salary increases and the adjusted PERS contribution requirement. The remaining increase was inflationary cost increases for supplies and services.

The legislatively adopted budget is the Governor's recommended budget less a small reduction to reflect savings from lower Attorney General hourly billing rates.

The Archives Division stores public records, protects and provides public access to Oregon's documentary heritage. The Division also gives records management advice and assistance to state and local agencies and publishes the state's administrative rules. Services are provided by its Reference, Records Management, State Records Center, and Publications units.

The Other Funds revenue is from the sale of annual Oregon Administrative Rules Compilation ($300 each); the monthly Oregon Bulletin ($75/year) which provides monthly updates to the Compilation; and the Oregon Blue Book ($14 each). The Division also assesses other state agencies for records they have stored at the State Records Center. The Division estimates these revenues will amount to $1.1 million for the 1999-01 biennium. Miscellaneous receipts for document copies are expected to generate an additional $96,000. There is also a small trust fund from the estate of Ernest E. Baker for supplemental reference materials. The Federal Funds are from the National Historical Publications and Records Commission.

Reference activities are driven by demand for services. Automation has enabled customers to do much of their own research. Staff responsibilities have shifted to help customers exchange information and structure requests for services to insure prompt, accurate responses. Records Management and State Records Center activities are driven by government demand for records retention and disposal services. The Publications Unit publishes the Oregon Blue Book biannually, and publishes updates to Oregon administrative rules as they are adopted by various agencies.

The Division's budget request included new position classifications that would result in a General Fund request five percent above current service level requirements and would exceed the Governor's limit. The reclassifications were to provide archivists with their own classifications to better reflect their job requirements. The request was for $152,048 General Fund.

The legislatively adopted budget is $4.4 million for the Archives Division. The budget reallocated $152,048 to the Emergency Fund for new position reclassifications. The funds will be allocated by the Emergency Board after processing and approval of the position reclassifications. The cost of the position reclassifications will be defrayed by a transfer of $152,048 to the General Fund from Archives Divisions Miscellaneous Receipts account. The budget also was reduced for expected savings from reduced Attorney General billing rates and salary savings of a new hire.

The Audits Division was created to carry out the Secretary's constitutional duties to perform financial and compliance audits and program performance audits of state agencies.

The Division is funded through charges to state agencies based on the size and complexity of their audits. It expects these charges to approximate $13.7 million for the biennium. The Division estimates that it will receive $285,500 in filing fees from about 1,700 municipal corporations for the audit reports statutorily filed with the Division. Endowment care cemeteries and persons who market prearranged funeral plans are required to pay various fees for registrations and filings with the Division. These fees and interest earned on the Funeral Consumer Protection Trust Fund are expected to generate $153,500.

The law requires the Division to recover its costs for the audits from the agencies. During the 1993 Session the Legislative Assembly changed the method of paying for audits by adopting a service charge for each state agency. These charges are adjusted to reflect actual cost experience in subsequent biennia. Subsequent adjustments for audit costs incurred in prior biennia is still causing some problems and the Division is trying to develop better estimates of recurring audit costs to minimize subsequent biennia adjustments for past costs. The Division may seek additional changes in statutes to enable it to improve its billing and assessment practices.

The Division is entirely supported with Other Funds revenue and was not affected by the Governor's General Fund limit. The Governor's budget contained a request to establish an agency specific classification series for auditors in the Division. The Division is finding it increasingly difficult to recruit and retain qualified auditors. The Division competes for recruits with CPA firms and private industry. Experienced staff often are recruited by other state agencies at compensation levels the Division cannot currently match because of current staff classifications. The Division has been unable to fill a number of vacant positions and has had to rely on contract audits to fill the gap. Cost of the reclassifications was estimated at $593,660 and would be funded by charges for audits and other work performed.

The legislatively adopted budget is $1.0 million less than the Governor's recommended budget. The reduction reflects a small adjustment for lower Attorney General billing rates ($1,030) and expected savings from new hire salaries starting at entry level steps and related lower pension benefit costs ($408,997). The budget was also reduced by the $593,660 requested for reclassification of positions. Final review and approval of the position reclassifications was not complete, and the Secretary of State can seek an expenditure limitation increase from the Emergency Board when the reclassifications have been reviewed and approved. Reductions in the budget also resulted in a net reduction of $331,879 in audit assessments to state agencies.

The Business Services Division provides central accounting and other administrative support services for the other divisions of the Office of the Secretary of State. The Division previously provided data processing and personnel support services which are now provided by the Information Systems Division and Personnel Resources Division, respectively.

The Other Funds consist of revenue transfers from those divisions with Other Funds limitation that the Division provides services to. The transfers are based on estimates of the number of accounting entries, full-time equivalent positions, and time spent by Division staff on each of the divisions.

The Division's budget request included converting two full-time temporary positions in the mailroom to permanent positions. This would result in a General Fund request of 4.1 percent more than current service level and would exceed the Governor's limit. These temporary contract positions were previously budgeted under services and supplies. An adjustment to that portion of the Division's budget was expected to reduce the impact of converting the positions to permanent status.

The legislatively adopted budget approved the conversion of temporary contract positions to permanent status and includes that adjustment for related savings in contract services. The budget was also reduced for savings in pension benefit and supplies costs for the two positions. A small adjustment was also made to reflect lower Attorney General billing rates.

The Corporation Division is responsible for three major programs: 1) Business Registry - the filing of business names; 2) Uniform Commercial Code - the filing of secured transactions; and 3) Notary Public - commissioning and regulating Notaries.

The Other Funds revenue comes from business filings, secured transactions and notary public fees. The Division estimates total revenue of $18.8 million and expects to transfer approximately $10.6 million to the General Fund.

Business activity drives both the revenues and costs of the Division. The Division processes an average of 42,700 documents per month for its three major programs. Automation and electronic access to documents has allowed the Division to continue to process these documents and make them available to the public without increased staff. Increased use of the Internet to access documents has reduced the Division's collections for search services and document copies.

Since the Division has no General Fund, its budget request was not affected by the Governor's limit. The $506,000 current service level increase over the 1997-99 estimated cost was mostly salary roll-up and increased PERS contribution requirements ($362,000) less the phase-out of two positions ($76,000). The remaining current service level increased costs were inflationary increases for supplies and services.

The Governor's budget also contained an option package for two limited-duration, full-time equivalent positions. The two positions would be used in a project to match existing Business Registry records with the single identification number used by the Employment and Revenue Departments. In the future, all registered businesses would be assigned a single identification number. This would eliminate duplication of records, and facilitate the tracking of businesses by state agencies.

The legislatively adopted budget of $6.1million is $58,032 more than the Governor's recommended budget and includes one additional FTE because of an oversight in the budget request. One position was inadvertently dropped from the Corporation Division request. The legislatively adopted budget restored the position and made some minor reductions for savings expected in Attorney General and pension benefit costs. Reductions to internal service charges will result in an additional $222,094 transfer to the General Fund during the biennium.

The Elections Division administers the state's elections laws, investigates election law violations and enforces applicable laws; receives for filing all documents related to state elections; publishes statewide voter's pamphlets; and administers the filing and verification of initiative, referendum, and recall petitions.

The Other Funds revenue includes charges for copies of documents and special forms; providing telecommunication capabilities; and charges to County Clerks for election materials and supplies. The Division estimates these revenues at $90,000 for the biennium. Voters' pamphlet and elections filing fees are not revenues to the Division because they are deposited into the General Fund.

The Division's budget anticipates dealing with ballot measures, elections, election litigation and the voters' pamphlet with current resources. During the 1995-97 biennium, six special elections caused the Division's costs to far exceed those of the prior and subsequent biennium. The 1997-99 legislatively adopted budget included a $937,337 appropriation to the Emergency Board in the event the Division had to incur additional costs for the voters pamphlet for the November 1998 election. The number of ballot measures qualifying for the general election and the comments in support of or against the various measures directly affect the size and cost of the voters' pamphlet. Other external factors that affect this Division's costs include legal challenges to ballot measures and election results.

The Division's budget request was for current service level requirements only and was under the Governor's limit. Personnel costs increased $232,000 over 1997-99 principally because of salary increase roll-up, merit increases, and the increase in PERS contribution requirement. Services and Supplies costs were adjusted for inflation. Overall, the request was $695,000 less than the 1997-99 expenditures because of the elimination of the one-time cost of the November 1997, special election ($1,063,000).

The legislatively adopted budget is the Governor's recommended budget less $9,689 for cost savings expected from lower Attorney General billing rates. HB 2354 provides for a special appropriation to the Emergency Board for the November 2, 1999 special election, to which a number of measures were referred by the 1999 Legislative Assembly. The budget does not anticipate funding of a March 2000 presidential primary election or a two-volume voter's pamphlet.

The Information Systems Division provides centralized information technology services to the various divisions and offices of the Secretary of State. It is responsible for database administration, Internet development and application development and maintenance. Operations of the Division were previously budgeted and accounted for in the Business Services Division.

The Other Funds revenue comes from revenue transfers from other divisions within the agency. These transfers are based on estimates of FTE, Netware users, network connections, desktops, laptops, workstations, peripheral devices and database services that it supports.

The dramatic shift in the level of current services paid with General Fund is due to the increased amount of services provided to the Elections Division (supported almost entirely by General Fund) versus the amount of services provided to the other divisions supported all, or in part with Other Funds. The Division's budget request included $6.4 million of additional General Fund support for upgrades to its computer network ($184,000) and a new centralized voter registration system ($6.2 million). These caused the Division's request to far exceed the Governor's General Fund limit. The Division's request was to fund immediately the upgrades to its computer network and $200,000 for initial survey work on the centralized voter registration system. The Division's request placed the $6 million balance in the Emergency Fund for the Emergency Board to release when it is satisfied that the work should progress. The Governor's budget did not include this $6 million in the amount requested for the Emergency Fund.

The legislatively adopted budget funds the Division's current service level and recognizes the shift of funding of positions to the General Fund. The budget does not provide funds for upgrades to the computer network or for a centralized voter registration system. The budget also was reduced slightly for expected savings from lower Attorney General billing rates.

The Personnel Resources Division provides human resource services for the other divisions and offices of the Secretary of State. Operations of the Division were previously budgeted and accounted for in the Business Services Division.

The Other Funds revenue comes from revenue transfers from those divisions operating with Other Funds limitations that the Division provides services to. The transfers are based on the distribution of positions throughout the Office of the Secretary of State.

The Division's request included one additional position to address workload demands. This request puts the General Fund at 23 percent over current service level requirements and exceeded the Governor's limit.

The legislatively adopted budget does not fund the additional staff. The adopted budget maintains the Division's current service level adjusted for expected savings from lower Attorney General billing rates.

LFO Analyst: Weyand