LFO Analyst: Bender

The Office of Community College Services' (OCCS) mission is to provide leadership and technical assistance to, and to coordinate the work of, Oregon's seventeen community colleges. The agency's role has expanded as a result of the increasing level of state support to the community colleges. The agency has responsibility for monitoring the programs, services, outcomes and effectiveness of local community colleges and for reporting to the Legislative Assembly.

The agency also coordinates and provides statewide administration of the federally funded Job Training Partnership Act (JTPA), Adult Basic Education (ABE), Even Start Family Literacy, and AmeriCorps volunteer programs. In response to the broadening activity of the agency beyond community colleges, OCCS is requesting that the legislature change its name to the Department of Community Colleges and Workforce Development.

JTPA provides services to dislocated workers, youth employment training programs, and other workforce training programs for adults. These programs help workers obtain new skills to become more employable, improve their earnings, and decrease welfare dependency. OCCS retains a small portion of JTPA funds for administration, but distributes the bulk of the funds to the state's seven local service delivery areas. The Adult Basic Education funds support developmental education for adults, and are distributed to community colleges and other community-based organizations. Even Start Family Literacy finances family-centered literacy programs that target both children and their parents. The AmeriCorps program supports community service programs in the areas of health, environment, human needs, and housing.

The 1999 Legislative Assembly changed the name of the agency to the Department of Community Colleges and Workforce Development.

The agency projects Federal Fund receipts of $96 million in the 1999-01 biennium. More than $82 million of this total is for JTPA programs. The remainder includes $7 million for Adult Basic Education programs, $5 million for the AmeriCorps community service programs, and $2 million for the Even Start Family Literacy program. Federal Funds will increase by 32 percent in 1999-01 over the prior biennium, allowing for significant expansions in the agency's federally-funded programs, except for Even Start Family Literacy where funding will be lower than in 1997-99.

The agency also projects $9.7 million of Other Funds revenue in the 1999-01 biennium. Most of these Other Funds are also from the federal government, but are characterized as Other Funds because they are transferred to OCCS through the Department of Education. Carl Perkins funds of $6.8 million are transferred to community colleges to support Professional Technical programs. The remaining Other Funds include $2.1 million of Amusement Device Tax and other receipts of the Oregon Youth Conservation Corps, and approximately $500,000 of fees for General Educational Development (GED) tests and Basic Adult Skills Inventory System (BASIS) testing.

The Office Operations functions provide leadership and accountability for statewide policy development and provide assistance with local implementation. The Office Operations program works directly with Oregon's seventeen community colleges. The program manages the Grant-in-Aid budget and provides leadership in the development and delivery of college transfer and professional/technical course work, adult literacy education, and workforce development services. The agency also co-administers Carl D. Perkins Professional/Technical programs with the Department of Education, and the staff provides GED testing, Basic Adult Skills Inventory testing, statewide adult basic education, and course approvals.

In 1997, the legislature approved the transfer of the Job Training Partnership Act (JTPA) program from the Economic Development Department o the Office of Community College Services. This program, which is financed through federal funds, is budgeted in the Office Operations program area.

In August, the President signed the Workforce Investment Act of 1998 (WIA) into law. This Act rewrote federal statutes governing programs in job training, adult education and literacy, and vocational rehabilitation. The WIA supercedes and replaces JTPA, ABE, and other federal programs. Although the new Act generally retains the state and local administrative systems currently in place, it will require a greater effort to establish one-stop delivery systems that combine employment-related and training services at one physical site. The agency will be involved in the implementation of the new Act.

Other Funds in the Office Operations program include: fees from applicants for the General Education Development and Basic Adult Skills Inventory System tests; charges to community colleges for the cost of copying Adult Basic Education curriculum materials and ABE summer conference fees; and funds from the Department of Education for Carl Perkins professional/technical program support. JTPA adds over $82 million of Federal Funds to this budget.

The Governor's budget funded Office Operations at the current service level.

The adopted budget shifts half of the Commissioner's compensation, which previously had been entirely funded by the General Fund, to Federal Funds to more accurately reflect that position's responsibilities. The budget also shifts compensation for a position assigned to Carl Perkins activities from the General Fund to Carl Perkins (Other) Funds. These two actions reduce General Fund in Office Operations by $253,892. The budget also contains reductions of $18,890 General Fund ($99,705 all funds) to reflect reductions in Attorney General and state government service charges to the agency.

The Grant-in-Aid program distributes state support dollars to Oregon's seventeen community colleges. Most funds are distributed through the Community College Support Fund (CCSF). CCSF funds are distributed among community colleges on an adjusted enrollment basis. Generally, colleges receive funding for their full-time equivalent (FTE) enrollments in Lower Division Collegiate, Professional Technical, Developmental Education, and Self Improvement courses. Lower Division Collegiate courses parallel the offerings of the first two years of four-year institutions and carry regular college credit. Professional Technical courses generally lead to a certificate or associates degree in a professional program. Developmental Education includes Adult Basic Education, English as a Second Language, GED and Adult High School programs, and post-secondary remedial courses. Self Improvement courses aid in student self-development but do not lead to a degree.

The Grant-in-Aid program also funds programs outside of the CCSF. The program supports skill centers at six community colleges that focus on literacy assessment and training, the Oregon Advanced Technology Center, the Owen Sabin Skills Center of the North Clackamas School District, and the Carl Perkins funds.

Grant-in-Aid Other Funds include Carl Perkins Professional/Technical funds that are received from the Department of Education and distributed to community colleges. The Federal Funds in the budget are for Adult Basic Education and Even Start Family Literacy. All of these funds are distributed outside of the Community College Support Fund formula.

Note that community colleges also collect property taxes that fund their operations. These taxes do not flow through the agency budget, however, and are not included in any budget figures identified here.

Community college services are affected by changes in the economy, community college tuition costs, and in the funding of, and accessibility to, the Oregon University System. Approximately 21 percent of Oregon high school graduates going on to post-secondary

education attend an Oregon community college. Only 26 percent of community college students are in the traditional college age category of 18 to 25, however. Most students are older.

Workers seek retraining as the types of jobs that are available change, and graduating high school students also seek professional/technical education to become qualified for available jobs. Students may also seek a basic degree at a community college or choose to take lower division transfer courses preparatory to transfer to a four-year degree institution. As jobs become more technical and requirements for workers to have a high school diploma or GED increase, there is more demand for adult literacy service Local community colleges are responsive to local needs, which also affects the level of demand.

Total enrollment is growing. On a full-time equivalent basis, enrollment is again reaching the peak level attained in the 1992-93 academic year. Enrollment had declined due to a number of factors, including an improving economy that reduced the demand for many of the job retraining services that community colleges offer, and due to rapidly rising tuition rates. As Measure 5 affected community college property tax collections beginning in 1991, the state increased General Fund support to help offset this impact. Community colleges nonetheless had to raise tuition to continue service offerings. Average in-district tuition rates have doubled since Measure 5. For three years tuition increased at annual rates of 15 percent or higher.

The Governor's budget increased General Fund support for the Community College Support Fund and for other Grant-in-Aid programs to account for inflation. For the CCSF and for skill center funding, the current service level was calculated so that total community college operational resources from combined state support and local property taxes would increase by 2 percent each year of the biennium. To this amount the budget added an additional $5 million to finance the estimated cost of the PERS rate increase for community colleges to 16.31 percent.

The Governor's budget did not include funding for projected enrollment growth. This was a reversal of the treatment that the legislatively adopted budget provided in the 1997-99 biennium. The budget included one enhancement above the current service level. General Fund of $2 million was approved for Targeted Enrollment Growth in Technology. These funds were to support community college efforts to expand distance learning offerings. The colleges were to use these funds on efforts designed to increase enrollments in distance learning programs.

The Governor's budget also transferred $5.96 million of General Fund to OCCS from the Department of Higher Education budget for regional partnerships. This would not be an increase in funding for these partnerships. The amount that was being transferred was the current service level amount. During the 1997-99 biennium, these funds were appropriated to OUS and used to support three partnership efforts: of Eastern Oregon University with Blue Mountain and Treasure Valley Community Colleges, of the Oregon Institute of Technology with Klamath Community College, and of Southern Oregon University with Rogue Community College.

The legislature approved the transfer of regional partnerships funding to the OCCS budget, but appropriated the second-year costs for the partnerships ($3 million General Fund) to the Emergency Board. These funds will be allocated for the second-year costs after those costs are better known. The financial needs of the partnerships are uncertain because of the Oregon University System's implementation of a new budget model.

The budget includes enhanced distance learning efforts, but at the reduced level of $1 million General Fund. Funding for other enhancements above the current service level are included, however. These projects and the General Fund appropriated for them include: $300,000 for costs relating to potential annexations by community college districts in Southern and Eastern Oregon; $290,000 in additional support for colleges that were established or that annexed territory after July 1, 1995 (Southwestern Oregon, Klamath, and Rogue Community Colleges); $200,000 for renovating the Troutdale facility of Mt. Hood Community College; $200,000 for facilities at the Woodburn campus of Chemeketa Community College; $200,000 for the Oregon Advanced Technology Center programs at Central Oregon and Rogue Community Colleges; and $70,000 for the Mental Health Technician Pilot Project at Rogue Community College. Enhancement funding for community colleges totals $2.26 million General Fund.

Finally, the budget increases the Other Funds expenditure limitation by approximately $1.6 million to incorporate changes in the distribution of timber tax receipts. HB 3575 changes these receipts, which are now a local resource that is distributed directly to community colleges, into a state resource that is distributed to community colleges through the budget of the Office of Community College Services. The Other Funds increase does not, therefore, reflect increased revenue to the colleges. It merely reflects the fact that timber tax monies have moved from being outside of the state budget to being a part of it. In fact, the projected impact of HB 3575 is to reduce community college resources by approximately $80,000 in the 1999-01 biennium.

This program pays the principle and interest on general obligation bonds issued under Article XI-G of the state Constitution for community college capital construction projects. The Legislature has not authorized new Article XI-G bonds for community colleges since the 1979 session. Debt service requirements are declining as the existing bonds are paid off.

The Governor's budget fully funded this program.

The legislature adopted the Governor's recommended budget for Debt Service.

The Oregon Community Service Commission administers a number of federal programs funded through the Corporation for National Service. The AmeriCorps program is the largest of these. This program is intended to foster a sense of community and service by funding volunteer projects. Participants receive a small living stipend roughly equivalent to the federal minimum wage, and are entitled to $4,725 of tuition assistance at a community college or four-year institution for each year of service. A participant can stay in the program for no more than two years. The program is primarily funded with federal funds. The Commission staff is housed at Portland State University.

The Governor's budget increased the Federal Funds expenditure limit approximately $1 million above the current service level to allow the agency to spend the increased federal revenue expected in the 1999-01 biennium. The revenue increase will be in the form of additional AmeriCorps funds and new America Reads grants. The budget also established a $100,000 Other Funds expenditure limit to allow the agency to collect and spend contributions and donations from non-federal sources.

The legislature adopted the Governor's recommended budget for the Community Service Commission.

The Oregon Youth Conservation Corps (OYCC) was established in 1987. The Governor proposes moving the OYCC from the State Commission on Children and Families to the Office of Community College Services. OYCC provides education, training, and employment opportunities based on conservation efforts to disadvantaged and at-risk youth ages 16 to 25. Last year the program attracted 1,470 applicants and offered 444 jobs.

Amusement Device Tax receipts are the source of OYCC's Other Funds. The Amusement Devise Tax is levied on the state's video lottery terminals.

The budget transferred OYCC to the agency without program enhancements. The General Fund amount included in the budget was an error though, and the Department of Administrative Services proposed a technical correction to reduce the level to $433,673. The corrected amount would fund OYCC at the current service level.

The legislature adopted the Governor's corrected recommendation. The budget removes the $1,065,000 of General Fund that had been erroneously included in the budget and funds the OYCC at the current service level.

LFO Analyst: MacGlashan

The State Board of Education and the State Superintendent of Public Instruction are responsible for implementing statewide standards for public schools; adopting rules for the general governance of public kindergartens, elementary and secondary schools; and making distributions from the State School Fund to districts which meet all legal requirements. The State Superintendent of Public Instruction is elected by the voters. A new superintendent was elected in November 1998.

The Department of Education (ODE) is responsible, under federal and state laws, for administering special education programs, including services to disabled children from birth through age 21; pre-school programs; compensatory education programs; and vocational education programs. The Department's role generally is to provide curriculum development, monitoring, technical assistance and contract administration. Department staff provide direct educational services at the Schools for the Deaf and Blind and assist in the education program at the juvenile correctional institutions Hillcrest and MacLaren. About one-third of the total agency budget (excluding State School Fund) is spent for federally-mandated programs. The other two-thirds is used for statutorily-mandated or discretionary programs.

Overall, the Governor's budget was a 6.8 percent increase over 1997-99 estimated expenditures. The following are highlights of the Governor's budget.

• Increased the State School Fund to a total of $4.38 billion, including adjustments for student growth ($63.3 million) and inflation ($263 million, of which $82.8 million was for increases in employer contributions to the Public Employees Retirement System).
• Added $100 million General Fund for a School Improvement Fund to target activities that will improve student performance.
• Added $50 million Other Funds for major technology infrastructure projects to be financed from proceeds of lottery-backed bonds.
• Added $20 million General Fund for "distressed" school districts with multiple barriers that add to the cost of delivering educational services to students.
• Added $8 million General Fund to continue development of the student assessment system required by the Educational Act for the 21^st Century.
• Added $3.3 million General Fund for statewide implementation of the Database Initiative Project begun in the 1997-99 biennium to collect school expenditure and related data.
• Reduced Lottery Funds by $159 million from the State School Fund. This reduction reflected the decrease in overall forecasted lottery revenue as well as the effect of Measure 66 which requires 15 percent of net lottery proceeds be paid to the Parks and Natural Resources Fund. The reduction was offset by a $10 million General Fund increase and anticipated increases of $149 million in local property taxes.

The budget did not include funding for the Successful Schools Program authorized by Senate Bill 880 from the 1997 Legislative Session. This program, estimated by the Department to cost $14.9 million General Fund in 1999-01, is intended to reward schools that meet educational improvement goals with additional tools to enhance student performance. The minimum reward for each full-time teacher is $1,000. Rewards are to be used for classroom enhancements or professional development. As described above, the Governor's budget included a School Improvement Fund and funding for "distressed" schools to improve student performance, but these programs do not necessarily reward "successful" schools as intended by Senate Bill 880.

Department Operations includes the overall leadership responsibilities and activities of the State Board and Superintendent, administration of a variety of programs, and assistance to and review of local districts. The Office of Educational Support Services provides technical assistance to school districts in such areas as pupil transportation and business operations; manages school finance information; and manages criminal record checks for certain school employees. The Office also provides ODE's internal operations, including accounting, personnel and information services. The Office of Professional Technical Education focuses on preparing high school students to enter the workforce or vocational programs at community colleges. Specific tasks include providing technical assistance to local education agencies, ensuring federal vocational education requirements are met locally, and designing the Certificate of Advanced Mastery (CAM). The CAM requires students to apply academic knowledge within the context of a career area.

The Office of Assessment and Evaluation oversees testing of students at grades 3, 5, 8 and 10 on state content and performance standards. Currently, students are assessed in mathematics and English. This Office also publishes the Oregon Report Card, an annual status report on K-12 education. The Office of Student Services directs efforts to help disadvantaged children meet standards; administers compensatory education in local school districts; manages early childhood education programs, including Oregon Prekindergarten; and oversees teen parent and child nutrition programs. Additionally, it monitors for compliance with federal law; provides technical assistance; manages registration of alternative education programs; and tracks home schooling. Other programs managed by this Office include race and sex equity; drug and alcohol; health education; and homeless students.

The Office of Special Education administers special education programs and provides oversight and technical assistance to ensure compliance with federal requirements. The Office also provides personnel development and contract administration for school district staff development and services. The Office of Curriculum, Instruction, and Field Services provides leadership in implementing the Oregon Educational Act for the 21^st Century. Staff provide technical support to schools and each year complete site visits for school improvement in local school districts.

Other Funds revenues include indirect cost recovery from federal programs (44%), funds from Oregon Community College Services (OCCS) for professional/technical education services and administration (11%), fees for fingerprinting and background checks (10%), Job Training Partnership Act funds from OCCS (6%), tuition protection fees from private vocational schools to reimburse students in case of closure of these schools (6%), fees for licensing private vocational schools (4%), textbook review fees (4%), student driver training funds from the Oregon Department of Transportation (4%) and other miscellaneous fees (11%).

Nonlimited Funds are from registration fees that pay for related workshop and conference costs (approximately $300,000) and a School Lunch Revolving Fund for brokering surplus food for schools (approximately $4.3 million).

A primary emphasis of the education reform effort is to help students master subject matter, demonstrate knowledge, and apply learning to new situations. To these ends, the State Board has adopted statewide Certificate of Initial Mastery standards and the Department continues to develop the assessment system.

In 1999, the first Certificates of Initial Mastery will be awarded to tenth graders successfully passing tests taken in Spring 1999 in English and mathematics. Students who fail the test will be given an opportunity to take the test again. Tests in science will be added in 1999-00 and social sciences in 2003-04. Initial testing for the Certificate of Advanced Mastery also begins in 1999. The ODE will select certain high schools around the state to award the Certificate of Advanced Mastery beginning in the 2000-01 school year.

Department Operations continues to experience substantial employee turnover with its education program specialists. The Department reports that 60 percent of these specialists have left ODE over the last three years, primarily due to higher salaries for comparable positions in school districts. Similar issues exist with ODE education managers.

House Bill 3636, from the 1997 Legislative Session, directed the Department to update the school accounting system to allow comparison of expenditures among schools and districts and to place data in a database accessible to the public. In response, the Department initiated a pilot project with 15 school districts and one education service district to develop a database with relevant student performance indicators and to relate expenditures to academic content standards. The pilot project was completed by January 1999. Statewide implementation is planned for 1999-01.

The Governor's budget was a 36.8 percent increase over 1997-99 estimated expenditures. Major packages in the Governor's recommended budget included:

• $8 million General Fund and 7.0 FTE for continuing the student assessment system required by the Oregon Educational Act for the 21st Century. ODE would continue work on performance-based assessments of students, specifically in the areas of science and social sciences (history, geography, civics and economics), create pilot assessment centers in school districts, and provide for timely assessment test scoring and reporting. Additionally, the budget established 9.00 FTE to transfer current assessment development from a contract basis to the ODE, with savings in the Department's professional service costs absorbing the estimated cost of $887,000 General Fund.
• $3.3 million General Fund and 6.0 FTE for continuation of the Database Initiative Project begun in the 1997-99 biennium to develop a school district data reporting system with the goal of collecting comparable and reliable cost information from schools and linking expenditures to student outcomes.
• $1.4 million ($676,806 General Fund; $204,607 Other Funds; and $556,114 Federal Funds) for selective salary increases for education program specialists and reclassifications of education program managers to reduce turnover in these positions.
• $720,000 General Fund and 5.0 FTE for additional curriculum specialists for implementation of school reform.
• $1.4 million Other Funds for bond issuance costs for the $50 million lottery-backed bonds for technology infrastructure projects (see "State School Fund and Other K-12 Grants" section).

Federal Funds were increased by the following:

• $4.2 million for additional funding primarily from the Individuals with Disabilities Education Act (IDEA) and 3.0 FTE for assistance in implementing the reauthorized IDEA;
• $2.0 million and a .5 FTE for assisting school districts in connecting academics to experience-based learning;
• $523,575 and 5.0 FTE for administering federal programs for technology training and teacher development;
• $236,922 and 2.0 FTE for monitoring school nutrition programs for compliance with federal laws; and
• $61,188 and 0.5 FTE to support civil rights, equal education opportunity, and safety programs in Oregon's schools.

The budget also added $215,095 Other Funds and 2.0 FTE to handle pupil transportation and background check issues; transferred $280,686 General Fund from Grant-In-Aid to establish a position to support Workforce/Certificate of Advanced Mastery development; and added $57,071 General Fund and a position for administrative support of the Oregon Prekindergarten program expansion.

The legislature made several changes to the Governor's recommended budget, resulting in a 41.4 percent increase over 1997-99 estimated expenditures. The legislature modified the major packages in the Governor's budget as follows:

• Approved $4 million General Fund as a special purpose appropriation in the Emergency Fund and no FTE for the student assessment system or for other priorities identified by the Department of Education as necessary for implementation of the Oregon Educational Act for the 21^st Century.
• Approved $2.9 million General Fund and 6.0 FTE for statewide implementation of the Database Initiative Project and development of an education budgeting model.
• Approved $405,517 General Fund as a special purpose appropriation in the Emergency Fund for salary increases effective January 1, 2000 for education programs specialists and reclassifications of education program managers, with the expectation that the Department will seek matching Other Funds and Federal Funds expenditure limitation when it requests the General Fund from the Emergency Board.
• Approved $531,903 General Fund and 4.0 FTE for additional curriculum specialists to provide support to schools.
• Approved $3.3 million Other Funds expenditure limitation for bond issuance costs for $112 million in lottery-backed bonds for state education projects (see "State School Fund and Other K-12 Grants" section).

The legislature approved the package in the Governor's budget to convert current assessment development from a contract basis to an in-house effort.

The legislature also provided funding for new mandates created by certain 1999 legislation:

• a $300,000 General Fund reservation in the Emergency Fund for school report cards (Senate Bill 1329);
• a $200,000 General Fund reservation in the Emergency Fund for an Education Leadership Team summit (House Bill 3633);
• a $250,000 General Fund reservation in the Emergency Fund for inclusion of physical education in the Certificate of Initial Mastery (House Bill 3307); and
• a $150,000 General Fund appropriation for a task force on funding for education service districts (House Bill 2567).

The legislature reduced the base budget by $602,389 General Fund for costs associated with a public relations and communications project conducted during the 1997-99 biennium. It adjusted the budget for changes in: 1) assessments from the Department of Administrative Services, the Employment Relations Board, and the Secretary of State's Audits Division (increases of $82,060 General Fund and $161,687 Other Funds and a decrease of $11,871 Federal Funds); 2) Attorney General costs (decreases of $5,855 General Fund, $374 Other Funds and $563 Federal Funds); and 3) other technical adjustments (increases of $75,808 General Fund, $144,527 Other Funds, and $48,983 Federal Funds).

Increases in Federal Funds expenditure limitation in the Governor's budget were modified primarily to reflect the likelihood that new employees would not be hired until two to three months after the beginning of the 1999-01 biennium. Finally, the legislature added $7.2 million Other Funds expenditure limitation to reflect Senate Bill 622 funding for ODE's purchase of two-way interactive distance education systems for high schools and education service districts. Senate Bill 622 requires a telecommunications carrier electing alternative rate regulation to pay 20% of gross regulated intrastate revenues from the year prior to making the election into a telecommunications infrastructure account, a portion of which is to be used for investments in school technology. It is assumed this account will provide $50 million to schools as a result of an election by US WEST Communications, Oregon's largest telecommunications provider.

The School for the Blind (OSB), with 11 structures on a 7-acre campus, serves approximately 54 students who have visual impairments and educational needs beyond what a local school district or regional program can provide. Students range in age from 4 to 21 years. They generally have multiple disabilities that require intensive services and thus are referred to OSB by the local school district after a finding that needed local services are not available. OSB also provides summer programs and diagnostic services to about 290 students and provides consultation services to school districts, regional teachers, and others.

The School for the Deaf (OSD) is a residential/day program for 120 students who are hearing-impaired and cannot be served in the community. OSD provides academic and career education, living skill development, athletics, and leadership training. Enrollment has declined from 206 students in 1982-83 because students whose deafness was caused by rubella have now completed their education. OSD is made up of 19 structures on a 52-acre campus.

Other Funds revenues are from County School Fund receipts for special education billings by the Department to individual counties (48%); donations (11%); transfers from the Commission for the Blind (11%); fees from local school districts for services provided to their students (6%); Medicaid reimbursements (4%); nutrition reimbursements (2%); and other miscellaneous sources (18%). Federal Funds are from the Individuals with Disabilities Education Act. Most of the funding for operating costs comes from the General Fund. Parents pay no tuition or room and board because of the federal requirement for a free and appropriate public education for every child.

Enrollment at the School for the Blind has been at about the same level since 1986. Enrollment at the School for the Deaf has increased slightly, from 115 students in 1995-97 to 120 in 1997-99.

The Governor's budget continued operations at the current level of service, an increase of 1.5 percent over 1997-99 estimated expenditures. The budget eliminated 1.34 FTE that were unused due to programmatic changes.

The legislature approved the Governor's recommended budget and eliminated an additional unused and unfunded 2.96 FTE.

ODE is responsible for ensuring that educational services are provided to children in the State's close custody facilities, including Hillcrest and MacLaren, youth work-study camps, and accountability camps ("boot camps"). The Department contracts with local education agencies to provide services to students.

Funding for the juvenile corrections education program comes from the State School Fund and is reflected as Other Funds. For 1995-97, funding was set aside for the program with the remainder of the State School Fund distributed to local school districts through the normal distribution formula. The provision that set aside funding for the program sunsetted at the end of the 1995-97 biennium. The program now is treated as a separate school district with per student revenues distributed through the formula.

The number of youths in juvenile corrections facilities is increasing mainly due to Measure 11, which took effect in April 1995. For any of 21 violent crimes, Measure 11 allows youths aged 15 to 17 to be tried as adults and mandates minimum sentences. In the 1995-97 biennium, five new regional facilities with a total capacity of 328 beds were added for Measure 11 offenders. Oregon law also allows juvenile offenders charged with other serious crimes to be remanded or "waived" to the adult system. The population of Measure 11 and waived inmates is expected to grow 28 percent in the 1999-01 biennium, from 290 at July 1999 to 370 by July 2001.

In the Governor's budget, the total juvenile corrections population was estimated to grow to 1,189 at July 2001 from 1,072 at July 1999, an increase of 11 percent. The Governor's budget for the Oregon Youth Authority, which operates the youth correctional facilities and camps, funded 95 percent of this forecast, or 1,130 beds through the 1999-01 biennium. This reduced funding assumed passage of legislation that would allow a hearing halfway through a youth's sentence for certain Ballot Measure 11 offenses, which could result in the youth's conditional release.

About 80 percent of the youths in juvenile facilities are eligible for special education services, which results in a double-weighting in the distribution formula. The education needs of the youths must be met for the most part in intensive, individualized services in small group settings.

The Governor's budget was a 13.4 percent increase over 1997-99 estimated expenditures. It reduced funding by $6.3 million ($6.0 million Other Funds and $300,000 Federal Funds) and 77.70 FTE to reflect elimination of vacant positions no longer needed by the program, primarily due to contracting out of services. The budget was increased by $7.2 million Other Funds to reflect the transfer of additional State School Fund based upon forecasted need and $2.2 million Federal Funds for expected increases in special education funding. Start-up costs of $471,500 General Fund for providing education services in new juvenile facilities were phased out.

The legislature approved the Governor's recommended budget, less a small reduction ($52,212 Total Funds) for PERS costs. The legislature also eliminated an additional unused and unfunded 63.77 FTE.

The legislature did not adopt the "second look" for Measure 11 offenders and the April 1999 Oregon Youth Authority forecast estimates setting the July 2001 juvenile corrections population at 1,203. However, the assumption is that the juvenile crime prevention package approved by the 1999 Legislature and other actions will reduce the need for close custody beds by 43 by June 30, 2001.

The majority of the Department's Grant-in-Aid programs purchase educational services for students with specific educational needs. These programs are administered by school districts or entities other than state government. Grants are made for special student services, such as Oregon Prekindergarten, compensatory education, teen parent programs, and child nutrition services. They also include special education services provided by regional programs, Early Intervention and Early Childhood Special Education, and private agencies. Other programs include vocational and workforce development, school reform implementation, and expansion of technology.

The Department receives substantial federal funding, mainly from the U.S. Departments of Education and Agriculture. Most of the funding is passed through to local school districts or contractors. The major Federal Funds sources for grant-in-aid programs (based on 1997-99 estimated revenues) are as follows:

Other Funds revenues come from County School Fund receipts for special education billings by the Department to individual counties (77%), funds from the Oregon Department of Transportation for student driver training programs (12%), and state tobacco tax funds from the Oregon Health Division for tobacco education programs (10%).

In 1992, Oregon began implementing a state-operated program for children with disabilities from birth up to kindergarten age, known as Early Intervention/Early Childhood Special Education (EI/ECSE). At that time, the state came into compliance with federal PL 99-457 by providing mandated early childhood special education services to eligible children from ages three to kindergarten and following all federal special education regulations. Oregon also provides optional early intervention services to children with severe disabilities from birth to age three.

The program has been experiencing growth, both in the number of eligible children entering the program and in the increasingly high cost to serve a small portion (about 4%) of those children. Additional growth in the program is expected to occur in 1999-01 as more parents are informed of the availability of the program. The program serves about 2.8 percent of eligible children; nationally, programs serve, on average, about 3 percent. Effective September 1, 1998, EI/ECSE providers are able to access Medicaid for covered "related" services which, by federal law, must be provided to eligible children. The financial impact of this access, however, is unknown.

The Oregon Pre-Kindergarten Program, established in 1987 and modeled after the federal Head Start program, serves low-income three- and four-year-olds to foster their development and enhance their success in school. State and federal funds and services are coordinated to serve eligible children. State statute mandates that Oregon serve 50 percent of all eligible children by 1999 and 100 percent by June 2004. At the end of the 1997-99 biennium, the Department estimated it was serving 47 percent.

The Department is responsible for ensuring the education of children in day and residential mental health programs. The Department contracts with local school districts or educational service districts to provide education services. The number of children served in these programs has grown from 594 in 1991-92 to 649 in 1997-99, an increase of 9.3 percent.

The Governor's budget was an increase of 14.9 percent over 1997-99 estimated expenditures. The increase had two major components: 1) an additional $51.5 million for expected increases in federal programs, mainly the Individuals with Disabilities Education Act and 2) $42.9 million ($26.5 million General Fund; $448,356 Other Funds; $16 million Federal Funds) for inflation and caseload increases.

Included in the $42.9 million was funding of $12.8 million ($10.3 million General Fund and $2.5 million Federal Funds) for caseload increases in the Early Intervention and Early Childhood Special Education program and $10.8 million General Fund for the Oregon Prekindergarten program to continue the 47 percent level of service into the 1999-01 biennium. The remaining $19.3 million ($5.4 million General Fund; $.45 million Other Funds; $13.5 million Federal Funds) was for inflation in Grant-in-Aid programs.

The Governor's budget added $642,929 General Fund to allow for expansion of the Oregon PreKindergarten program to 50 percent by the end of the 1999-01 biennium. The budget also added $551,552 expenditure limitation ($540,050 Other Funds and $11,502 Federal Funds) for personnel cost increases in long-term care and treatment facilities and hospital programs.

The legislatively adopted budget, including Emergency Board appropriations, is a 16.4 percent increase over 1997-99 estimated expenditures. The legislature reduced the Early Intervention/Early Childhood Special Education program by $10.5 million General Fund and $2.6 million Federal Funds but at the same time appropriated $10.1 million General Fund to the Emergency Board for potential caseload growth in the program. The legislature directed the Department of Education to include in its report to the Emergency Board the Department's progress on securing other sources of funding, specifically federal funds such as Medicaid, for the program.

The legislature approved an increase of $2.2 million General Fund over the Governor's recommended budget for the Oregon Pre-Kindergarten program with the knowledge that most, if not all, federal Head Start expansion funds assumed in the Governor's budget would not be available. Of this increase, $345,000 was appropriated to the Emergency Board pending information on the availability of federal funds.

Federal Funds expenditure limitation was increased by $7.8 million to reflect anticipated changes in funding from the Individuals with Disabilities Education Act, the new federal class size reduction grant, the Carl Perkins program, and other federal programs.

The legislature added $275,000 General Fund for Student Leadership Centers, bringing total state funding for the centers to $841,058 General Fund. Finally, the legislature approved the following new grants:

• $200,000 General Fund for an applied behavioral analysis treatment program for children with autism;
• $50,000 General Fund to help schools with the costs of participating in the American Sports Education Program;
• $900,000 General Fund for Frontier Learning Centers to meet the educational needs of students in certain sparsely populated, remote eastern Oregon counties;
• $700,000 General Fund for a loan program for financially trouble school districts; and
• $200,000 General Fund for school districts' use of community arts and cultural resources.

The following table shows the funding levels in the legislatively adopted budget for specific grant-in-aid programs, including Emergency Fund appropriations:

General state support for K-12 schools and education service districts (ESDs) is provided through the State School Fund. Allocations to school districts include a transportation grant and a general-purpose grant. The general-purpose grant follows a legislatively prescribed distribution formula based on number of students, additional weighting reflecting specific greater education costs, and local tax resources. The distribution to schools is further refined by the phased-in implementation of the equalization of per student spending.

In the legislatively adopted budget, Other Funds represent proceeds from lottery-backed bonds ($112 million), proceeds from the School Technology Account established by Senate Bill 622 ($41.4 million), and distribution of local property tax revenues deposited in the State School Fund, contingent upon passage of House Bill 3575 ($20,675,207). For 1997-99 estimated expenditures and the 1999-01 Governor's recommended budget, Other Funds represent proceeds from lottery-backed bonds.

Currently, there are 198 elementary and secondary school districts and 21 education service districts, which served slightly over 568,000 students in grades K-12 in 1997-98. Enrollment is at a record high and expected to climb throughout the 1999-01 biennium, although at a slower rate than experienced in recent years. ODE is forecasting enrollment of 574,000 for the 1999-00 school year. Within that increase is a significant change in the students enrolled. In the last 10 years, minority enrollment has increased by about 7 percent per year. The proportion of minority enrollment to total enrollment was 10.2 percent in 1988; in 1998, 17.1 percent. This growth has implications on how education is provided locally, ranging from need for English as a Second Language services to culturally-sensitive programs to reduce the higher drop-out rate among minority students. Since 1988, the number of students in English as a Second Language or bilingual education programs has tripled, from 7,059 to 25,701 students.

The proportion of statewide General Fund and lottery expenditures for K-12 education has increased from about 25 percent in 1989-91 to about 43 percent in 1999-01. Voter approval of Measure 5 in 1990 and Measure 50 in 1997, both of which limited local property tax revenues, caused a significant shift in funding sources for K-12 education. Given this shift in funding sources, a key issue is how to balance maintenance of local control of expenditures with accountability to the legislature, the taxpaying public and others.

The Governor's budget was an increase of 4.4 percent over 1997-99 estimated expenditures. General Fund and Lottery Fund support were increased by 7 percent.

The Governor's budget of $4.55 billion included $263 million for inflation at 2 percent per year plus an increase in employer contributions to the Public Employees Retirement System (PERS). Of the $263 million, increased employer PERS contributions accounted for $82.8 million. The budget also included $63.3 million for student growth of 0.7 percent in 1999-00 and 0.5 percent in 2000-01 as well as enhancements of $170 million as described below. The budget did not continue 1997-99 funding of $50 million for classroom needs, $5 million for school security needs, or $150 million for school facilities' construction/remodeling costs. These were intended to be one-time funding.

The enhancements of $170 million included the following:

• A $100 million General Fund package for a School improvement Fund for activities to improve student performance. These included class size reduction, increases in instructional time and/or professional development time, technology, early childhood education and other areas of need. Schools were to write plans for achieving gains in performance and apply for the funds, with the Department distributing funds on a per student (ADMw) basis.
• $20 million General Fund for "distressed" schools facing multiple barriers to student achievement that add to the costs of delivering education. Barriers included a concentration of low socio-economic families; multiple language differences in home of district students; a disproportionate number of adjudicated youth; districts with very old infrastructure; and small districts in remote rural areas with static student growth. Districts that have multiple barriers, especially at the extreme of each measure, were intended for eligibility. Criteria were to be set by the State Board of Education.
• $50 million Other Funds from proceeds of lottery-backed bonds for technology infrastructure projects to establish voice, data and video connectivity in schools to the Internet or other approved service.

State support included Lottery Funds, continuing the lottery support that began in the 1995-97 budget. However, the amount of Lottery Funds in the State School Fund declined by $159 million from the 1997-99 biennium. Lottery support in the Governor's budget accounted for 6.5 percent of state funding, down from 10 percent in 1997-99. This reduction reflected the passage of Measure 66, which requires 15 percent of net lottery revenues be directed to the Parks and Natural Resources Fund, as well as an overall reduction in forecasted lottery revenues.

The legislatively adopted budget for the State School Fund and K-12 is a total of $4.811 billion in the 1999-01 biennium. This is a $456 million increase, or 10.5 percent, over the 1997-99 funding level.

Total funding comprises $4.250 billion General Fund, a $296 million Lottery Fund allocation, and $250.5 million from Other Funds sources including:

• $112 million in lottery revenue bonds for state education projects such as acquisition, construction, improvements, repair or remodeling of school facilities;
• $50 million in increased transfers from the Common School Fund (not shown in the above table)
• $50 million in proceeds from the School Technology Account established under Senate Bill 622 (including $1.4 million to the Department of Administrative Services and $7.2 million to the Department of Education for purchases on behalf of schools - not shown in the above table); and
• $38.5 million in increased local revenues not offset by reductions in state support (these revenues are not shown in the above table).

Additionally, if Senate Bill 1284 (transportation-related legislation) becomes law, the Emergency Board will allocate a special purpose appropriation of $15 million General Fund to the State School Fund because the funding will not be needed by the Department of Transportation. This special purpose appropriation is reflected in the table shown above. If Senate Bill 1284 does not become law, and the $15 million General Fund is allocated to the Department of Transportation, an additional $15 million in lottery revenue bonds will be issued for schools to maintain the $4.811 billion funding level.

Statewide per student (weighted) spending in 1999-00 is projected to be $5,264. This is a 4.6 percent increase over the 1998-99 statewide average of $5,032.

The following table shows the trend in state support for K-12 education:

House Bill 2567, from the 1999 Session, is the distribution formula bill which provides the per student funding amounts for school districts. It also establishes a formula for distributing State School Fund dollars set aside for education service districts and creates a 17-member task force on ESD funding equity and service provision. The bill sets a $17.5 million biennial limit for facility grants, transfers $800,000 from the State School Fund for out-of-state special education placements, transfers $2.25 million to the Oregon Public Education Network, and provides for grants of $4 million from the General Fund to schools with more than 50,000 ADMw.

House Bill 2753, passed by the 1999 Legislature and signed by the Governor, allows school districts to pursue additional local property taxes up to the $5 per $1,000 Measure 5 cap, with certain limits placed on the amount raised by schools. This measure is effective for elections after July 1, 2000.

This program provides debt service (principal and interest) on lottery-backed bonds, including $150 million of bonds approved by voters in November 1997 and issued in Spring 1999. Proceeds to schools were intended for the acquisition, construction, remodeling, maintenance or repair of school facilities.

House Bill 3411 from the 1997 legislative session establishes the Education Lottery Bond Fund to repay the debt from unobligated net lottery proceeds, legislative appropriations and interest earnings of the fund. The law also states the legislative intent to pay debt service after 1997-99 from the 75 percent of the Education Endowment Fund interest earnings. Additionally, legislators specified that if distributions from the State School Fund and local revenues exceed specified ceiling amounts for 1997-98 and 1998-99, any excess is to be transferred to the Education Lottery Bond Fund for the purposes of paying the principal, interest and premium, if any, on the lottery bonds.

Current estimates are that excess local property tax revenues will offset about $38.4 million General Fund in the 1997-99 State School Fund. The transfer of General Fund from the Education Lottery Bond Fund is reflected in the Department's budget as Other Funds.

In addition, it is anticipated approximately $3.1 million in interest earnings will be available from the Education Endowment Fund. These earnings are reflected in the Department's budget as Lottery Funds.

The Governor's budget funded the debt service requirement at the current service level. The budget assumed the excess General Fund from the 1997-99 State School Fund would service the debt.

The legislature approved an increase of $10 million for debt service on $100 million of new lottery revenue bonds for state education projects as defined in House Bill 2567, with the intent of having the Department of Education request additional expenditure limitation from the Emergency Board for debt service on an additional $12 million in bonds.

As discussed in the "State School Fund & Other K-12 Grants" section, should Senate Bill 1284 not become law, a $15 million General Fund special purpose appropriation in the Emergency Fund will be made available to the Department of Transportation rather than the State School Fund. In this case, to maintain the $4.811 billion funding for K-12 schools, an additional $15 million in lottery revenue bonds will be issued. Because of the timing of the issuance of these bonds, no debt service will be due until the 2001-03 biennium.

In the legislative budget, assumed sources of debt service on lottery bonds for schools are as follows:

The legislature requested the Department of Administrative Services (DAS) unschedule the lottery finds pending a joint report from DAS and the Department of Education on the realization of the projected sources of debt service. The report is to be made in June 2000 after the Legislative Revenue Officer certifies the excess available from the 1997-99 State School Fund.

The Oregon Health Sciences University (OHSU) is the only academic medical center in the state. The University operates on its main campus adjacent to downtown Portland and on the site of the Oregon Primate Research Center in Washington County. OHSU also has clinical facilities throughout the Portland metropolitan area, and teaching programs in various locations throughout the state. OHSU's mission includes education, research, clinical care, and public service.

In 1995, OHSU was separated from the Oregon University System and reorganized as a public corporation. This status was granted to allow OHSU to operate more efficiently and to respond more quickly and in a more businesslike manner to changes in the health care marketplace. At the same time, the public corporation status is designed to retain principles of public accountability and fundamental public policy.

A Board of Directors appointed by the Governor and confirmed by the Senate now governs the University. The public policy of the University is delineated in statute. Nonetheless, under its public corporation status, OHSU operates with considerable autonomy. The legislature no longer approves the University budget (or limits its expenditures from tuition and other sources), but the state continues to support OHSU through grants for its educational and clinical activities. These grants totaled almost $108 million in the 1997-99 biennium.

State support for OHSU has declined since the institution was reorganized as a public corporation. The institution received $123.6 million from the state in 1993-95, the last biennium that it was a part of the Oregon University System. This level declined 14 percent when OHSU was turned into a public corporation in the 1995-97 biennium, and has only increased 1.4 percent since then. State support now equals about 9 percent of OHSU revenue. The largest source of revenue in the OHSU budget is the net medical service fees generated by the hospitals and clinics, which total over $700 million per biennium and equal 56 percent of total revenue. Another 29 percent of revenue comes from gifts, grants and contracts. Student tuition and fees contribute 3 percent, and the sales and services of education departments also contribute 3 percent. The remainder is divided among various miscellaneous revenue sources.

OHSU's hospitals and clinics operate in a competitive environment. As such, OHSU must adapt to a rapidly changing health care marketplace as more of the market moves from a fee-for-service to a managed care-based system. OHSU's hospital costs are higher than its competitors because of its teaching functions. Under managed care systems, insurers are less willing to pay additional charges to cover OHSU's teaching-related expenses. This situation exists both in the private-payer and the public-payer markets. The state's Medicaid program, for example, passes through extra payments to OHSU to compensate for the hospital's educational and related costs. These payments have declined though with the implementation of the Oregon Health Plan. After peaking in the 1992-93 fiscal year at $23.4 million, Medicaid pass-through payments have fallen to under $13 million per year. These pass-through payments will remain relatively flat through the 1999-01 biennium.

OHSU has switched from a government standard accounting system to the accounting system used by the nonprofit sector. The new system requires the University to recognize depreciation expense in all of its program areas. The University is currently showing a net loss, including the depreciation expense, of about $4 million in the 1997-99 biennium. OHSU's goal is to realize net income of at least $30 million per biennium to retain access to capital markets, and to replace equipment and provide for working capital as needed.

The Governor's budget provided $107.9 million of General Fund to OHSU. This would also have been the same amount OHSU received during the 1997-99 biennium. This amount, in turn, would have been roughly the same as what the institution received in 1995-97, with $1.3 million added to increase support for the Area Health Education Centers (AHEC) program.

Because OHSU does not operate as a state agency, its current service level by definition is the amount it received in the prior biennium. This is the level the Governor's budget provided. This level did not include any increase for inflation or for higher labor costs as is included in the current service level for state agencies. Therefore, OHSU may have been unable to address the cost increases it faces. The institution projected that it would incur a net loss of $21 million during the 1999-01 biennium under the Governor's budget. OHSU would review its various programs for cost savings, and would likely not distribute cost reductions on an across-the-board basis. Rather, OHSU would probably consider eliminating or sharply reducing some programs to enable others to continue in their entirety.

The adopted budget will enable OHSU to realize significant funding increases in the 1999-2001 biennium. The legislature added $4 million of General Fund support above the Governor's recommended level. These monies will support educational programs in nursing and dentistry, and the continuation of the Southwest Oregon Regional AHEC. The budget also includes a $1 General Fund appropriation to recognize support for a residency program in pediatric dentistry.

The budget allows OHSU to retain all federal Medicaid passthrough payments that the university receives from Graduate Medical Education (GME) and Disproportionate Share Hospital (DSH) funding. Additionally, the state will obtain a state plan amendment with the federal Health Care Financing Administration that will increase GME payments. These two actions will increase federal Medicaid passthrough funds to OHSU by a net of $36 to $44 million over prior biennium levels. This increase will more than wipe out the reduction in Medicaid passthrough payments that OHSU has experienced since the early 1990's, and will bring passthough payments to record levels.

The budget also provides OHSU with $1.12 million in revenue from the Criminal Fine and Assessment Account. This revenue is dedicated to: a) support a grant program to enhance emergency medical service systems in rural communities, b) support the AHEC program, and c) support the Oregon Poison Center. Because of OHSU's status as a public corporation, neither the Medicaid passthrough payments nor the Criminal Fine and Assessment Account funds appear in the state budget numbers for OHSU.

The instructional activities of the University are organized into three schools - the Schools of Medicine, Dentistry and Nursing. The University offers professional degrees in medicine, dentistry and pharmacy; baccalaureate degrees in nursing, dental hygiene, medical technology, radiation therapy and physician assistant studies; graduate degrees in biomedical science specialties, public health, and nursing; and certificate programs in nursing, paramedic training and dietetics. The University had a enrollment in Fall 1998 of 1,846 students. This number includes 273 nursing students on the campuses of Eastern Oregon University, Southern Oregon University, and the Oregon Institute of Technology. The remainder of the nursing students, and all of the students in the other programs, is generally located on the Portland campus.

The primary source of non-state funds for the Education and General Program is tuition. Other sources include sales and charges for services, indirect cost recovery on grants, and other miscellaneous revenue. State funds are distributed to the University's three schools, to the Biomedical Information Communication Center, and for facilities and support services.

The Education and General Program (referred to internally at OHSU as the "University" budget) does not generate net revenue to the institution. This is standard for educational enterprises of this type throughout the country, which all rely on clinical care revenues, public support, or large private endowments to operate. OHSU maintains its educational programs with the assistance of General Fund support and the net revenues generated by its hospitals and clinics. The three schools vary in the degree to which state funds support their budgets. State funds cover only 10% of the School of Medicine's budget, but cover 40% of the School of Nursing's budget. The figure for the School of Dentistry is 28%.

The Area Health Education Centers (AHEC) program, which brings educational training to centers throughout the state, is included in the Education and General Program. AHEC is financed through a combination of Federal and state funds. Currently, the $6 million biennial budget is split almost equally between the two sources. During the 1999-01 biennium the Federal government, which is scheduled to phase out all AHEC support over a six-year period, will make a $1 million reduction in its contribution to the program.

The Governor's budget designated $69.7 million of the state grant to the Education and General Services program. This would have been the same level as in the prior biennium. This amount did not include extra funds to replace the reduction in Federal AHEC funding.

The legislature added $4,000,001 of General Fund to the grant for the Education and General program. These funds are allocated as follows:

• $1.75 million to expand nursing education programs in rural areas of the state. The funds will support 9.0 FTE faculty and staff positions in locations throughout the state, and also be used to prepare courses for delivery by distance learning methods.
• $1.75 million to recruit faculty and to transition to a competency-based curriculum at the School of Dentistry.
• $500,000 for Education and General programs. These funds will assure that the operations of the Southwest Oregon Regional AHEC are maintained.
• $1 to express support for the reestablishment of a residency program in Pediatric Dentistry.

The legislature also increased funds for OHSU's Education and General programs in SB 911. SB 911 increases criminal fines and assessments by $3.00 and dedicates most of the increased revenue to OHSU. The AHEC program will receive approximately $520,000. The Office of Rural Health will also receive $520,000 for a grant program to enhance emergency medical service systems in rural communities. The Oregon Poison Center will receive $75,000. Because of OHSU's public corporation status, these additional funds do not appear in the state budget numbers for OHSU.

The University Hospitals and Clinics are the clinical teaching facilities of the University. The facilities include OHSU Hospital, the Doernbecher Hospital for Children (part of the OHSU Hospital complex), and approximately 85 sub-specialty and primary care clinics. The hospital has 370 inpatient beds. Clinic facilities are primarily located on the campus, though OHSU has established a network of primary care clinics throughout the Portland metropolitan area. The hospitals admit close to 20,000 patients each year, and together with the clinics handle close to 400,000 outpatient visits per year. The hospitals and clinics handle about twice the statewide average of indigent care cases.

Other Funds in the Hospital and Clinics program were never limited by the legislature. The primary source of these funds are payments for services by patients and third party payers.

The hospitals and clinics operate within the general health care environment and compete with other providers for patients and revenue. As such, they are affected by trends in the health care area to manage care and to restrict the growth of health care costs. OHSU is very successful in filling its hospital, which is operating at about 80% of capacity. Because of this, however, OHSU is unable to significantly expand revenue by increasing the number of patients that it serves.

OHSU has been affected by the fact that managed care reimbursement systems, including the Oregon Health Plan, do not pay for medical education costs as the old fee-for-service system did. Under managed care reimbursement, payers are reluctant to fund the hospital's additional costs related to its teaching functions. The state Medicaid pass-through payments, used to support the training of medical residents, have also declined under the Oregon Health Plan.

The Governor's budget designated $27.9 million of the state grant to the University's hospital and clinics. This would have been the same level as in the prior biennium. The Governor's budget also, through the Oregon Health Plan budget, retained Medicaid pass-through payments at roughly their 1997-99 biennium level.

The legislature adopted the Governor's recommendation on the state grant for the University's hospital and clinics, but significantly increased Medicaid passthrough payments. Net Medicaid passthrough payments will increase $36 to $44 million over the 1997-99 biennium level. Because of OHSU's public corporation status, these funds do not appear in the state budget numbers for OHSU.

The budget will allow OHSU to retain all of the Medicaid passthrough payments it can receive beginning in the 1999-01 biennium. This changes earlier policy. In the 1997-99 biennium, the state used some of OHSU's Disproportionate Share Hospital (DSH) payments to support the Oregon State Hospital budget. Also, the state pursued a state plan amendment with the federal government to significantly increase OHSU's receipts of Graduate Medical Education (GME) passthroughs. This state plan amendment resulted in enhanced GME passthroughs for OHSU beginning in the 1997-99 biennium. These enhanced payments totaled $18.2 million in the 1997-99 biennium. The legislature used $7.5 million of those payments for the Oregon State Hospital budget. OHSU retained the remainder.

The Child Development and Rehabilitation Center (CDRC) identifies persons under age 21 in Oregon with disabilities, coordinates clinical services for these individuals, and collaborates with sister agencies in case management. CDRC also provides education to health professions working with the disabled, and funds research on the health of the disabled. CDRC will diagnose and treat any person under 21 who has or is suspected of having a handicapping condition. The initial evaluation is provided at no out-of-pocket cost. The Center operates clinics in 11 Oregon communities, and serves approximately 5,000 children each year.

The CDRC receives fees for services (including payments from the Office of Medical Assistance Programs), and federal funds from the Maternal and Child Health Block Grant. State funds cover approximately 26% of the CDRC budget.

Advances in medical care have increased the number of children with severe disabilities who are surviving. Fewer of these children are now institutionalized and more are being cared for at home. One of CDRC's responsibilities is training the caregivers for these children.

The Governor's budget designated $10.3 million of the state grant to the Child Development and Rehabilitation Center. This is the same level as in the prior biennium.

The legislature adopted the Governor's recommended budget for the Child Development and Rehabilitation Center.

The Department of Higher Education is the state agency name for the educational institutions, governing board, central administration, support services, and public services that make up the Oregon University System (OUS). The institutions consist of the University of Oregon (UO), Oregon State University (OSU), Portland State University (PSU), the regional universities (Eastern, Western, and Southern Oregon Universities), the Oregon Institute of Technology (OIT), and the System's participation in the Oregon Center for Advanced Technology Education (OCATE).

The Governor's budget increased state support by 17 percent from the 1997-99 biennium level, and provided $69.9 million (10.8 percent) in state support above the current service level. The $69.9 million figure is somewhat misleading, as the budget actually would have funded $75.9 million in enhancements. The discrepancy is that $6 million for regional access programs was eliminated from the OUS budget. This did not represent an expenditure reduction, however. The Governor transferred the $6 million to the budget of the Office of Community College Services.

The budget supported the enhancements listed below. The descriptions of these items are found in the section on the Education and General Program.

• $44.7 million for Base Budget Build-Up (implementation of the new budget allocation model)
• $15.3 million to freeze the instruction fee for Oregon undergraduates at the current level
• $8 million for focused investments for targeted enrollment in high demand programs including teacher training, engineering, and computer science
• $5 million for faculty recruitment and retention
• $2.9 million to fund the top salary step for classified employees

The legislature considerably expanded enhancements to the Department of Higher Education budget. As a result, state support for the Department will increase $138 million, or 22.7 percent, over the 1997-99 biennium level. Effectively, however, state support dollars will increase 25.8 percent if program shifts and the Department's share of statewide employee compensation adjustments ($11.4 million) are considered.

General Fund support in the legislatively adopted budget for the Department is $103.4 million above current service level ($109.4 million above accounting for program shifts), and $33.5 million above the level in the printed Governor's Recommended Budget. The funding enhancements above the Governor's budget were approved to expand support for implementing the system's new budget model, to support engineering education enhancements, and to expand the programs of the statewide public service programs.

This program includes the instruction, research, public service, and operating costs of the seven institutions that make up the Oregon University System (OUS), plus the Oregon Center for Advanced Technology Education, and the centralized administration and support services of the system. It accounts for 81 percent of the Department's state supported (General Fund plus Lottery Funds) expenditures. The legislature appropriates funds and provides expenditure limitations for the Department as a whole rather than to the individual institutions. The State Board of Higher Education then allocates those funds to the various institutions and programs in annual budgets based on service levels, program offerings, enrollment, and specific legislative direction.

The primary source of Other Funds for the Education and General Program is tuition ($366.1 million). Other sources include sales and charges for services, indirect cost recovery on grants, and other miscellaneous revenue. Other Funds subject to expenditure limitation are pooled with the General Fund appropriation and distributed to the institutions and programs without a distinction among funding sources. They become what the colleges and universities refer to as their "general fund" moneys - their basic operating budgets. Nonlimited funds include gifts, and sponsored research financed by the federal government, private industry, and other private groups. These nonlimited funds, the major source of support for research, also directly benefit and enhance the instruction and research programs supported by the General Fund and tuition revenue.

State support for the Department of Higher Education has been reduced greatly since the passage of Measure 5. The state has met the requirements to support K-12 education by limiting funding for many programs, but OUS has been particularly affected. State support for the Education and General program has not only failed to grow to cover inflation, but also has actually declined in nominal dollars. Total state support was $554 million in 1989-91, the last biennium before Measure 5 passed in 1990. By 1995-97, it had dropped to $499 million (this figure, for comparison purposes, includes education and general support for Oregon Health Sciences University even though OHSU was separated from OUS in 1995). The legislature reversed this trend with the 1997 budget, financing new programs in engineering, new partnerships with community colleges, efforts to recruit and retain high quality faculty, and a freeze in the level of the instruction fee for Oregon undergraduates.

As state funding declined, the Department eliminated academic programs and reduced administrative and support services. The Department also increased tuition and recruited more out-of-state students who pay tuition that fully finances their own costs and provides additional funds to help meet the costs of resident students. The average tuition for a full-time resident undergraduate student has increased from $1,864 in 1990-91 to $3,269 in 1996-97, an increase of 75.4 percent. In 1997, the legislature addressed this issue by financing a freeze on the instruction fee for resident undergraduates. Since 1996-97, average tuition for resident undergraduates has increased only 3.7%. The increase is restricted to increases in other tuition components, such as building and incidental fees.

As tuition has increased, enrollments have fallen. Between 1990-91 and 1998-99, while the high school graduating class grew 21 percent, OUS headcount dropped from 62,266 in 1990-91 to 60,401 in 1998-99. These figures though obscure the fact that enrollments are now again increasing, and are up 4.1 percent over their low point four years ago. Out-of-state enrollments are falling, however. This is causing some financial strain as the high tuition they pay helps to support in-state student instruction.

Faculty salaries at OUS institutions are generally below those offered by comparable institutions. This has made it more difficult to recruit (and to a lesser extent retain) the best qualified faculty. This has been a problem of long standing. In the 1997 session the legislature approved $7.5 million for salary increases to address this problem. In the past two years OUS salaries have moved somewhat closer to those paid by comparable institutions. Progress in this area remains slow, however.

In December 1997, the Governor issued a number of charges to the Oregon State Board of Higher Education (OSBHE). Among these he directed OUS to allow tuition and public dollars to follow the student, to clarify which programs are being subsidized and why, and to provide greater flexibility for OUS institutions to offer new programs to meet student and economic marketplace demands. OUS responded with a comprehensive effort. The Board adopted a new performance-based budget model (effective beginning with the 1999-00 fiscal year) and approved changes in the OUS governance structure.

These changes are designed to address concerns about OUS's ability to respond to changes in the higher education marketplace. The basic concept behind the changes is to increase the incentives for institutions to attract, retain, and successfully educate students. Under the old system there are many provisions designed to promote stability in institutional budgets and operations. Although these provisions have proved valuable, there is concern that they have also sheltered institutions to such an extent that they do not respond effectively to market needs.

The new budget allocation model acts to promote institutional effectiveness and entrepreneurship by tying financial resources more directly to the number of students served. The old system pooled most tuition revenues (except for 90 percent of tuition paid by nonresident undergraduates at the University of Oregon), so an institution that successfully attracted additional students shared most of the additional tuition with the other OUS schools. In the new budget model the school retains all of this tuition, thereby making efforts to attract students more attractive to it. Institutions will receive financial reward for success.

OUS will also allocate the great majority of state support dollars to institutions on an enrollment basis. Institutions will receive most of their state funds on the basis of the full-time equivalent (FTE) enrollments in their programs. These amounts per FTE enrollment will vary by course level (i.e., lower division, upper division, master's level, doctoral level), and by course type (with lower amounts for less-expensive programs such as English and Mathematics and higher amounts for more-expensive programs like Engineering and Pharmacy). The amount of state funds universities receive per student will vary greatly. The per-student level for the most expensive programs will be over 13 times the level for the least expensive programs. Some funds will not be distributed to institutions on an enrollment basis but rather on other factors, including reimbursement for fee remissions, funding for research, and performance funds if the institution meets certain improvement goals. The new budget model will also provide additional funds to the smaller institutions that have high per-student costs since they lack economies of scale.

It should be noted that the old budget system also distributed funds to institutions on a per-FTE basis, but to a lesser extent. The old system distributed a greater portion of total funds on non-enrollment bases, such as the cost of maintaining physical plant. Furthermore, for the portion of funds that were distributed on an enrollment basis, institutions were buffered from the impact of small enrollment changes. As long as an institution's enrollment was within a particular range (referred to as its "enrollment corridor") its enrollment-based funding was held constant. Only large changes in enrollment

up or down affected its level of enrollment funding. Because of this, institutions generally had little incentive to develop new programs that would attract more students since they had to bear the costs of these efforts without receiving any concurrent, additional financial resources.

The new budget allocation model consciously trades off stability to increase the incentives for universities to adapt to marketplace needs. As such it increases the risk that OUS institutions may encounter serious financial difficulties and perhaps even fail. The new model also makes institutional funding so sensitive to enrollment that institutions will get more funds when gaining a student than it costs to educate that student, and lose more funds when they lose a student than they can possibly save in reduced instruction costs. The new model will also increase the incentive for OUS institutions to compete for students against each other and against community colleges and private colleges. This competition may make collaborative efforts between these institutions more difficult.

OUS has combined implementation of the new budget model with a request for a significant increase in state support. OUS has requested an additional $115.6 million in General Fund support above its current service level to implement the new model and to freeze resident undergraduate instruction fees at their current level. This amount is equal to a 23 percent increase over the 1997-99 biennium level of state support for the Department's Education and General programs. Along with implementing the new model the system is requesting additional state support for a number of items that are currently included in its base budget.

The largest of these is the Department's request for an expansion of state funds to finance "extended" enrollments on the same basis as "base" enrollments. Under the old budget system, to the extent that the distribution of resources was based on institutional enrollment, the enrollment that OUS considered was limited to base enrollment. Base enrollment is the number of students in regular campus courses during the regular academic year. Enrollment in other courses, such as continuing education, remedial courses, or summer session courses is categorized as extended enrollment. Extended enrollment courses operate on a self-support basis - they generate sufficient funds to meet direct costs such as instructor pay. No state support is directly provided for them, and institutions do not pool any extended course tuition with the other OUS institutions. OUS is requesting additional state support to add funds for these programs at the same of per-student base enrollment funding.

Other reasons for the increased cost request include requests for additional funds to finance fee remission programs, and research support. The request also includes funds for performance incentives, and extra allocations for smaller institutions beyond what their enrollment alone would provide.

The Governor's budget would have increased state support by 20 percent above the 1997-99 biennium level, and provided $57.4 million (10.6 percent) of General Fund above the current service level. The $57.4 million increase actually would have supported $75.5 million in program enhancements, because the budget transferred the $6 million regional access program to the Office of Community College Services, and transferred $12.1 million (the current service level) to the capital construction program to be matched with Article XI-G bonds for academic modernization and deferred maintenance. The proposed enhancements to the Education and General Program were:

• $44.7 million for Base Budget Build-Up (implementation of the new budget allocation model) - OUS would use these funds as it adopts its new budget model. The Governor directed OUS to improve access and quality of post-secondary educational opportunities in Oregon, and to expand engineering education. He also directed OUS to continue on-going commitments to the Oregon Metals Initiative, partnerships with Central Oregon and Southwestern Oregon Community Colleges, and to fully fund the Ed Net system. The budget did not include an agency request for additional funds for enrollment growth and did not base total funding on the number of students enrolled. The Governor stated his intention to complete funding of the new budget model in the 2001-03 biennium.

• $15.3 million to freeze the instruction fee for Oregon undergraduates at the current level - This would retain the instruction fee at its 1996-97 level through the 1999-01 biennium, extending the current two-year freeze for another two years. The instruction fee is the largest component of tuition.
• $8 million for focused investments for targeted enrollment in high demand programs including teacher training, engineering, and computer science - These funds would allow OUS to expand engineering and computer science investments begun last session under SB 504, as well as new initiatives in these disciplines and in teacher training. The funded investments are designed to increase enrollments in these areas. OUS will develop specific proposals for the use of these funds.
• $5 million for faculty recruitment and retention - These funds would be targeted to recruit and retain the highest quality faculty, and will not be awarded across the board.
• $2.5 million to fund the top salary step for classified employees - OUS added this additional compensation step in 1996, but the 1997 Legislative Assembly chose not to fund it. The Governor included these funds in the current service level, but the Legislative Fiscal Office reclassified them as a policy enhancement because they represent a reversal of an earlier legislative decision.

The Governor's budget also transferred $5,962,400 of General Fund to the Office of Community College Services budget for regional partnerships. This would not be a decrease in funding for these partnerships, just a redirection to another agency. The amount transferred reflects the current service level. During the 1997-99 biennium, these funds were appropriated to OUS and used to support three partnership efforts: of Eastern Oregon University with Blue Mountain and Treasure Valley Community Colleges, of the Oregon Institute of Technology with Klamath Community College, and of Southern Oregon University with Rogue Community College.

The adopted budget increases funding for the Education and General program by a net of $20 million above the Governor's recommended budget. This increase was awarded even though a number of cuts were made to the Governor's request. The legislature refused to fund the $2.5 million of General Fund requested for additional compensation step awards made to classified employees during the 1995-97 biennium. Also, funding of $1.3 million for administrative expenses was removed, and $1 million that had been requested for performance funding was denied when it was determined that the funds were not needed until the 2001-03 biennium (all figures are General Fund).

Otherwise, the adopted budget funds the enhancements the Governor proposed. These include the instruction fee freeze for Oregon undergraduates, and the faculty recruitment and retention funds. Enhancements to the Governor's budget include:

• The legislature combined funds for base budget build-up and targeted enrollment, and instructed the Department to restructure the new budget model so that all eligible Oregon undergraduate students will be served. Originally, the Department had proposed a budget model that would not have provided campuses with economic incentives to serve all projected resident enrollments at the undergraduate level.
• The legislature increased funding for new model implementation from the $57.2 million in the Governor's budget to $71 million, an increase of $18.3 million. The legislature required the Department to fully implement its new budget model within the resources provided in the budget and not to come forward with rollup costs for model implementation next biennium.
• The budget stipulates that the Department must ensure certain guaranteed funding increases for each of the seven campuses. This latter requirement is specifically designed to aid smaller campuses that originally were to receive only minimal funding increases under the budget model as proposed by the Department.
• The legislature added $5 million General Fund to the Governor's budget for the Oregon Engineering Education Investment Fund. These funds will be used for engineering education enhancements. The money was appropriated to the Emergency Board and will be distributed after the Engineering and Technology Industry Council forwards a recommendation on the use of the funds.

In addition to the funding for engineering education, two other items were funded through special purpose Emergency Board appropriations. The legislature moved $1.6 million of General Fund for the Oregon Wide Area Network (OWEN) to the Emergency Board. OWEN is the OUS project that provides Internet access and telecommunication network services to higher education, state agencies, and K-12 schools. OWEN is slated to receive funding from the telecommunications Public Access Account established under SB 622. The Emergency Board appropriation will be available, if needed, to increase total available state funds for OWEN to the $1.63 million that was in the Governor's budget. The legislature also moved $730,000 for performance funding awards to the Emergency Board. The Department will report on campus performance before these funds are allocated.

The legislature increased the Other Funds expenditure limitation to include continuing education tuition. Under the new budget model, the Department will end the funding distinction between continuing education (which operated without General Fund support) and base enrollment courses. Therefore the budget combines the previously nonlimited tuition from continuing education into the expenditure limit for the system.

The Agricultural Experiment Station was organized in 1888 and conducts research and demonstrations in the agricultural, biological, social, and environmental sciences. Research is conducted at a central station at Corvallis and at ten branch stations in major crop and climate areas of the state.

Historically, Other Funds subject to expenditure limitation have come primarily from sales and service fees, with some indirect cost recovery on federal grants, interest earnings, and miscellaneous income. The Experiment Station receives federal funds (reported as Other Funds) through the Hatch Act. In 1993, Lottery Funds were provided to partially offset the effects of a reduction in General Fund support. Lottery Funds were again appropriated in 1995 for this purpose. Nonlimited gifts, grants, and contracts provide over $40 million for Experiment Station research.

There has been a reluctance to decrease state support for the Experiment Station, because of the positive affect its research has on the agricultural industry and the state's economy as a whole. Still, limited state resources have necessitated budget and staff reductions, primarily in the administration and support service areas. The reduction or elimination of state support for research is compounded by the loss of federal and industry research grants that support a large part of the research function. Hatch Act funding is expected to be level and thus will not help to accommodate inflation in the Experiment Station's costs. In 1995, the legislature supplemented the level of state funding in the Governor's budget to maintain funding at the 1993-95 level of state support. No funding was provided, however, to accommodate inflation. In 1997, state funding was provided at 4.8% above the current service level.

The Governor proposed funding the Agricultural Experiment Station at the current service level. The budget also included an extra $221,750 General Fund to finance an additional compensation step for the program's classified personnel. OUS added this additional compensation step in 1996, but the 1997 Legislative Assembly chose not to fund it.

The legislature added $8.2 million of General Fund to the Agricultural Experiment Station budget for expanded research programs in thirteen specified categories. The legislature refused, however, to fund the $221,750 of General Fund requested for additional compensation step awards made to classified employees during the 1995-97 biennium.

The Extension Service is the educational outreach arm of OSU as Oregon's Land Grant and Sea Grant university. Extension faculty on campus and in county offices throughout the state work with researchers and volunteers to develop and deliver non-credit educational programs based on locally identified needs. Two-thirds of Extension faculty are assigned to county locations. Extension Specialists are OSU faculty members who develop educational programs and serve as technical resources for county-delivered programs. Extension Agents are OSU faculty assigned to county field locations. Generally, counties provide office space and operating expenses, including support staff. Programs are delivered with the assistance of over 30,000 volunteers.

The Extension Service is funded cooperatively from federal, state, county, and private sources. Federal Funds are primarily from the U.S. Department of Agriculture through the Smith-Lever Act. Lottery Funds were added in 1993 to partially offset a 20 percent reduction in General Fund support, and supplemented in 1995 to flat fund the Extension Service. In 1997, all state support was transferred back to the General Fund. Nonlimited funds include gifts and sponsored research financed by the federal government, private industry, and other private groups.

In the past, there has been a reluctance to decrease state support significantly due to funding interrelationships with federal and county sources and because of the popularity of the direct community services. In 1997, the legislature funded the Extension Service at about 3 percent above current service level. Federal support is expected to remain constant for base programs. County support is increasing as more counties approve Extension Service Districts.

The Governor's budget funded the Extension Service at the current service level. It also included an extra $155,696 General Fund to finance an additional compensation step for the program's classified personnel. OUS added this additional compensation step in 1996, but the 1997 Legislative Assembly chose not to fund it.

The legislature added $3.65 million of General Fund to the Extension Service budget for new initiatives and for expansion of existing programs. These additional funds will be distributed to Extension Service activities on campus and throughout most regions of the state. The legislature refused, however, to fund the $155,696 of General Fund requested for additional compensation step awards made to classified employees during the 1995-97 biennium.

The Forest Research Laboratory at OSU was established by the Oregon Legislature in 1941. Research is organized into six program areas: Forest Regeneration, Forest Productivity, Protecting Forests and Watersheds, Evaluating Forest Policies and Practices, Wood Processing and Product Performance, and Research Support. A 15-member statutory committee establishes the research priorities of the Laboratory. This Research Advisory Committee has nine members from the forest industry, including at least one small woodlot owner; three lay persons; the Oregon State Forester; the U.S. Forest Service Regional Forester; and the State Director of the Bureau of Land Management.

The Laboratory is supported by state, federal and forest industry resources. Until 1993, state support was from the General Fund. In 1993, General Fund support was entirely eliminated and replaced with lottery proceeds. In 1997, the legislature returned to supporting the Laboratory with General Fund. Other Funds subject to expenditure limitation come from the Forest Products Harvest Tax; sales and service charges; and from Federal McIntire-Stennis funds. Nonlimited expenditures from grants and contracts support over $20 million of the Laboratory's costs.

As state support for the Laboratory has decreased, an increasing share of research support has shifted to other sources, primarily federal granting agencies. As a result, control of the Laboratory's research agenda is shifting away from the state to several agencies of the federal government. This reduces the amount of research that is directed toward the concerns of Oregon's smaller tract forest owners and from the state's wood products manufacturing industry. In 1997, the legislature increased state support above the prior biennium level, but funding was about 1.5 percent below the current service level.

Forest Products Harvest Tax receipts are directly dependent on timber harvest levels. The harvest level is expected to remain at about 4 billion board feet per year during the 1999-01 biennium. This is less that half the level realized during the late 1980's.

The Governor's budget funded the Laboratory at the current service level. It also included an extra $21,251 General Fund to finance an additional compensation step for the agency's classified personnel. OUS added this step in 1996, but the 1997 Legislative Assembly chose not to fund it. The budget was based on the Forest Products Harvest Tax rate remaining at the current level. This required legislation as the tax rate was now scheduled to return to its base rate of 5¢/1000 board feet.

The legislature added $1 million of General Fund (including $250,000 for the Swiss Needle Cast Disease Cooperative) to the Laboratory budget for expanded research programs on forestry issues. The legislature refused, however, to fund the $21,251 of General Fund requested for additional compensation step awards made to classified employees during the 1995-97 biennium.

The Sports Action lottery game was authorized by the 1989 Legislature. Eighty-eight percent of the proceeds from the game, not to exceed $8 million annually, are used to finance intercollegiate athletics. The remaining 12 percent is for graduate student scholarships that are not awarded on the basis of athletics. Of the athletic funds, 70 percent must be used for non-revenue producing sports, and at least 50 percent must be used for women's athletics.

All revenue is from proceeds of the Sports Action lottery game.

Revenues from the Sports Action lottery have been declining. The Sports Action lottery, along with other non-video lottery games, is under pressure from both the Lottery's own video games and other competitors such as Indian gaming. The state Office of Economic Analysis is, however, projecting a revenue increase of almost 30% in the 1999-01 biennium.

The expenditure limitation was set to equal the projected level of revenue.

The legislature adopted the Governor's recommended budget for Sports Action lottery.

This program reflects the cost of debt service on capital construction projects financed with bonds. General Fund appropriations are made to pay the debt service on Article XI-G bonds, traditionally used to finance instructional and public service structures. Revenues from self-supporting programs and student building fees are the sources of debt service for repayment of Article XI-F(1) bonds, which are traditionally a revenue source for construction of student unions, dorms, parking structures, and similar self-supporting programs. The Department has recently used Article XI-F(1) bonds to construct certain instructional facilities as well, such as the new Law Center at the University of Oregon.

Debt service is a fixed cost that must be paid at the level required to service the debt to avoid defaulting on the bonds. The General Fund portion is the debt service payment on Article XI-G bonds.

The General Fund Debt Service budget increased $1.1 million over the 1997-99 level to cover debt incurred from issuing bonds for $11.77 million in capital repair projects and for other projects approved by the 1997 Legislative Assembly.

The legislature adopted the Governor's recommended budget for Debt Service, which included an adjustment in Nonlimited Funds to correctly account for debt service payments on Certificates of Participation.

The Capital Construction budget includes major construction, renovation, and land acquisition costs.

Traditionally, the construction, renovation and acquisition of instructional and public service buildings has been financed equally by the General Fund and Article XI-G general obligation bond proceeds. More recently, these facilities have been financed by donations and Article XI-G bonds. Student unions, dorms, parking structures, and similar projects are generally financed from auxiliary enterprise balances and the proceeds of Article XI-F(1) bonds. In addition, revenue from self-supporting projects, gifts, grants and donations are a major funding source for capital construction. Recently, Article XI-F(1) bonds have been used for instructional buildings (the new Law Center at the University of Oregon).

The 1997 Legislature moved $11.77 million from the Education and General Program operating budget to the Capital Construction program as a match for Article XI-G bonds. The resulting $23.5 million was budgeted for critical deferred maintenance and to begin to seriously address the Department's backlog of maintenance projects. A budget note clarified the legislature's intent that the same amount be used as a base from which to budget for similar projects in 1999-01.

Recent capital projects have focused on maintaining and renewing existing facilities. If the Department continues to educate the same percentage of Oregon high school graduates in the future as now, enrollment would increase 14 percent in the next decade. Even with distance learning and other new ways of delivering services, this level of increase might strain existing facilities. Nonetheless, the Department continues to focus on deferred maintenance. Many facilities are in poor condition. A consultant's study estimates that it would cost $390 million to restore OUS facilities to proper condition, and that expenditures of $74 million per biennium are required keep the system's capital facilities in their current state of repair and to avoid further deterioration. Many facilities also require academic modernization, which includes equipment modernization such as telecommunications connectivity and enhanced computer linkages.

The Governor's budget limited General Fund to two projects: $12.1 million for system-wide academic modernization and repair (including deferred maintenance), and $2.7 million for the Western Oregon University Library.

OUS had requested $58 million, including $25 million of General Fund, for academic modernization and repair. The Governor's budget combined the $12.1 million General Fund with an equal amount of Article XI-G bonds, $3 million of Article XI-F(1) bonds and $5 million of other revenues to finance $32.2 million in total. The $2.7 million provided for the WOU Library was the amount estimated from last session, when the project was first approved. The legislature chose to fund this project over a two-biennia period. Since then, the estimated cost of completing the library has increased by $2.1 million. OUS requested to fund this increase with an additional $1.05 million General Fund and $1.05 million of Article XI-G bonds. The Governor did not approve this request and the budget required WOU to finance the added costs from donations. If the donations are not realized the library structure will have to be modified.

The budget included 25 other specific projects financed entirely through Article XI-F(1) bonds or Other Revenue sources. The total proposed capital construction budget was significantly less than the levels of recent biennia and almost 60 percent lower than the prior biennium's level.

The adopted budget includes $142.6 million for capital construction projects. The legislature approved all of the projects in the Governor's budget with the exception of the Warner University Center project at Western Oregon University, which was previous approved at the January 1999 Emergency Board meeting. General Fund appropriation and Article XI-G bond limitation for academic modernization and repair were each reduced by $500,000, and the appropriation and limitation were transferred to a new project: the Natural Resources and Health Services Center at Eastern Oregon University (EOU). The Department will reduce EOU's share of the academic modernization and repair moneys by $1 million to allow for planning and reviews associated with the new Center. The Department will need to request further General Fund and Article XI-G bond limitation next biennium if it wishes to complete the facility.

The legislature added $2.1 million ($1.05 million General Fund and $1.05 million Article XI-G bonds) to cover the increased costs associated with completing the Western Oregon University Library Project. Three new projects were added, each to be funded through a combination of Article XI-G bonds matched with gifts. These projects include the Millar Library Research Center at Portland State University, and additions to the Museum of Art and Straub Memorial Hall at the University of Oregon. The budget also adds Article XI-G bond funds to the University of Oregon Allen Hall remodel project. Finally, the Article XI-F(1) bond and Other Revenue expenditure limitations for academic modernization and repair, and the small capital projects categories were increased by $4 million and $6 million to $12 million total each. In total, legislative actions on the Governor's budget added $1.05 million General Fund, and $25.2 million in Other Funds to the Capital Construction budget. A complete list of the approved projects and their financing is included below:

Capital Improvements are projects costing under $500,000 that change, adapt, or replace the use or function of a facility or reconfigure an office or program workspace. The costs of these projects are capitalized under accounting rules. This program area is being separately identified for the first time beginning with the 1999-01 biennial budget.

The Governor's budget included two projects at Southern Oregon University. The first project was an expansion of the bookstore in the Stevenson Union, and the second a remodel of the Elmo's Snack Bar and Raider Aid service areas into a food court. Both projects were to be funded by Article XI-F(1) bonds.

The two projects were removed from the Capital Improvements program. The projects will be completed within the small capital projects expenditure limitation authorized in the Capital Construction program.

The Nonlimited funds displayed here consist of: 1) self-support activities such as dormitories, bookstores, parking, health centers, and food services; 2) self-support instruction, and 3) and student aid and loan repayments. Most Nonlimited funds (including federal support for research) are not shown here, but are shown in the appropriate program level (Education and General, the OSU Public Services, or Debt Service), to provide a clearer picture of program costs and funding.

Most self-supporting Nonlimited revenue sources are dedicated to a specific purpose and are independent of General Fund and limited Other Funds supported programs.

Projected Nonlimited expenditures appear in the budget for information purposes only. Available Nonlimited funds may be spent without limitation by the legislature. Showing the Nonlimited expenses in the budget gives a clearer picture of the Department's overall activities. Approximately 36 percent of all expenditures are in Nonlimited programs, and approximately 29 percent of all higher education employees are supported by Nonlimited funds.

The legislature shifted $19.9 million in tuition payments for continuing education from the Nonlimited program to Other Funds (limited) in the Education and General program. This action reflects how continuing education is handled under the Department's new budget model. Previously, General Fund dollars were not distributed to support continuing education programs. Instead, these programs operated on a self-support basis. Under the new budget model there will be no distinction between the funding of continuing education and base enrollment courses. Both will be supported by General Fund and tuition revenue. Continuing education tuition is transferred, therefore, to the limited Education and General program and combined with other tuition revenues.

The legislature also acknowledged $400 million of student loan activity in the Nonlimited program that had been omitted from the Governor's budget.

The State Scholarship Commission administers financial aid programs designed to assist students in obtaining postsecondary education in Oregon. The Commission, which administers both grant and loan programs, is organized into four major program areas. Approximately 94 percent of the state funds (General Fund and Lottery) budgeted to the agency are paid out to students through the Oregon Need Grant, a program that awards moneys on the basis of need to students attending Oregon postsecondary institutions. The remaining state funds are used for three smaller programs that fund student expenses, and to cover some of the Commission's administrative costs.

The Commission also acts as the guarantee agency for the Federal Family Education Loan Programs (FFELP) in Oregon. The agency guarantees qualifying private-lender loans to students and their families, works with borrowers to avoid default, and purchases defaulted loans from lenders and tries to recover on those loans. The Commission also operates the highly successful Private Award program. This program centrally administers over 165 privately funded scholarship programs and serves over 1,800 students a year. The Private Award program has been growing rapidly in both the number of scholarships awarded and the dollar amounts distributed.

In 1997, the legislature passed SB 917 which transferred the Office of Degree Authorization (ODA) from Oregon Office of Education Policy and Planning to the State Scholarship Commission. ODA is responsible for enforcing certain regulations related to postsecondary education. ODA responsibilities include authorizing private institutions' degree programs and reviewing the postsecondary programs of public institutions to prevent detrimental duplication.

The 1999 Legislative Assembly changed the name of the agency to the Oregon Student Assistance Commission.

The Commission receives Lottery Funds, beginning in the 1999-01 biennium, equaling 25 percent of the earnings of the Education Endowment Fund. The Commission's Federal Funds are received from the State Student Incentive Grant (SSIG) program and are used for Need Grants. The Commission receives Other Funds revenue from loan processing fees; federal reimbursements for defaulted loans that the Commission purchases from lenders; retained receipts from defaulted loans; federal reimbursements for certain operating expenses; interest on accumulated loan program revenues; private award donations and charges for administering privately funded scholarship programs; and fees for reviewing degrees from private postsecondary institutions. These Other Funds (including Nonlimited) are projected to equal $108 million in the 1999-01 biennium. More than 75 percent of this total consists of Federal reimbursements for defaulted student loans that the Commission purchases (reinsurance payments) and Commission recoveries on those defaulted loans.

In 1997, the legislature made a major change in Need Grant funding by passing HB 3695. This bill specifies how the lottery Education Endowment Fund earnings are to be distributed. The Education Endowment Fund is constitutionally funded with 15 percent of net lottery proceeds. The Fund's principal is invested, and HB 3695 distributes 25 percent of the Fund's earnings to the State Scholarship Commission for Need Grants. The 1999-01 biennium will be the first where the Commission receives funds from this source. Approximately $4.3 million of Education Endowment Fund earnings will be available for Need Grants. This amount, which is equal to 14 percent of total state Need Grant support in the 1997-99 biennium, provides a significant new funding source for the Need Grant that will grow rapidly in coming biennia.

The federal government has phased in a new Direct Student Loan Program (FDLP) that bypasses lending institutions and guarantee agencies and provides funds directly to postsecondary institutions to loan to students. This has caused a decline of approximately 53 percent in the number of new loans processed and guaranteed by the Commission. Workload is shifting from the loan processing functions to the Default Prevention and Collections divisions as this occurs. Furthermore, the federal government has restricted the funds that may used to administer the loan guarantee program. The loan guarantee program will operate in deficit during the 1999-01 biennium. The agency will have to significantly increase loan volume or reduce expenses in the future.

The number of private awards administered by the Commission continues to grow, increasing Grant Program Other Funds administrative costs. The Commission currently administers over 165 private scholarship programs compared to 43 just nine years ago.

The Governor's budget funded Need Grants totaling $36.4 million, an increase of almost 15% from the prior biennium. This was to be accomplished by accommodating inflation with increased General Fund support, and by adding almost $4.3 million of Lottery Fund proceeds from Education Endowment Fund earnings. The budget retained funding of both the State Grant Supplemental Award (SGSA) program for private college students and of Need Grant funding specifically dedicated to public sector students at the current service level.

The Governor's budget contained a number of other enhancements to agency programs, all of which were to be financed by Other Funds. These included additional personnel and approval to spend funds for enhanced public information operations, expanded agency services to schools and lenders, computer memory upgrades, administration of a new tax credit designed to promote private scholarship awards, reorganization and expansion of the Private Awards program, establishment of a Volunteer Student Advisory Program to train volunteer advisors, and additional initiatives to reduce the level of defaulted loans in the FFELP program.

Need Grant and other financial aid support was approved at the Governor's recommended level. The legislature made only small adjustments to the Governor's budget, but did require the agency to take a four percent efficiency reduction in General Fund support of its administrative (i.e., not its grant) costs. This reduction totaled $45,194. The budget also includes reductions to reflect reduced Attorney General and state government service charges to the agency. Additional funding of $10,037 General Fund was supplied for unanticipated costs relating to the resignation of the Office of Degree Authorization administrator. The legislature rejected a budget package to administer a proposed income tax credit, and declined to establish the associated tax credit program.

The Central Administration Division is responsible for overall administration of the agency, including policy planning, budgeting, fiscal control, and personnel management. The Division's responsibilities also include evaluating agency functions, providing public information and education concerning student financial aid programs, and administering the Oregon Scholars Program, which recognizes outstanding scholastic achievement of high school students.

The Commission uses Other Funds to pay for the portion of the Central Administration Division's costs that are allocated to support the Other Funds-funded programs. These Other Funds include moneys the Commission receives in the Loan Program from borrowers and the federal government, as well as interest earnings from the Guarantee Fund. Other Funds are also collected from charges for administering private award programs.

The Governor's budget added three new positions (3.0 FTE) to the Central Administration Division. One position was to serve as a Public Information Coordinator to respond to financial aid issues in the news and coordinate the agency's public information efforts. The other two positions were Program Representatives who would act as service representatives for the agency to the 114 schools and lenders that the Commission serves through the FFELP. The total cost of funding the three positions would be $283,614. These costs were to be entirely funded from the agency's Other Funds revenues, which are generated from the FFELP program and the Private Award Program.

The legislature approved the program enhancements included in the Governor's budget. General Fund and Other Funds levels were reduced as part of the four-percent efficiency reductions required of the agency and to reflect state government service charges and Attorney General charge reductions to the agency.

The Grant Program Division administers a number of programs. The largest of these is the state-funded (and federally supplemented) Need Grant. The Need Grant is a program that awards need-based grants to assist students attending Oregon public and private non-profit colleges and universities, and community colleges. Approximately 15,000 students receive Need Grants each year.

The Division administers a number of small state-funded grant and loan programs as well. These include: a) the Rural Health Services Program, which pays the education loans of health care professionals who practice in qualifying rural health care shortage areas; b) the Oregon Nursing Loan Program, which provides loans to nursing students which are then forgiven if the recipient completes a year of full-time employment in a nursing shortage area; and c) the Community Service Voucher Program, which awards vouchers usable to pay tuition and fees to students at Western Oregon State College in exchange for community service work.

The Division also operates the Private Award Program. The Commission acts as a clearinghouse for the administration of over 165 privately funded scholarship programs. This program has been highly successful and rapidly growing. It assumes administrative responsibilities for donors awarding scholarships, and enables students to submit a single application for consideration in up to seven programs.

Federal funds are from the Federal State Student Incentive Grant (SSIG) program. SSIG funds are combined with the much larger state contribution to fund the Need Grant. SSIG funds have been declining and in 1999-01 they will fall 33 percent from the prior biennium's level and will be roughly half of what they had been two biennia prior.

In 1997, the legislature made a major change in Need Grant funding when it passed HB 3695. This bill specifies how Education Endowment Fund earnings are distributed. The Education Endowment Fund is constitutionally funded by 15 percent of net lottery proceeds. HB 3695 distributes 25 percent of the earnings of the Fund to the State Scholarship Commission for Need Grants. The 1999-01 biennium will be the first where funds from this source are available to the Commission, with approximately $4.3 million of Education Endowment Fund earnings for Need Grants. This amount is equal to 14 percent of total state Need Grant support in the 1997-99 biennium, and will grow rapidly in coming biennia.

The budget does not limit the disbursements of private award grants, although total charges for administering these programs are limited. Donations to private awards are increasing rapidly. These donations totaled $2.6 million in the 1995-97 biennium, are projected to increase to $4.4 million in 1997-99 and to $11.1 million in the 1999-01 biennium.

In recent years a significant number of students who were eligible to receive a Need Grant were not granted awards. Because of limited funds, the Commission set an application cutoff date each year. This date was often in April, for grants for the following academic year. Students who did not finalize their plans until later, or who did not apply for other reasons, did not receive a Need Grant award. This practice most severely affected community college students who often register for classes after the cutoff date. This environment is changing, however. Because of the Lottery Funds now available to the Commission through HB 3695, there should be sufficient funds available to award all eligible Need Grant applicants.

The 1995 Legislative Assembly added $3 million to the Need Grant appropriation to establish the State Grant Supplemental Award (SGSA). In 1997, this funding was continued. The SGSA funds supplement Need Grant awards to students attending private college and universities. These awards average around $1,200 per student and vary depending on the private institution's tuition cost. The legislature added this award to maintain the historic distribution of Need Grant funds among the three postsecondary sectors that qualify: community colleges, OUS institutions, and private colleges. In 1997, the legislature also reserved $1 million of Need Grant funding for the exclusive use of students at public institutions.

The Governor's budget increased total Need Grant funding to $36.4 million, an increase of almost 15 percent from the prior biennium. This was accomplished by accommodating inflation with increased General Fund support, and by adding almost $4.3 million of Lottery Fund proceeds from Education Endowment Fund earnings. The budget retained funding of both the State Grant Supplemental Award (SGSA) program for private college students and of Need Grant funding specifically dedicated to public sector students at the current service level. The budget also continued support for the other General Fund-funded grant programs at their current service levels.

The Governor's budget contained a number of other enhancements to the Grant Division that were to be financed by Other Funds. These included reorganization and expansion of one position (1.0 FTE) for the administration of the Private Award programs, the establishment of another position (1.0 FTE) to develop and supervise a Volunteer Student Advisory program, and funds to administer a new tax credit designed to promote private scholarship awards.

The legislature funded the Need Grant and other grant programs at the Governor's recommended level. The budget does, however, transfer $75,000 of General Fund appropriation for the Medical-Dental Program from the agency to the Emergency Board because of uncertainty as to whether these funds will actually be needed. The legislature rejected a proposed tax credit for employers offering scholarships, and removed $216,390 of Other Funds expenditure limitation associated with the proposed credit. The budget also contains reductions in the Grant Division program associated with the four-percent efficiency reduction (for administrative costs only) and with reduced state government service charges.

The budget includes two budget notes directing the distribution of Need Grants among award recipients. The first budget note requires the Commission to increase the dollars awarded through the SGSA program to private college students at the same rate as the increase in dollars awarded through the basic Need Grant (that is available to students in all three educational sectors). This shifted approximately $445,000 to the SGSA program above the level funded in the Governor's recommended budget. The Governor had applied all additional funds available from the Education Endowment Fund solely to the basic Need Grant whereas the adopted budget effectively shares those additional funds with the SGSA. The second budget note requires the Commission to set aside Need Grant funds each year for community college students, many of whom have traditionally applied too late to receive the award. This set aside provision will allow the proportion of eligible community college students to be served by the Need Grant to be the same as the proportion for students from the other college sectors. Under these two budget notes, and with the level of Need Grant funding approved, an estimated 98 percent of all eligible students in each sector will be able to receive awards. This is up from under 90 percent of all students, and 82 percent of community college students, receiving awards in the prior biennium.

The Loan Program Division administers the Federal Family Education Loan Programs (FFELP), formerly called the Guaranteed Student Loan Program. The FFELP include the following:

• Federal Stafford Loan Program - Need-based, subsidized and non-need-based, unsubsidized student loans with annual and aggregate limits based on grade level.
• Federal PLUS Program - Low-interest loans for parents of dependent undergraduate students.
• Federal SLS Program - Loans for independent undergraduate, graduate, and professional students.

The Commission's responsibilities in FFELP are to guarantee qualifying loans made by private lending institutions. This program allows the lending institutions to make student loans that might otherwise be too risky or require a much higher interest rate for the loan to be offered. Loans are guaranteed for Oregon students who study both in-state and out-of-state, and for out-of-state students attending Oregon institutions. The Division works with borrowers who are in danger of defaulting on their loans. When a loan actually goes into default the Commission pays off the loan to the lender (i.e., buys the loan from the lender) and then is mostly reimbursed for this cost (98%) by the federal government. The Commission must then attempt to collect on the defaulted loan.

The Loan Program receives no state funds. Revenue accrues from loan processing fees (1% of loan volume), and an administrative cost allowance paid by the federal government (0.85% of loan volume). The Commission also receives interest earnings on the Guarantee Fund. For loans that do default, the Commission receives a reinsurance payment from the federal government for 98 percent of the cost of buying the loan from the lender. The Commission also retains 24 percent of any subsequent recoveries on the defaulted loans and forwards the remainder to the federal government.

The budget limits the Commission's expenditures for administering the loan program but does not limit what the Commission can pay to assume the loans it has guaranteed, or the payments made back to the federal government for their portion of the loan recoveries.

The loan program is being greatly affected by the creation of the Federal Direct Loan Program (FDLP). This competing program, established in 1992, allows students to borrow directly from the federal government, thus bypassing entirely the guaranteed private loans that the Commission handles. In 1996, the federal government eliminated a cap on the percentage of schools that may participate in the FDLP. Schools choose to participate in either the direct loan program or the guaranteed loan program. OHSU and all OUS institutions, except for the Oregon Institute of Technology and Eastern Oregon University, have switched to the direct loan program. Most Oregon community colleges, independent colleges and proprietary trade schools have remained with the guaranteed loan program. In total, approximately 50 percent of new loan volume is now in the FDLP. Annual loan volume declined from $168 million it the 1993-94 fiscal year to $86 million in 1997-98. This reduces the need for staff and resources for loan processing, and in the future will reduce the need for resources for the program's collection activities.

The Governor's budget approved expenditures of approximately $390,000 Other Funds above the current service level to establish new initiatives to reduce the number and level of defaulted loans. These initiatives were to be financed from the earnings on a restricted account that the Federal government requires the Commission to establish. Federal law restricts the use of funds in this account to loan default reduction initiatives.

All reductions from the Governor's budget reflect reductions in anticipated Attorney General and state government service charges to the agency.

This Division is responsible for the agency's computer systems. The Division maintains the computer hardware, software, and databases necessary to provide financial aid information to Commission staff, outside institutions, and individuals. The Commission contracts for services for its loan processing software.

The Commission uses Other Funds to pay for the portion of the Information Services Division's costs that are allocated to support the Other Funds-funded programs. These Other Funds include moneys the Commission receives in the Loan Program from borrowers and the federal government, as well as interest earnings from the Guarantee Fund. Other Funds are also collected from charges for administering private award programs.

In 1997, the legislature significantly expanded the Information Services Division to allow the Commission to upgrade its main AS/400 computer system and to increase the services it offers through the Internet. The Division's employment was expanded 50%. These upgrades have allowed the agency, generally, to meet its technology needs. However, the agency does see a need for additional computer memory and a need to provide computer training to college financial aid administrators.

The Governor's budget approved $78,400 Other Funds above the current service level for an AS/400 computer memory upgrade and to construct a computer training room. These enhancements were to be financed from loan program fees and payments and from private award administrative charges.

The legislature reduced General Fund support by $11,753 as part of the four-percent efficiency reductions required of the agency. Additional General Fund and Other Fund reductions reflect reduced state government service charges to the agency.

In 1997, the legislature approved the transfer of the Office of Degree Authorization (ODA) from the Office of Educational Policy and Planning to the State Scholarship Commission. This Office is charged by statute "to provide for the protection of the citizens of Oregon and their post-secondary schools by ensuring the quality of higher education and preserving the integrity of an academic degree as a public credential." To this end, ODA enforces certain regulations related to postsecondary education. The purpose of these ODA regulations is to protect consumers from diploma mills and other forms of diploma fraud, and to protect taxpayers by preventing detrimental duplication of publicly funded postsecondary programs. ODA's primary responsibility relating to private institutions is to review their degree programs for academic soundness. ODA's primary responsibility relating to public institutions is to ensure that their programs do not waste taxpayer funds by duplicating programs that already exist and are sufficient to meet the public's needs.

ODA also maintains information on postsecondary education in Oregon, including data on enrollments, graduations, finances, staffing, and program descriptions on all public and private degree-granting institutions in Oregon. The program directly regulates approximately 135 institutions in connection with educational program reviews, including 110 private institutions in connection with degree authorizations and related functions, and 25 public institutions with respect to detrimental duplication issues. The program conducts approximately 24 degree authorizations in a biennium, and also responds to inquiries and complaints about substandard and fraudulent educational practices.

ODA charges fees for reviewing private institutions' proposed degrees. These fees are received as Other Funds, and are projected to total $99,000 in the 1999-01 biennium. This level of fee collections shows essentially no change from the prior biennium. ODA reports that approximately 50 percent of its activities are related to the fee-generating degree authorization function. The rest of its activities are in functions that do not generate fee revenue.

The Governor's budget essentially operated ODA at the current service level, but reduced General Fund support from 72 percent to approximately 50 percent of the ODA budget. This is based on an analysis of the Office's workload showing that 50 percent of its resources are used in the degree authorization function, which is the function that generates Other Funds fees.

The Governor's budget shifted $90,000 from General Fund to Other Funds financing. Approximately $167,000 of expenses were to be met with Other Funds. ODA should be able to operate at this reduced General Fund funding level for one biennium without reducing services. Given current fee structures and office activity, only $99,000 of Other Funds revenue was anticipated, so the Commission would need to apply the ODA's Other Funds beginning balance to allow this to happen. This budget would reduce the balance in the ODA Other Funds account to under $10,000. After the 1999-01 biennium, therefore, the agency would need additional General Fund support or would have to increase its fee revenue.

The legislature added $10,037 of General Fund to the level in the Governor's budget to cover unanticipated costs associated with the resignation of the ODA Administrator during the 1997-99 biennium. These costs included payoff of accrued benefits, and professional service contracts to clear a backlog of program reviews. These additional funds are to cover one-time expenses and will not be included in the Office's base budget for 2001-03.

The Teacher Standards and Practices Commission (TSPC), composed of 17 members who are appointed by the Governor and confirmed by the Senate, has three primary areas of responsibility:

• Establish rules for licensure and issue licenses to teachers, administrators, school nurses, and other education personnel;
• Maintain professional standards of competent and ethical performance and proper assignment of licensed educators; and
• Adopt standards for approval of college and university teacher education programs and approve programs that meet such standards.

There are approximately 70,000 educators in Oregon holding current licenses. All new applicants for licenses, as well as all former licensees who allow their licenses to lapse for more than three years, are required to pass a criminal history and fingerprint check. In 1995, TSPC was directed to do a one-time check of the criminal history records of each educator who renews a license. This requirement sunsets January 1, 2000.

The TSPC's responsibility to ensure that students are taught by competent and ethical teachers is entirely supported by fees paid by the regulated professionals. In-state applicants or renewals are charged $60 and out-of-state applicants or renewals are charged $75. Legislation passed by the 1997 Legislative Assembly established additional fees: House Bill 2938 created an expedited licensing process with a two-day turnaround time at a fee of up to $100 per license, and House Bill 2115 created a beginning teacher assessment fee of up to $800 as well as an alternative assessment fee of up to $200. These fees were administratively established by TSPC during the 1997-99 biennium as follows: $100 for an expedited license, $100 for an alternative assessment, and $400 for a beginning teacher assessment. House Bill 5052 passed by the 1999 Legislature and signed by the Governor provides approval of these fee levels for the 1999-01 biennium.

Agency revenues for 1999-01 are projected to be approximately 23 percent lower than 1997-99 estimated revenues, primarily from a reduction in fingerprinting fees due to the sunset provision of criminal history checks for renewed licenses. No fee increases are required to support the 1999-01 budget but during the 1999 session the agency sought legislation to increase fee limits to establish a balanced budget for 2001-03. House Bill 2095, passed by the 1999 Legislature and signed by the Governor, increases the limit on fees charged for in-state applicants or renewals from $60 to $100 and for late applications from $15 to $25 per month, not to exceed $125. This legislation takes effect July 1, 2001.

Population growth, early retirements and new teacher education programs are expected to contribute to a stable volume of new licensures, estimated to be approximately 31,500 in 1999-01. The surge in retirements of "baby-boomer" teachers is not expected to start occurring until the 2001-03 biennium.

A continued increase in the number and complexity of discipline cases and investigations is forecast for 1999-01. This increase is due in part to a greater propensity by parents to file complaints over disputes with educators and school districts as well as a greater public awareness to child abuse issues. This increase is also a result of TSPC checking all criminal history records through Oregon State Police and FBI fingerprints.

Senate Bill 124, passed by the 1997 Legislative Assembly, authorizes TSPC to establish a new licensure system, including continuing education requirements, to complement Oregon's Educational Act for the 21^st Century. The new system became operational in January 1999.

The Governor's recommended budget was a 16.7 percent decrease from the 1997-99 legislatively approved budget and 1997-99 estimated expenditures. The budget included:

• a phase-out of $835,307 for criminal background checks on license renewals;
• an increase of $72,963 for position reclassifications and temporary services to address implementation of the new licensure system, the phase-out of criminal background checks on license renewals, and other workload issues; and
• an increase of $37,075 to complete a computer migration approved by the Emergency Board in November 1998.

The legislature increased the Governor's recommended budget by $49,442 to a total of $3 million Other Funds. It reduced the budget by $2,605 to reflect the phase-in of two staff reclassifications; added $2,047 for a net increase in assessments from the Secretary of State's Audits Division, the Department of Administrative Services, and the Employment Relations Board; and added $50,000 for the computer migration to reflect shifting of these costs from 1997-99 to 1999-01.