HUMAN RESOURCES

The Commission for the Blind (OCB) is a vocational rehabilitation agency that serves persons who are disabled because of visual impairment or blindness. The Commission shares a federal funding source with the Vocational Rehabilitation Division (VRD) of the Department of Human Services (DHS) which serves persons who are disabled for reasons other than visual impairment. The seven-person Commission that is responsible for administering the following programs:

• Rehabilitation Services is the Commission program with the most expenditures and number of clients served. It provides the same services under the same rules and from the same funding sources to blind persons as the VRD provides to persons with other disabilities. Vocational rehabilitation services are available to persons who are assessed by rehabilitation counselors to be employable if additional training and/or education is provided. Services include vocational rehabilitation, supported employment, and independent living services. The program may also fund homemaker training for persons who are not otherwise available for employment. Depending upon the counselor's evaluation and the client's vocational goals, the agency purchases training and assistive technology that will enhance the client's job skills. This training on occasion can include a college education. The Rehabilitation Services program also includes the Older Blind Program that provides independent living skills training to persons 55 or older.
• The Business Enterprise program through the federal Randolph-Shepherd Vending Stand Act helps train visually impaired persons to operate small businesses. Traditionally these businesses have been food service and vending machine operations located in federal, state, and other government buildings as well as in private companies. Because the number of trainees and potential food service and vending business sites have been decreasing, the agency is restructuring the program to assist clients with a broader spectrum of self-employment opportunities.
• The Orientation and Career Center provides counseling and training for persons with recent or prospective loss of sight. It primarily serves persons who became blind during adulthood, is located in Portland, and provides some client housing accommodations. Agency staff teach clients independent living skills, the use of Braille, and vocational skills.
• Industries for the Blind is a program operated in conjunction with the Multnomah County Mental Health Department. The program includes a work activity center and a vocational program specializing in serving clients who are both developmentally disabled and blind. Clients work in sheltered employment or community-based supported employment programs.
• Administrative Services includes the Director's staff, as well as accounting, budgeting and human resource personnel.

The Commission shares the federal Rehabilitation Act BASIC 110 funding with the VRD. These federal funds have a generous match rate of approximately $4 federal funds for every $1 of state or local match. The Commission receives 12.5 percent of the Oregon allocation; the Vocational Rehabilitation Division (VRD) receives the rest. A budget note in the VRD's 1997-99 budget bill directed the Department of Administrative Services to study the current allocation of federal "110" funding and make a recommendation concerning an appropriate allocation method. The study, presented to the Emergency Board at its June 1998 and September 1998 meetings, concluded that any allocation method would be based on arbitrary criteria-that no allocation method could be objective.

In addition to federal Rehabilitation Act Section 110 funding, the agency receives Rehabilitation Act funding for Independent Living, Part B and Older Blind; Training, and Supported Employment. Other federal funding comes from the Randolph-Sheppard Vending Stand Act, and Social Security Act funds to reimburse the agency for costs to provide services to persons receiving Social Security Disability Income (SSDI) or Supplemental Security Income (SSI) who are competitively employed for nine consecutive months. Other Funds revenue comes from Oregon Industries for the Blind sales, cooperative agreements with school districts and interagency agreements.

Historically, the Commission has relied on identifying community in-kind revenues at non-profit rehabilitation providers such as St. Vincent DePaul and Goodwill to provide some of the required state or local match. Since 1991, General Fund has comprised between ten and twelve percent of the agency's total budget.

As Oregon's population increases and the number of older Oregonians grows, caseloads have steadily increased. Since 1993, caseloads have increased 36 percent. For the first time in its history, the Commission implemented an order of selection in l995-97 because of the lack of financial resources to serve all eligible clients in the state. Under this plan, OCB must serve those with the most severe disabilities first.

The Commission lost some of its federal funding for services to the older blind (age 55 and higher) mid-way through the 1995-97 biennium when a three-year federal special projects grant ended. Since then, the Commission has explored other grant opportunities but has not found replacement funding.

The increased use of computers in the job market as well as significant advances in technology that can help a visually impaired person has in turn increased the demand for service from the OCB's Technology Center for computer training and equipment to enter employment. Expenditures for OCB's Technology Center are in the Orientation and Career Center for the Blind (OCCB) budget. Currently, there is a six-month waiting list for services from the OCCB.

The Governor's recommended budget was 3.9 percent higher than the estimated expenditure level for the 1997-99 biennium. Most of the increase was the result of including 1997-99 biennial salary increases, as well as the estimated cost of 1999-01 merit increases. Inflationary costs in goods and services of about $182,000 were offset by a reduction in state government service charge assessments. The Governor's budget funded some technology center enhancements ($81,000) by reducing General Fund and Federal Fund services and supplies expenditures within the agency and adding $25,215 of General Fund to the budget.

While the Governor's budget fully matched estimated federal revenue, it did not change the ratio of federal funding between the Vocational Rehabilitation Division of the Department of Human Services and the Commission for the Blind discussed above.

The legislatively adopted budget contains four changes to the Governor's recommended budget. First, the budget includes a reduction of $87,195 Other Funds and a like increase of Federal Funds. This change reflects the proper categorization of Social Security Act reimbursement funds as Federal Funds rather than Other Funds. Second, $71,274 of Other Funds is added to include donation and bequest investment income. Prior to this budget, bequest and donation fund balances and income were not included in legislatively adopted budgets. The Commission distributed these funds for costs related to the agency's mission without legislative oversight. Half of the additional $71,274 is to be spent on the Older Blind program. The other half is to be used to match any federal reallotment or uncommitted Rehabilitation Act (Section 110) funds and the agency is to present a plan to the Emergency Board on how it will use these funds. The Department of Human Services offered to assist the Commission with the reallotment process. The third change reduces General Fund by $25,215 that was in a technology center enhancement package. These funds were not used in the Governor's budget to match Federal Funds. Fourth, the budget was increased by $6,389 General Fund, $1,208 Other Funds, and $28,043 Federal Funds to reflect changes in the Department of Administrative Services, Secretary of State Audits Division, and Employment Relations Board charges. The budget includes an $8,849 Emergency Fund reservation to provide contingency funding if the estimation of bequest and donation income proves to be too high.

The agency's budget report includes a budget note that recommends the Joint Legislative Audit Committee conduct an audit of the Commission for the Blind. The audit would review the sources and uses of funds, the coordination of services with the Department of Human Services and other state and private agencies, and other issues the Committee believes are appropriate to pursue.

The State Commission on Children and Families works in collaboration with other state agencies and with local commissions on children and families in every county. The State Commission sets statewide guideline for local commissions' planning, coordinating and delivering services to children and families under local coordinated comprehensive plans. It also advocates for funding and improvements in the service delivery system for children and families as identified in the local plans. With passage of Senate Bill 555, the State Commission will have 16 members: 12 appointed by the Governor, the Director of the Department of Human Resources and the Superintendent of Public Instruction, one nonvoting, advisory member from the Senate and another nonvoting, advisory member from the House of Representatives. State Commission staff provide technical assistance to local commissions and support for the State Commission.

General Fund supports more than 70 percent of the Commission's budget. Other Funds and a small amount of Federal Funds make up the remainder.

Most of the Other Funds revenue is federal money that comes to the Commission from other state agencies.

• The State Office for Services to Children and Families will transfer $8.2 million in Title XX Social Services Block Grant and $2.4 million in Title IV-B (2) Family Support and Preservation Grant revenue to the Commission. This is about 36 percent less than the Commission will receive in 1997-99. The Title XX supports programs for youths aged 11-18 (formerly called Level 7 youth), relief nurseries in Lane and Multnomah counties, and a staff position.
• The Employment Department will transfer $3.4 million in Child Care and Development Block Grant (CCDBG) revenue that is used by local commissions to expand access to quality child care.
• The Commission also receives Medicaid (Title XIX) funding from the Department of Human Resources Office of the Director for qualified services in local Healthy Start programs. About $1.8 million is expected to be received for the existing programs. Added state funding will generate about $1.55 million more Medicaid funds in 1999-01.

The Oregon Youth Conservation Corps (OYCC) is supported with Other Funds from an amusement device tax and funds transferred from the Marine Board. The Children's Ombudsperson receives Other Funds from a $1 assessment on birth certificates, and adoption and divorce filing fees. Federal Funds come primarily from the federal Office of Juvenile Justice and Delinquency Prevention (OJJDP), to support the Juvenile Justice Advisory Commission and local programs to improve services for juveniles. The OYCC Other Funds and most of the OJJDP Federal Funds are transferred in 1999-01 to other agencies that will administer those programs. The Commission also gets Federal Funds from specific program grants.

The Commission system began operations in 1994 with the passage of House Bill 2004. Funding for the Commission's general prevention efforts has not kept pace with inflation and population growth since that time. The reason is that funding for preventive activities must compete with the pressing need for treatment funding, such as child protective services and juvenile corrections costs. The 1999 legislatively adopted budget does significantly expand funding for Healthy Start, relief nurseries, family resource centers, Court Appointed Special Advocates (CASAs) and violence prevention programs.

The Commission's funding to counties supports a number of programs and cooperative efforts, but the Commission does not deliver services directly. Although the Commission requires performance measures in all contracts, it is difficult to show cost savings from prevention expenditures within the short-term period of a budget cycle or identify savings that are a direct result of specific Commission actions. Senate Bill 555 requires additional focus on setting and measuring outcomes.

The Governor's recommended budget was a 5.5 percent increase overall from the 1997-99 level. General Fund support increased 29.1 percent. The large General Fund increase included new funding for home visitation programs, inflation on

existing grant streams, and replacement for declining federal funds. The total budget growth was much smaller because the OYCC, Children's Ombudsperson, and federal Juvenile Justice and Delinquency Prevention programs were transferred to other agencies.

The legislative budget, including a $528,848 special purpose appropriation to the Emergency Board, is over 12 percent higher than the Governor's budget, and almost 19 percent more than estimated 1997-99 expenditures. It continues funding for the state and local commissions, with $5.5 million General Fund to expand the Healthy Start program, $5.2 million for early childhood programs and local planning requirements set out in Senate Bill 555, and additional Federal Funds expenditure limitation for continuing program grants. The budget retains responsibility for the Children's Ombudsman program in the Commission, although the Department of Human Services operates this under a continuing interagency agreement. The legislature approved the transfers of the Oregon Youth Conservation Corps and federal Juvenile Justice and Delinquency Prevention programs from the Commission to other agencies. It also established a $528,848 special purpose appropriation to the Emergency Board for uncertain federal funding levels.

This program includes funding that goes to local commissions on children and families, and the state agency staff that provide financial and technical assistance to support local program efforts. The local commissions help develop and implement local comprehensive plans for children and families. They coordinate efforts among agencies to improve service delivery systems and monitor work performed by the service providers. The local commissions' plans and work are subject to review and agreement by the local boards of county commissioners. Neither the state nor the local commissions provide direct services. Local commissions distribute the state funding to local service providers. The providers work on contract for the local commission.

The budget added $5.5 million General Fund and $1.55 million Other Funds for home visitation programs. The Commission's Healthy Start funds now support programs in 12 Oregon counties; three other counties use federal moneys for this purpose. Other programs with a different mix of services are in place in some parts of the state. Counties were to apply for the new funding and describe in a program plan how it was to be used. The number of additional counties adding home visitation programs as a result depended on which counties applied and what they proposed to do with the funds.

Most other grant streams continued at the 1997-99 level plus 3.7 percent inflation. These include Great Start, Juvenile Services, Student Retention Initiative, Juvenile Court Services, Court Appointed Special Advocates, Child Care and Development funds, and local staffing grants. The Governor's budget also used $5.2 million General Fund to backfill for cuts in federal Social Services Block Grant and Family Support and Preservation funds. This does not increase the total amount of program funds available to counties, but does increase the General Fund share. The budget did not continue one-time funding approved in 1997 for three family resource centers.

The budget moved the Oregon Youth Conservation Corps (OYCC) to the Office of Community College Services (OCCS), and the Children's Ombudsperson program to the Department of Human Services Office of the Director. This aligned these agencies' budgets to reflect program shifts made in 1997-99 through interagency agreements. The Governor's budget overstated the amount of General Fund included in the OYCC program transfer by $1,065,000. A technical correction was needed to increase the Commission's budget, and decrease the OCCS budget, by that amount.

The budget also moved the federal Juvenile Justice and Delinquency Prevention program to the Criminal Justice Commission, to tie this more closely to the Governor's juvenile crime prevention initiative. The OYCC program transfer and this transfer leaves the Commission with a greater focus on younger children, and fewer resources for older youth.

The legislature added a total $5.2 million General Fund above the Governor's budget for children and families programs. Of this total, $5.0 million is directed to this program unit for relief nurseries, family resource centers, Court Appointed Special Advocates (CASA's) and First Step Violence prevention programs, and county support for the broadened planning requirements of Senate Bill 555. The budget also includes the Governor's $5.5 million General Fund package to expand home visitation programs, directed to enhance the existing Healthy Start programs in 12 counties and add 6 new programs.

The legislature moved the federal Juvenile Justice and Delinquency Prevention program transfer to the Criminal Justice Commission. The existing positions that supported this effort in the Commission and Children and Families are kept in this agency, to be redirected to support Senate Bill 555's expanded activities and programs. It also approved the OYCC program transfer and made the $1.1 million General Fund technical correction in this budget. The budget also adds $570,000 Federal Funds expenditure limitation and one limited-duration position to continue the Marion/Polk relief nursery Replication Grant, a Positive Youth Development grant, and the National CASA Grant.

A $528,848 appropriation to the Emergency Board was made to offset uncertain federal Social Services Block Grant revenues. If the revenues are higher than expected when the Governor's budget was built, SCCF will return to the Emergency Board for additional expenditure limitation; if revenues are not higher, SCCF will ask for the Emergency Board appropriation to maintain program levels. The $528,848 is included here in the General Fund budget for presentation purposes.

The State Commission is responsible for statewide planning, outcomes setting and policy development for services provided through the local commissions. This section provides administration and support services, which includes communication, planning and policy management, program monitoring, staff support to the State Commission, fiscal control and information systems management.

The Governor's budget continued all current activities. The Commission had identified a need for additional work to make local commission computers Year 2000 compliant. The work was to be funded within existing resources.

One vacant position was eliminated and funding for Professional Services was reduced for $131,653 General Fund savings. Reductions were also made for lower state government services charges. To help meet the planning and coordination requirements of Senate Bill 555, $238,386 General Fund was added for state support costs. The Commission will use this funding and existing position authority to carry out its expanded responsibilities under that bill.

LFO Analyst: Baker

The mission of the Board of Trustees of the Children's Trust Fund of Oregon (CTFO) is to prevent and reduce child abuse and neglect. It makes grants to community programs to provide prevention services to high-risk families. CTFO also is responsible for evaluating those services. CTFO was established in 1985; it became a separate agency in 1995.

CTFO is supported with Other Funds. It has two separate funds:

• The Children's Trust Fund receives revenues from private fundraising efforts, Oregon income tax check-off receipts and heirloom birth certificate sales. The Trust Fund is used for grants for primary abuse or neglect prevention activities. None of the Trust Fund is used for administrative expenses.
• The Children's Trust Endowment Fund is designed to serve as a long-term, stable source of child abuse program funding. It receives 2.06 percent of the total amount of court-imposed fines through the Criminal Fine and Assessment Account (CFAA). The CTFO uses part of these moneys to pay its administrative costs. The remainder will accumulate in the Endowment Fund until the principal reaches $5 million. At that time, 80 percent of the investment income will be available for funding programs. As of July 1998, the fund had about a $2 million balance. It is expected to reach the $5 million target in the 2001-03 biennium.

In 1998, the State Boxing and Wrestling Commission transferred $75,000 to the Trust Fund. The Commission is required by statute to transfer to the CTFO 75 percent of the boxing and wrestling gross receipts tax, after Commission administrative expenses are deducted. This was the first time the Commission has had a surplus to transfer. The CTFO does not expect any transfers during the 1999-01 biennium.

Overall, projected revenues are higher than in the past. This is from a combination of higher interest earnings, increased fund-raising efforts, and a fee increase. The agency's ending balance at the end of the 1999-01 biennium is expected to be about $1.4 million higher than in 1997-99, as the Endowment Fund principal continues to grow.

Total resources available to the CTFO are growing, primarily due to greater interest earnings on the larger Endowment Fund balance. Existing fund raising sources are relatively stable. To expand available grant moneys, the CTFO will seek new sources in the business and corporate sector. Also, the CTFO raised the fee for the heirloom birth certificates from $28 to $40 in December 1997. Higher costs to produce the certificates meant little money was left over for grants. The 1999 Legislature approved House Bill 5009 to continue the higher fee level in 1999-01.

The Governor's recommended budget was 15.6 percent higher than the 1997-99 estimated expenditures, and included additional resources for program grants and fund raising. The CTFO plans to use $35,000 received from the State Boxing and Wrestling Commission in 1998 for prevention program grants. The CTFO received Emergency Board approval in June 1998 to spend a similar amount for 1997-99. The budget also added $56,953 Other Funds expenditure limitation for a 0.50 FTE Development Officer position. This position is to focus on business and corporate fund raising. Increased business and corporate donations are expected to cover the cost of the additional staff and allow the CTFO to increase the amount available for grants.

The legislature approved the Governor's recommended budget for the agency, adjusting it for revised Department of Administrative Services charges, Employment Relations Board assessments and Secretary of State audit charges. Criminal Fines and Assessment Account revenues were reduced slightly to match current projections.

Senate Bill 1127 makes the agency a semi-independent state agency 60 days after that Act's passage, and moves it to private nonprofit corporation status effective July 1, 2001.

LFO Analyst: Britton

The Commission provides advocacy activities on behalf of disabled persons and administers three main programs: the federally funded Client Assistance Program (CAP), the Technology Access for Life Needs (TALN) program supported by a federal grant, and the Deaf and Hearing Impaired Access Program (DHIAP) that coordinates sign language interpreter services for state agencies. The Commission also acts as the state's coordinating agency for compliance with the federal Americans with Disabilities Act (ADA). The Commission is comprised of 15 members appointed by the Governor. Current activities are supported by 8.5 FTE, including an Executive Director.

The CAP provides referral, counseling, and ombudsman services to clients of independent living centers and persons who have applied for services through the Vocational Rehabilitation Division and the Commission for the Blind.

The TALN program offers information and demonstrations on assistive technology to persons with disabilities, their employers and representatives of agencies and programs that serve them.

The CAP is entirely federally funded through the U.S. Department of Education's Rehabilitation Services Administration. Oregon has been designated as a "minimum allotment state" based on its population. Minimum allotment states receive at least $111,574 per federal fiscal year. The Commission can request additional funds from the U.S. Department of Education when re-allotments of funds unspent by other states are made. Although the agency has repeatedly requested additional funds from the U.S. Department of Education, there have never been additional funds available.

The TALN program is federally funded from the National Institute on Disability and Rehabilitation Research of the U. S. Department of Education. The Commission was granted funds of $2.8 million for a five-year period (1995-2000). Although the Commission expected TALN funds to end March 31, 1999, recent congressional action extended funding for another five years. Both the CAP and TALN funding are free from any state matching requirements.

The DHIAP is funded by Other Funds from interagency agreements to provide hearing impaired translator services, sign language interpreter coordination, dispatching, training, and technical assistance. Contract agencies include the Department of Human Resources, the Employment Department, the Department of Transportation, and the Judicial Department. General Fund support is provided for administration and Commission expenses, general advocacy activities, and coordination of ADA implementation.

The requirements of the Americans with Disabilities Act continue to generate greater demands for services and access. Additionally, according to the Commission, in recent years the number of CAP cases has continued to increase but federal funding for the program has not kept pace. In addition, the recent federal Workforce Investment Act, which reauthorized the 1973 Rehabilitation Act, requires the Vocational Rehabilitation Division and the Commission for the Blind to place greater emphasis on consumer involvement in developing rehabilitation plans. How this may effect the CAP caseload is unknown, but it may cause an increase in the number of clients seeking assistance from the CAP program.

As noted above, federal funding for the TALN program, while continuing, is decreasing from about $1.1 million during the 1997-99 biennium to $630,000 during the 1999-01 biennium. The Commission intends to seek other sources of funds, such as donations, grants, and proceeds form Commission-sponsored conferences and workshops, to meet its statutory responsibilities and enhance its programs.

The Governor's recommended budget was 18 percent higher than the estimated expenditure level for the 1997-99 biennium. The current service level is significantly lower than the estimated expenditure level for the 1997-99 biennium

because in building its budget, the agency assumed that the federal TALN grant would not continue. Thus, the TALN program is not included in the current service level. The Governor's budget funded the current service level and added $995,866 to finance the following four policy packages:

• Federal TALN grant continuation ($630,000 Federal Funds).
• Travel reimbursement for Commission designees to provide assistance to localities in resolving building code waiver requests that relate to accessibility for persons with disabilities ($19,652 General Fund).
• Youth Leadership Forum for high school juniors and seniors with disabilities scheduled for summer 1999; the package would allow the Commission to accept and expend donated funds for the conference ($120,000 Other Funds).
• American's with Disabilities Act (ADA) coordinator, staff assistant, and related expenses; the agency wants to market its expertise on ADA to other state government agencies. The Governor's budget provides position authority and expenditure limitation, but funding would be contingent on responses to the agency's marketing efforts ($226,214 Other Funds).

The legislatively adopted budget of $2.4 million makes three modifications to the Governor's recommended budget. First, it makes a shift of $48,924 from personal services to services and supplies to address increasing costs for reasonable accommodation for Commission meetings. To fund the shift, one vacant interpreter position is eliminated. Second, the budget, while including the ADA coordinator package discussed above, reduces the package by $31,245 - reflecting the elimination of one Office Specialist position (0.5 FTE). In addition, the Department of Administrative Services agreed to unschedule the remaining portion ($194,969) of the ADA coordinator package until the Commission is able to secure contracts with other state agencies for this technical assistance. Third, the budget is reduced by $2,058 to reflect changes in Department of Administrative Services, Secretary of State Audits Division and Employment Relations Board charges.

LFO Analyst: Britton

The Adult and Family Services Division (AFS) provides temporary financial assistance to families with children to assist them in meeting basic needs. In addition, the Division offers training and subsidized childcare to help these families progress toward employment and self-sufficiency. Staff located in 57 branch offices (15 districts) determines eligibility for a variety of programs and provides case management services. The Division also administers the federal Food Stamp program, the Refugee Resettlement Program, the Motor Vehicle Accident Fund, and the Law Enforcement Medical Liability Account, and receives federal funding for the Child Support Enforcement Program functions that were transferred from AFS to the Department of Justice.

Federal welfare reform was initiated with the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). This act repealed the Aid to Families with Dependent Children (AFDC) program and combined its funding stream with several childcare and training programs into the Temporary Assistance for Needy Families (TANF) block grant program. More importantly, the Act refocused public assistance efforts on employment and self-sufficiency and required client participation as a condition for receiving benefits. Oregon's welfare reform actually began earlier than federal reform, but was similar in its emphasis upon self-sufficiency and independence. As a result, the Division has moved from simply determining eligibility and distributing cash benefits to working intensively with clients to help them find and maintain employment and work toward self-sufficiency.

On July 1, l996, Oregon implemented the state's version of welfare reform. Under the Oregon Option, there are fewer exemptions from requirements to participate in employment and training activities and greater penalties for non-cooperation. If necessary, recipients are required to participate in alcohol/drug abuse or mental health treatment programs. Minor parents are required to live with their parents or in another safe, approved living situation. The JOBS Plus program (described under Employment & Training) was expanded statewide. Client resource limits and Medicaid eligibility were increased, and benefits were limited to 24 months. Subsequent federal welfare reform allows the state to continue operating under the Oregon Option until the year 2003.

Because caseloads were significantly higher in 1994 than they are today, the state has been able to "save" TANF funds to use for program enhancements, to offset substantial General Fund expenditures, and as insurance against possible caseload increases. TANF cash assistance caseloads decreased from 41,173 cases in July 1994 to 18,214 cases in July 1998. Although Oregon is a national leader in caseload reduction, it is not alone in its ability to reduce spending on welfare cash assistance. Because many states have accumulated TANF savings that are typically "carried over" from a prior budget period to the next, Congress has considered reducing the overall TANF budget. Thus, TANF funding that was to remain constant through federal fiscal year 2002 may be decreased. If this happens, additional state funding may be required to sustain existing programs.

To receive TANF funds, the state must meet maintenance of effort requirements. Non-federal support must be maintained at 75 percent of the state contribution in the base year (1994-95). Thus, state support, either from the General Fund or other state resources, must equal at least $183.6 million per biennium. The table above shows the addition during the 1997-99 biennium of Food Stamp benefits (Nonlimited funds) that were previously not included in the state budget.

The Governor's budget was about one percent lower than the estimated expenditures for the 1997-99 biennium. However, it included an error that understated federal funding by about $27.1 million. When the error is reversed, the budget is about one percent higher than the 1997-99 estimate. The budget reflected an increased daycare caseload and decreased cash assistance caseload and the related staffing impact as well as an increase in staff from changes in the Oregon Health Plan caseload and policy.

Federal law requires states to spend a minimum level of state funds to receive the TANF block grant. This minimum level is called maintenance of effort. The Governor's budget allowed the Division to meet its maintenance of effort requirement. However, in the past the agency's budget included enough state resources above the maintenance of effort to fund unexpected program or revenue changes. For example, during the 1997-99 biennium, the federal government awarded states Welfare to Work grants that required state match. AFS was able to provide state match by using state resources above its TANF maintenance of effort. Because AFS would have been funded at its maintenance of effort level with little or no excess state resources, the agency may have had difficulty if additional federal funds requiring additional state match were made available. The problem is mitigated somewhat by allowing the Department of Human Services (DHS) to periodically rebalance its budget and to shift General Fund within divisions as necessitated by program or revenue changes.

The Governor's budget left about $3.8 million TANF "savings" in reserve as insurance against higher than expected caseloads or to fund program enhancements such as daycare co-payment reductions. This amount is significantly less than the savings that were available throughout the 1997-99 biennium.

The total AFS legislatively adopted budget is $13.1 million higher than the Governor's budget, but includes an additional $27.1 million to correct a budget system error mentioned above. Excluding this correction, the adopted budget would be $14.0 million or about one percent lower than the Governor's budget. The primary reason for this is a significant reduction in the estimated caseload for the Employment Related Day Care (ERDC) program. The lower amount is estimated to result in federal fund savings of $17.2 million during the 1999-01 biennium and $8.9 million during the 1997-99 biennium. The adopted budget includes $51.6 million Other Funds, an increase of about $5.8 million or 13 percent higher than the Governor's budget. This increase is primarily the result of a higher caseload estimate of the JOBS Plus program-mainly funded with funds from the Employment Department's JOBS Plus diversion fund.

The adopted budget made three other notable changes to the Governor's budget. First, the budget removes $4.0 million General Fund that was used in the Governor's budget to accommodate inflation for training programs. Of this amount, $2.0 million was used to provide additional funds for alcohol and drug abuse prevention and rehabilitation in the DHS Director's Office. The other $2.0 million was used for other state budgetary purposes. Second, the Governor's budget was reduced by $4.9 million Federal Funds that had been used to provide an increase in the Cash Assistance grant and Emergency Assistance caseload in the Governor's budget. Along with the Day Care caseload savings mentioned above, this $4.9 million of Federal Funds was used to replace General Fund in the State Office for Services to Children and Families. The third change replaces $7.3 million Federal Funds with General Fund to accommodate federal changes in the methods states may use to calculate the federal share of Food Stamp administrative costs.

The adopted budget reduces the Division's share of the state maintenance of effort funds. AFS, the State Office for Services to Children and Families, the Employment Department, and the Department of Education have state expenditures that, together, meet this requirement. The adopted budget reduces the AFS share of the requirement by $2.1 million, but overall, the state budget meets the TANF maintenance of effort requirement.

This program, formerly referred to as Aid to Dependent Children (ADC), provides cash assistance, which, when coupled with food stamps, is structured to supply minimal support for families with children under the age of 19 that meet eligibility criteria. Alone, the current maximum cash assistance grant of $460 for a three-person family is approximately 43 percent of the Federal Poverty Level (FPL). In combination with Food Stamps, families receive about 72 percent of FPL. As the household income from other sources increases, the size of the Cash Assistance grant is reduced.

Prior to the passage of federal welfare reform, Federal Funds supported approximately 61 percent of cash assistance costs as an entitlement under Title IV-A of the Social Security Act (Aid to Families with Dependent Children). With the passage of federal welfare reform, effective October 1, 1996, the ADC entitlement was eliminated and replaced with a block grant called Temporary Assistance for Needy Families (TANF). The block grant amount is based on 1994 revenue and caseload levels. TANF funding will, baring a change in federal policy, remain constant for six years beginning with federal fiscal year 1997 (October 1, 1996 - September 30, 1997).

The source of Other Funds revenue within the Governor's budget is child support recoveries. According to the agency and the Department of Administrative Services, this inclusion of child support recovery revenue is an error that will need to be corrected during the legislative session. In the past, additional Other Funds revenue came from collections of benefit overpayments or payments made to fraudulent clients.

As mentioned above, the number of families receiving cash assistance has declined dramatically since 1994 and is expected to continue to decline through the 1999-01 biennium. The reduction can be attributed to a combination of factors including the state's healthy economy, AFS efforts to place clients in jobs, improved childcare programs, and the opportunity to receive medical coverage under the Oregon Health Plan without being on cash assistance. As cash assistance caseloads have declined, there has been a corresponding increase in the caseloads of employment and day care programs.

Although child support collections have increased overall, collections available to offset AFS cash assistance costs have gone down. As welfare caseloads decrease, there is a corresponding reduction in the number of absent parents from which to collect related support payments.

The Governor's budget was $12.7 million below the 1997-99 estimated expenditure level. However, the budget included an error that was corrected during the legislative session. The error understated federal funding of the program by about $4.0 million. The budget decrease was the result of a projection of continued cash assistance caseload reductions. Average monthly caseload is expected to decrease from 18,649 during the 1997-99 biennium to 16,092 during the 1999-01 beinnium. The Governor's budget included funding of about $4.6 million for a cost of living adjustment to the cash assistance grant. This increase, the first since 1991, would change the average grant for a family of three from about $460 to $477/month. The budget phased out $900,000 included in the current biennial budget for Oregon's food banks. The cash assistance budget included funding for child support auditors-this was an error that was corrected during the legislative session by moving federal funding to the Division's administrative budget.

The legislatively adopted budget is $2.4 million total funds or 1.5 percent lower than the Governor's budget and is the result of three changes. First, the budget corrects a budget system error in the Governor's budget. The correction lowers Other Funds by $300,000 and increases Federal Funds by $4.0 million. Second, the agency's lower cost per case forecast reduces the budget by $1.6 million. Finally, the legislature removed $4.6 million Federal Funds that were used in the Governor's budget to provide an inflationary increase to the cash assistance grant. These Federal Funds were, instead, used to replace General Fund in the State Office for Services to Children and Families.

The Emergency Assistance program provides help for families with children under age 18 who have no other financial resources and find themselves in an emergency situation caused by circumstances beyond their control. The purpose of the program is to prevent households from becoming dependent on more expensive long-term public assistance. The most common emergency involves shelter costs. Other uses include medical costs, food purchases, moving costs, and the payment of property taxes to avoid foreclosure and homelessness. Assistance is available for only one month in any 12-month period. The maximum payment is $350 except in cases involving domestic violence, where the maximum is $1,200, or to stabilize chronic housing problems through Community Action Agencies, where the maximum is $7,200. So far, the average expenditure during 1997-99 has been $270 per case.

Prior to federal welfare reform, Emergency Assistance was an optional federal program. State expenditures, including those from the Housing and Community Services Department for assistance to the homeless, were matched with federal dollars on a 50-50 basis. With the passage of federal welfare reform, the program is now part of the Temporary Assistance to Needy Families (TANF) block grant.

Expenditures in this program are designed to avoid long-term reliance on public assistance programs. Reductions to the program may result in increased costs for other human resources programs.

The Governor's budget funded the Emergency Assistance program at $11.4 million--an amount necessary to provide the current level of service. This was $1.7 million or 18 percent higher than the estimated expenditures of the 1997-99 biennium. The Governor's budget included funding for inflation ($300,000), caseload growth ($2.1 million) and a technical adjustment which transfers $1.0 million to the Housing and Community Services Department.

The legislatively adopted budget is about $900,000 higher than the Governor's budget, reflecting an increase of $1.2 million of federal TANF funds to accommodate a higher caseload forecast, and a reduction of $300,000 Federal Funds to remove inflation funding. The $300,000 Federal Funds is used, instead, to offset a like amount of General Fund in the State Office for Services to Children and Families.

The Day Care program is designed to encourage continued employment by subsidizing childcare services to cash assistance recipients or persons who are at risk of becoming eligible for assistance. Clients pay a minimum co-payment and the Division subsidizes the remaining cost on a sliding scale that takes into account the clients income and the number of children being cared for.

Under federal welfare reform, Day Care programs are incorporated into the Temporary Assistance for Needy Families Block Grant. The primary sources of Federal Funds for support of Day Care are the Child Care and Development Fund (CCDF) and the Social Services Block Grant (Title XX of the Social Security Act).

The Day Care program has grown dramatically in the last few years and is a major factor in the reduction of cash assistance caseloads. An average of over 12,169 day care cases is projected for the 1997-99 biennium. This is expected to increase 17 percent to over 14,252 cases during the 1999-01 biennium. In addition, the program is expected to serve 249 student parents and their children.

The Governor's budget was about 34 percent higher than the 1997-99 estimate of expenditures. The budget included an error that understated federal funding by about $12.8 million. Including an adjustment for this error, the budget would be about 48 percent higher than the 1997-99 estimate. The Governor's budget included funding for a reduction in the required client co-pay of $13.0 million adopted by the April 1998 Emergency Board. In addition, the budget incorporated caseload growth that is expected to cost $8.9 million, but did not include a cost of living increase in the overall rate paid to daycare providers. Instead, the budget included $5.3 million for "targeted daycare." This funding would be earmarked for providers who have specialized training in early childhood development or for children of parents who work during the night or on weekends when limited childcare is available. The Governor's budget included $1.5 million of General Fund to offset an anticipated reduction in the federal Social Services Block Grant (Title XX of the Social Security Act).

The legislatively adopted budget includes three changes to the Governor's budget that reflect a $5.3 million total funds reduction. The first change is the correction of a budget system error. The correction adds $12.8 million Federal Funds and removes $900,000 General Fund. The second change is the result of a fund shift. After further review, DHS believes the amount of the federal Social Services Block Grant will be higher by about $400,000 than previously expected. This higher amount of Federal Funds can be used to replace a like amount of General Fund. Finally, the budget reduces the Governor's budget by $17.2 million of federal TANF funds because of a lower day care caseload forecast. This $17.2 million, along with another $8.9 million of TANF funds, freed up because of a lower day care caseload during the 1997-99 biennium, has been used to replace General Fund in the State Office for Services to Children and Families.

The Employment and Training program includes the Job Opportunities and Basic Skills (JOBS) and JOBS Plus programs, which became part of the Temporary Assistance for Needy Families Block Grant program under federal welfare reform. The JOBS program provides education, training, and job placement services to welfare clients with the goal of helping them get and keep a job. The program is administered through AFS, but services are delivered through an extensive network of community partners. Services include:

• Basic Education: High School Attendance, English as a Second Language, and Adult Basic Education or GED classes.
• Life Skills: Classes in time management, personal budgeting, and so forth, with an emphasis on enhancing self-esteem to prepare clients for the job market.
• Job Search: Improvement in skills necessary to securing a job, such as interviewing skills or resume preparation.
• Job Skills Training: Classroom training in vocational and technical skills.
• JOBS Plus: A program under the Oregon Option waiver that provides cash assistance clients with on-the-job training, while paying their benefits as wages from the work-site assignment.
• On-the-Job Training (OJT): A program where JOBS participants work for a contracted period of time and the employer is partially compensated for providing the training.
• Self-Initiated Training (SIT): Education or training initiated by the client before they are selected for participation in the JOBS program and that is approved by an AFS staff member.
• Sheltered/Supported Work: Intensive staff support, skill training, intervention and counseling.
• Unemployed Parent Work Program: A program designed for cash assistance clients in two-parent families where the primary wage earner is unemployed.
• Work Experience: Unpaid, short-term work meant to develop good work habits and basic vocational skills.
• Work Supplementation: Up to six-months of work-site training provided by an employer under contract.

Federal Funds for support of employment and training programs are from the TANF Block Grant. In addition, some of the Federal Funds for training comes from the Welfare to Work grant, adopted as part of the 1998 (federal fiscal year) budget. At its November 1997 meeting, the Emergency Board increased the agency's expenditure limitation by $15.5 million so it could use the grant funds after the U.S. Departments of Labor and Health and Human Services approved the state plan. The grant is specifically aimed at hard-to-place clients and is being used in Oregon by the Job Training Partnership Act (JTPA) entities. Some JOBS Plus program funds come from the Employment Department (JOBS Plus Fund created by an Unemployment Insurance (UI) tax diversion) and are used to serve clients eligible for both TANF and UI.

The JOBS and JOBS Plus programs compliment day care programs as ways to reduce cash assistance caseloads. Under the Oregon Option, the JOBS Plus program was expanded statewide in 1996 following a six-county pilot begun in late 1994. As the cash assistance caseload declines, the remaining clients tend to be those that are harder to place and keep in employment. This problem is expected to compound in the future.

The Governor's budget was $18.9 million below the estimated expenditure level for the 1997-99 biennium. However, the budget contained an error that understated federal and total funding by $9.6 million. This was corrected during the 1999 Legislative Session. In addition, the Governor's budget included a reduction in caseload funding of $3.0 milllion which was offset by inflation funding of $4.1 million. The Governor's budget removed one-time expenditures of $2.0 million and $4.0 million for teen pregnancy prevention and locally developed programs, respectively. The budget also included $9.7 million of Welfare to Work funds that were expected to be spent during the 1997-99 biennium. A delay in federal approval for Oregon's Welfare to Work program slowed implementation of the program during the 1997-99 biennium. Like the Cash Assistance and Day Care programs, the Employment and Training program contained daycare funding ($400,000) targeted, for example, at children of parents who work on a swing-shift or at providers who have specialized training.

The legislatively adopted budget is $16.4 million higher than the Governor's budget and results from four main changes. First, the adopted budget includes a budget system correction that adds $9.6 million Fedral Funds. Second, it includes an additional $3.4 million of Welfare to Work Federal Funds that was to have been spent during the 1997-99 biennium. Because of a delay in the federal approval, AFS was not able to expend the funds. Third, the budget acknowledges a higher than expected JOBS Plus program caseload and adds $5.1 million Other Funds from the Employment Department's JOBS Plus fund-moneys that were accumulated from an unemployment insurance tax diversion and $2.1 million federal TANF funds. The final change to the Governor's budget was a reduction of $4.0 million of General Fund that had been added to accommodate higher training costs resulting from inflation. Of this reduction, $2.0 million was used for other state budgetary purposes and $2.0 million was transferred to the Office of Alcohol and Drug Abuse Programs. This latter $2.0 million General Fund must be spent on TANF eligible clients who have substance addictions or problems.

In addition to the programs described above, AFS administers several other public assistance programs.

• The Food Stamp program is a federally funded benefit program to help low-income families, single adults and childless couples buy the food they need to stay healthy. Federal funds pay for 100 percent of benefit costs and 50 percent of the cost of administering the program. Households that meet income and resource standards receive food coupons to buy food in approved stores. In July 1998, about 228,000 people in Oregon received benefits.
• The Refugee Resettlement Program is a federal program that provides cash assistance, medical assistance, case management, and employment-related services for refugees. Federal funds support 100 percent of costs. Benefits are limited to 8 months for cash and medical assistance for refugees who are not eligible for AFS cash assistance through the Temporary Assistance to Needy Families program. Since the program began in 1975, approximately 41,700 refugees have settled in Oregon.
• The Law Enforcement Medical Liability Account (LEMLA) pays for medical services for persons injured by police as a result of law enforcement apprehension. Claims are paid to medical service providers when efforts to recover costs from injured parties or their insurance companies fail. The account is fully funded from assessments added to fines and bail forfeitures.
• The Motor Vehicle Accident Fund (MVAF) pays for the medical expenses of indigent persons involved in motor vehicle accidents. The payments are funded from motor vehicle license fees.

To qualify for food stamps under federal welfare reform law, able-bodied recipients between the ages of 18 and 50 who have no dependents are required to work at least half-time or be involved in a work-related training program. Applicants who do not meet the work requirement are limited to three months of benefits within a three-year period. Welfare reform further narrowed eligibility by rolling back the unlimited use of the excess shelter deduction (staying with a yearly adjusted cap) and eliminating the energy offset for income determination-actions that result in reduced benefits. The cost of administering the program increases for monitoring compliance with job requirements.

During the 1997-99 biennium, the Food Stamp program replaced paper coupons with an electronic benefit transfer system similar to an automatic teller machine card system. Because of this change, federal funds for food stamp benefits were included in the state's budget for the first time. During the 1995-97 biennium only the cost of administering distribution of the coupons was included in the state budget.

The Governor's budget maintained the same funding level in the 1999-01 biennium for the MVAF and LEMA programs of $2.8 million and $1.0 million, respectively, as in the 1997-99 biennium. The Refugee resettlement budget of $11.2 million included increased federal funding for inflation of $300,000. The Food Stamp program included funding for inflation and a caseload reduction for the "Cash-out" program that reduces expenditures by $2.3 million. The Cash-out program allows senior citizens to receive cash instead of using the electronic transfer system. Food stamp benefits in the Governor's budget were $405.4 million, about 36 percent higher than the estimated amount for the 1997-99 biennium. The 1997-99 biennium's level is lower because the electronic benefit transfer system was implemented during the biennium and, consequently, only includes a partial biennium expenditure amount. Prior to the electronic benefit transfer system, food stamp benefits were not included in the state budget. In addition, welfare reform, which placed restrictions on food stamp eligibility, produced unanticipated caseload reductions. The Governor's budget eliminated caseload growth for the Oregon Food Stamp Employment Training program, which requires food stamp recipients not on other public assistance programs to participate in limited employment training.

The legislatively adopted budget includes three modifications to the Governor's budget. First, $2.5 million of federal refugee funds was added to reflect higher federal funding levels. Second, the budget contains an additional $460,892 Other Funds for the Motor Vehicle Accident Fund. Finally, $300,000 of Other Funds that had been inadvertently omitted from the Governor's budget was added to the Law Enforcement Medical Liability program.

SB 1101, passed by the 1997 Legislative Assembly, transferred the Child Support Accounting Unit from AFS to the Department of Justice's Support Enforcement Division (SED) effective October 1, 1998. Prior to the transfer, AFS contracted with SED and local District Attorneys to provide enforcement services. The purpose of the transfer was to centralize child support functions to provide better service. AFS serves as the state agency responsible for administering federal funding for the Child Support function and will contract with SED to perform both the accounting and enforcement functions. Services are routinely provided to families receiving AFS income assistance or Medicaid benefits and for foster care cases handled by the State Office for Services to Children and Families. Families not on public assistance are served if they request help.

The Department of Justice receives the child support payments from absent parents and distributes the collections to the families. When the family is receiving public assistance, the amount collected goes to AFS to offset the cost of providing the income assistance grant.

The federal government pays 66 percent of all program costs. The state pays the remaining 34 percent for SED, and counties fund the 34 percent local match for district attorneys' expenditures.

The Governor's proposed budget for 1999-01 includes total collection revenues of $535.9 million, of which $25.0 million would go to offset state costs for cash assistance grants to needy families. Most ($22.2 million) of these offset collections are included in the child support budget. The remaining $2.8 million is included in the program support and administration budget ($2.5 million) and the cash assistance program ($0.3 million).

Total child support collections are expected to increase, but the amount available to offset General Fund expenditures is expected to continue to decline along with the number of families on welfare. Although collections may not directly offset AFS costs, the income that families receive from support collections helps keep them out of poverty and above the income level that would qualify them for cash assistance.

Prior to passage of the federal reform law, states could send the first $50 of child support collected to the family, even though they were receiving a cash assistance under the former Aid to Dependent Children (ADC) program. Collections above the $50 went to offset state and federal costs for the cash assistance benefit. Under the new law, the federal government no longer allows its share to be passed on to the family. If the state were to resume the practice, it would have to forego not only its share of the $50, but also the federal government's share.

The Governor's budget, an increase of 7 percent above the 1997-99 biennial estimate, included a phase-out of one-time costs ($1.4 million) associated with transferring the Child Support Accounting Unit (CSAU) to the Department of Justice. The budget funded inflationary cost increases of $6.8 million and 19 limited duration positions (18.25 FTE) within the Support Enforcement Division of the Department of Justice to implement welfare reform requirements. The Governor's 1999-01 budget for this program area included General Fund of $2.4 million. General Fund was necessary to meet program expenses because child payment collections for children in families receiving TANF support were expected to decrease as TANF caseloads decrease.

The legislatively adopted budget contains one change to the Governor's budget. Of federal funding, $2.3 million was available and added to the budget to reimburse various District Attorneys for child support enforcement services.

This area includes the field staff and associated costs located in the 15 districts and 57 branch offices and "out-stations". This staff is responsible for client eligibility, case management, and other direct services for all programs administered by AFS and for determining eligibility for the Oregon Health Plan (OHP). The district managers are also responsible for administering the JOBS contracts in their districts.

Primary sources of non-state support are the federal TANF grant, federal funds for matching administrative costs of the Food Stamp program, and Title XIX Medicaid funds. Medicaid funds partially support the cost of OHP eligibility determination. A small amount of Other Funds revenue is received from Food Stamp Collections.

In the past, staffing standards have determined the number of field or direct client staff available to each district. As the number of clients increased or decreased, the district received an increased or decreased staff allocation. Because the focus of staff time has shifted from the disbursement of benefits to more intensive case management, there is a less direct relationship between the number of clients to staff and more on the complexity of each case.

The Governor's budget for the 1999-01 biennium was $14.3 million or 9 percent higher than the 1997-99 biennial estimate. The budget included funding for the costs of inflation for related services and supplies.

The Governor's budget maintained the current level of staffing services, but also reflected two proposed changes in Oregon Health Plan policy to control costs. The first change would intensify screening efforts of health plan applicants to decrease the numbers of ineligible persons who are mistakenly allowed to receive health plan benefits. This effort would require more staff (24 FTE) but is expected to reduce overall program costs. The second change would decrease the number of available health plan services and staff who determine eligibility by 14.68 FTE.

The legislatively adopted budget makes three changes to the Governor's budget that have an overall effect of reducing the Governor's budget by $840,175. The first change corrects a budget system error and adds $900,000 General Fund and $400,000 Federal Funds. The second modification reduces General Fund and Federal Funds expenditures by $1.0 million and $1.1 million, respectively. This change results from a lower forecast of health plan applicants whose eligibility is determined by AFS. AFS expects it will need 20.14 fewer FTE (than those included in the Governor's budget) to facilitate health plan eligibility screening. The third change replaces $7.3 million Federal Funds with General Fund to accommodate federal changes in the methods states may use to calculate the federal share of Food Stamp administrative costs.

The majority of Program Support and Administration staff is located in Salem. The program provides policy direction and administration of all AFS programs. Some of the business functions formerly provided by this unit have been transferred to the DHR Director's Office as part of the agency-wide consolidation of administrative services. The program consists of the Field Services Section, which oversees Field Program Staff and operations; the Policy and Budget Section; and the Quality Assurance and Customer Service Section.

Child support recoveries are the largest among a wide variety of Other Funds revenue sources. The primary sources of Federal Funds are the TANF block grant, Food Stamp administrative support revenue, and Title XIX Medicaid funds.

The Division completed a major upgrade of the Child Support Enforcement Automated System (CSEAS) in the fall of 1998. Federal certifiers reviewed the system and will provide the Division with a report listing any necessary system corrections. AFS does not expect any penalties to be imposed by the federal government if some corrective activities prove necessary.

The Governor's budget was $7.4 million lower than the estimated expenditure level for 1997-99. It phased out 1997-99 expenditures related to the correction of Year 2000 software problems, the development of the CSEAS and the Transition Referral and Client Self-sufficiency system (TRACS)--a new DHS case management system. It restored funding for Year 2000 issues and desktop computer support for the 1999-01 biennium within the Director's Office. The Governor's budget included funding for inflationary effects, increased state government charges, and higher DHS allocated expenses.

The budget reflected a transfer of AFS Hearings Officers (13.00 FTE) from DHS to a newly created central hearings division within the Employment Department. This proposal increased the Division's costs by about $200,000-its share of the indirect costs associated with the newly formed central hearings division.

The Governor's budget also included a transfer of 9 positions to the Department of Administrative Services in an effort to consolidate state mail delivery services, and a transfer of staff to the field services unit.

The legislatively adopted budget reduces the DHS prorate for AFS by $1.6 million total funds and corrects budget system entry errors in the Governor's budget by increasing Other Funds by $100,000 and Federal Funds by $300,000. Although the final budget bill for the Department of Human Services did not include the effects of creating a central hearing panel in the Employment Department, HB 2525 implementing the panel, included necessary expenditure limitation for all agencies involved, including AFS. The adopted budget also includes a total fund reduction of $200,000 to reflect changes to Department of Administrative Services and Employment Relations Board assessments.

LFO Analyst: Archer

The Office of Alcohol and Drug Abuse Programs (OADAP) is the primary state agency responsible for planning, contracting, and regulating Oregon's public alcohol and drug abuse prevention, treatment, and maintenance services. OADAP has no branch offices or field staff but contracts with county governments and other local providers for the direct delivery of services. Services include emergency non-hospital detoxification; intensive and conventional residential treatment; intensive and conventional outpatient, early intervention, and prevention programs in schools and communities. OADAP contracts for the operation of five facilities that house twelve beds each for long term residential care. The Office is responsible for regulating treatment services provided by the Oregon Department of Corrections and its contractors for inmate probationers and parolees who have alcohol and drug abuse problems and for youth in facilities of the Oregon Youth Authority. OADAP works with approximately 15 state agencies and the Governor's Council on Alcohol and Drug Abuse Programs to plan and develop statewide strategies and programs. Over 60,000 persons are served annually in treatment programs and many more in prevention programs.

OADAP is organized into the following four sections:

Program Development and Quality Assurance: Responsible for policy development, contract management, maintaining quality manpower for alcohol and drug services, coordination with the tobacco initiative, and ensuring prevention and treatment service quality through program monitoring and technical assistance to local/county coordinator staff.

Regional Training Center: Responsible for increasing the number of credentialed and certified service providers. They are also responsible for integrating current research-based information into clinical training programs and the development of new and innovative ways to disseminate knowledge and information to treatment providers and educators.

Finance and Data: Responsible for maintaining the Client Management Information System and distributing related reports on service programs and performance.

Planning, Evaluation and Research Unit: Responsible for developing rational, data-driven systems to guide program and policy directions. They coordinate objective, research-based planning, resource allocation, and evaluation systems.

The two primary sources of Other Funds revenue are the state tax on beer and wine and fees or fines paid into the Intoxicated Driver Program (DUII)/Marijuana Diversion Fund. OADAP is projecting a 15 percent increase in revenue from beer and wine taxes in the 1999-01 biennium. Although there is an increase in beer and wine sales, the beer and wine tax rate has not increased since 1975. Other sources of revenue include transfers from other state agencies and miscellaneous revenues.

Revenues are received from a variety of federal programs. During the 1997-99 biennium, the four largest sources included the Substance Abuse Prevention and Treatment (SAPT) Block Grant ($26.4 million), Children's Health Insurance Program ($4.1 million), Title XIX Medicaid funds ($4.2 million), and the US Department of Education ($2.3 million). Overall, OADAP is projecting a 9.3 percent reduction in Federal Funds in 1999-01.

There is a maintenance of effort requirement for the SAPT Block Grant. It requires the state to commit General Fund and/or beer and wine tax revenues for alcohol and drug programs at least at the level spent in the previous two years. The consequence of the state not providing sufficient match would be the loss of block grant funding on a dollar for dollar basis. The SAPT Block Grants are 19 percent of total revenue.

A budget note in OADAP's 1997-99 legislatively approved budget directed the Office to move toward outcome measures to determine program quality and effectiveness, streamline clinical documentation, and examine the rate structure. One step in making these changes involved a one-year strategic planning process that included community partners. More than 500 people participated in some phase of this planning. Along with an overall vision, the group outlined three essential objectives for the 1999-01 budget proposal.

1. Maximize the return on the state's investment in alcohol and other drug services: adopt research-based "best practices"; increase emphasis on prevention and early intervention; and capitalize on existing resources.
2. Provide all Oregonians with reasonable access to effective treatment services, and move from a historical to a needs-based resource allocation system.
3. Improve system accountability; develop and implement outcome-based contracting; and develop meaningful local planning processes.

Along with the focus on maximizing returns and accountability, OADAP is striving to accomplish more flexibility in distribution of funds to meet client needs. Currently, services are provided using contracted services through the Oregon Health Plan and with slots/beds contracted through the county. To provide a continuum of care for the client, OADAP proposed to expand eligible services in the Oregon Health Plan, specifically case management and aftercare. In addition, they want to increase flexibility by providing counties the ability to bundle services tailored to individual client needs.

OADAP's ability to provide or coordinate the provision of needed services can directly affect caseloads in other programs and vice versa. Substance abuse is reported to be a major factor in many social service and public safety programs, particularly those associated with child abuse, juvenile and adult corrections, and emergency hospital admissions. Sixty-five percent of Department of Human Services clients are estimated to be frequent users, or to have alcohol or other drug "abuse or dependency. Department of Corrections reports that 77 percent of all inmates have moderate to severe alcohol or drug addiction problems. The 1998 student survey indicated that 30 percent of eighth grade students had some level of involvement with alcohol, and 22 percent with drugs within the previous month. The statistics are even higher for eleventh grade students, 43 percent and 24 percent respectively. Existing caseloads place constraints on the amount of funding available to deal with prevention and treatment.

The Governor's recommended budget was 21.3 percent over the 1997-99 estimated budget. General Fund expenditures would increase 131 percent. The budget maintained current services and added $18 million in General Fund and $2 million Federal Funds to expand alcohol and drug abuse services. The additional money would target high-risk youth and partners with parents and schools as part of the overall agenda to reduce juvenile crime. The program would include a comprehensive approach to treatment services. It would include case management, wraparound support services, family counseling, and continuing care. The budget supported training for practitioners in the field, a performance measurement and reporting system, and a needs-based resource allocation system for counties.

The legislature approved a budget of $24.1million General Fund and $86.9 million total funds. The General Fund is a 62.7 percent increase and the total budget an 8.6 percent increase from the 1997-99 expenditures. All programs are continued. A total of $10 million was added to enhance prevention and treatment programs for high-risk youth and their families ($8 million General Fund and $2 million Federal Funds). The Federal Funds portion must be used for Temporary Assistance to Needy Families (TANF) eligible clients. A four percent General Fund reduction was taken in Personal Services and Services and Supplies. A prorate reduction was approved as it relates to reductions in the Director's Office budget and the Desktop Support package.

LFO Analyst: Baker

Over half of SCF's budget comes from Federal Funds. SCF receives substantial federal revenue as partial reimbursement for eligible State costs. Other federal revenues, including miscellaneous grants, are for specific amounts and purposes.

SCF receives approximately $85 million each from federal Title IV-E (Foster Care and Adoption Assistance) and Title XIX (Medicaid). Title IV-E is spent for field staff, foster care, purchased treatment services, adoption subsidy payments and related administrative services. Medicaid funding is spent for case management services, special rates for certain children in foster care and related administrative services.

SCF has a waiver of requirements for Title IV-E expenditures. Prior to the waiver, the federal funding could be used only for foster care for eligible children. Under the terms of the waiver SCF can use the funding for in-home services that are intended to keep a family together, and more children are eligible. Changes must be revenue neutral to the federal government and confirmed by a comprehensive monitoring system. The 1999 legislature approved SCF's request to ask for federal approval to expand the waiver to allow subsidized guardianships as an alternative if adoption is not a viable option.

The Adult and Family Services Division will transfer about $80 million in federal Temporary Assistance to Needy Families (TANF) revenues to SCF during the 1999-01 biennium. SCF uses TANF funds for direct services, including substitute care and intensive family services to stabilize families so children can remain in the home. SCF also receives about $24.2 million from Title XX (Social Services Block Grant). These flexible dollars are used for field staff, residential treatment beds and administrative services. In addition, SCF transfers SSBG funds to AFS ($9.5 million) and to the State Commission on Children and Families ($8.2 million). The total amount of SSBG funds available to Oregon continues to decline because of federal budget cuts. The state's total SSBG funding in 1999-01 is expected to be $12.6 million less than in 1997-99. Since Oregon has used SSBG funds to pay for basic services, the state has generally chosen to backfill federal funding cuts.

In 1998, SCF took advantage of increased funding and federal eligibility changes to use Title IV-B Subpart (2) (Family Preservation and Support Act) funds for time-limited family reunification work and post-adoption services. Previously the State Commission on Children and Families (SCCF) received all of these funds. The 1999-01 budget uses one-half of the $4.8 million total Title IV-B (2) funding in SCF and the other half in SCCF.

The State Office for Services to Children and Families and the Oregon Youth Authority recently revised their provider payment system to attract additional federal funds through a Title XIX category called Behavioral Rehabilitation Services (BRS). The Emergency Board approved this change in September 1998. It will provide more intensive services to youth, and significantly more federal funds to providers who did not previously receive Medicaid funding. This should help keep current providers and attract new ones. In 1999-01, there is a net $0.2 million General Fund savings with the new model, and $26.8 million more Federal Funds for the agencies' programs.

About 5 percent of SCF's budget comes from Other Funds. These are primarily client funds, such as federal Supplemental Security Income or child support payments, used to reimburse the state for the maintenance cost of children in care.

SCF is experiencing caseload growth in all of its services. More younger children are abused and neglected, and more families are involved in alcohol and drug-related problems. This continues to exert pressure on foster care and special rate payments. The largest single age group of victims of abuse or neglect is under one year old. About two-thirds of the parents who have children in foster care abuse alcohol or drugs.

Foster care has been budgeted to grow at more than 8 percent per year since the mid-1990's; for 1999-01 the expectation is that growth will be managed at about 7 percent per year. The projected costs for regular and special rate foster care for 1999-01 total approximately $97.9 million. Adoption assistance payments are projected to grow about 60 cases per month for 1999-01, about 14 percent per year, as the number of children placed in adoptive homes increases. Adoption assistance payments are expected to total about $48 million for 1999-01. By the end of the biennium, the number of adoption assistance cases is expected to exceed the number of foster care cases.

The 1997 federal Adoption and Safe Families Act (PL 105-89) mandates strict new timelines for achieving permanent placement for children in out-of-home care. States must begin action to terminate parental rights for any child who has been in foster care for 15 of the past 22 months, with some exceptions such as when a child is being cared for by a relative. As a result, SCF estimates that it must take legal action on behalf of 750 children in 1999-01. Once petitions are filed, adoptive homes or some other permanent living arrangement must be found. For children just coming into care, the requirements of the new law are similar to the requirements already in place in Senate Bill 689, passed by the 1997 legislature. The significant difference is that the federal law applies retroactively to include children in foster care before the federal law was enacted. The 1999 legislature adopted Senate Bill 408 to match Oregon law with federal ASFA requirements.

The Adoption and Safe Families Act provides incentive payments to states that increase the number of adoptions of children in foster care each year from 1998 to 2002. The funding can be used to augment services for foster care, child welfare and adoptions programs. Congress appropriated a capped amount of $20 million nationally for FFY 1999. SCF anticipates $1.8 million for 1999-01, although the amount of funding Oregon actually receives will be affected by the success of other states.

The agency also continues its efforts to implement the System of Care casework approach. This was adopted as part of an agreement with the Juvenile Rights Project to avoid litigation that has successfully challenged child welfare systems in at least 35 jurisdictions nationwide. The System of Care focuses on the unique needs of the child and family. Caseworkers tailor services to meet those needs, using in-home services and relative or neighborhood foster care whenever possible. SCF began to phase in the System of Care approach in 1996; it is to be in place statewide by June 2003.

The Governor's recommended budget was 33.2 percent General Fund and 17.3 percent total funds higher than 1997-99 estimated expenditures as of April 1998. The General Fund increase reflected roll-up costs for new caseworkers and System of Care costs phased in during the 1997-99 biennium, increased expenditures to meet the federal Adoption and Safe Families Act, and reduced federal Social Services Block Grant funds.

The budget included $5.8 million General Fund and $12 million total funds to comply with the new Adoption and Safe Families law. SCF has not yet received federal approval of its plan. Final federal regulations were expected in spring 1999, but have not yet been issued. The 1999 Legislature reviewed the agency's plan for meeting the law's requirements within the proposed funding level.

Phase 3 of the System of Care approach was funded in the second year of the biennium, bringing implementation to 80 percent of the state. The Governor's budget was $7.3 million General Fund, $3.0 million Federal Funds, and 71.50 FTE lower than SCF's initial current service level estimates for statewide implementation of System of Care.

Family support teams and post adoption support services approved by the Emergency Board in September 1998 were continued in the Governor's budget. Federal Title IV-B Family Preservation and Support funds pay the $1.9 million cost.

The budget included $1.7 million Federal Funds to expand community safety net efforts in the state. These are local efforts to identify at-risk families and provide services before they enter SCF's system. The additional funding was to expand safety net programs from 23 counties in 1997-99 to all counties in 1999-01.

SCF's share of approved policy packages in the Department of Human Services' Office of the Director was $1.9 million General Fund, $9.7 million Federal Funds in the Governor's budget.

The legislature approved all major elements of the Governor's budget for SCF. Adjustments were made for caseload and revenue reprojections, lower state government service charges, and reductions in the Office of the Director's policy packages. The budget also reflects a $40 million fund shift: federal TANF funds were used to replace General Fund for ongoing operations. This freed up the General Fund for use elsewhere. However, SCF will now have less flexibility to find future General Fund savings because of federal maintenance of effort requirements.

This program includes Field Operations central office staff, four regional offices, and field staff in 42 branches in 37 cities. Staff provides child protective services, remedial and family support services, foster care, residential treatment, permanency planning and adoption placement and supervision to SCF families.

The number of reports of abuse and neglect received by SCF, and the number of abuse victims, continues to grow. In 1998, a total of 31,456 reports were received. Field assessments were completed on 17,300 (61%) of these reports, and 10,147 victims were found. The following table shows the increasing number of reports and abuse victims over the past decade. Total abuse and neglect reports increased 44 percent over that period, while the number of victims increased 15 percent.

The increase in the number of reports can be attributed to the increase in the number of mandatory reporters in Oregon, as well as to greater public awareness of the harmful effects of abuse and neglect on children. The number of founded abuse cases typically is about one-third of the total reports received.

The service delivery system is undergoing significant change to meet the System of Care agreement with the Juvenile Rights Project and the federal Adoptions and Safe Families Act. The emphasis is on more individualized and more time-limited services. These changes require more case planning, more caseworker time, increased resource development, and better case monitoring.

Foster care caseworker positions are increased based on a caseload formula. The number of caseworkers and other branch staff is increased in System of Care branch offices to respond to more reports, as required in the System of Care agreement.

The Governor's budget for field staff was 27.6 percent General Fund and 17.0 percent total funds higher than in 1997-99. The major growth was for new caseworker positions that were phased-in during 1997-99, and additional foster care staffing projected for 1999-01 caseload growth. Other funding was added for System of Care, Adoption and Safe Families Act, and family support teams.

• 1997-99 expansions of the System of Care approach were phased in, but expansion of the system to an additional 20 percent of the state was delayed until the 2000-01 fiscal year. This saved $1.7 million General Fund and $1.0 million Federal Funds for 1999-01. The agency remains on a timeline to implement the new approach statewide by June 30, 2003.
• The budget added $2.8 million General Fund, $3.1 million Federal Funds and 34.56 FTE positions to this section to help meet the requirements of the federal Adoption and Safe Families Act.
• It continued an expansion of family support teams that was approved at the September 1998 meeting of the Emergency Board. This is to be paid for with $1.0 million in federal Title IV-B Family Preservation and Support funds.

The budget reduces staff and funding based on updated foster care forecasts, which show a slight slowing of caseload growth, and transfers of developmentally disabled children to the Mental Health and Developmental Disability Services Division's care. SCF will get $7.0 million more in federal TANF funds to replace General Fund in this program.

All funding in this section is used by branch offices to purchase services for their clients, including foster care, medical services, special contracts and needs-based services under the System of Care. Direct services staff manages the contracts.

In 1997-98, about 11% of abuse reports resulted in a child being removed from the home. Children are younger at the time of placement and stay longer in foster care than in the past. Recruiting and retaining foster homes that have the resources to meet the needs of children in SCF's care is a continuing problem for the agency. The number of children placed in the homes of relatives is increasing. The budget estimates over 5,400 children will be in foster care at the end of the 1997-99 biennium. This is projected to grow to over 6,200 by July 2000, about 7 percent per year growth.

The phased-in System of Care model also drives 1999-01 service costs. The System of Care approach provides individualized services for children and their families. These services are often more intensive and expensive than services SCF would otherwise provide, and are predominately paid by General Fund. About $13 million General Fund is budgeted for System of Care services in 1999-01.

The Governor's budget continued current services. Total funding was 31 percent General Fund and 17.6 percent total funds higher than 1997-99 estimates. General Fund was used to replace federal SSBG fund cuts. The Adult and Family Services Division was to transfer an additional $3 million TANF funds to SCF to help offset General Fund need. The 1997-99 costs for expanded System of Care services were fully phased-in. Caseload increases were funded in foster care, family shelter, one-time payments, and supportive remedial daycare. A 2 percent per year cost of living provider increase was included.

The budget continued post-adoption support services approved at the September 1998 meeting of the Emergency Board. This is to fund a support network for families with adoptive children, to increase the number of adoptions that are successful. It will be paid for with $1.0 million in federal Title IV-B Family Preservation and Support funds. It also adjusted for the transfer of developmentally disabled children to the Mental Health and Developmental Disability Services Division for services, as approved in the Department of Human Resources budget rebalance plan in November 1998.

The budget reduces funding for updated foster care forecasts, which show slowing caseload growth, but adds funding for higher-cost, special rate foster care. Funds are moved to Mental Health and Developmental Disability Services Division for developmentally disabled children who will be under that division's care. The legislature also directed that SCF use $23.3 million more in federal TANF funds to replace General Fund in this program.

The Program Operations section provides policies and guidelines for consistency in service delivery by field staff. It also manages statewide programs, such as monitoring residential treatment facilities. Caseworkers provide field consultation services to branches for individual cases or training for best case practices. Caseworkers also participate in branch reviews to ensure that policies and practices are uniform statewide. The central office adoptions unit is included in this section.

In 1997, House Bill 3728 established a Task Force on Adoption Services to review the adoption process for children in state custody. The Task Force completed a report that recommended improvements in SCF's process, and higher payments to Oregon licensed adoption agencies. Also, the 1997 Legislature appropriated $200,000 to the Emergency Board to fund innovative approaches to adoption. The Emergency Board allocated $114,000 of that money to be used as an incentive for private adoption agencies to find permanent homes for the 25 children who have been waiting the longest in foster care.

As shown below, adoptive placements have increased significantly in the last two years. In 1997-98, SCF made 849 adoptive placements, up 21 percent from the 702 placements made in 1996-97, and up 52 percent from 558 placements in 1995-96.

Most children (66%) were adopted by relatives or foster parents. However, the number of children needing adoptive placements continues to grow. By the end of 1999, SCF projects more than 1,300 children will need adoptive homes.

The Governor's budget for this section was 44.2 percent General Fund and 31.7 percent total funds higher than in 1997-99. The emphasis on adoptions has significantly increased agency costs for Attorney General and mediation services. This will continue as the Adoptions and Safe Families Act (ASFA) is implemented. The budget added $2.6 million General Fund, $2.9 million Federal Funds and 14.25 FTE positions in this section for ASFA costs. Federal Funds were added for a $1.7 million Community Safety Net package. This will expand local efforts to identify at-risk families and provide services before they enter SCF's system. In 1997-99, 23 counties used federal grant money from SCF to fund safety net programs.

The budget funds the projected ASFA implementation costs, with a small reduction for Attorney General hourly rates. Federal TANF funds were used to replace $1.4 million General Fund in this section. The legislature added $220,000 Other Funds for several additional grants. The Community Safety Net package was reduced by $721,852 Federal Funds and 2 positions, based on SCF's revenue reprojections.

This section of the budget funds purchased services for statewide programs, such as child protective services, residential treatment, adoption program services, and some special programs. Direct service staff in the Program Operations section manage the contracts. Major elements of the program include:

• Child protective services include family worker and treatment services. These include community providers who provide family preservation services, sex abuse treatment, parent support, and parent training. The program also funds community domestic violence programs and distributes Child Abuse Multi-disciplinary Intervention (CAMI) funding to local multi-disciplinary child abuse teams.
• Residential treatment pays for 24-hour intensive programs for a daily average of 440 disturbed children. The Target Child program provides highly individualized services for other, severely disabled children who cannot be served with residential or other treatment resources.
• Adoption assistance gives cash payments and Medicaid coverage to adopting families through a child's 18^th birthday.
• Special program services include federal grants, and Tribal, Interstate Compact, and Independent Living programs.

This unit also makes the Title XX (Social Services Block Grant) transfer to the State Commission on Children and Families.

Adoption assistance payments are growing because more children are being placed with adoptive families, as described earlier. Also, payments continue for a longer period of time for very young children who are adopted. Adoption assistance costs are projected to grow about 14 percent per year during the 1999-01 biennium. The total number of children for whom payment is made will be over 6,200 as of June 2001, compared to 4,784 as of June 1999.

Payments for residential treatment and other providers continue to be of concern. As previously described, during the 1997-99 interim the agency began efforts to increase federal funding under Title XIX Behavioral Rehabilitation Services (BRS). This should provide more intensive services to youth, and help SCF maintain residential treatment capacity.

The Governor's recommended budget was 51.2 percent General Fund and 16.2 percent total funds higher than the 1997-99 estimates for these programs. The large General Fund increase included General Fund backfill for federal reductions in Social Services Block Grant funds. Over 70 percent of the total funds increase was from adoption assistance caseload and cost increases ($11.6 million total funds), and Target Child program growth ($1.3 million total funds).

Payments to providers were increased by 2 percent per year. In addition, most residential treatment providers who restructure their programs to meet BRS standards would receive additional funding based on the enhanced services they provide. The budget added $783,353 General Fund in SCF to pay for Oregon Health Plan (OHP) services under the new model. SCF was expected to generate $9.7 million more Federal Funds for providers using Behavioral Rehabilitation Services.

The Governor's budget was adopted, with two funding shifts totaling $8.1 million. Higher federal Social Services Block Grant revenue projections reduced the General Fund backfill in the Governor's budget by $1.4 million. An additional $6.7 million in federal TANF funds replaced $6.7 million General Fund.

SCF also received $560,000 Other Funds expenditure limitation in Senate Bill 1202. This legislation establishes a Sexual Assault Victims Fund and authorizes grants to private non-profit organizations for services to victims of sexual offenses and their families.

The Office of the Administrator provides overall direction and oversees the operations of the agency. It handles management support functions such as budgeting and federal revenue administration, and oversees information system development efforts for the agency. This section includes SCF's share of the costs in DHR for centralized services, such as accounting, personnel and information systems.

The Governor's budget continued all administrative services, at 8.3 percent total funds higher than 1997-99 estimated expenditures. Inflation and State Government Service Charges total $2.7 million General Fund and $2.0 million Federal Funds. One-time 1997-99 information systems projects were eliminated from the budget ($3.4 million General Fund, $2.0 million Federal Funds). The budget added $349,997 General Fund, $225,377 Federal Funds, and 5.25 FTE for central support for the Adoptions and Safe Families Act efforts. It also included $1.9 million General Fund and $1.2 million Federal Funds for on-going Year 2000 work, expanded internal auditing and other services in the budget for the Department of Human Resources' Office of the Director.

Actions taken in the budget for the Office of the Director saved SCF $289,548 General Fund and $228,520 Federal Funds. A General Fund amount of $1.6 million was replaced with $1.6 million in federal TANF funding. Other reductions were taken for Attorney General hourly rate changes, Department of Administrative Services and Employment Relations Board assessments, and Secretary of State audit charges.

LFO Analyst: Archer

The Director's Office provides leadership and centralized business services for the divisions that make up the Department of Human Services (DHS). During the 1995-97 biennium, support services positions were transferred from other DHS offices and divisions to the Director's Office. The goal was to reduce costs, improve services, and encourage shared responsibility and accountability. Included in the consolidation were accounting, personnel and payroll, contract administration, budget coordination, building operations, and information systems functions.

The Community Partnership Team in the Director's Office consists of three units: Communication Services, Community Services, and Volunteer Programs. The purpose of the Team is to coordinate efforts of DHS, individuals and community partners. The Community Services unit works with counties and local providers to design and facilitate the delivery of community based services; the Community Relations unit is responsible for external and internal DHS communications, and the Volunteer Services Program coordinates and oversees the activities of over 5,000 volunteers per month serving clients and staff of five DHS divisions.

Also included in this program is the Governor's Advocacy Office, which serves as the ombudsman for human resources issues and provides access and recourses for citizens with questions, or suggestions concerning DHS programs.

The budget for the Director's Office is funded primarily from assessments to other DHS divisions and program offices. DHS divisions pay the assessment from the funding sources that support their programs, including the General Fund. Local community partners provide matching funds for service integration projects administered by the Community Partnership Team.

A $1.00 fee on the original filing and duplication of birth certificates, adoption filings, and divorce filings goes to the Children's Ombudsman program. These funds are transferred to DHS from the state Commission on Children and Families. Proposed legislation (HB 2171) would have had DHS receive the funds directly, but the legislation did not pass.

Federal Title XX Social Services Block Grant funds flow through the Community Partnership Team budget to support Enterprise Community projects in Josephine County and Northeast Portland.

The consolidation of administrative services into the Director's Office was designed to achieve savings and integrate departmental services for greater efficiency and increased information systems capability. The Department is responsible for establishing and monitoring customer service standards for administrative services and for continuously monitoring customer satisfaction through surveys and interviews.

The 1997-99 budget provided funding for an integrated Year 2000 (Y2K) remediation effort on the mainframe computer systems that support division and program offices. The magnitude of this project has consumed considerable staff resources and time. By the end of the 1997-99 biennium, the Department expected to have 65 percent of the total project and 86 percent of the remediation process completed. The remainder of the project, primarily testing and business planning is to be continue into the next biennium.

The Governor's recommended budget maintained current service levels and expanded some programs while reducing overall funding $1.5 million below the estimated 1997-99 expenditure level. The budget phased out several projects

including: safety net clinics ($3.1 million General Fund); a contract with the Klamath Adolescent Program ($200,000 General Fund); Year 2000 remediation costs ($35.3 million Other Funds); and one-time computer equipment and software costs ($1.6 Other Funds).

The recommended budget included the following:

• $14.1 million Other Funds for continued Y2K remediation, including contractors for the first six months of the biennium for finishing up the project and for three months after January 2000 to troubleshoot any unresolved issues.
• $4.5 million Other Funds and 38.25 FTE for a structured system of desktop support designed to improve the efficiency and effectiveness of DHS's computer systems through improved training and assistance to end users.
• $283,152 Other Funds for three internal auditor positions (3.0 FTE) to review and improve the department's programs, payment systems, and management of the budget. These positions are financed with efficiency reductions elsewhere in the Director's Office budget.
• $278,468 Other Funds and 3.0 FTE for the Children's Ombudsman program, which would transfer duties of the program from the Commission on Children and Families.

The budget also included a $7.9 million special appropriation to the Emergency Board for dealing with unforeseen caseload issues or to offset the loss of federal Disproportionate Share Hospital (DSH) payments to the Oregon State Hospital.

The legislature made the following changes to the Governor's recommended budget:

• The General Fund appropriation was increased $267,000 to maintain the Klamath Adolescent Program.
• The General Fund appropriation was increased $100,000 and one position (0.75 FTE) was added for the Pain Management Advocate created in SB 1141.
• The General Fund was increased by $795,271 and Federal Funds by $3.2 million due to the transfer of responsibility for Phase 1 of the Medicaid Management Information System (MMIS) replacement from the Office of Medical Assistance Programs to the Director's Office, Office of Information Services.
• The Other Funds expenditure limitation was reduced $3.1 million and 33 positions (25.80 FTE) were eliminated to scale back the desktop computer support project. This resulted in General Fund savings of $2 million due to lower assessments to the DHS divisions.
• The General Fund was reduced $300,000 and one position (1.0 FTE) was added to reflect the net savings associated with an effort to better manage agency use of Attorney General services.
• The General Fund was reduced $816,000 to reflect the savings from leasing, rather than purchasing, computers.
• A Lottery Fund allocation of $5.3 million was added for gambling addition services.
• The Other Funds expenditure limitation was reduced $3.4 million for administrative efficiencies. This resulted in a $2.1 million General Fund savings due to lower assessments to the DHS divisions.

The Governor's proposed $7.9 million special appropriation to the Emergency Board for caseload changes and a potential shortfall in the Oregon State Hospital budget was not approved. The hospital issue was resolved through a fund pass-through agreement with Oregon Health Sciences University, and caseload issues will be addressed, to the extent possible, in the budget rebalance process. The legislature provided a $1.8 million special appropriation to the Emergency Board for provider wage increases. The Department will return to a meeting of the Emergency Board with a plan for distribution of the funds in a way that will address the most critical provider equity and wage issues. Other adjustments were made to eliminate unnecessary expenditure authority and incorporate 1997-99 Emergency Board actions that took place too late to be included in the Governor's budget

LFO Analyst: Archer

The Health Division establishes policies and carries out activities designed to improve the health and safety of Oregonians. It monitors the health status of communities and the performance of the health care system and has a regulatory role in ensuring that public facilities, drinking water systems, and health care facilities and equipment meet state and federal requirements. Services are provided primarily through 34 county health departments and other community and tribal health organizations. The Division provides services directly where there is no local health provider or where highly specialized services require a central program. Direct services include laboratory testing and investigating outbreaks of diseases. The Division provides technical assistance, consultations with health care providers, and targeted health education programs. It also ensures mandated standards for practitioners and businesses licensed for activities that could affect the public health (for example, tattoo artists and electrologists). Although reported in separate budgets, the Division's organizational structure also includes the Board of Barbers and Hairdressers and the Board of Direct Entry Midwifery. Due to the passage of HB 2465 by the 1999 Legislative Assembly, the licensing and certification programs residing in the Health Division will transfer to a newly created Health Licensing Office.

Other Funds support 29 percent of the Division's expenditures and come primarily from fees, service charges and indirect cost recoveries. Fee revenue is derived from a variety of sources, including vital records, newborn screening, health care/laboratory licensing, county food service consultation, food service licensing, radioactive material licensing, X-ray machine licensing, and emergency medical technician/ambulance licensing. The Governor's budget proposal for 1999-01 relied on increases in many of these fees, most associated with the Public Health Laboratory, environmental health services, and the licensing boards. Other significant sources of revenue are tobacco tax receipts, which fund tobacco prevention programs, and an infant formula rebate program used for nutritional services for women and children.

Federal Funds support 62 percent of the Division's expenditures. Major sources of Federal Funds are U.S. Department of Agriculture grants for the Women, Infants, and Children Nutrition Program (WIC) and Department of Health and Human Services grants, which support many activities of the Center for Disease Prevention and Epidemiology and Public Health Laboratory.

The Division's budget is driven primarily by the growth in Oregon's population, but also is affected by increasing medical costs. As in-migration to the state continues, there is more demand for health services, more need for health education, and more need for health surveillance to avoid or minimize communicable disease outbreaks.

The effect of the Oregon Health Plan (OHP) on public health systems continues to evolve. Since its implementation, local health departments are serving more clients who are slightly above the income eligibility for the OHP, but who still have inadequate resources to cover the cost of their care. The anticipated reduction in safety net clinic use as a result of the OHP has not occurred. Increased usage of managed care under the OHP has also affected the Division's programs. While private laboratories are doing less analysis under managed care, the Public Health Laboratory is doing more. Also, as the OHP has moved prenatal clients from safety net clinics to managed care plans, the loss of Medicaid dollars has strained the ability of the clinics to continue to provide services for uninsured women. Shrinking county resources due to property tax limitations have compounded the difficulty local health departments encounter in attempting to meet service demands.

The Division is currently involved in a three-year strategic planning process called "Turning Point: Collaborating for a New Century in Public Health." Planning focuses on creating a sustainable system of changes for meeting future demands of the public health system. A particular challenge will be to focus on issues of strategic importance to Oregon. Since the Division is primarily funded from Other and Federal Funds, the sources of these revenues tend to drive policy direction and determination of need.

The Governor's budget generally continued existing services, though in some cases it relied on fee increases to support maintaining programs at their current service levels. Total expenditures would increase 11 percent over 1997-99 estimated expenditures, with the General Fund increasing by six percent. The budget incorporated a $485,037 pro-rated General Fund reduction in services and supplies expenditures and Other and Federal Funds expenditure limitation increases totaling $101,790 for position-related fund shifts and reclassifications. The budget offset the loss of Federal Funds and a private grant for school-based clinics with General Fund ($1 million) to assure their continuation. The General Fund was also increased to replace unrelated fee revenue as a source of support for communicable disease prevention activities of local health departments.

Notable among programs relying on fee increases for maintenance or expansion of services would be the Public Health Laboratory and the Center for Environment and Health Systems. Overall, expenditures from Other Funds would decline due to phasing-out programs and shifting expenditures to federal funding sources. Federal Funds expenditures would increase 27 percent over 1997-99 expenditure levels, primarily due to an increase in the amount of federal support for family planning activities.

The adopted budget of $308.5 million is a 9.1 percent increase over the 1997-99 expenditure level. The General Fund appropriation increases 2.2 percent. Major adjustments to the Governor's recommended budget include:

• the addition of $2.6 million total funds ($105,746 General Fund) and 8.88 FTE for phasing-in 1997-99 Emergency Board actions that happened too late to be reflected in the Governor's printed budget document;
• the reduction of $131,359 General Fund (in addition to the $485,037 taken in the Governor's budget) for administrative efficiencies;
• the elimination of $74,825 General Fund used to pay for microbiological testing of surface waters by the Department of Environmental Quality; and
• a reduction of $308,461 total funds ($297,335 General Fund) in the pro-rated assessment that funds the DHS Director's Office.

Minor adjustments were also made to reflect revised Attorney General and Audits Division charges and assessments from the Department of Administrative Services and Employment Relations Board. The legislature approved the Governor's request for $1 million General Fund to support school-based clinics and $70,000 for the Office of Multicultural Health. Two special appropriations to the Emergency Board provide conditional funding for teen pregnancy prevention advertising ($131,000) and for abstinence education ($151,000). A summary of the budget as it applies to each Health Division program follows.

The Center for Disease Prevention and Epidemiology identifies and investigates disease outbreaks, hazardous exposures and other health threats. The Center collects, analyzes and distributes health-related information and implements public health programs to reduce the occurrence of acute and chronic disease. Center programs include: Acute and Communicable Disease Prevention; Environmental, Occupational and Injury Epidemiology; Health Statistics and Vital Records; Health Promotion and Chronic Disease Prevention; and a program designed to reduce illnesses and death from sexually-transmitted diseases (STD), tuberculosis (TB), and human immunodeficiency virus (HIV). The Center also provides program design and evaluation services.

Other Funds revenue from tobacco taxes and a variety of fees and service charges support over 40 percent of the Center's expenditures. The largest source ($17.8 million) is from tobacco taxes resulting from the passage of Ballot Measure 44 in 1996. The Measure increased the tax on tobacco products and dedicated three percent of receipts to tobacco prevention activities. The Health Division is responsible for the tobacco prevention program. Other major sources of Other Funds revenue are health statistics and vital records fees ($4.7 million) and an HIV-related contract with Multnomah County ($4.1 million).

Federal Funds revenue comes mainly from the Centers for Disease Control for HIV/TB/STD ($17.9 million) and breast and cervical cancer ($6.5 million) programs. A variety of federal grants supports targeted projects within each of the Center's programs. Federal Funds support 48 percent of the Center's expenditures.

The proposed budget would maintain the current level of services assuming a two percent per year inflationary increase in contracted services and a share ($101,373) of the Division's services and supplies General Fund reduction. The budget included a policy package for $101,790 total funds that would reclassify seven positions, increase two part-time positions to full time (adding a total of 1.00 FTE), and correct the fund type for nine positions to accurately reflect funding sources.

The Governor's budget document understated the amount proposed for the Center, because $475,000 in General Fund to support Center activities was included in the Department of Human Services (DHS) Director's Office budget. The funds were to maintain an existing AIDS Hotline ($134,000), HIV client services ($100,000), and a HIV Wellness program ($241,000), which had been considered for elimination but ultimately were recommended for funding. Including these amounts, the Governor's recommended General Fund budget for the Center was $5.8 million, rather than the $5.2 million that appeared in the printed budget document.

The legislature increased the Governor's recommended budget by adding expenditure limitations of $226,284 Other Funds and $1.2 million Federal Funds and six positions (4.50 FTE) to reflect the full, 24-month biennium cost of Emergency Board actions approved too late in the 1997-99 interim to be incorporated into the Governor's budget. The General Fund appropriation was reduced by $29,307 for administrative efficiencies and $2,667 for reduced Attorney General and other central state administrative charges. The AIDS Hotline, which had been considered for elimination, was maintained at $130,000 - $4,000 less than the current service level. Overall, the budget for this program increases 4.6 percent over 1997-99 estimated expenditures.

The Public Health Laboratory supports the Division and local health departments by providing laboratory testing and consultation. It includes testing for virology/immunology, general microbiology, and newborn screening. The unit also assures the quality of laboratory testing by inspecting and licensing clinical and drinking water laboratories.

Other Funds revenue supports 63 percent of the Laboratory's expenditures. The largest single source ($5.6 million) is from Newborn Screening fees. The laboratory serves as the regional center for screening newborns for six states. The revenue generated by the screening fee also supports the Division's basic communicable disease testing for local health departments-a program entirely unrelated to newborn screening. This practice started after the 1991 Legislative Assembly directed the lab to increase newborn screening fees above actual costs to offset the loss of revenue to local governments following passage of Ballot Measure 5. In the meantime, the fee has risen to the statutory cap of $16 per specimen. Due to cost increases over the past decade, the fee no longer generates enough revenue to fund both the newborn screening program and the offset for local health departments. Clinical Laboratory Licensing fees ($900,000) and testing fees ($400,000) are other major sources of Other Funds revenue.

Federal Funds, which support 19 percent of expenditures, reflect transfers from other Health Division programs for conducting related laboratory tests, primarily associated with communicable diseases.

The proposed budget maintained the current level of services with a pro-rated share ($34,035) of the Division's General Fund reduction. The budget increased General Fund expenditures by $453,313 to offset the use of newborn screening fees for communicable disease testing for local health departments, and added $365,193 in fee-supported Other Funds to establish an environmental laboratory accreditation program that would meet national standards. The latter would require legislation authorizing an increase in laboratory fees.

The legislature adopted the Governor's recommended budget with two General Fund adjustments: a reduction of $899 for changes to various central government assessments, and a reduction of $74,825 to eliminate funding for microbiological testing of surface waters for the Department of Environmental Quality (DEQ). This allowed for the elimination of one position (0.65 FTE). DEQ may still obtain the testing services, but would have to pay for them. The large percentage increase in General Fund expenditures over the 1997-99 level (29.9%) is due to the use of General Fund ($453,313) rather than newborn screening fees for testing services for local health departments.

The Other Funds and Federal Funds expenditure limitations were decreased a total of $3,033 due to lower central government charges and by $6,810 to reflect lower than anticipated costs associated with implementation of HB 2177, which provides for establishment of the environmental laboratory accreditation program. The Other Funds expenditure limitation was increased $150,000 for the expenditure of clinical laboratory fee revenue authorized in HB 2175.

The Center for Environment and Health Systems has four programs designed to protect against environmentally caused health problems and unsafe medical practices and facilities. Through training, licensure and oversight, the Emergency Medical Services and Systems Program ensures that resources are available to respond to medical emergencies. The Health Care Licensure and Certification Program ensures that health care facilities comply with state licensing standards and federal regulations. The Environmental Services and Consultation Program establishes operational and regulatory standards and provides education and training to protect the public against environmental hazards in public places. The Drinking Water Program works in conjunction with county health departments to assure the availability of safe drinking water, and Radiation Protection Services establishes and maintains standards for a wide variety of radiation-related equipment such as X-ray machines and tanning devices.

Other Funds revenue supports about 44 percent of this program, primarily from fees paid by entities being licensed and regulated. Other sources include approximately $900,000 from county consultation fees and the same amount from the Motor Vehicle Accident Fund. The Center also receives funding from the U.S. Environmental Protection Agency (EPA) for drinking water systems ($34 million) and lead abatement and enforcement ($800,000). The U.S. Department of Health and Human Services provides $1.2 million for the Medicare Survey/Certification of health care facilities, and the EPA and the Food and Drug Administration provide about $200,000 for radiation protection services.

The Governor proposed funding the current level of services, including $160,813 Other Funds and one position (1.0 FTE ) to continue a project approved by the Emergency Board in November 1998. The project uses Federal Emergency Management Agency (FEMA) funds transferred from the Emergency Management Office of the Department of State Police to provide a personal protection equipment coordinator for the Chemical Stockpile Emergency Preparedness Program in Morrow county.

In addition to incorporating the Center's pro-rated share of the Division's General Fund reduction, the budget included funding for three policy packages: 1) an Other Funds expenditure limitation of $65,235, financed from new operator certification fees, to extend existing water system operator certification requirements to systems currently exempt from the

requirements; 2) a fee-financed Other Funds expenditure limitation of $118,838 to fund health and safety inspections of public swimming pools and spas; and 3) an Other Funds increase of $5,981 reflecting the net effect of fund shifts associated with the Division's reclassification package.

The legislature reduced the Governor's General Fund budget for this program by $23,779 for efficiency savings and lower than originally anticipated state government charges. The result is a General Fund budget that increases 3.3 percent over 1997-99 estimated expenditures. The Other Funds expenditure limitation was reduced $113,279 to eliminate expenditures from fee and civil penalty revenue included in the Governor's budget but not authorized by the Legislature. HB 2174, related to the inspection of public swimming pools, spa pools and bathhouses, passed with fee authority that falls about $48,000 short of covering program costs. HB 2176, related to water systems certification, passed without expanding certification requirements to small water system operators. Not allowing for certification of small water system operators by February 2001 will leave the state out of compliance with the federal 1996 Safe Drinking Water Act. This is expected to result in the loss of approximately $5.6 million in Federal Funds for water system improvements. Most of the loss is expected in the 2001-03 biennium.

The Center for Child and Family Health supports programs for individuals and families at risk because of age, income or other factors. The Center is composed of five sections. The Women's and Reproductive Health section works to reduce unintended pregnancies, promote healthy birth outcomes, and increase awareness of women's health issues. The Child and Adolescent Health section provides information and develops policies and programs designed to improve the health of children, particularly those at risk. The Immunization section works to prevent vaccine preventable diseases. The Special Nutrition Program for Women, Infants, and Children (WIC) provides nutrition education, food vouchers, and referral services; and the Maternal and Child Health Systems section integrates common elements of Center programs to enhance state and local services.

The largest source of revenue is for the WIC program, which receives several U.S. Department of Agriculture grants totaling $104.3 million and $27 million in Other Funds revenue through an infant formula rebate agreement. Expenditures from the federal WIC Food Grant ($75 million) and revenue from the infant formula rebate are not subject to expenditure limitation. The Division also receives federal funding through the Maternal and Child Health Block Grant ($8.3 million); Immunization Grant ($3.3 million); Title X Family Planning Grant ($3.1 million); and a variety of smaller federal grants. Additional Other Funds revenue comes from intrafund transfers from other DHS divisions ($3.5 million) and targeted non-federal grants ($1.5 million).

The Governor's proposed budget continued most services at the current service level, including the addition of $1 million in General Fund to maintain existing school-based clinics and a net increase of $31,061 from all funding sources to finance position fund shifts and reclassifications. The budget included a two-percent-per-year inflation factor for contracted services and incorporated a fund shift that would increase expenditures for the Family Planning Expansion Program by $16.8 million. The increase is due to the availability of additional Federal Funds to expand family planning services to persons at or below 185 percent of the federal poverty level.

The budget reduced General Fund assistance to counties by $212,167, which would cut by seven percent the flexible assistance funding for primary care or well-baby services to about 3,000 children not eligible for the Oregon Health Plan. The Center's General Fund was reduced another $196,000 as its share of the Division's services and supplies budget reduction.

The legislature reduced the Governor's recommended General Fund budget by $15,807 for administrative efficiencies and reduced governmental assessments. General Fund expenditures for the program increase 5.6 percent over 1997-99 estimated expenditures. The Governor's proposal to use $1 million from the General Fund to help support seven school-based clinics that have lost federal and foundation grants was approved. The adopted budget also includes two special purpose appropriations to the Emergency Board. An appropriation of $131,000 is provided for teen pregnancy prevention advertising and another for $151,000 for abstinence education alternatives to the Students Today Aren't Ready for Sex (STARS) program currently used by most schools.

Although the budget is reduced slightly due to lower state government charges, the Other Funds and Federal Funds expenditure limitations increase $1 million over the Governor's recommended level to phase in the full biennium cost of 1997-99 Emergency Board actions that took place too late to be included in the Governor's printed budget. Federal Funds expenditures increase 22.3 percent over the 1997-99 level due to the sizable increase in federal support for family planning programs.

The Office of the Administrator provides public health policy and management of the Division. The Office manages the mailroom/stockroom, which, in addition to routine property management, inventory and mail processing, coordinates space management, storage, and building maintenance. The Office also provides staff support for groups such as the Public Health Advisory Board and the Conference of Local Health Officials. Although most personnel, business services, and information systems functions are provided by the Department of Human Services Director's Office, this division is responsible for budget preparation and liaison with the Director's Office for administrative activities related to the Health Division.

Other Funds revenue supports 84 percent of administrative expenses. The largest source ($5.7 million) comes from indirect cost recoveries on federal grants. These are actually Federal Funds expended as Other Funds because they are transferred to the Administrative Program from other units in the Division. The remaining federal income is from transfers from other programs within the Health Division for business, mailroom and information systems services.

The Governor's budget funded the current level of services with a $22,312 decrease in General Fund services and supplies expenditures. The General Fund budget was increased $373,498 to reflect the Health Division's pro-rated share of the agency-wide assessment for computer support enhancements ($361,696) and increased retirement system costs ($11,802) in the DHR Director's Office budget. The division-wide position fund shift and reclassification proposal would increase the Administrative budget a total of $13,751 from all fund sources. The budget included $59,476 in Other Funds expenditure limitation financed with service fees and indirect cost recoveries for one new position (1.0 FTE) to address a workload increase in the Division's Mail Center.

The legislature reduced the Governor's General Fund budget for the Administrator's Office a total of $257,812. This is the net result of a $105,746 increase for addressing non-mainframe Year 2000 issues and decreases of $297,335 for reductions in the computer desktop support project and $66,223 for administrative efficiencies and reduced governmental service charges. The General Fund budget is 41.3 percent lower than 1997-99 estimated expenditures due to phasing-out one-time Year 2000 compliance costs.

* Through April/May 1999 Rebalance

**Includes $70,000 General Fund budgeted for this program in the Department of Human Services Director's Office.

The Cross-Agency and Special Programs budget category consists of a group of agency-wide support services and special programs that do not fit for organization purposes into any of the Division's other program units. The Office of Multicultural Health develops targeted methods of service delivery. The Certificate of Need program assures that new health facilities and services are adequately distributed around the state without unnecessary duplication or excessive costs to clients. The Plan Review section ensures that construction plans for health facilities meet state standards and fire and life safety codes. The Indigent Burial Fund reimburses funeral service practitioners up to $450 for disposition of unclaimed, indigent, deceased persons. The Office of Community Services serves as the liaison between the Division and the county health departments. Health Education and Information furthers the Division's goals by bringing visibility to public health issues. The Licensing Program ensures mandated standards are met for practitioners and businesses licensed by the Advisory Council for Electrologists, Permanent Color Technicians, and Tattoo Artists; the Advisory Council on Hearing Aids; the State Board of Denture Technology; the Sanitarian Registration Board; the Body Piercing Board; the Athletic Trainers Registration program; and the Respiratory Therapist Licensing Board. The 1999 Legislative Assembly created the Board of Athletic Trainers in HB 2704 to replace the less formal registration program that has existed to date. These licensing and certification offices will be transferred during the 1999-01 interim to the newly created Health Licensing Office (HB 2465) and will no longer be part of the Health Division.

The primary sources of Other Funds revenue are licensing and registration fees associated with the various special programs and licensing boards. In addition, there is a $75,000 grant from the Robert Wood Johnson Foundation to support the Turning Point strategic planning process.

Federal Funds from the Centers for Disease Control Preventative Health Block Grant ($2.8 million) support the Community Services Program and county health departments. Community Services also receives about $400,000 from the Primary Care/Cooperative Agreement Grant, which provides assistance in the development and delivery of primary care services in areas of the state that lack adequate health care resources.

The Governor's budget maintained the current level of services with two exceptions. First, in assessing a pro-rated share of the Division's General Fund reduction ($81,971), the budget more than eliminated the General Fund used for services and supplies. The remaining General Fund was used for per-capita payments to county health departments. Second, the Governor increased the General Fund appropriation by $70,000 to enhance activities of the Office of Multicultural Health. In the budget document, this increase appeared in the DHS Director's Office.

The legislature adopted the Governor's recommended budget for this program with a small ($233) General Fund reduction for lower than anticipated governmental assessments and service charges. Other and Federal Funds expenditure limitations were reduced by $22,009 to reflect the lower assessments and increased by $7,265 to adjust expenditures for various fee increases authorized in HB 5030. Overall, program expenditures increase 2.9 percent with General Fund costs increasing 4.8 percent.

In compliance with HB 2465, once the director of the new Health Licensing Office has been selected, all assets and employees of the Health Division's Licensing Program will transfer to the new Health Licensing Office and will no longer be a part of the Health Division. The transfer ultimately will result in a reduction of approximately $1 million in Other Funds expenditures for this program.

LFO Analyst: Archer

The Office of Medical Assistance Programs (OMAP) is a sub-unit of the Director's Office in the Department of Human Services (DHS). The Office administers the medical components of the Oregon Health Plan (OHP) and non-OHP medical programs. Its budget is organized into four units: the OHP Medicaid Program; the OHP Children's Health Insurance Program (CHIP); Non-OHP Medical Programs; and OMAP Administration.

The Oregon Health Plan (OHP) was implemented in 1994 with the goal of increasing access to health care and controlling health care costs. The OHP-Medicaid expansion is the largest medical services part of the Plan. Other components are OHP-Medicaid Mental Health, the Title XXI Children's Health Insurance Program (CHIP), described below; the insurance incentives and subsidies offered through the Insurance Pool Governing Board; and a high risk insurance pool administered by the Oregon Medical Insurance Pool Board.

The OHP is a demonstration project approved by the federal Health Care Financing Administration (HCFA) as a waiver of traditional Medicaid rules. The five-year waiver was set to expire in January 1999, but has been extended by HCFA for three more years. The OHP differs from traditional Medicaid in four major ways:

Eligibility - Coverage is available to most people living at or below the federal poverty level regardless of age, disability, or family status. Under traditional Medicaid, single adults and childless couples would not have qualified for benefits even if they met income criteria.

Benefits - Services are available based on a prioritized list of health conditions and treatments. Theoretically, the amount of funding available determines the services that are covered. The Health Services Commission was created to determine the content and establish the priority of listed services.

Service Delivery - Most services are delivered through a coordinated system of managed care plans, rather than the more traditional fee-for-service approach.

Payment - Providers of health services under the OHP managed care plans are reimbursed at reasonable cost rather than a percent of charges. Statutes creating the OHP mandate the payment of reasonable cost to encourage providers to participate in the Plan and to reduce the incidence of cost shifting to other parts of the health delivery system. An independent actuary determines what constitutes "reasonable cost." Services provided on a fee-for-service basis are paid at traditional Medicaid rates, which do not cover costs.

The following people are covered by the Medicaid component of the OHP:

• persons receiving cash assistance under the Temporary Assistance to Needy Families (TANF) program;
• families transitioning from TANF into employment, who are eligible for 12 months after cash assistance ends;
• children in foster care or for whom adoption assistance payments are made;
• persons in the Poverty Level Medical Program (PLM), including children 0-5 in households with incomes up to 133 percent of the federal poverty level (FPL), children 6-18 in households with incomes up to 100 percent of FPL, and pregnant women and their newborns up to 170 percent of FPL;
• persons who are age 65 or over and under 74 percent of the FPL;
• General Assistance recipients who are unable to work for at least 12 months, have no children, and have incomes and resources under $50; and
• Oregonians (citizens and qualifying non-citizen residents) with incomes under 100 percent of FPL who are not eligible for Medicare.

In addition to medical and dental services, the OHP incorporates non-institutional mental health and out-patient chemical dependency services. Institutional mental health and residential chemical dependency treatment are covered by Medicaid, but services are delivered through the Mental Health and Developmental Disability Services Division (MHDDSD) and the Office of Alcohol and Drug Abuse Programs (OADAP).

Policy, coordination, and support staff costs for the OHP are included in the OMAP Administration, MHDDSD, OADAP and State Office for Services to Children and Families (SCF) budgets. Eligibility is determined by employees in the Adult and Family Services (AFS) and Senior and Disabled Services (SDSD) divisions.

The federal government funds approximately 60 percent of OHP Medicaid costs. Most of the state's 40 percent match comes from the General Fund and tobacco taxes. The remaining state match comes from a variety of Other Funds revenue sources including OHP premiums; federally required drug manufacturer rebates; and recoupments from insurance companies, providers, and clients. Additional revenue comes from state agency and county transfers designed to maximize the receipt of federal matching funds, and from miscellaneous receipts.

Tobacco tax revenue for direct support of the OHP comes from 27 cents of the 30-cent-per-pack tax established in 1996 in Ballot Measure 44 and a 10-cent-per-pack temporary tax that was extended by the 1997 Legislature through January 2000. The revenues were used in the 1997-99 budget to both maintain and expand OHP services. Revenue from the tax has been less than projected and is expected to continue to decline in coming biennia. Yet to be incorporated into the economic forecast is the effect of the recent settlement between the state and the tobacco industry. Tobacco price increases to finance that settlement are expected to reduce sales and, consequently, revenues from that source. The Governor's proposed budget for 1999-01 assumed passage of legislation to continue the 10-cent-per-pack tax, which would generate an estimated $22 million in revenue for the OHP-Medicaid program. The 1999 Legislature extended the tax until January 1, 2002 through passage of HB 3492.

Many factors affect the cost of the Oregon Health Plan, including: population growth; policies of other DHS divisions and state agencies; federal welfare and Medicaid laws; changing medical technologies; medical inflation; and the status of the economy. During the last three years, the number of persons covered by the OHP has declined along with a reduction in the number of households receiving Temporary Assistance to Needy Families (TANF) benefits. The number of families receiving TANF income assistance is expected to continue to decline throughout the 1999-01 biennium, though not at the dramatic levels experienced in the last several years. This should cause a corresponding decrease in the number of needy families covered by the OHP. The number of New Eligibles (adult couples without children and families under the FPL who do not qualify for TANF) has also declined from an enrollment high of over 120,000 in 1995 to a November 1998 enrollment of about 82,000. This reduction has been attributed to Oregon's healthy economy and relatively low jobless rate, which result in greater access to private insurance. The trend for both TANF and New Eligibles could reverse if economic conditions tighten to the point that TANF caseloads increase and more people become eligible due to job loss.

As noted earlier, OHP services are based on a priority list of medical conditions, treatments, and procedures. The extent to which the conditions on the list are covered depends upon the amount of funding available. In theory, as well as legislative intent, the OHP budget would be balanced and funding decisions made based on the list of prioritized services and available funds. In practice, however, the federal Health Care Financing Administration (HCFA) has allowed very little flexibility in removing services from coverage. A 1996 request to move the medical services line from line 581 to line 578 (eliminating three services) was denied. The denial noted the improbability that future line change requests would be approved. Because of this, OMAP and the legislature have looked to alternative methods of budgetary control, such as restricting eligibility criteria, changing the effective date of eligibility, and attempting to control medical costs.

The cost and content of the benefit package and the adequacy of provider payments were the focus of 1997-99 interim studies and legislative review. With respect to provider payments, studies indicated a continuing shift of dollars away from physicians and toward hospitals. This shift threatens the willingness of physicians to participate in managed care plans that contract with the OHP. Benefit costs have focused on expenditures related to the high cost of prescription drugs. Other

issues include comorbidity (a process that results in uncovered services being covered if medically necessary to prevent worsening of a covered condition), the effect on providers of mid-contract changes in the type and treatment of services, and the accuracy and timeliness of data collection.

Although cost increases in specific areas of the OHP have been highlighted, overall General Fund expenditures for the Plan were approximately $24 million lower for the 1997-99 biennium than originally anticipated in the budget adopted for that period. Major reasons are the TANF caseload reductions, slower than expected phase-in of enhancements approved by the 1997 Legislature, and establishment of the new CHIP program (described below), which moved some children from Medicaid to CHIP coverage.

With the exception of intensive services for children, mental health services have been fully phased into the OHP. It was originally planned that mental health services would be integrated with medical services in the managed care plans. Actual implementation has occurred differently, and services continue to be delivered much as they were prior to their incorporation into the plan. Counties continue to play a large role in service delivery, and the contracts are still administered by the MHDDSD. The difference is that all persons enrolled in the OHP now have access to mental health treatment.

The Governor's budget maintained most OHP services by adjusting factors that determine current service costs and assuming continuation of the temporary tobacco tax. The budget also eliminated some services and proposed several management actions designed to reduce costs. Further, the budget split funding for the OHP-Medicaid program by transferring the budget for mental health services back to the MHDDSD, where it had been budgeted prior to being integrated into the Plan.

The Governor incorporated updated information to lower the General Fund cost of continuing the current level of services by over $60 million. This was done by: reflecting a more favorable federal Medicaid match rate than had originally been envisioned ($6.7 million); reducing OHP caseload projections based on revised caseload estimates for AFS and SDSD ($12.6 million); using updated actuarial information to reduce the rate of increase in managed care per-capita rates ($9.7 million); and using tobacco tax revenue originally earmarked for CHIP and the Family Health Insurance Assistance programs ($31.5 million).

The budget used almost $22 million from assumed maintenance of the temporary 10-cent tobacco tax to:

• maintain the 1997 expansion of services to pregnant women and their infants with incomes between 133 and 170 percent of FPL ($10.8 million);
• maintain coverage for PELL Grant-eligible college students ($3.5 million);
• maintain cost-based reimbursement for Type A hospitals (50 or fewer beds and more than 30 miles from another acute care facility) ($0.6 million);
• provide an inflation increase on fee-for-service rates ($5 million); and
• provide interpretative services for managed care providers ($2 million).

The following management actions and service reductions were incorporated into the Governor's budget to reduce General Fund costs by $24 million:

• The line of covered services was moved from line 574 to line 564 ($4.4 million).
• Cost-based reimbursement for Type B hospitals (50 or fewer beds within 30 miles of another acute care facility)was eliminated ($1.2 million).
• The date of coverage was changed from the date of application to the date of eligibility determination ($4.1 million).
• Eligibility determination procedures were tightened to assure that persons placed in the plan meet all eligibility requirements ($14.6 million).

The budget transferred a total of $348.8 million from OMAP back to MHDDSD to reflect the fact that MHDDSD is the agency that administers the mental health portion of the OHP Medicaid program. The following table combines the budgets for an accurate picture of the Governor's total recommendation for OHP Medicaid expenditures.

Governor's Budget - Total OHP-Medicaid Expenditures (Medical and Mental Health)

The combined figures show that General Fund expenditures for the OHP Medicaid program would increase by $134.7 million. This is an increase of 25 percent over estimated 1997-99 expenditures at the time the Governor's budget was put together. Considering all fund sources, the budget increased $323.6 million, which would have been an increase of 16 percent. Major reasons for the increase included a combined medical inflation and utilization increase of 11 percent and using General Fund to offset reduced Medicaid and tobacco tax revenues.

The legislature made the following major adjustments to the Governor's recommended budget:

• The General Fund was increased $8.9 million and Other Funds reduced by the same amount to offset a projected reduction in tobacco tax revenue.
• The General Fund was increased $4.1 million and Federal Funds $6.2 million to maintain the date of application, rather than the date of eligibility verification, as the date of eligibility for OHP benefits.
• The General Fund was increased $1.2 million and Federal Funds $1.8 million to maintain cost-based reimbursement for Type B hospitals.
• The General Fund was increased $1 million to partially support safety net clinics, which have lost federal Medicaid revenues under the OHP, since most OHP beneficiaries are served by managed care organizations.
• The General Fund was reduced a total of $5 million and the Other Funds limitation for expenditure of tobacco taxes increased by the same amount. Within this amount, $2 million of the tobacco tax revenue was available because the legislature did not approve the Governor's proposal to use it for interpretative services for OHP providers.
• The remaining $3 million came from a reduction in the Insurance Pool Governing Board's Family Health Insurance Assistance Program, which is also funded from tobacco taxes.
• The General Fund was reduced $5.3 million and Federal Funds $7.9 million due to lowering the liquid asset limit for OHP eligibility from $5,000 to $2,000. This is expected to reduce OHP enrollment by about 3,240 people.
• The General Fund was reduced $403,588 and Federal Funds $602,866 for savings anticipated due to more closely verifying Oregon residency for OHP applicants. Guidelines for the verification efforts were spelled out in HB 2700, which, in the meantime, has been vetoed by the Governor. The veto does not preclude the agency from taking management actions to more accurately verify residency.
• The General Fund was reduced $1 million and Federal Funds $1.5 million for anticipated savings as a result of a Health Services Commission review of OHP treatment procedures and practices. This was also a provision in HB 2700. Even though the bill was vetoed, the Health Services Commission could still examine procedures to see if there are areas of potential savings that would not jeopardize the quality of OHP medical services.
• The Other Funds and Federal Funds expenditure limitations were increased $24 million and $36 million respectively to reflect the pass-through of Graduate Medical Education Medicaid funding for Oregon Health Sciences University.

The budget was also adjusted to reflect updated caseload forecasts and 1997-99 Emergency Board actions that took place too late to be reflected in the Governor's recommended budget. The following table compares 1997-99 OHP Medicaid expenditures with the legislatively adopted budget. Mental health services were included in the OMAP budget in 1997-99, so they are also included for comparative purposes in the 1999-01 figures below.

The table clarifies that, although General Fund expenditures for the OHP Medicaid program in the OMAP budget increase only 3.1 percent between 1997-99 and 1999-01, when mental health costs are included (as they were in 1997-99) the increase is really 28.4 percent. As noted earlier, this increase is primarily due to the phase-in of 1997-99 enhancements, full implementation of mental health services, medical inflation, and the need to offset federal and tobacco tax revenue with General Fund.

CHIP is a new federal (Title XXI) program designed to improve the health of children by increasing their access to health care services. States had flexibility in determining how the new funds would be used, subject to approval of a state plan by the federal Health Care Financing Administration (HCFA). Oregon's plan was approved in March 1998, and the program was implemented in July 1998. HCFA approval of Oregon's plan continues through the year 2005.

Oregon's plan takes advantage of the more favorable federal CHIP match rate (72% for CHIP versus 60% for Medicaid) to expand OHP services under the Poverty Level Medical-Children's program (PLM-C) to more children than would have been covered if the funds were coming from Medicaid. Prior to 1997, the OHP covered PLM children through the age of five up to 133 percent of the federal poverty level. Using Measure 44 tobacco taxes as the state match, the 1997 Legislative Assembly expanded coverage to children through the age of 11 and up to 170 percent of the poverty level. Subsequently, when CHIP money became available, funding for the federal portion of this expansion was switched from Medicaid to CHIP. The additional federal dollars resulting from the higher match rate allowed further expansion without increasing the state's matching funds. This made it possible to cover children through the age of 18 up to 170 percent of the poverty level. Persons eligible for CHIP benefits receive the same application form, benefit package, and selection of health plans as the rest of the OHP population. To qualify for CHIP, children must: 1) be ineligible for OHP-Medicaid benefits; 2) meet asset and income criteria; and 3) have been uninsured, with minor exceptions, for six months prior to application.

Tobacco tax revenue is used to match federal CHIP funds on a 28 percent state to 72 percent federal basis. Availability of state matching funds determines how much CHIP money the state will receive. Approximately $69 million in CHIP funds would be available for the 1999-01 biennium if the state were able to meet the matching requirements. Still unknown, and not reflected in the Governor's proposed budget for 1999-01, is what effect the recent settlement between the state and the tobacco industry will have on tobacco tax revenues. It has been estimated that revenues could be approximately 8 percent less than anticipated in the Governor's budget. This reduction would probably come early in the biennium and any offsetting revenue from the settlement would not come until toward the end of the biennium, if at all, and would not necessarily be targeted to this program.

The budget considerations facing the OHP-Medicaid program also apply to the CHIP program with one significant exception. Unlike Medicaid, CHIP is not an entitlement program, so the number of children that can be served is capped based on the amount of funding available. Because CHIP relies on tobacco tax receipts that are likely to continue to decline, there is uncertainty about the ultimate level of funding and service that can be provided for this program. As implemented, CHIP benefits are capped at approximately 16,800 children. Once that ceiling is reached, the program will be closed until sufficient capacity is available due to decreased demand or attrition. As of September 1998, there were 4,521 children receiving benefits through the program.

Subject to approval by HCFA, the state has much more flexibility in how it uses CHIP funds than it has under the Medicaid program. The opportunity exists to explore other methods of using existing state expenditures as match for additional CHIP funds.

To fund this program at the current service level, the Governor's budget relied on passage of legislation to continue the 10-cent-per-pack tobacco tax that was scheduled to sunset in January 2000. The budget reflected the transfer of $108,000 in tobacco tax revenue and $275,000 Federal Funds to the Mental Health and Developmental Disability Services Division for mental health services to CHIP children.

The legislature increased the Governor's budget by $263,591 Other Funds and $675,125 Federal Funds to reflect the net effect of a lower than originally projected caseload but higher costs per beneficiary. The 10-cent-per-pack cigarette tax, continued until January 1, 2002 by passage of HB 3492, is the source of Other Funds revenue. The large expenditure increase over the 1997-99 biennium is due to phasing-in the full biennium cost of the program, which was operational only a few months in 1997-99. Approximately $1.5 million of the tobacco tax-funded increase is due to medical inflation and utilization trend costs, and $261,611 is to offset Federal Funds due to a revised revenue projection. The adopted budget is projected to cover approximately 16,800 children. As of mid-September 1999, about 13,200 were enrolled.

The OMAP budget covers medical services that are not part of the Oregon Health Plan Medicaid expansion. Services are provided to two major eligibility groups:

• The Medically Needy Oregon Supplemental Income Program (MN-OSIP) provides for reimbursement of prescription drugs and other medical costs not covered by Medicare for OSIP clients whose incomes are 133 percent of the standard for cash assistance to needy families or who have high medical expenses that reduce their incomes to that level.
• Qualified Medicare Beneficiaries (QMB's) and Special Low Income Medicare Beneficiaries (SLMB's) are individuals who currently receive Part A Medicare coverage and have incomes up to 100 percent of the Federal Poverty Level (FPL) and 120 percent of the FPL respectively. For QMB's, OMAP pays the Medicare Part B premium and any applicable coinsurance or deductible that is not paid by Medicare. For SLMB's, only Medicare Part B premiums are covered.

The General Fund appropriation and Other Funds revenue from drug rebates are used to match federal Title XIX Medicaid funds at the rate of 60 percent federal to 40 percent state.

Due primarily to the increasing population of elderly persons and their relatively high usage of medical services and prescription drugs, non-OHP medical services caseloads and costs continue to grow much faster than the normal rate of inflation. The average number of clients served each month has increased steadily during the past two biennia and is projected to grow 26 percent in 1999-01. The 1997-99 MN-OSIP caseload averaged 4,300 a month and is expected to grow to 5,200 in 1999-01. The average OMB/SLMB caseload is expected to increase from just under 9,000 to over 11,500 per month. In addition to caseload increases, costs are affected by changes in federal match rates and Medicare policies and by the cost of medical services, especially the rapidly increasing cost of prescription drugs.

The Governor's budget funded the current level of service for an increasing number of people. The 39 percent General Fund cost increase over 1997-99 expenditures resulted from medical inflation ($3.3 million); caseload increases ($12.9 million); and a change in the federal Medicaid match rate ($1.4 million).

The legislature adopted a budget that is $1.3 million more than originally recommended by the Governor. The total funds increase is the net effect of revised caseload and cost-per-case projections. The General Fund appropriation is reduced by $1.2 million from the Governor's proposed budget, because the revised projections indicate that there will be more persons whose costs are fully supported with Federal Funds. Even at the revised level, the General Fund increases 36.5 percent over the 1997-99 expenditure level, mostly due to caseload growth.

This unit provides the program support and administration for the Medicaid and CHIP components of the Oregon Health Plan (OHP) and a small group of medical services outside the Plan. OMAP is the lead agency for implementing the OHP, although other DHR divisions and programs share administrative responsibility, and the Office of Oregon Health Plan Policy and Research in the Department of Administrative Services provides research and policy guidance. OMAP Administration consists of the following three sections:

• Administration is responsible for overall management of OMAP, including budget preparation and execution, rate setting for managed care plans, hospital audits, administrative hearings and implementation of Medicaid reform.
• The Program Operations Section has been responsible for the Medicaid Management Information System (MMIS), the automated claims payment and reporting system for the Medicaid Program. Most of the MMIS staff has been transferred to the Office of Information Systems in the Director's Office as part of the agency's administrative consolidation effort, but some responsibilities remain with the OMAP Administration unit.
• The Program and Policy Section plans, analyzes, and implements medical programs and policies for the OHP and is responsible for day-to-day operations of the Plan.

Other Funds constitute 15 percent of OMAP Administration expenditures. The primary source of revenue is from funds that are transferred to OMAP from three school districts, other DHR divisions, and the Office for Oregon Health Plan Policy and Research in order to obtain federal Medicaid matching funds.

Generally, federal Title XIX Medicaid funds match state resources for OMAP Administration on a 50-50 basis. Information systems and skilled medical professional personnel are matched at 75 percent federal to 25 percent state, and certain planning functions are matched at 90 percent federal to 10 percent state. Overall, Federal Funds support 60 percent of Program Support and Administration costs.

Workload and costs for OMAP Administration are directly tied to the number of persons eligible for medical services and the complexity of the programs offered. Implementation of the CHIP program with its separate reporting requirements has added to the quantity and complexity of the unit's administrative workload. OMAP Administration operates under strong pressure to minimize costs while at the same time providing the appropriate level of administrative oversight of the OHP. During the 1997-99 biennium, efficiencies have been achieved by improving claims processing, installing a pharmacy point-of-sale and drug utilization review system, further reducing the number of fee-for-service billings, maintaining data entry productivity with five fewer data entry staff, and contracting out certain services.

A major challenge to the unit involves working with the Medicaid Management Information System (MMIS), the computer system that automates claim payments. A 1997 audit report issued by the Secretary of State's Audits Division noted that under MMIS there were insufficient controls to ensure appropriate payment of claims. The audit recommended the addition of staff necessary for timely resolution of system errors. Subsequently, the Emergency Board approved 12 additional positions for the agency's central Information Services Office. Still, the MMIS system, the main components of which were developed in the 1970's, is inadequate for providing the OHP services and oversight required of OMAP.

The Governor's budget continued the current level of services for OMAP administration and added $4 million (including $795,000 General Fund) and 12 positions to establish a project team to begin the process of replacing the Medicaid Management Information System. This phase of the project would involve an examination of OMAP's business needs for the next seven to ten years, including an analysis of whether information services should be contracted out.

The General Fund increase of 25 percent was primarily due to the MMIS enhancement and $876,000 to phase-in the cost of replacing the Decision Support/Surveillance, Utilization, and Reporting Sub-System (DSSURS). DSSURS was authorized by the Emergency Board to improve OMAP's access to MMIS data for rate setting, budget forecasting, monitoring fraud and abuse, and designing cost containment strategies.

The adopted budget for OMAP Administration totals almost $73 million from all fund sources. This is a 5.8 percent increase over 1997-99 expenditures. The General Fund budget of $17.8 million increases 17.9 percent over 1997-99 expenditures due primarily to the phase-in of systems staffing and improvements. The changes, which were recommended by the Secretary of State's Audits Division and approved by the Emergency Board during the 1997-99 interim, were implemented to reduce the potential for Medicaid fraud. Full biennium administration of the new Children's Health Insurance Program (CHIP) is also phased-in. CHIP increases administrative costs because it has separate funding source and eligibility criteria from other OMAP-administered medical programs and has separate federal reporting requirements. These phase-ins increase General Fund expenditures by about $1.2 million. Almost $1 million of the General Fund

increase results from Department of Human Services Director's Office assessments for completing Year 2000 compliance projects and improving computer desktop services. The policy package that provides for the reclassification of 11 positions was also approved at a total cost of $56,271 ($26,445 General Fund).

Administrative costs were reduced by $547,524 for administrative efficiencies. About $200,000 of this amount is due to a lower DHS Director's Office assessment because of administrative cuts in that program. The remainder represents a four percent reduction of OMAP's discretionary administrative costs. The Other Funds and Federal Funds expenditure limitations were approved at the Governor's recommended level. Finally, the $4 million ($795,271 General Fund) requested for initiating the replacement of MMIS was approved; but funding, positions (12 FTE), and responsibility were moved to the DHS Director's Office, Office of Information Services.

LFO Analyst: Baker

The Mental Health and Developmental Disability Services Division (MHDDSD) consists of two major program areas: the Office of Mental Health Services and the Office of Developmental Disability Services. Mental Health services are provided to people who have been clinically diagnosed as having a serious mental or emotional disorder. Illnesses include schizophrenia, bipolar disorder, and major depression. Diagnosed individuals typically have a normal to high measured intelligence, but people with low intelligence (developmentally disabled) also can have a mental illness. Developmental disabilities (DD) include mental retardation, cerebral palsy, Down's syndrome, autism and other impairments of the brain that occur during childhood. MHDDSD provides DD services to people with a measured IQ of 80 or lower. People are eligible for services based on the DD diagnosis. However, eligible people are not "entitled" to services. They may have to wait years before actually receiving MHDDSD-funded services, depending on the extent of a service waiting list.

Funding for MHDDSD programs is 47.5 percent General Fund, 6.5 percent Other Funds and 46.0 percent Federal Funds. Nearly all of the federal funding comes from Title XIX (Medicaid), which totals over $600 million. Medicaid funds support rehabilitative services in the community, Personal Care services, case management and some residential and vocational services. The Title XIX federal match rate is about 60 percent program services and 50 percent for administration. The match rate, which is based on the economy of the state compared to the nation as a whole, is slightly lower in 1999-01 than in 1997-99; General Fund has replaced the lower federal revenues. Medicaid revenues include funding targeted for Disproportionate Share Hospitals (DSH) that serve a greater number of indigent patients. DSH funding is declining overall, and recent federal changes have decreased the funds available to Institutions for Mental Disease -- in Oregon, the Oregon State Hospital (OSH) and Eastern Oregon Psychiatric Center (EOPC). General Fund and a 1997-99 agreement with the Oregon Health Sciences University will cover the expected DSH funding reduction in 1999-01. The Community Mental Health Services grant ($6.7 million) and Developmentally Disabled Services Act grant ($1.9 million) are two other federal resources.

MHDDSD will receive $23.2 million Other Funds revenues from the Medicare Upper Limit plan. Under this plan, the Senior and Disabled Services Division makes a special payment to nine public health districts that operate nursing facilities. The payment is based on the difference between the maximum Medicare rate level for nursing facilities and Oregon's rate. The health districts will transfer most of the payment they receive back to the Department of Human Services as Other Funds. These will be used by the Department instead of General Fund. In the 1999-01 biennium, this plan reduces MHDDSD's General Fund by $23.2 million and increases Other Funds revenue the same amount.

The continued shift of resources from large, state-owned institutional settings to local, community-based care and treatment affects the services and budgets of both program areas. Over the past five biennia, community programs have grown from 43 to 84 percent of the agency's program expenditures, while institutional costs have been reduced from 57 to 16 percent. This shift is shown in the following chart.

The cost per client is less, on average, for community-based services. On the other hand, the diversity of care that comes from more levels of service delivered in multiple locations increases the complexity of administering the programs and maintaining control over the quality of care. Population growth, federal policies concerning treatment and funding, and the condition of state-owned facilities are other factors that significantly affect the budgets of both programs.

The Governor's recommended budget for the agency was 45.5 percent General Fund and 49.4 percent total funds higher than 1997-99 estimated expenditures through April 1998. Over three-quarters of this increase was for Oregon Health Plan mental health services transferred from the Department of Human Resources Office of Medical Assistance Programs back to MHDDSD ($134.1 million General Fund, $349.2 million total funds). Much of the rest reflected inflation and phased-in 1997-99 costs, with some program enhancements at the state psychiatric hospitals and in community services.

Major budget elements included:

• 1997-99 provider wage increases (an additional $11.0 million General Fund, $21.2 million total funds in 1999-01);
• growing caseloads in programs for developmentally disabled youth reaching adulthood, for medically fragile persons, and for diversion services ($9.2 million General Fund, $16.3 million total funds);
• a new forensics ward, approved by the Emergency Board in the November 1998 budget rebalance, funded for the full 24 months of the biennium ($3.4 million General Fund);
• added funding for pharmaceutical and other operating costs approved in the November 1998 budget rebalance plan for Oregon State Hospital and Eastern Oregon Psychiatric Center ($4.1 million General Fund, $4.3 million total funds);
• added staff at Oregon State Hospital to improve services and avoid potential litigation ($2.3 million General Fund);
• a new 15-bed secure psychiatric treatment facility and 30 adult foster care placements in the community ($2.2 million General Fund, $4.4 million total funds);
• new staff to handle continued growth in adult foster home and residential facility licensing workload ($296,467 General Fund);
• full funding for Phase 1 of the Long Range Plan for Disability Services. Phase 2 of the Plan is implemented in 1999-01, with a net savings of $3.3 million General Fund, and $22.0 million total funds;
• mental health services for Children's Intensive Treatment Services, and services for developmentally disabled children in foster care, transferred back to MHDDSD ($1.4 million General Fund, $9.1 million total funds); and
• Workers' Compensation Funds from the Department of Consumer and Business Services used to match federal funding in sheltered workshops for MHDDSD clients ($3.0 million Other Funds; $6.1 million total funds).

The legislature funded all the major elements of the Governor's budget, adjusted for revenue and cost reprojections included in the April 1999 budget rebalance plan. It did not approve a package to enhance abuse investigations and training. As part of the Medicare Upper Limit plan, $23.2 million General Fund in this budget was replaced with Other Funds, with no program impact. Administrative reductions were made in overtime, state government service charges, and other expenditures. The legislature added $1.25 million for services to medically fragile children and their families, and $200,000 for treatment services for mentally and emotionally disturbed children in Douglas County. A $1.9 million Emergency Board special purpose appropriation was made to provide atypical antipsychotic medications to mentally ill persons who do not qualify for Medicaid. With these changes, the adopted budget is 1.4 percent higher overall than the Governor's budget, and 43.3 percent higher than updated 1997-99 expenditure estimates.

State-funded mental health services are provided to children, adolescents and adults who have severe mental disorders. Special emphasis is placed on serving persons who meet the definition of chronically mentally ill. Community mental health programs include adult mental health services for 38,000 Oregonians, child and adolescent community mental health services for 32,000 clients, day and residential treatment services (DARTS) for 988 children and other services ranging from pre-commitment to intensive residential treatment.

Mental health community services are provided through a network of state offices, county and other local governments, private non-profit organizations, private hospitals, and health plans. Community mental health programs operate in every county of the state and counties are statutorily required to provide crisis services. For eligible clients, the Oregon Health Plan (OHP) covers all medically appropriate mental health services for conditions that are funded under the OHP prioritized list of services and treatment procedures. Mental health services under the OHP are provided by individual counties, groups of counties or fully capitated health plans. For individuals and services not covered under the OHP, the Division funds a variety of services that include supported housing and employment opportunities; clinic-based outpatient care; local crisis services; regional acute care facilities; and, as a last resort, referral to a state psychiatric hospitals.

In addition to Title XIX funding described above, the federal Community Mental Health Services Block Grant provides funding for adult community support services and for local services for severely emotionally disturbed children and adolescents. MHDDSD also receives federal funding for the Projects for Assistance in the Transition from Homelessness ($600,000) in Marion and Multnomah counties and Other Funds from Multnomah County to match federal Medicaid funds to create more slots in the Multnomah DARTS program.

Recent advances in drug treatment have improved the lives of many mentally ill people. As a result, the long-term need for institutional beds has declined and the need for community-based alternatives has increased. The number of people who have a mental illness, however, has been increasing at a rate even greater than the increase in the general population. Many mental health services cannot be fully funded under the Medicaid program, including residential room and board, supported employment services, case management, precommitment services, and housing development. Also, many people who need mental health services are not eligible for Medicaid, even under the OHP expansion. There are insufficient resources to meet the demand for mental health services for the non-Medicaid eligible population.

The system of intermediate and long-term care for mentally ill people is at or above capacity. As Oregon's population increases, there will likely be more people with severe mental illness who will require extended treatment. The budget does not increase beds throughout the mental health system according to population growth; they are only adjusted for increased costs due to inflation. Community acute care hospital admissions increased 81 percent between fiscal years 1993-94 and 1998-99, from 1,997 to 3,611. Extended care beds for long-term care outside of an institution have only grown by 30 since 1995, which MHDDSD estimates is about 15 beds less than needed to meet population growth during that time. When appropriate care beds are not available, placements may occur that are inappropriate from both economic and treatment perspectives. People receive emergency services at local acute care hospitals, but subsequent referrals to the Oregon State Hospital cannot be made expeditiously because it lacks capacity. Oregon State Hospital clients cannot be released to the community when appropriate because of the limited availability of community beds. As a result, people are staying longer in acute care hospitals, which is significantly more expensive than either OSH or community beds. Further, acute care costs are not eligible for federal funds match, so the General Fund picks up the costs.

Growth also is occurring in the forensics program at the Oregon State Hospital. This also creates a need for community placements for people under the jurisdiction of the Psychiatric Security Review Board (PSRB), once they have completed treatment. It is estimated that 24 new community placements will be needed in the coming biennium to keep pace with the growth in competency evaluations and PSRB placements at OSH.

The MHDDSD, the State Office for Services to Children and Families and the Oregon Youth Authority collaborate on the service system for children needing mental health treatment. The number of children and youths who receive these mental health services has grown from 44 in 1987-88 to 1,743 in 1996-97, a growth rate of 51 percent per year. For delinquent youth, the incidence of mental health disorders is higher than for the general population. An estimated 22 percent of adjudicated youth in community juvenile programs are in need of mental heath services and 7 percent of those have a severe mental disorder.

The Mental Health Community Programs budget was 128.7 percent General Fund and 197.1 percent total funds higher than 1997-99 estimated expenditures. The largest change in this budget transferred funding for Oregon Health Plan (OHP) mental health services from the Office of Medical Assistance Programs ($134.1 million General Fund, $349.2 million total funds). Funding was transferred from MHDDSD for the 1997-99 biennium, because provider plans were expected to integrate mental health services into existing plans for physical health services. The Governor's Oversight Task Force on Mental Health Integration recommended a focus on coordination of client care rather than on the contractual integration of OHP health and mental health services. With the transfer, MHDDSD will continue to be responsible for contracting and monitoring OHP mental health services as well as non-OHP community mental health programs. The budget also transferred Children's Intensive Treatment Services back to MHDDSD ($1.9 million Other Funds, $4.8 million total funds), as approved in the November 1998 budget rebalance plan.

The budget added one 15-bed secure residential treatment facility and 30 extended adult foster care placements to help address the need for outside-of-hospital care ($2.2 million General Fund and $2.2 million Federal Funds). The new secure facility would be located in the Portland metropolitan area. The foster care placements would be made statewide.

The Governor's budget increased provider payments at 2 percent each year. In 1997-99, providers got a 3 percent annual increase.

The legislature updated the funding estimate for OHP mental health services based on revised OHP caseloads. The total estimated transfer is $137.2 million General Fund, $357.0 million total funds. The proposed new residential treatment facility and added adult foster care placements were funded at $2 million General Fund. In addition, a $1.9 million Emergency Board special purpose appropriation was made for a pilot program for atypical antipsychotic medications for persons not eligible for Medicaid. These medications are expected to have greater effectiveness than more traditional but less expensive medications. House Bill 3128 also appropriated $200,000 for an existing Douglas County DARTS program for the 2000-01 fiscal year, to add treatment services for up to 15 children ages 5 through 12.

MHDDSD operates facilities in Salem, Portland, and Pendleton for patients who have a severe mental illness. The Oregon State Hospital (OSH) provides psychiatric evaluation and diagnosis, as well as intermediate and long-term inpatient care. Oregon State Hospital - Salem includes 48 buildings on a 148-acre campus. One-third of the space was constructed between 1883 and 1912. The newest building was built in 1955. Oregon State Hospital - Portland is in leased space near the Lloyd Center.

• Adult treatment services are provided in two wards on the Salem campus and three wards at Portland for 133 mentally ill patients who have been civilly committed. The yearly cost per adult client at OSH for 1998-99 was $125,000.
• Child and Adolescent services provide treatment to an average of 60 children and adolescents per day ages 4 - 17 in three wards at OSH. The average annual cost per client in these wards is about $151,000.
• Geriatric services include 114 beds in three wards and specialty services for neurologically impaired patients are provided in a fourth ward. The average yearly cost per geriatric client is about $112,000.
• Forensic services are provided through 269 hospital-level beds on eight wards and 96 residential beds on three wards. The program also provides evaluation and treatment services for patients determined by the court to be unable to assist in their own defense and civilly committed patients who cannot function in the other wards. The average annual cost per client ranged from $67,000 to $81,000 per year in 1998-99.

The Eastern Oregon Psychiatric Center (EOPC) in Pendleton serves 60 general psychiatric patients.

Federal funding, primarily from Title XIX, pays part of the cost of care for certain patients under age 21 or over 65. The state hospitals also receive federal Disproportionate Share Hospitals (DSH) funding. MHDDSD expects to receive fewer DSH funds for 1999-01 than in 1997-99. An arrangement with the Department of Human Services and the Oregon Health Sciences University (OHSU), and additional General Fund, will backfill expected DSH reductions.

Other Funds come from patient resources (primarily Social Security and Veterans benefits), federal Medicare revenues, insurance, OHP capitated payments, Salem Rehabilitation Facility revenues, and a variety of other sources.

Oregon State Hospital has gone from a peak population of 3,545 in 1958 to its current population of about 700 residents. In the process, the role of the hospital has changed from a focus on custody and care to providing active specialized psychiatric treatment. Admission to one of the state's psychiatric hospitals is now limited to patients who are too dangerous to themselves or others to be treated in community-based programs.

In addition to the cost of specialized psychiatric treatment, the cost for new psychotropic medications and other pharmaceuticals is increasing significantly. Another major factor in the cost of hospitalization is the expense of maintaining aging facilities. EOPC has had staffing and program improvements during the 1997-99 biennium, after it lost certification from the federal Health Care Financing Administration (HCFA). The lack of certification reduces federal Medicaid and other revenues that otherwise would be available. EOPC was recertified in January 1999.

OSH Forensic programs are operating under a lawsuit settlement that requires at least 10 hours per week of employment services for each patient. Of the 300 forensics patients, OSH currently is able to serve only 39 percent, another 41 percent receive limited vocational services, and 20 percent receive no services.

The Governor's recommended budget added resources to cover growing facility costs, drug expenditures, and staffing requirements. It was 21.7 percent General Fund and 15.7 percent total funds higher than 1997-99 estimated expenditures as of April 1998. The budget increase reflected the $3.4 million General Fund cost of a new 30-bed forensics ward at Oregon State Hospital. This was approved in the November 1998 budget rebalance plan, to come online January 1999. An additional $2.3 million General Fund and 27.00 FTE was included in the 1999-01 budget to expand nursing, physical therapy and rehabilitation staff at the Oregon State Hospital. This was to improve staff ratios to meet state licensing standards and federal certification requirements. Some long-term vacant clerical support positions were eliminated for budget savings.

The Governor's budget also put $7.9 million in the Emergency Fund as a special purpose appropriation available to the Department of Human Services. Part of this was to address the potential shortfall in DSH revenues during 1999-01.

The budget supports added staffing and resources at the Oregon State Hospital. Overtime and other expenditures were reduced slightly from the Governor's budget level. An agreement between the Department of Human Services and the Oregon Health Sciences University will help cover the potential 1999-01 DSH revenue shortfall. As part of the Medicare Upper Limit plan, the legislature reduced General Fund in this program by $10.3 million General Fund and replaced it with Other Funds revenue.