We are living in difficult times.
On Thursday Oregon's Office of Economic Analysis issued an updated revenue forecast that reflects a sharp reduction in projected revenues. We are now facing a $577 million budget shortfall for the remainder of the 2009-2011 budget. This shortfall must be made up by June of next year.
In this message I want to share the actions we are taking at DHS and how we are approaching the decisions ahead.
In response to the budget hole, the Governor has directed all state agencies to implement across-the-board cuts of over 9 percent. Under state law, this is the only authority the Governor has to directly address the shortfall without a special session of the Legislature. The DHS portion of those cuts would be approximately $158 million.
And as you know, the majority of the DHS budget pays for services to Oregonians, not employees. More than 85 percent of the DHS budget is paid to private providers such as doctors through the Oregon Health Plan, foster parents through child welfare, long-term care services for seniors and people with disabilities and prevention and treatment for people living with addictions and mental illness. Only a small percentage of our budget pays for salaries and administrative overhead.
Our goal, as always, is to be as strategic as possible to minimize impact to our clients. With this large of a deficit halfway through the budget cycle, some difficult choices must be made, particularly as we continue to deal with the record levels of human services need due to the down economy.
As these are difficult times for our clients, they are also difficult times for DHS employees. I know that the furloughs have caused hardships. The families of state workers have not been exempt from the impacts of the recession and the budget shortfall means those sacrifices will continue for a while longer. The Governor has affirmed that the furloughs already on the schedule for all state employees will continue throughout the 2009-2011 biennium. Pay freezes will also continue for management service and non-represented workers. Those savings will be included in the DHS reductions, but they will be a small part of the total reductions.
I also want to be very clear: layoffs are a last resort. While the Governor has stated publically that the severity of the budget shortfall means some layoffs statewide are inevitable, he has also asked that agencies work with union representatives to explore other alternatives.
Over the past biennium there has been a hiring freeze in effect for DHS with a few exceptions such as Oregon State Hospital and front-line child welfare workers. Those hiring freezes will continue for the rest of the biennium. Also continuing will be limits on non-essential travel and other activities.
The Governor has called for the list of cuts to be submitted by June 8 -- within two weeks. DHS will be using previous input from stakeholders and partners on our budget to help guide our response. DHS leadership held an emergency Cabinet meeting to discuss how to create a list of cuts to meet the target number. Each division will submit recommendations and the Cabinet will create a plan to submit to the Governor.
It is possible that DHS could receive an extension of federal stimulus funds to cover the current projected shortfall. However, that extension is far from certain and we are submitting a scenario to the Governor that does not include it. In reality, the funds would delay budget cuts, not eliminate them if the economy does not improve dramatically. The current projected budget shortfall for 2011-2013 biennium is approximately $2.5 billion.
As we plan for the implications of this budget shortfall, I will keep you informed every step of the way. And we must also continue to move forward.
Work to create the new Department of Human Services and Oregon Health Authority is not slowing down. As we build these two organizations we must continually improve our work and services -- we must be strategic and innovative to meet increasing demand with fewer resources.
This budget crisis ultimately will affect each and every Oregonian. And DHS employees are on the front lines of the recession. I know you have all made sacrifices in order to meet increasing demand for health and human services. I also know how hard it is to conceive of cutting services for our clients even further. We are all here because we want to help people and make Oregon a better place.
I cannot fully express how grateful I am to you for the work you do and how important you are to Oregon. Public service is a noble calling, and never more so than during times of trial. Thank you for everything you do, large and small, to help our state every day.