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Governor's Message
To the Citizens of Oregon
As we enter a new century, we can look back on a hundred years of progress in making and keeping Oregon the best place in the world to live. As I submit this budget for the fiscal years 2001-03, I do so with this great accomplishment in mind; knowing that we are taking the next steps forward in extending our prosperity and maintaining our quality of life.
This budget reflects the growth in our economy, the growth in our population and the growth in the State’s responsibility to finance education, health care and public safety. It is a very tight budget and reflects the need to cover unanticipated revenue losses from lawsuits, a reduction in federal matching dollars and a 60 percent increase in prescription drug costs. It reflects the use of revenues from the national tobacco settlement, which, while scheduled to continue for many years, are not as stable as income tax revenues. This budget reflects the $159 million income tax cut adopted by voters in Measure 88 and the difficult choices we have had to make in public safety and human services as a consequence.
This budget also reflects the growing discrepancy between the state budget and the revenue that supports it. Part of this discrepancy is due to the revenue losses just mentioned. But this discrepancy also reflects the growth in our human services and public safety budgets that is due, in large part, to our failure to invest in the youngest Oregonians—even before they reach school age.
We know that a growing number of Oregon children are exposed to a set of risks that correlate with school failure, school drop-out and subsequent involvement with the social welfare system and/or the criminal justice system. For example, 36 percent of incarcerated adults, 35 percent of incarcerated youth and 14 percent of those receiving public assistance dropped out of school. In addition, 85 percent of incarcerated youth and 77 percent of incarcerated adults suffer from an untreated drug abuse problem.
Therefore, this budget proposes to fund the Oregon Children’s Plan, which represents a significant shift in state priorities. Currently, we invest a substantial and growing part of the General Fund budget to address these problems after they have occurred. The Oregon Children’s Plan will target resources toward those children with the highest risk of this tragic future before these problems develop. This investment represents a reprioritization of resources from after-the-fact intervention to front-end prevention and treatment.
This new initiative, in conjunction with a major investment in education, reflects an important commitment to better schools, colleges and universities, and a more focused commitment to helping our children succeed.
Let me share the highlights of this joint effort.

Last month, the voters approved Ballot Measure 1, which calls on the governor and the Legislature to provide funding adequate to meet the goals of the Education Act for the 21st Century. To implement that charge, I have used the Quality Education Model, a model developed to help determine the resources needed to ensure that our children achieve the high academic standards we have set for them.
Using this tool as a guide, I have budgeted $4.994 billion for the K-12 appropriation plus an additional $220 million targeted to ensuring that 90 percent of 3rd and 5th graders meet or exceed the state reading benchmark within four years (for a total K-12 appropriation of $5.21 billion). This targeted investment represents the first phase in fully funding the Quality Education Model. For the first time, Oregon will approve a K-12 budget that is built directly around the outcomes expected in the classroom.
In addition to K-12, I have budgeted $20 million to improve engineering education in Oregon; $45 million to help cover enrollment growth in our community colleges, and $7.2 million to expand higher education in Central Oregon and to serve as a model for expanding geographic access to four-year degrees throughout the state. I have also dedicated $10 million per year from the national tobacco settlement, beginning in 2002-03, to support expanded biotechnology research at the Oregon Health Sciences University. This funding, coupled with private investments, will allow OHSU to become a magnet to attract an estimated $300 million in out-of-state medical research revenue each year.

The Oregon Children's Plan
The significant investment this budget commits to primary and secondary education cannot be justified unless we also take aggressive steps to reduce the number of children who, because of the conditions to which they have been exposed, enter school unable to fully engage in learning. Toward that end, I have budgeted $66 million to fund the Oregon Children’s Plan – a plan that will allow us to screen all first births in Oregon, on a voluntary basis, and offer those children and families at risk, access to community and in-home services.
By working with first-time mothers and their families—and by learning which of those families face either social or medical risks (such as being a single parent, a teen-age parent, having a history of drug addiction or being unemployed), we will be able to accomplish two important objectives. First, we will be able to help children who need it the most with the services to address their particular problems. Second, we will provide the opportunity for new parents to learn important parenting skills and to receive assistance with their first child.
Statistics show that 60 percent of first-born children face either some social or medical risk. Being able to identify those children early will help them get a healthy start in life, help them be ready to learn when they get to school and help them avoid the increasing problem of school failure, school dropout and subsequent involvement in the criminal justice system. It is estimated that every dollar invested in this kind of early prevention will reduce later costs by $4.25.
While the Oregon Children’s Plan represents an historic beginning for our state, we must not be blind to the fact that our current budget constraints leave this effort woefully underfunded. While we propose to screen all first births, these represent only 18,000 of the over 44,000 births that take place in Oregon each year. We cannot rest until we are able to offer these important services and protections to all of Oregon’s children.
It is also important to recognize that in order to afford the initiatives I have been able to include in this budget, I have been forced to propose real cuts in other important services. For example, we will reduce the number of state police sworn officers; we will close 150 beds in the Oregon Youth Authority; we will end Oregon Project Independence which helps senior citizens stay in their homes.
These are very difficult choices that carry with them very real human consequences. It is my hope that, in the course of the legislative session, many of these services can be restored. In the short term, however—and to the extent that fiscal limits make difficult decisions inevitable—I am willing to defend these choices on the basis that putting an emphasis on prevention reflects a higher priority than paying more to mitigate problems after they have developed.

National Tobacco Settlement
To the greatest extent possible, I wish to see these revenues used for health care-related purposes, including tobacco use prevention. In addition to the $10 million to support biotechnology research at OHSU, I have recommended two additional expenditures. First, I have proposed using $22 million to support the Family Health Insurance Assistance Program, which was started with revenue from the tobacco tax increase produced with the passage of Ballot Measure 44 in 1996. Second, I have budgeted $7 million for tobacco use prevention. I believe that the bulk of the tobacco settlement revenue, however, should be put into a Health Care Trust Fund and I have budgeted $100 million for that purpose.
In this budget, while I have recommended using $110 million of the tobacco revenue for primary and secondary schools, I do so with the full knowledge that the settlement should not be viewed as a new long term, stable revenue source. As General Fund revenue grows during the remainder of this biennium, I recommend that a first priority be to replace the tobacco revenue in the K-12 budget with income tax revenue and to move the tobacco revenue into the Health Care Trust Fund. Likewise I recommend that, as income tax revenue becomes available, the $99.2 million of Tobacco settlement revenue transferred to the General Fund also revert to the trust fund.
I look forward to working with Oregonians and with the Legislative Assembly to debate this budget in the upcoming year and to move forward in the best interest of our state.
John A. Kitzhaber, Governor