DHS $172 Million Shortfall Based on Flawed Forecast?

In my last newsletter I stated the following relating to the anticipated DHS shortfall: “”¦there are dark clouds forming over Oregon’s Department of Human Services. The new DHS Director is working with his staff to generate accurate figures, and presently expects the shortfall to exceed $55 million. When the audit is completed I expect it will be at least double that amount, and maybe even multiples of that amount.”

The audit is complete and the DHS shortfall is forecasted to be $172 million. The Oregonian’s December 29, 2005 Editorial stated, “No one, not even agency director Bruce Goldberg, seems able to fully explain how DHS could fall so far into the red only 150 days into a new budget. “

One reason for the confusion is the DHS 2005 Fall Forecast appears to be fatally flawed. The primary costs in the current DHS financial crisis are found in the increased caseloads of the Oregon Health Plan Plus (OHP+) from the 2005 Spring Forecast to the 2005 Fall Forecast. These Forecasts of the OHP+, and its eight components, are found in the Medical Assistance Programs””Fall 2005 Forecast booklet.

Ruler Forecasting. If you carefully review this Fall Forecast booklet you will find the Spring 2005 Forecast was primarily based on average caseloads for the six month period from April-September 2004, and the Fall 2005 Forecast was primarily based on the average caseloads of the six month period from October 2004-March 2005. Although the DHS forecasters use a forecasting model that is much more complex than merely looking at outdated six-month averages and using a ruler to extend those six-month averages to get a forecast for the next two or three years, the booklet’s Graph 12 (p. 20), shows a remarkable correlation between the six-month data periods and the Spring and Fall 2005 Forecasts. The consistency of the future caseload forecasts with the six month data periods appears more than coincidental, and the consequences of using outdated data for the 2005-07 DHS budget are catastrophic.

Current DHS caseload information. Is there is a better way to obtain a more accurate DHS forecast? Absolutely. No successful business would make 2006 and 2007 budgeting decisions based on 2004 data. Neither should DHS. Its computers have compiled caseload data as recent as November 15, 2005. This DHS spreadsheet explains why I believe the Fall 2005 Forecast is not a “real” estimate of DHS’s actual shortfall.

Contrast for instance, the TANF (Temporary Assistance for Needy Families) forecast figures with current actual caseload figures. The Spring 2005 TANF caseload forecast was 129,208; the Fall 2005 Forecast is 149,000. Thus in the six month between the Spring and Fall Forecasts the anticipated caseloads were increased by 20,000 cases””a huge cost increase to the DHS 2005-07 budget. The actual TANF 2005 caseload figures tell a different story. Actual TANF caseloads were as follows: May 2005, 136,649; June 2005, 136,049; July 2005, 136,031; August 2005, 137,041; and November 2005, 137,039 (estimated).

Thus, the actual increase in average TANF caseloads for 2005 is less than 40% of the projected increase contained in the Fall 2005 Forecast. Fewer cases mean lower costs.

Public disclosure of DHS numbers. On January 11, 2006 at 9:00 a.m. the Legislature’s DHS Review Task Force will conduct hearings at the Capitol. (To tune in for the live Audio and Video Feed go to: http://www.leg.state.or.us/listn/ ) The subject will be the Fall 2005 Forecast, and the questions to be answered by DHS include the following:

1. In light of the 2005 actual caseload numbers, what is the “real” DHS shortfall number?

2. What are the components of the “real” DHS shortfall number? (Line-by-line.)

3. What savings has DHS implemented that will affect the “real” number?

4. What is the new DHS Director proposing that will improve the reliability and lessen the volatility of future DHS Forecasts?

In conclusion, the Oregonian Editorial, mentioned above, rightly stated, “”¦the Legislature should not give another dime to the Department of Human Services until it is clear how the agency got into such a mess and legislators are convinced that it is not going to happen again.” The DHS Review Task Force will obtain additional information at next week’s hearing that will help the Legislature prepare to deal with the DHS shortfall in a rational manner. First we must determine what the actual DHS shortfall is and how it occurred. Only then can the Governor, Senate and House leadership determine an appropriate course of action.


Hon. Dennis Richardson