From: YOUNG, LENNY (DNR)
Sent: Thursday, September 10, 2009 6:07 PM
To: DNR DL ALLNRB; DNR DL ALLREGIONS
Subject: Budget Update
In my last e-mail update on DNR’s budget, I mentioned that we were monitoring a projected $11 million hole in the Uplands segment of the Resource Management Cost Account (RMCA). By “hole”, I meant that if revenue projections and planned spending both remained constant, by the end of the biennium (Jun 30, 2011) the Uplands RMCA would have an $11 million deficit. Since that July 8 message, Budget Director Cullen Stephenson and his team have been working to refine the projection. Now, with close-out of the 07-09 Biennium accomplished, completion of 09-11 allotments, and thoughtful work by Product Sales & Leasing Division (PSLD), the gap is projected as $6.2 million. About 60% of this decrease--from $11 million to $6.2 million--is the result of advancing revenue from certain timber sales contracts from the 11-13 Biennium to the 09-11 Biennium, as well as increasing the proportion of timber sales volume that will be sold through contract harvesting instead of stumpage sales. The remainder reflects a moderate increase in forecast timber sales revenue, based on the latest information.
I am encouraged that the projected deficit has decreased by almost $5 million. However, we still are facing a $6.2 million gap. Deciding whether and when to take action to address a projected budget deficit is an important decision. Make cuts too early, when things could later improve, and you run the risk of unnecessary layoffs and reductions in service delivery. Wait too long, and things don’t get better, and you have less time to address the problem: deeper reductions and more layoffs are needed to come up with the same amount of savings in a shorter period of time. The Commissioner, Deputy Supervisor for Uplands Clay Sprague, Cullen, and I have carefully weighed the current Uplands RMCA situation. We feel that we must now take action. We believe that we have factored in the extent to which timber economics may improve over the remainder of the biennium (and remember, our revenue lags ambient economic conditions). More than half of the decrease in the projected deficit we have seen over the past 2 months is due to the good work of our product sales staff doing everything within their powers to improve the situation.
So, here’s what we’re going to do. Dollar amounts are, of course, approximate.
1. As PSLD Manager Jed Herman described in his September 2 posting on DNR’s Sharepoint site, we will sell DNR-owned communication site towers, buildings, and generators to an entity in that line of work, through an external specialty broker. We project $1.0 million revenue for the RMCA from that sale. That narrows the gap to $5.2 million.
2. We believe that agricultural revenues can be increased through focused land transactions, producing $0.2 million additional revenue for the RMCA. That brings the gap down to $5.0 million.
3. We will make further reductions in programs funded by the Uplands segment of the RMCA. This will include consolidating PSLD, Land Management Division, and Asset Management & Recreation Division into 2 new divisions, and eliminating approximately 35 positions by December 1, both in divisions and regions. We are making reductions where we feel we can without damaging the viability of our management programs or losing the ability to meet our obligations. As before, our first decisions were to identify functional reductions needed to achieve savings. Most of these reductions involve parts of our product sales program where there is little or no current revenue potential, as well as services that support these operations. Positions that will be eliminated flow from these functional reductions; accordingly, some work units will be more heavily impacted than others. These reductions will reduce the gap to about $1.0 million.
4. We will carefully monitor the remaining gap as the biennium progresses. If it becomes apparent, as we approach the end of the biennium, that a gap persists, we will redirect other resources to entirely close the gap. We have enough time in front of us to move forward with this level of uncertainty.
Although I have emphasized the Uplands segment of the RMCA, I want to note that the Forest Development Account (FDA), our other major uplands management account, also is under pressure. Cullen projects that we will end the 09-11 Biennium with about $2.0 million in the FDA. That’s well below the 3-month operating reserve of $5.0 million that we try to maintain. As regards the State General Fund (GF-S), things are stable for the time being. We have heard rumors that we may be asked to make an additional 2 - 5% GF-S expenditure reduction as part of the supplemental budget; however, nothing is firm at this time. The dire state of the Uplands segment of the RMCA, the precarious state of the FDA, and uncertainties surrounding GF-S all underscore how important it is for us to pursue efficiencies and seek additional savings wherever we can.
I had hoped that we would be through with layoffs at the end of June; but, that’s not the case. The expenditure reductions that programs funded by the Uplands segment of the RMCA are now facing are not as large as the $15 million in reductions that we had to accomplish this spring. However, for those who will be affected by additional layoffs, the impact is just as real. As you have done all year long, I know that you will continue to support one another and remain focused on mission accomplishment as we work our way through another difficult stretch. You are a terrific group of colleagues, and I am proud to work with you. As always, please let me know what I can do to help.
Lenny
Leonard Young
Department Supervisor
Washington State Department of Natural Resources (DNR)
(360) 902-2121
lenny.young@dnr.wa.gov
www.dnr.wa.gov
