M00I
Chronic Disease Services
Department of Health and Mental Hygiene
Operating Budget Data
($ in Thousands)
FY 06 FY 07 FY 08 FY 07-08 % Change
Actual Working Allowance Change Prior Year
General Fund $36,853 $38,977 $38,987 $10
Special Fund 4,400 5,468 4,806 -662 -12.1%
Reimbursable Fund 590 474 451 -23 -4.9%
Total Funds $41,843 $44,919 $44,244 -$675 -1.5%
! The allowance is $0.7 million less than the fiscal 2007 working appropriation, a decrease of
1.5%. The decline is largely due to a $0.5 million decrease in pharmaceutical costs driven by
a change in renal medications and a $0.3 million decrease in personnel expense. The decrease
in personnel expense is the result of a one-time savings in retiree health insurance costs.
! Adjusting for the one-time savings, the proposed budget exceeds the adjusted fiscal 2007
working appropriation by approximately $0.8 million, or 1.9%.
Personnel Data
FY 06 FY 07 FY 08 FY 07-08
Actual Working Allowance Change
Regular Positions 569.80 568.30 568.30 0.00
Contractual FTEs 18.45 21.57 19.23 -2.34
Total Personnel 588.25 589.87 587.53 -2.34
Vacancy Data: Regular Positions
Turnover, Excluding New Positions 26.99 4.75%
Positions Vacant as of 12/31/06 51.00 8.97%
! In fiscal 2007, 1.5 food service positions were abolished as part of a Department of Health
and Mental Hygiene initiative to reduce costs in this area.
Note: Numbers may not sum to total due to rounding.
For further information contact: Stacy A. Collins Phone: (410) 946-5530
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
! The projected fiscal 2008 turnover rate of 4.75% is 4.22 percentage points lower than the
current vacancy rate of 8.97%. To achieve this turnover rate in fiscal 2008, it will be
necessary to maintain 27 vacancies. Currently the department has 51 vacancies, of which 2
have been vacant for longer than 12 months.
Analysis in Brief
Major Trends
Medication Error Rates Consistently Lower Than Internally Established Benchmarks: Between
fiscal 2004 and 2006, the medication error rate at the hospitals has remained well below the internal
historical benchmark rates of 12.8 and 6.9 errors per 1,000 patient care days (PCD) at Western
Maryland Hospital Center (WMHC) and Deer’s Head Hospital Center (DHHC) respectively.
Additionally, the error rates have remained relatively stable at each institution over the past three
years.
Fall Rates Remain Lower Than Internal and National Benchmarks: Over the past three years, the
fall rate at WMHC and DHHC has remained significantly below the national benchmark range of
11.0 to 24.9 falls per 1,000 PCD.
Recommended Actions
1. Concur with Governor’s allowance.
Updates
Renal Dialysis Cost Recovery’s Decrease: Cost recoveries at both centers are projected to continue
to decrease in fiscal 2008 due to costs rising faster than third party payer reimbursements and an
increase in the number of chronic hospital inpatients receiving dialysis treatments.
Analysis of the FY 2008 Maryland Executive Budget, 2007
2
M00I
Chronic Disease Services
Department of Health and Mental Hygiene
Operating Budget Analysis
Program Description
The State’s two chronic hospital centers, Western Maryland Hospital Center (WMHC) and
Deer’s Head Hospital Center (DHHC), provide specialized services for those in need of complex
medical management, comprehensive rehabilitation, long-term care, or dialysis. Specifically, both
centers provide:
• chronic care and treatment to patients requiring rehabilitation at a level greater than that
available at a nursing home;
• long-term nursing home care for patients no longer in need of hospital-level care but unable to
function in traditional nursing homes; and
• inpatient and outpatient renal dialysis services.
Performance Analysis: Managing for Results
Exhibit 1 shows the medication error rate per 1,000 patient care days (PCD) at WMHC and
DHHC. A medication error is defined as any preventable event that may cause or lead to
inappropriate medication use or patient harm while the medication is in control of the health care
professional, patient, or consumer. According to the Food and Drug Administration, medication error
rates cause at least one death every day and injure approximately 1.3 million people annually in the
United States. Between fiscal 2004 and 2006, the medication error rate at both hospitals has
remained well below the internal historical benchmarks of 12.8 and 6.9 errors per 1,000 PCD at
WMHC and DHHC respectively. Additionally, the error rate at both hospitals has not fluctuated
significantly since fiscal 2004.
Due to different patient populations, reporting methods, definitions, and cultures, a universally
accepted national standard for medication error rates does not exist. For this reason, the goal at both
hospitals is to show an internal decline in the medication error rates over time. Between fiscal 2004
and 2006, both centers have successfully reduced their medication error rates.
Although the reporting methods and definition of a medication error are the same at both
centers, the patient populations are very different. The higher medication error rates at WMHC are
due to more chronic hospital patients and fewer nursing home patients as compared to DHHC.
Chronic hospital patients are typically sicker and require more medications, which naturally leads to
more opportunities for errors.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Exhibit 1
Medication Error Rate
Per 1,000 Patient Care Days
8.0
6.0
4.0
2.0
0.0
FY 04 FY 05 FY 06 FY 07 FY 08
Actual Actual Actual Est. Est.
Western Maryland Center Deer's Head Center
FY 04 FY 05 FY 06 FY 07 FY 08
Actual Actual Actual Est. Est.
Western Maryland Center 6.0 5.2 5.6 5.4 5.2
Deer's Head Center 4.2 2.6 3.4 3.5 3.5
Source: Department of Health and Mental Hygiene
To maintain a culture of safety, medication errors are reviewed monthly at WMHC and
quarterly at DHHC to identify trends and to improve processes and procedures. Additionally, nurses
are audited annually through direct observation to determine compliance with medication delivery
policies.
Exhibit 2 shows the fall rate per 1,000 PCD at WMHC and DHHC. A “fall” is defined as
anytime a patient hits the floor, from any height, for any reason. Nurses assess patients for fall
potential on admission and at established intervals using a fall assessment tool. The tool assists staff
to determine fall potential and to initiate fall prevention interventions. Fall precautions include using
bed and wheelchair alarms, adjusting bed heights, establishing a clutter free environment, and placing
a falling leaf sign outside of a patient’s room as a reminder to the staff. As shown in Exhibit 2,
between fiscal 2004 and 2006, the fall rate at WMHC has remained well below the internal historical
rate of 4.8 falls per 1,000 PCD. At DHHC, the fall rate approximated the internal historical
benchmark of 8.0 falls per 1,000 PCD in each of the last three fiscal years. The higher fall rates at
DHHC are due to a difference in reporting requirements and a higher number of ambulatory patients.
Although no universally accepted national benchmark exists for fall rates, a range of between 11.0 to
24.9 falls per 1,000 PCD is generally accepted. The fall rate at both hospitals remains well below this
range. To reduce fall rates, patient safety is discussed at regular intervals or immediately if a patient
demonstrates a change in condition.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Exhibit 2
Patient Fall Rate
Per 1,000 Patient Care Days
10
8
6
4
2
0
FY 04 FY 05 FY 06 FY 07 FY 08
Actual Actual Actual Est. Est.
Western Maryland Center Deer's Head Center
FY 04 FY 05 FY 06 FY 07 FY 08
Actual Actual Actual Est. Est.
Western Maryland Center 1.3 0.9 1.3 1.2 1.1
Deer's Head Center 7.7 8.3 7.6 8.0 8.0
Source: Department of Health and Mental Hygiene
Governor’s Proposed Budget
The fiscal 2008 allowance is $0.7 million less than the fiscal 2007 working appropriation, a
decrease of 1.5%. The decrease is primarily due to lower personnel costs as a result of one-time
retiree health insurance savings and reduced pharmaceutical and medical supply costs. If not for the
one-time savings, the allowance would exceed the fiscal 2007 working appropriation by
approximately $0.8 million, or 1.9%. Changes to the budget are detailed in Exhibit 3.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Exhibit 3
Governors Proposed Budget
DHMH – Chronic Disease Services
($ in Thousands)
General Special Reimb.
How Much It Grows: Fund Fund Fund Total
2007 Working Appropriation $38,977 $5,468 $474 $44,919
2008 Governor's Allowance 38,987 4,806 451 44,244
Amount Change $10 -$662 -$23 -$675
Percent Change -12.1% -4.9% -1.5%
Where It Goes:
Personnel Expenses
Increments and other compensation ................................................................................. $577
Contribution to employee retirement system.................................................................... 433
Increase in overtime earnings ........................................................................................... 105
Turnover adjustments ....................................................................................................... 31
Health insurance costs decline due to one-time savings................................................... -1,075
Workers' compensation premium assessment ................................................................. -116
Other changes including a shift in workforce to newer employees .................................. -264
Other Changes
Medical care costs, including physician and pharmacy services .................................... 130
Replacement of medical equipment including centrifuges, a blood gas machine,
ventilators, bariatic equipment, and dialysis equipment.................................................. 107
Refurbished lab equipment ............................................................................................. 57
Installation of compressed air, oxygen, and vacuum outlets ........................................... 45
Agency nursing and medical care, based on fiscal 2006 actual expenditures ................. 45
Food expenses, based on fiscal 2006 per capita costs .................................................... 26
Other administrative changes ......................................................................................... 23
Pharmaceutical and medical supply costs ....................................................................... -466
Prior year equipment purchases ...................................................................................... -173
Anticipated reduction in utilities .................................................................................... -125
Transfer of donated funds to the Deer's Head Center Foundation................................... -35
Total -$675
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Personnel Expenses
Although the staffing level has not changed from fiscal 2007, personnel costs are increasing
by $1.2 million (excluding retiree health insurance spending). The increase is largely attributable to a
$0.6 million increase in increments and a $0.4 million increase in employee retirement contributions.
Operating Expenses
Operating expenses, excluding personnel costs, decrease $0.4 million in the fiscal 2008
allowance. The decrease in the budget is primarily due to lower pharmaceutical costs and a projected
decline in utility expense. Significant changes are discussed below.
The cost of medical care, including physician and pharmacy services, is expected to increase
$0.1 million at the centers. The majority of the increase is related to pharmacy services, including
pharmacists and drugs that are purchased through a contract. The pharmaceutical allowance is based
on drug costs in April and May 2006, plus inflation, to reflect the impact of the Medicare Part D
prescription drug benefit that took effect January 1, 2006.
Kidney dialysis drugs, as well as some drugs used in the hospital and nursing home, are
purchased through private vendors rather than the pharmacy contract to ensure a readily available
supply. Based on fiscal 2006 actual expenses and medical inflation, these costs are projected to
decrease $0.5 million in fiscal 2008. The decrease is mainly attributable to the substitution of a
common drug used to treat kidney dialysis patients at Deer’s Head Center with a similar but more
cost effective medication. These drugs are not covered under Medicare Part D.
Equipment expenses increase $0.1 million in fiscal 2008, due to the replacement of existing
equipment and the purchase of several new pieces of equipment. Equipment purchases include
diagnostic lab equipment, eliminating the need to use an outside lab for some services, and the
installation of compressed air outlets at Deer’s Head Center. Currently, the hospital has no
compressed air outlets. These outlets increase safety by reducing the need to use free standing high
pressure oxygen tanks. Other equipment purchases include the replacement of 11 personal
computers, 27 televisions, a freezer, and a wheelchair washer at Deer’s Head Center. These
equipment costs, which total $0.3 million, are offset by $0.2 million in prior year equipment
purchases.
Donated funds decrease $34,932 due to the transfer of the funds to the Deer’s Head Center
Foundation. The transfer is the result of a July 2005 Office of Legislative Audits recommendation to
consult with legal counsel on how to properly account for the funds. The Attorney General
recommended transferring the money into the custody of the Deer’s Head Center Foundation.
New General Fund Revenue Source
DHHC has an agreement in principle with the United States Veterans Affairs Administration
to provide medical services to veterans on the Eastern Shore. Currently, there are two Veterans
Administration (VA) medical centers in the State, one in Baltimore and one in Perry Point. At this
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
time veterans on the Eastern Shore have to travel to one of the two VA medical centers to receive
medical care. This agreement allows veterans to receive medical services at DHHC. The budget
assumes $0.6 million in general fund revenue for reimbursement of services provided to the veterans.
These additional services add $0.1 million to the budget primarily in the areas of pharmaceuticals,
medical supplies, and food costs.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Recommended Actions
1. Concur with Governor’s allowance.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Updates
1. Renal Dialysis Cost Recovery’s Decrease
The renal dialysis units at Western Maryland Hospital Center and Deer’s Head Hospital
Center are supported with general funds and collections from patients and third-party payers. The
percent of expenses recovered is influenced by many factors including the number of treatments
provided, patient acuity, patient case mix (outpatients vs. inpatients), drug costs, and third-party
reimbursement rates. Exhibit 4 shows the fluctuations in revenues and expenditures since fiscal
2004.
Exhibit 4
Renal Dialysis Costs and Revenues
Fiscal 2004-2008
2004 Actual 2005 Actual 2006 Actual 2007 Est. 2008 Est.
Western Maryland Center
Special Funds $575,829 $526,117 $407,974 $664,743 $514,752
General Funds 158,829 223,612 601,249 191,281 430,818
Total $734,658 $749,729 $1,009,2231 $856,024 $945,570
Percentage
Recovered 78% 70% 40% 78% 54%
Deer’s Head Center
Special Funds $4,421,656 $3,903,334 $3,138,000 $3,906,622 $3,207,453
General Funds 219,677 961,877 1,118,026 1,156,856 1,193,455
Total $4,641,333 $4,865,211 $4,256,026 $5,063,478 $4,400,9082
Percentage
Recovered 95% 80% 74% 77% 73%
(1)
Fiscal 2006 cost appears higher due to the inclusion of 1.5 additional staff and 14 months of drug costs.
(2)
Fiscal 2008 Deer’s Head Center drug costs are projected to be lower due to the substitution of a common drug used
to treat kidney dialysis patients with a similar but more cost effective medication.
Source: Department of Health and Mental Hygiene
Losses experienced by the two facilities are primarily the result of costs rising faster than
Medicare and Medicaid reimbursement rates, particularly for hospital services. Additionally, both
centers are seeing an increase in the number of chronic hospital inpatients requiring dialysis. This is
likely due to an aging population and a higher prevalence of obesity in our society. The dialysis
units, however, cannot bill directly for treatments provided to chronic hospital inpatients due to the
hospitals’ federal all-inclusive rates. The hospital bills the third-party payers directly, and the
reimbursement is deposited into the general fund. The portion of the reimbursement that is
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
attributable to the dialysis treatment is returned to the dialysis unit as special funds. However, these
rates are lower than the rates the dialysis unit bills for outpatient services. Therefore, inpatient billing
is not as lucrative as billing for outpatient services.
The combination of costs rising faster than third-party payer reimbursements and an increase
in the number of chronic hospital inpatients receiving dialysis treatments reduced cost recoveries at
both centers in fiscal 2005. In fiscal 2006, cost recoveries at Deer’s Head Center decreased due to the
same factors that influenced fiscal 2005. At Western Maryland Center, cost recoveries decreased
substantially in fiscal 2006 due to the addition of 1.5 full-time equivalent positions and the inclusion
of 14 months of drug costs. Deficits incurred in prior years, pushed forward two additional months of
drug expenses. Although cost recoveries appear to rebound in fiscal 2007, the department believes
special funds may be overstated. In fiscal 2008, cost recoveries at both hospitals are projected to
decrease due to the same factors that influenced fiscal 2005 and 2006.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Appendix 1
Current and Prior Year Budgets
Current and Prior Year Budgets
Chronic Disease Services
($ in Thousands)
General Special Federal Reimb.
Fund Fund Fund Fund Total
Fiscal 2006
Legislative
Appropriation $35,338 $5,138 $0 $577 $41,053
Deficiency
Appropriation 0 0 0 0 0
Budget
Amendments 1,515 25 0 14 1,554
Cost Containment 0 0 0 0 0
Reversions and
Cancellations 0 -763 0 0 -763
Actual
Expenditures $36,853 $4,400 $0 $590 $41,843
Fiscal 2007
Legislative
Appropriation $37,922 $5,426 $0 $474 $43,822
Budget
Amendments 1,055 42 0 0 1,097
Working
Appropriation $38,977 $5,468 $0 $474 $44,919
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Fiscal 2006
In fiscal 2006, the budget for Chronic Disease Services closed out at $41.8 million, which is
almost $0.8 million more than the legislative appropriation.
The general fund appropriation increased $1.5 million. Of that amount, $0.7 million reflects
the transfer of funds from the Department of Budget and Management (DBM) to Western Maryland
Hospital Center to support health insurance costs. Funds were further increased $0.4 million at
Western Maryland Hospital Center to replace equipment and to fund increased natural gas costs; and
$0.2 million at Deer’s Head Center to support building repairs and higher energy costs. Funds were
again increased $0.2 million at Western Maryland Center and $0.1 million at Deer’s Head Center to
recognize the fiscal 2006 cost-of-living (COLA) adjustment. Additionally, funds were increased
$0.2 million at Deer’s Head Center and decreased $0.3 million at Western Maryland Center to reflect
the realignment of health insurance funds among departmental units.
Western Maryland Hospital Center’s special fund appropriation increased by $25,144 due to
higher food expense associated with preparing meals for hospital patients. Funds were cancelled
because the appropriation for renal dialysis at both centers exceeded collections.
Western Maryland Hospital Center received $13,831 in reimbursable funds from the
Maryland Emergency Management Agency to cover Hurricane Katrina-related overtime
expenditures.
Fiscal 2007
The Chronic Disease Services working appropriation for fiscal 2007 is $1.1 million higher
than the legislative appropriation. General funds increased $1.0 million reflecting the 2006 COLA
($0.6 million), increased utilities rates ($0.3 million), and the reallocation of the Annual Salary
Review adjustment budgeted within DBM ($0.1 million). The salary adjustments will mostly fund
shift differentials for licensed practical nurses, direct care assistants, and registered nurses.
The special fund appropriation increased $41,961 representing the hospitals share of the
fiscal 2006 COLA originally budgeted in DBM.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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M00I – DHMH – Chronic Disease Services
Appendix 2
Audit Findings
Western Maryland Hospital Center
Audit Period for Last Audit: August 18, 2003 – June 4, 2006
Issue Date: December 2006
Number of Findings: 6
Number of Repeat Findings: 2
% of Repeat Findings: 33%
Rating: (if applicable) n/a
Finding 1: Adequate internal controls were not established over materials and supplies.
Finding 2: Pharmaceutical invoices were paid without adequate verification of the items received
and the costs charged.
Finding 3: Western Maryland Center’s fundraising activities did not comply with the Department
of Health and Mental Hygiene’s policies.
Finding 4: Adequate controls were not established over patient funds.
Finding 5: Western Maryland Center was not performing an independent accounting of
prenumbered receipt forms.
Finding 6: Western Maryland Center did not always obtain competitive bids when procuring
goods and services, as required by the State Procurement Regulations.
*Bold denotes item repeated in full or part from preceding audit report.
Analysis of the FY 2008 Maryland Executive Budget, 2007
14
Object/Fund Difference Report
DHMH – Chronic Disease Services
FY07
FY06 Working FY08 FY07 - FY08 Percent
Object/Fund Actual Appropriation Allowance Amount Change Change
Positions
01 Regular 569.80 568.30 568.30 0 0%
Analysis of the FY 2008 Maryland Executive Budget, 2007
02 Contractual 18.45 21.57 19.23 -2.34 -10.8%
M00I – DHMH – Chronic Disease Services
Total Positions 588.25 589.87 587.53 -2.34 -0.4%
Objects
01 Salaries and Wages $ 29,642,773 $ 32,277,911 $ 31,968,648 -$ 309,263 -1.0%
02 Technical and Spec Fees 842,453 853,827 835,746 -18,081 -2.1%
03 Communication 118,489 132,804 117,939 -14,865 -11.2%
04 Travel 24,516 22,806 23,997 1,191 5.2%
06 Fuel and Utilities 1,265,985 1,515,186 1,396,005 -119,181 -7.9%
07 Motor Vehicles 58,597 45,957 43,941 -2,016 -4.4%
15
08 Contractual Services 2,792,366 2,424,701 2,572,293 147,592 6.1%
09 Supplies and Materials 6,318,297 7,186,342 6,759,946 -426,396 -5.9%
10 Equipment - Replacement 499,821 146,668 173,536 26,868 18.3%
11 Equipment - Additional 144,319 153,161 210,015 56,854 37.1%
12 Grants, Subsidies, and Contributions 32,701 69,769 34,837 -34,932 -50.1%
13 Fixed Charges 102,529 89,802 106,649 16,847 18.8%
Total Objects $ 41,842,846 $ 44,918,934 $ 44,243,552 -$ 675,382 -1.5%
Funds
01 General Fund $ 36,852,719 $ 38,977,246 $ 38,986,952 $ 9,706 0%
03 Special Fund 4,399,718 5,467,769 4,805,726 -662,043 -12.1%
09 Reimbursable Fund 590,409 473,919 450,874 -23,045 -4.9%
Total Funds $ 41,842,846 $ 44,918,934 $ 44,243,552 -$ 675,382 -1.5%
Appendix 3
Note: The fiscal 2007 appropriation does not include deficiencies, and the fiscal 2008 allowance does not reflect contingent reductions.
Fiscal Summary
DHMH – Chronic Disease Services
FY06 FY07 FY08 FY07 - FY08
Program/Unit Actual Wrk Approp Allowance Change % Change
01 Services and Institutional Operations $ 20,852,581 $ 22,164,539 $ 21,995,686 -$ 168,853 -0.8%
01 Services and Institutional Operations 20,990,265 22,754,395 22,247,866 -506,529 -2.2%
Analysis of the FY 2008 Maryland Executive Budget, 2007
Total Expenditures $ 41,842,846 $ 44,918,934 $ 44,243,552 -$ 675,382 -1.5%
M00I – DHMH – Chronic Disease Services
General Fund $ 36,852,719 $ 38,977,246 $ 38,986,952 $ 9,706 0%
Special Fund 4,399,718 5,467,769 4,805,726 -662,043 -12.1%
Total Appropriations $ 41,252,437 $ 44,445,015 $ 43,792,678 -$ 652,337 -1.5%
Reimbursable Fund $ 590,409 $ 473,919 $ 450,874 -$ 23,045 -4.9%
Total Funds $ 41,842,846 $ 44,918,934 $ 44,243,552 -$ 675,382 -1.5%
16
Note: The fiscal 2007 appropriation does not include deficiencies, and the fiscal 2008 allowance does not reflect contingent reductions.
Appendix 4