REPORT NO. 122, VOLUME 76-- WEDNESDAY, JUNE 20 2007

SOCIAL SECURITY NUMBERS OF 225,000 TAXPAYERS ALSO AMONG STOLEN STATE DATA, GOVERNOR ANNOUNCES

Sensitive personal information of 225,000 taxpayers and other data was also on a computer backup storage device stolen from an intern's car on June 10, Gov. Ted Strickland announced Wednesday.

The names and Social Security numbers of citizens who were issued personal income tax refunds from 2005 through May 29, 2007 but have not cashed the checks is the largest block of non-state employee data that has been determined to be at risk to date.

However Mr. Strickland continued to stress that officials believe it is unlikely that the information could be accessed and used for identity theft because it would require "specialized knowledge and specialized equipment."

Officials said investigators have received a "couple leads" on the theft, which occurred in an apartment complex parking lot in Hilliard, a Columbus suburb. As of Tuesday evening, there have been no reports of identity thefts or attempts at such from people whose information is on the device, Gov. Strickland said.

Along with the Department of Taxation files and other previously announced information, Mr. Strickland and cabinet officials said Wednesday that the device also contained:

--Names and Social Security numbers of 2,488 Ohioans who have yet to redeem checks for unclaimed funds payments.

--Names and Social Security numbers of 602 Ohio Lottery winners with uncashed checks.

--Names and bank account numbers for 650-1,000 electronic funds transactions that could not be completed for one reason or another.

At this point in the administration's ongoing review of the apparently extensive amount of data sets contained on the device, officials have no reason to believe that other taxpayers' personal information was also included, officials said.

Office of Budget and Management Director Pari Sabety likened the latest information identified by the administration to outstanding debt that must be tracked so the state can keep its "checkbook" balanced.

With the latest announcement, Gov. Strickland said the state would extend its offer of one year's worth of free identity theft prevention and protection services from Texas-based Debix, a contract for which the Controlling Board approved on Monday, to other individuals whose information is at risk. (See Gongwer Ohio Report, June 18, 2007)

Despite the expanded pool of potential users of the service, estimated to cost the state nearly $10 per person, Department of Administrative Services Director Hugh Quill said the $630,000 approved by the Controlling Board for the contract would be sufficient given assumptions that only a fraction of those contacted would sign up for the "pay-as-you-go" deal. Additionally, the state is in discussions with the firm to reduce the per-person cost, he said.

Citizens, including lawmakers, have relayed problems with getting signed up for the protection as the company's Web site has been hit with increased frequency since the initial announcement that some 64,000 state employees' data was contained on the device.

Mr. Quill said the administration is working with Debix to address capacity issues.

The state plans to notify the latest list of potentially at-risk people by mail and the letter will include a personal identification number to access the free service. Additionally, a state Web site will be updated by Thursday with a searchable database for citizens to see if their information is contained on the device.

Gov. Strickland urged those who choose not to use the Internet due to further security concerns or other reasons to be patient with a toll-free number (1-800-267-4474) featuring live operators who will answer questions regarding the data. Another number (1-888-644-6812) offers automated informational updates.

The governor said his administration is "very close" to completing a review of the scope of information on the device and further updates would be announced as warranted.

PROPOSED OIT TRANSFER TO BUDGET AGENCY GETS FURTHER SCRUTINY IN LIGHT OF DATA THEFT

Already the subject of heightened scrutiny by the GOP-controlled General Assembly, an administrative plan to switch information technology oversight to the Office of Budget and Management is again under the microscope due to last week's massive state data breach.

The potential implications of the theft of a data storage "device," as described by Gov. Ted Strickland's administration, broadened Wednesday with the announcement that it also included the Social Security numbers and names of some 225,000 taxpayers with uncashed refund checks. (See separate story)

The developments - the theft was made from the car of an OBM intern assigned by a Department of Administrative Services official to take the data off site for security purposes - are likely to be a topic for upcoming conference committee talks on the budget bill (HB 119), Senate President Bill Harris (R-Ashland) acknowledged Wednesday.

"I would assume that issue would be addressed," Sen. Harris said. "Certainly because of the significance of that situation it would beg the question."

The bill currently contains language requested by OBM that shifts the Office of Information Technology to its purview from the Department of Administrative Services.

The House stripped out the language and held hearings on a separate but identical plan (HB 135) introduced by House Speaker Pro Tem Kevin DeWine (R-Fairborn). The lawmaker said he wanted to vet the issue separately from the budget. (See Gongwer Ohio Report, April 19, 2007)

The Senate reinserted the OBM/OIT language after the administration provided "good justification" for the new policy, Sen. Harris said. However he stressed that was before the data theft occurred.

OBM Director Pari Sabety said in an interview after Wednesday's news conference on the theft that the administration's plan was designed to address the very kinds of policy shortcomings that led to the incident.

"The reasons that we were putting OIT with OBM was in fact to give OIT the ability to enforce the kinds of comprehensive policies around not just security and privacy but also procurement and standards - exactly the problems that we're seeing right here," Ms. Sabety said.

"This was a work site, operating under DAS today, operating under a non-standard security environment that was not in compliance with OIT policies and procedures," she continued. "The reason we felt it was important to make the transition was to give OIT the ability to have that enforcement authority through the Office of Budget and Management."

"I believe that had OIT been given the kind of power that clearly it needs to have - to have agencies comply with its standards rather than do so just on a permissive basis - that would have avoided this situation."

BUDGET CONFERENCE COMMITTEE MEMBERS NAMED; PANEL TO HEAR REVENUE ESTIMATES THURSDAY

The six lawmakers appointed Wednesday to serve on the budget conference committee will be flooded with financial data Thursday when administration and legislative finance officials offer presentations on revised revenue and Medicaid caseload estimates for the upcoming biennium.

Representing the Senate on the panel will be Sens. John Carey (R-Wellston), Tom Niehaus (R-New Richmond) and Dale Miller (D-Cleveland). House Finance & Appropriations Chairman Matt Dolan (R-Novelty) will be joined by Reps. Larry Flowers (R-Canal Winchester) and Michael Skindell (D-Lakewood) on the panel.

Office of Budget and Management Director Pari Sabety will testify Thursday along with a representative of the Legislative Service Commission.

Among countless issues, conferees are expected to consider key differences regarding STEM schools, higher education funding and scholarship programs. Panelists will also likely work toward a resolution regarding state revenues, which could be between $200 million and $300 million short of expectations.

Although Chairman Dolan has slated almost daily hearings through the end of the month, Senate President Bill Harris (R-Ashland) said Wednesday he expects conference committee to wrap up its work by the first of next week.

He reiterated his belief that there were no major differences with the House that couldn't be worked out in fairly short order. "I don't know of anything that would slow the conference discussion down," he said.

SENATE PASSES STREAMLINED SALES TAX PLAN; INTERSTATE MEETING ON FRIDAY COULD BE KEY TO OHIO ROLE

Ohio would pull back from a streamlined sales tax compact absent certain concessions from the coordinating panel of the multi-state initiative under a bill that unanimously cleared the Senate on Wednesday.

Sponsored by Sen. Ron Amstutz (R-Ashland), the bill (SB 160) contains the latest Ohio proposal in regards to "destination sourcing," or the preferred standard for SST compact participants, and sets an October deadline for the group to agree to the changes in lieu of the state's withdrawal. (See Gongwer Ohio Report, June 6, 2007)

Ohio is someone unique - especially among the states currently considered "associate members" in the SST initiative - and in that it has a multi-jurisdictional sales tax system with rates based on where goods and services are sold rather than where they are shipped.

Facing widespread opposition from smaller businesses, the legislature is moving toward once again delaying a Jan. 1 deadline to mandate destination sourcing.

Amended in committee based on a proposal from Tax Commissioner Rich Levin, the bill would exempt some 95% of Ohio businesses and most out-of-state enterprises from the sourcing requirements by limiting the mandate to entities that have more than $500,000 in delivery sales per year.

Sen. Amstutz plans to join Mr. Levin and Rep. Bob Gibbs (R-Lakeville), sponsor of the companion House bill (HB 165) in Detroit on Friday for what could be a watershed moment in Ohio's efforts to remain part of the compact. Should the SST governing board decline the state's proposal at the meeting, the officials agree the state will most likely withdraw from the agreement, which is designed to help states capture lost sales tax revenue from Internet and catalogue sales.

Sen. Amstutz acknowledged in explaining the measure that Ohio, by altering laws related to rounding for collection purposes and how chewing gum, bottled water and ice is taxed in an effort to conform to other states' systems has in fact lost revenue as a result. He said Ohio system changes, made through legislation over the last few years, have foregone some $50 million in sales tax revenue while gaining only about $3 million.

Nevertheless, the administration and key lawmakers maintain it would be in Ohio's long-term interest to be a part of the compact. The bill gives the SST governing board until October to approve Ohio's compact amendment.

In other business, the Senate also unanimously passed bills that: create the "Gold Star Family" license plate (SB 25); designate Interstate Routes 70 and 71 as the "Purple Heart Trail" (SB 35), create the "Ohio National Guard Retired" license plate (SB 82), and create a domestic-relations-juvenile-probate division within the Champaign County Court of Common Pleas and add a related judgeship position (SB 155).

PARENTS OF SPECIAL NEEDS CHILDREN MAKE CASE AS SHOWDOWN LOOMS WITH GOVERNOR OVER VOUCHERS

Advocates of a pilot program to let children with disabilities attend special education classes outside their school districts underscored the need for expanded vouchers Wednesday in the face of a probable gubernatorial veto.

Children with varying degrees of disability and their parents met with House Speaker Jon Husted (R-Kettering), Sen. Kevin Coughlin (R-Cuyahoga Falls) and Rep. Jon Peterson (R-Delaware).

At issue is a proposal in the pending state budget that would create the Ohio Special Education Scholarship Pilot Program to begin in fiscal year 2009 and continue through 2014.

Scholarships of varying amounts, depending on the severity of disability, would go to students in grades K-12 who currently have an Individualized Education Plan on file with their resident districts. The money would pay for instruction through an alternative public service, or a registered private service of special education programs.

About 8,000 students could take part in the pilot, a number that represents three percent of the children currently identified with special needs. No scholarship could exceed $20,000 per school year.

The pilot is modeled after the existing Autism Scholarship Program that serves about 500 students statewide.

Speaker Husted said supporters have been seeking enactment of the new program for two years.

"(As) we head into the final portion of the budget I wanted to get a chance to meet with all of you and help us better understand the value of this," he told the families.

"(We) can carry that message back to our colleagues and share some of your real life stories with them so that we can attempt to accomplish the goal of expanding this program," he said.

Gov. Ted Strickland opposes any expansion of voucher programs in the state.

"He believes they are problematic because they lack public oversight even though they're funded through public tax dollars," Keith Dailey, the governor's press secretary, said in an interview. "The governor has a fundamental, philosophical belief that vouchers are inherently undemocratic."

Sen. Coughlin said Ohio is recognized nationally as a leader in school choice.

"In this budget we've got a continuation of the Ed Choice program which is vital for students who are in chronically bad schools to be able to move to a school that better fits their needs. And now we've got a major expansion of school choice in Ohio through creation of the Special Education Scholarship Pilot," he said.

"If there ever is a group of students that need to have opportunities to get into the school that best suits their needs, it is those with special needs," Sen. Coughlin said.

Parents related the frustration and disappointment experienced in trying to obtain appropriate educational opportunities within their resident public school districts.

Rep. Peterson acknowledged that many schools in the state are able to provide "superlative services" for children with such challenges. "But there are some who are either unable or unwilling to provide those services," he said.

"Thirty years after the Individuals with Disabilities Education Act was passed, for some parents, it has been a struggle. Even under that strong, compelling federal legislation, we have had adversarial, in some cases, relationships," Rep. Peterson said.

Mr. Strickland's budget proposed an increase in special education funding of 7.7% in FY 2008, and 8.7% in 2009. In dollar amounts, funding would grow from the current $438 million to $472 million in the first year of the biennium, and to $513 million in the second year.

Asked if Gov. Strickland would veto the pilot, Mr. Dailey said: "This is an area that will be subject to ongoing discussion. But also this is an issue that the governor and legislative leadership have an honest disagreement about."

RETIREMENT SYSTEM RETURNS STRONG, CONSULTANT SAYS; NEW FIGURES SHOW POTENTIAL IMPACT OF IRAN/SUDAN BILL

Ohio's public retirement systems enjoyed strong investment returns over the last six months of 2006, with one system placing itself among the highest levels compared to other public pension funds across the nation, a consultant said Wednesday.

The systems recorded returns ranging from a high of 12.06% at the State Teachers Retirement System to a low of 9.83% at the Highway Patrol Retirement System, Frederick Schaefer, a principal and senior consultant with Evaluation Associates said.

"The numbers are good numbers," Mr. Schaefer told the Ohio Retirement Study Council, saying the systems generated "very nice returns" for the six-month period.

While the returns were good, Mr. Schaefer said there was "more of a mixed story" in regard to returns compared to system benchmarks. He noted that STRS and the Public Employees Retirement System (PERS) plan beat their benchmarks, while the three remaining systems - Ohio Police & Fire Pension Fund (OP&F), Highway Patrol Retirement System (HPRS) and School Employees Retirement System (SERS) - fell short of their targets.

For the calendar year of 2006, he noted that HPRS and PERS trailed their benchmarks, missing the targets by 32 basis points and 29 basis points, respectively. STRS led the pack in 2006, outperforming its target by 104 basis points.

In terms of investment returns last year, Mr. Schaefer said STRS generated a total annual return of 16.88%, followed by OP&F at 16.15%, SERS at 15.37%, PERS at 15.02% and HPRS at 14.32%.

Mr. Schaefer said that four of the five systems - HPRS excluded - were in the top quartile of the public fund universe over the last quarter of the year, adding that STRS was among the top performing public retirement funds in the nation over six months.

"They kind of shot the lights out over the six month period," he said.

Iran/Sudan (HB 151): Separately, the council continued its review of a measure (HB 151) that would direct the systems to divest direct, actively managed holdings in foreign companies to do certain types of business in Iran or Sudan.

ORSC Director Aristotle Hutras said fund leaders met with Speaker Jon Husted (R-Kettering) on Tuesday, who indicated that he was willing to let the systems voluntarily divest in accordance with the goals set forth in the bill.

Regardless, the systems submitted new data about the scope of the bill indicating that it would impact holdings in 74 different companies. Of those, 45 have operations in Iran and 36 have operations in Sudan. Seven of the corporations work in both nations.

For STRS, which has nearly $1.3 billion in impacted investments, the one-year return on impacted companies was 34.71%, compared to 25.01% for its entire international equity portfolio.

Over a five-year period, the difference was more stark: 33.32% return for the companies operating in Iran and Sudan versus 17.62% for the international equities.

The other systems showed similar returns, with the exception of PERS, with $369 million in impacted investments, which would have had a better one-year return in 2006 if it had divested the Iran and Sudan stocks. For the three- and five-year periods analyzed, holding the stocks produced better returns.

Sen. Keith Faber (R-Celina) said the reports show that the systems would have seen significantly lower returns over time if they had been prevented from making those investments. He said, however, it would be useful to see comparisons if those banned companies had been replaced by other companies working in the same investment sector.

Military Service Credit: Separately, the council deferred making a recommendation on a potential amendment that sponsor Sen. John Boccieri (D-N. Middletown) said would treat members of the armed services more fairly.

The Air Force reservist said the long-discussed issue would help the state comply with the federal Uniformed Services Employment and Reemployment Rights Act of 1994. Among other things, it would replace the use of the term "armed forces" with "uniformed services"; increase the number years of service that HPRS members can purchase; require public employees to report on their time in uniformed services and remove a prohibition against using military service for a military pension and a pension from a state retirement system.

OPERS expressed concerns with the amendment, saying it respects the intent of the proposal. The system said OPERS law is already consistent with USERRA and noted that it could face additional costs if there is any expansion of service credit purchases at a rate below the full actuarial cost.

Rather than voting on the amendment, which ORSC staff suggested the council reject, Chairman Kirk Schuring asked the attorney general's office to review the state's compliance with USERRA.

GOP LAWMAKERS PROPOSE 'THREE STRIKES' LEGISLATION FOR REPEAT OFFENDERS

Lawmakers introduced a "three strikes" proposal Wednesday that would allow judges to double penalties for repeat offenders convicted of three felonies or more.

Sen. Tim Grendell (R-Chesterland), who is sponsoring the Senate version of the bill, told reporters at a Statehouse news conference that the legislation would target "career criminals" that count on lenient sentences for lesser offenses.

He said the proposal would "teach repeat offenders a key lesson... if you're violating our laws, there will be a penalty."

Unlike some states that have a mandatory minimum sentence for repeat offenders, doubling maximum sentences would ensure penalties are more proportional to the crime, Sen. Grendell said. For example, the sentence for a fifth-degree felony theft would increase from six month to one year.

In addition to offering discretion to double the normal penalties, the bill would also reverse the presumption that offenders will receive the minimum sentence for their crime before judges increase the penalty according to the circumstances, he explained. Under the legislation, judges would have to determine reasons why a repeat felon should receive a sentence that is less than the maximum allowable under the law.

When asked how the legislation would impact the state's rapidly growing prison population, Sen. Grendell said the measure could actually help the state control long-term costs by reducing expenses related with prosecuting felonies.

The measure would discourage repeat offenders from committing additional crimes, he said. "Anything that encourages people from violating the law saves us money."

Delaware County Prosecutor David Yost, who along with Franklin County Prosecutor Ron O'Brien joined Sen. Grendell to express support for the bill, said financial considerations shouldn't determine the severity of criminal penalties. "We are framing the debate as how many people can we afford to lock up. I suggest this is the wrong way to look at the problem."

Rep. Jim Hughes (R-Columbus) plans to sponsor a companion measure in the House.

OHIO SUPREME COURT TO REVIEW DISPUTE OVER HOMEOWNERS' TRANSFER OF PROPERTY TO DIFFERENT SCHOOL DISTRICT

A split Ohio Supreme Court agreed Wednesday to hear a case over transfer of property from one school system to another that a board of education views as threatening the future of urban districts.

Justices voted 5-2 to hear the Cincinnati School District's appeal of a decision that cleared the way for some Hamilton County homeowners to switch their property to the Madeira school district.

The State Board of Education had opposed the transfer, but the 10^th District Court of Appeals overturned the decision. (See Gongwer Ohio Report, January 26, 2007).

In asking the Supreme Court to review the dispute, lawyers for Cincinnati schools said the appellate ruling "opens the door for any small group of property owners located in an urban school district to transfer into a different school district" for reasons that have nothing to do with the best interests of impacted students.

"The result of such a decision is that Ohio's urban school districts will continue to see declining enrollment, declining funding, and declining diversity," Cincinnati schools told justices. "As a matter of public policy, this court should intervene to preserve the existence of urban schools and the diversity offered therein."

Attorneys for the homeowners in the case asked the high court to reject the appeal. They said the 10^th District opinion did not change or expand the law governing the transfer of territory from one school system to another.

"The State Board and CPSD argue that this decision will allow property owners to 'shop' for school districts. This is simply not the case," the homeowners argued.

Voting to accept the appeal for review Wednesday were Chief Justice Thomas Moyer and Justices Paul Pfeifer, Evelyn Stratton, Maureen O'Connor, and Judith Lanzinger.

Dissenting - voting against hearing the appeal - were Justices Terrence O'Donnell and Robert Cupp.

STATE COUNCIL RECOMMENDS POLYMER EDISON CENTER

A state council recommended Wednesday that Polymer Ohio become an Edison Center for technology and innovation, a change that makes it eligible advanced commercialization support.

As a result of the recommendation from the Industry, Technology and Enterprise Advisory Council, Lieutenant Governor and Development Director Lee Fisher approved $500,000 for the organization in fiscal year 2008. The funds are subject to Controlling Board approval.

"The polymer industry is a critical driver for our state's economy, employing more than 140,000 Ohioans," Mr. Fisher said in a statement announcing the development. "Polymer Ohio has been an integral partner in facilitating the attraction and growth of polymer industries in Ohio."

Mr. Fisher said the group's joining the Edison Center program will allow it to expand efforts regarding growth in the industry.

DOD also noted that additional funding was recommended for the existing Edison Centers: BioOhio, Center for Innovative Food Technologies, Edison Materials Technology Center, Edison Welding Institute, Manufacturing Advocacy and Growth Network, Ohio's IT Alliance and TechSolve.

GONGWER HEADLINES AVAILABLE ON DOWNTOWN VIDEO BOARD

The daily headlines of Gongwer News Service's Ohio Report are now being scrolled across a prominent Capitol Square video board.

The multi-function screen, which sits atop 107 S. High St. at the corner of High and State streets, alerts passers-by to key portions of Gongwer's Statehouse news content. The board will also display Gongwer's breaking news alerts.

Other parts of the 17-foot by 27-foot MediaMax TV screen, seen by millions of viewers annually, are available for rental and advertising opportunities. For information, contact Steve Willis at 614.456.2851 or swillis@arshot.com

SUPPLEMENTAL AGENCY CALENDAR

The Workforce Policy Board will meet Wednesday, June 27 at 9 a.m. in Center for Workforce Development, Columbus State Community College, 550 East Spring Street, Columbus.

SUPPLEMENTAL POLITICAL PLANNER

Gov. Strickland news conference on stolen data device, Cabinet Rm., Statehouse, Columbus, Wednesday, June 20 at 4 p.m.

Cliff Arnebeck news conference regarding past Ohio Supreme Court campaigns, Arnebeck Law Offices, Suite 102, 1000 E. Main St., Columbus, Thursday, June 21 at 11 a.m.

SUPPLEMENTAL NOTICE OF LEGISLATIVE COMMITTEES

THURSDAY, JUNE 21

House Financial Institutions, Real Estate & Securities, (Chr. Widener, 466-1470), Rm. 116, 9 am

Note change in meeting time

Senate Rules, (Chr. Harris, 466-8086), Majority Conf. Rm., 10 am-CANCELED

Senate Reference, (Chr. Schuring, 466-0626), Majority Conf. Rm., 10:01 am-CANCELED

Senate Session, (Chr. Harris, 466-4900), Senate Chamber, Webcast, 11 am-CANCELED

Click the after a bill number to create a saved search and email alert for that bill.

© 2007, Gongwer News Service, Inc. Reproduction of this publication in whole or in part without the express permission of the publisher is in violation of the federal Copyright Law (17 USC 101 et seq.) as is retransmission by facsimile or any other electronic means, including electronic mail.

REPORT NO. 122, VOLUME 76-- WEDNESDAY, JUNE 20 2007

Alan Miller, President  |  Scott Miller, Vice President  |  Kent Cahlander, Editor  |  John Chalfant, Marcus Roth, Staff Writers

17 S. High St., Suite 630  |  Columbus Ohio 43215  |  Telephone: 614.221.1992  |  Fax: 614.221.7844  |  gongwer@gongwer-oh.com