Association of Oregon Industries
Nov. 7, 2013
When I took office in January of 2011, Oregon was a polarized state with an uncertain future. The fallout from the campaign over Ballot Measures 66 and 67 had left the state divided, had left scars, and had left an even deeper mistrust among people who actually needed to be brought back together in a common cause. Our Legislature was divided 30/30 in the House with a slight Democratic majority in the Senate, and we were facing high unemployment and a $3.5 billion dollar budget deficit, which was about 20 percent of our general fund.
In my inaugural address I said, “We should not underestimate the magnitude of these challenges, but at the same time we should never question our ability to successfully meet them. Our future will be shaped by the choices we make over the next six months, and by the degree of civility with which we deal with one another as we address the difficult structural changes needed to put Oregon on a more solid and sustainable path.”
So, let’s look at what we did. First, we agreed on a vision for the future, a north star to guide our actions. We agreed that by 2020, we wanted to live in a state where all of our kids were ready for school by the time they got to kindergarten, where teachers had the time and support to teach, where dropout rates were steadily falling and graduation rates were steadily increasing, where every Oregon high school graduate was college- and career-ready without remediation, and where we had an economy that was creating enough living wage jobs – or pathways to living wage jobs – so that we could drive our per capita income back up above the national average in every part of the state.
We changed the focus of the debate in 2011 from raising taxes and cutting budgets to growing the economy and redesigning how we deliver public services – particularly in the area of education and health care. And we recognized that the kinds of transformational changes that were necessary to put Oregon on more solid footing couldn’t be done in a single session, or by a single body. It would require a sustained effort that was built on such a solid foundation that it could withstand changes in the executive branch or changes in the Legislature. And the roadmap to make that happen was the Oregon Business Plan.
For the 2011-13 biennium, the Oregon Business Plan laid out four priorities: The first was to erase the budget deficit, hopefully without blowing the state up. The second was to focus on jobs and economic growth. The third was to reduce the cost of health care. And the fourth was to transform our system of public education.
With this charge, we got to work. First, we were in fact able to erase one of the largest per capita budget deficits in the nation, and we did it with civility rather than rancor, with bipartisanship, not gridlock. We built a balanced budget in the 2011 session based on priorities rather than programs, and we were rewarded by seeing our credit rating upgraded from AA to AA+.
Secondly, we took very seriously the focus on jobs and the necessity of growing the economy. As you know, over the past few years we’ve created more than 60,000 new jobs in Oregon and reduced our unemployment rate by two percentage points. We had the second fastest growing state economy in the nation in 2011 and the third fastest last year. We recognized that manufacturing was an important bright spot during the recession and remains key to a prosperous future, so we’ve doubled down on our efforts to secure adequate, large industrial sites. We implemented the recommendations of our regulatory reform task force, and with the help of AOI we got the Legislature to fund regulatory ombudsmen in our Regional Solution Centers across the state.
We helped secure the expansion of Nike, Intel and Daimler North America. We made progress in expanding water for agricultural use in eastern Oregon, scaled up the Eastern Oregon Forest Collaboratives, and continued to be actively engaged in trying to resolve the O&C issue in southern Oregon. We increased investment in the Oregon Innovation Council and our key signature research centers, expanded the film the video sector, and conducted three trade missions in the last three years – two to Asia and one to Europe. We promoted Oregon tourism and Oregon products and services, with a focus on expanding markets, attracting direct foreign investment, and encouraging relocation and expansion of foreign firms here in our state. We have a long way to go, but I think that’s a pretty good start in three years.
Third, we began to transform our health care system starting with the 600,000 people who are on the Oregon Health Plan. Armed with a federal waiver and a $1.9 billion federal investment, we have 95 percent of our Medicaid population in a new care model built around Coordinated Care Organizations, which shift the focus from after-the-fact acute care and emergency room care to prevention and wellness and the community-based management of chronic conditions. These new care models operate with a risk-adjusted global budget that grows at 3.4 percent a year. Now that’s significant because state revenues are growing at about 4.5 percent a year. So before the transformation, health care and Medicaid were growing at 5.5 percent a year – gradually eating up a larger and larger share of the general fund, and inhibiting our ability to invest in education, workforce development and other priorities.
Now, with it growing at 3.4 percent a year, we’re opening up a significant opportunity for reinvestment inside the general fund. We saved $100 million this biennium, that’ll be $200 million next biennium, and $400 million in 2017-19 biennium, which is a huge opportunity for reinvestment. And this has huge implications for business. If we can prove up this care model, it is our intention to list it as a high-quality, low-cost option on the insurance exchange for state employees and teachers. In addition to the 600,000 people that the state pays for in the Medicaid program, we’ve got 300,000 teachers and state employees, so that’s 900,000 people. With the Medicaid expansion, that will grow even larger, so that’s a pretty big dog in the health insurance purchase department. Imagine for a moment if we got all 300,000 state employees and teachers into this care model: the ten year savings is about $5 billion – it would be a total game changer for state finances. Imagine if your health care costs for business were growing at 3.4 percent a year. That would create an enormous competitive advantage for Oregon and Oregon businesses. So this is something we definitely need to roll out and continue to implement.
Finally we’ve made significant strides in transforming our system of public education. We’re in the process of creating a seamless, outcome-based system, with, for the very first time, fully aligned governance, funding and policy across the entire continuum from early childhood to post-secondary education and training. We‘ve fundamentally redesigned our early learning system based on performance contracts to ensure all our kids are ready to learn by the time they get to kindergarten. We significantly increased funding for early childhood services; we’ve got a kindergarten readiness assessment that we’re rolling out. And we’ve made targeted investments this last biennium in key leverage points that give us a great return on investment on dollars spent on things like third-grade reading, being on track to college in 9th grade, and earning college credits in high school.
So that’s a summary of the way we’ve dealt with major priorities in the Oregon Business Plan in the 2011-13 biennium. Now more recently, the plan calls for three additional priorities for the current biennium. One was to build the I-5 bridge replacement. The second one was to invest wisely in education; and the third was to reduce the cost of our Public Employee Retirement System. Now I’ll say it at this point that I am a strong supporter of having an adequate retirement system for public employees. The problem is that with the market crash in 2008, the fund lost about 27 percent of its value, so that the crisis in school funding and the crisis in funding state programs is no longer just a revenue problem – it is a revenue problem – but it’s also a cost problem, and the idea was to try to figure a way to address both.
As you know in March of last year, the Oregon Legislature committed $450 million in bonding authority to the Columbia River Crossing project, which cleared the way for similar investment by Washington State, and this, in conjunction with the Coast Guard bridge permit, which we got in September, really cleared the way for a federal funding grant with construction beginning at the end of next year. Unfortunately, Washington State to date has failed to meet their commitment, to fund their $450 million, which has put the future of the project in doubt. And I’d be glad to talk about where we are on that in a moment. But the point I want to make is that the Oregon Legislature did fulfill its commitment and to step up to the plate and do our part to try to move that project forward.
At the end of the regular session, I felt, however, that we hadn’t completely fulfilled those other two objectives: to adequately invest in education and to reduce the overall cost of the Public Employee Retirement System. The passage of SB 822 during the regular session did reduce the unfunded actuarial liability by a little over $3 billion, but it did in fact leave a significant increase in employer contributions, which I felt was getting in the way of actually getting resources into the classroom to ensure that the next generation of Oregonians has an opportunity to thrive and to prosper.
At the same time, although we had a very good May revenue forecast, and we were able to significantly reinvest in education, there were still school districts like Hillsboro, North Clackamas, and Eugene that were facing the prospect of laying off more teachers and cutting school days, and tuition increases in our universities and community colleges were preventing a lot of Oregonians from getting the education and skills and training they need to enter, or reenter, the work force.
So two weeks after the session adjourned, I spent the summer traveling the state having town hall meetings, talking to businesses, talking to labor, talking to school boards, talking to teachers, talking to local governments, with the idea of coming back in the fall to call a special session to raise revenue, to further reduce the cost of Public Employee Retirement System, to provide targeted relief for small and family owned businesses, and to invest primarily in education but also in senior services and in mental health.
As you know, I called the special session on September 30, and as luck would have it, this took place against the backdrop of this growing chaos and dysfunction in our nation’s capitol. We came in on September 30; the next day, October 1, the US Congress shut down the federal government. The next day, however, on October 2, the Oregon Legislature passed every single bill in that package with bipartisan votes.
To me, the implications of what happened last October go far beyond the policies that we were debating; it goes to the very heart of self-governance. It speaks to who we are, speaks to how we deal with one another in tough situations, and speaks to how we do the people’s business. And I really believe that people across this state, across this country, are desperate, desperate for some sign or indication or reason to believe that public institutions can go beyond partisanship and gridlock and ideology, and actually act in the larger interest.
And I am very proud to say that last month here in Oregon, we did just that. What we demonstrated is very important. We demonstrated that even though people may wildly disagree with the elements of this package, it is still possible to build an operational political center in the United States of America. We demonstrated that we can all rise above partisanship and reach beyond polarization and political philosophy and do the right thing for Oregon and for Oregonians.
Your organization was instrumental in helping to make that happen. I bring this up because although we’ve had some pretty remarkable successes over the last three years, we’ve got a long way to go and we have got some pretty daunting challenges that lie ahead of us. And maintaining this bipartisan operational political center is absolutely essential if we hope to successfully meet these challenges.
I just want to take this opportunity to list three. There’s a lot of them, but these three are on the top of my mind. The first one has to do with jobs and the economy. We should be very proud that we’ve created more than 60,000 jobs and lowered the unemployment rate, because we did this together and because these achievements didn’t come easily. At the same time, you’ve got to acknowledge that in spite of these efforts, we are a long, long way from achieving our full productive capacity, and we are simply leaving too many Oregonians behind. We can’t settle for an uneven and unequal or hesitant recovery. It seems to me that the word recovery doesn’t really have any useful meaning that describes the state where the Portland metropolitan area is returning to pre-recession employment levels and many parts of rural Oregon are still facing double digit unemployment, an aging workforce, and outdated infrastructure. It seems to me that the word “recovery” is a misnomer when used in a state where the unemployment rates among African Americans and Hispanics continue to rise. And it seems to me that the word recovery is the wrong word to use in a state that has as a 24 percent child hunger rate.
So while I think we should be delighted that we’ve created 60,000 jobs, and we want to create another 60,000, or 100,000 jobs, the jobs we are creating predominantly are those jobs at the top and the bottom of the economic ladder, leaving out the kinds of well-paying jobs like construction, manufacturing, and teachers that are critical to creating prosperity and long term economic stability. People who are short-term unemployed are getting back to work. People who are long-term unemployed are not. In Oregon, we generally have about 10,000 people who are facing long-term unemployment, that is people who have been out of work six months or longer. Right now, we’ve got 60,000 Oregon workers facing long-term unemployment, which leads to erosion of skills, which leads to disassociation with the workforce, which leads to structural unemployment. It seems to me that America was built on the notion that hard work is rewarded with a better life, but the fact is for a growing number of Oregonians, hard work does not lead to a better life. In fact, hard work doesn’t end poverty. We have a growing number of people in our state who are trapped in low-wage jobs with no way up.
We’ve got to tackle this together, as we did during the special session, and create a recovery reaches all Oregonians, a recovery that ends the income stagnation that continues to erode the middle class, that continues to exacerbate income inequality, and that for the first time threatens a generation of Oregonians with having a shorter lifespan and a lower standard of living than their parents. So that’s one big challenge. I think it’s the elephant in the living room. We’ve got to come through with this, and we’ve got to create a space where we can sit down at the table and figure this one out.
The second issue is protecting the long-term cost of energy for Oregonians and Oregon businesses, with a clear recognition that we are entering an increasingly carbon constrained environment, and that’s not going to change. Maintaining a clean economy and competitive energy prices is a critical component of building a resilient economy and one that is prepared to meet the new set of challenges in the 21st century.
Oregon, as you know, has long been well-served by Bonneville Power Administration’s low-cost hydroelectricity. That’s helped us transition over the last two decades to cleaner, smarter energy policies like maximizing energy efficiency and conservation in the manufacturing sector and a broader renewable energy portfolio. Energy efficiency and conservation reduce utility bills and free up capital that can be reinvested into business. Furthermore, energy efficiency projects create well-paying jobs that can’t be outsourced, something that is very important in this day and age. So I think that this is an example of a well thought out program that reduces the amount of carbon in the resource mix but also strengthens our economy.
With our existing programs and by continually trying to leverage our advantages with low cost hydro, we can continue to ensure that Oregon is an attractive place to locate and grow a business. So the challenge is to build on our existing programs and to continue the transition to a more diverse portfolio of energy sources that will reduce carbon and also protect the long-term cost of energy for Oregon businesses and Oregon citizens.
The final big challenge on the cost side is restructuring our antiquated tax code and system of public finance to make sure that it is equitable, that it is stable, and that it is aligned with the kind of economic activity and the kind of jobs that we want to create not last year but in the next 10, 15, 20 years in the state of Oregon.
I would without hesitation say that I don’t underestimate the magnitude of taking on any one of these challenges, let alone all three of them. But I also know that we are capable of truly remarkable achievements if we act together as Oregonians rather than as partisans or as stakeholders.
So I want to close by just reminding you of two statesmen’s dinners that we’ve had in Oregon, one in 2011 and one that we had just a few weeks ago. In 2011, co-speakers, Republican Bruce Hanna and Democrat Arnie Roblan, were honored for delivering the four priorities of the Oregon Business Plan with bipartisanship and with distinction. Shawn Robins, who runs Greater Portland Inc., had just moved here from Wisconsin, which was in this utter ugly partisan meltdown at the time. One of the first things he did was go to this statesman dinner and, after witnessing a Republican and a Democrat being honored, he told me that he thought he had been transported to a parallel universe.
Well this year we did it again. For those of you who weren’t there, we honored Democratic Speaker Tina Kotek, House Republican Leader Mike McLane, Democratic Senate President Peter Courtney, and Republican Senate Leader Ted Ferrioli for reaching beyond partisanship, producing a remarkably successful special session, and defying the dysfunction that was going on in our nation’s capitol. I think it’s fair to say that there’s not another state in America that could boast two similar events in a three-year period, or probably a three-decade period. And you helped make that happen in a very real sense, as did the labor movement, as did a whole host of people – we made that happen. So I guess I just want to leave you with this: we should build on this remarkable achievement and meet our shared challenges and create a bright future. So I’m asking you today to partner with me and to maintain that operational political center in the future, because we can do great, great things.