December 3, 2012
Two years ago, as John just indicated, our state faced a $3.5 billion revenue shortfall, high unemployment, a divided legislature, and an uncertain future. Furthermore, behind the immediate problem of a multi-billion dollar deficit was a very disturbing trend. Increasingly, the resources we had were being spent on public safety, on health care, and on the human consequences of abuse and neglect and addiction, and less and less was being spent on children, on families, and on education – and the trend was accelerating.
I stood before you two years ago and vowed that that my administration would be driven by the need for urgent change, and I would spend whatever political capital I had to transform outdated institutions, to redesign the delivery of public services to better meet our goal of rebuilding a strong and secure middle class, and ensuring economic opportunity for all Oregonians. Today, I’m proud to report that we have made some great progress, and although we still have a long way to go, the Oregon Business Plan has given us an effective pathway forward. The urgency and the intensity of our effort is born of a very simple premise, that all Oregonians deserve a shot at the American dream. It’s a commitment to equity and opportunity, it’s a commitment to secure jobs that pay a living wage or provide pathways to a living wage and upward income mobility. It’s a commitment to a healthy, functioning natural environment and safe, secure communities where people have a sense of common purpose and commitment to one another.
Even while many of the assumptions we have about work and fairness and upward mobility have been tested by economic hardship and uncertainty, my optimism about a more prosperous future for the state of Oregon remains unshaken. Our great challenge is to end the income stagnation that is eroding the middle class, exacerbates inequality, and for the first time threatens a generation of Oregonians with the prospect of a lower standard of living.
The Oregon Business Plan and this summit represent our commitment to meet that challenge. This plan is much more than just an economic strategy; it’s a roadmap to guide our budget and policy priorities over the next decade. It’s a recognition that preparing Oregon for the economy of the 21st century requires all hands on deck. It requires partnerships to rethink both public sector and private sector investment and job creation strategies. It requires the acceleration of the clean innovation economy that’s emerging in our state, and it requires the transformation of critical public services, including health care, public safety, and education.
As you know, the Oregon Business Plan is built on three basic pillars. The first is to create 25,000 jobs a year through 2020. The second is to increase Oregon’s personal income back up above the national average by 2020. And the third is to reduce our rate of poverty back to 10 percent by 2020. Those three pillars are important. They recognize that private sector job creation is the foundation for an enduring prosperity. They also recognize that that prosperity must lift up people from every community and every corner of this state, and that if we don’t reduce poverty, then not all Oregonians will have a shot at the American Dream.
This shared vision for the future – which is supported by business leaders and labor leaders and legislators in both parties – speaks very well for our state and for our commitment and ability to come together and solve problems, in stark contrast to many parts of the nation. And we have a lot to show for this effort. We’ve erased one of the largest per-capita budget deficits in the nation, with civility, not rancor, with bipartisanship, not gridlock. And we did it by breaking decisively with the past and by making the difficult policy and spending choices that moved us from $3.5 billion in the hole two years ago to a balanced budget today.
Our prudent fiscal approach earned us an increase in our credit rating from AA to AA+. The Oregon Business Plan estimates that we’ve created nearly 40,000 jobs. Our unemployment rate has dropped from 10.6 to 8.6 percent. Oregon had the second fastest growing economy in the nation in 2011. We’ve been ranked by Forbes magazine as one of the top 10 states in the nation to do business. We’re ranked number one for manufacturing and sixth in the nation for entrepreneurship.
To encourage new businesses and to encourage the growth of existing businesses, we’ve increased access to capital, we’ve built a plan to make our regulatory system the most timely and most results-oriented in the nation – starting with the facilitation of the siting of industrial projects of regional significance – and we’ve created a network of Regional Solutions centers across the state to break down bureaucratic barriers and accelerate promising community and economic development projects.
We’ve stepped up technical assistance and support for our businesses that want access to global markets. I’ve lead two trade missions to Asia, and in October of this year I saw Oregon Country Beef and Tillamook cheese and Oregon Anjou pears on the shelves of stores in Hong Kong. In Shanghai, a city of 23 million people, we found a growing demand for the kind of green building and clean technologies at which Oregon excels. We opened up new markets for Oregon agricultural products in China, and attracted direct foreign investment from Japan.
At the same time, with your help, we made remarkable progress on transforming outdated systems and redesigning the delivery of public services. We’ve established our educational north star – our 40-40-20 goals. We’ve begun to align policy and funding and governance across the entire continuum of education. We created the Oregon Education Investment Board and hired our first chief education officer, Rudy Crew, who you’ll be hearing from in a few minutes. We cut ourselves free from the indiscriminate nets of No Child Left Behind, and replaced that with our own tailored system of accountability for improvement in our schools. We now have achievement compacts in place with all of our school districts, community colleges, and universities.
We’ve also taken on out-of-control medical costs: we gained flexibility from the federal government with an investment of nearly $2 billion to develop a new care model starting with the 600,000 people on the Oregon Health Plan. Our progress on health care reform and on education represents critical steps forward in starting to shift state investments from dealing with problems on the back-end to preventing them in the first place.
But I also recognize, and I know you share this, that we still have a long way to go. We fell short on our job creation numbers, and many of the jobs that we did create actually pay less than the national average. Furthermore, economic recovery has been uneven. Far too many rural counties and communities of color still face double digit unemployment; our poverty rate remains over 17 percent, and half of the kids born into this state are born on Medicaid.
Still, we’re in a much better place then we were two years ago, particularly as it pertains to the budget. Because not only did we move from a $3.5 billion deficit to a balanced budget, we’ve also, with the exception of health care – and I’ll return to that in a minute – we’ve squeezed most of the one-time resources out of the General Fund Budget. And I can’t emphasize how important that is. Since the recession of 2002, our education budget has been patched together with one-time resources, everything from bonding to stimulus dollars. We finally dug our way out of that, which means that this is a sustainable, solid budget, and as our economy grows, we can re-invest resources straight into the classroom and not backfill one-time resources that propped up the budget in the past.
The budget that I released on Friday is built on high-leverage investments designed to rebuild the middle class and to ensure sustainable economic opportunities for all Oregonians. It’s important that this budget not be viewed as a two-year budget but rather as the foundation for a 10-year reinvestment strategy. The priorities are to put children and education first, to invest in jobs and innovation, and to reduce the cost of government. This recommended budget delivers on those priorities.
Let me start with education and children. Although we made huge progress moving toward a seamless, integrated accountable system of education for early childhood through college and career, we’ve not yet had the resources to seriously invest in our 40-40-20 goals. It’s clear that the entire enterprise of public education is underfunded at all levels. And it’s also clear that we can’t meet our 40-40-20 goals without a significant reinvestment of resources into the classroom.
To make that happen, a couple of things are required. In the long term, we need comprehensive reform of Oregon’s system of public finance. That’s going to take time, it’s going to take a strategic approach, and it’s going to take discipline. But everything in this budget is designed to reverse our pattern of disinvestment and set the stage for long-term revenue reform.
It also means that in the short term, we have to find space within this budget to actually reinvest during the next biennium. That involves reducing the costs of health care and corrections so that we can take those resources and reinvest them on the front end. It means we need to reduce the cost drivers that are diverting resources from the classroom, which involves my proposal to limit the PERS cost-of-living adjustment to the first $24,000 dollars of income. And finally, it requires a serious review of Oregon’s tax expenditures.
This budget has $8 billion allocated for education. Built on the foundation of early childhood, the budget completes the redesign of our early childhood programs to ensure that all of our children have access to the childcare and health care and pre-school services to ensure that they’re ready to learn when they get to kindergarten. We have a kindergarten assessment that we’ll pilot in 2013 to help us monitor the effectiveness of these investments, and we’ve increased the investment of early childhood by $48 million dollars in Oregon Pre-K, in relief nurseries, and in early intervention in special education.
In K-12, we’ve appropriated $6.15 billion dollars into the state school fund, which, combined with $253 million in savings from the PERS changes that I’ve recommended, creates a net buying power of $6.4 billion, $90 million above CSL, that would allow us to rehire as many as 500 teachers. This is the first time since 2007 that we’ve had a K-12 budget at or above CSL that does not contain any one-time resources, and that is a significant accomplishment.
We also had a package of strategic investments in this budget to invest in professional development. It’s clear that no state or nation that has ever significantly moved the dial of student performances has done so without a significant investment in the effectiveness of its teaching staff. We’ve also invested in a third-grade reading, in science, technology, engineering, arts, and math to better connect young people to the world of work, and investment in counselors and the ability to earn dual credits to better connect young people with post-secondary education.
Now these strategic investments are a very important part of the strategy to move to a conversation about long-term revenue reform. It’s my belief that if we take a small part of our education budget and invest it in things that don’t just sustain, but actually transform the system, we can show that increased dollars equate to improved results. And that is a key element of changing the conversation with Oregonians about the need to reinvest in our schools. We have to convince them that new dollars going into the classroom and that those dollars are actually going to produce better results for students.
I’m also committed to expanding access to quality, affordable post-secondary education with increased funding for community colleges and the university system 7 to 8 percent, which should be viewed as a down payment on this long term reinvestment strategy, and hopefully will help hold tuition in check. I’ve increased the Oregon opportunity grants by 14 percent, and expanded dual credit programs so high school students can accrue college credits. I also support tuition equity to ensure that every qualified Oregon high school student, regardless of immigration status, has access to affordable, post-secondary education in our state. The budget also includes $275 million for capital construction projects on community colleges and university campuses.
Now let me take just a moment and talk about the strategies I’ve used to try to open up a window for these reinvestments in the 2013-15 biennium. The first is health care. Health care is the one place we still have a lot of one-time money because of the huge amount of stimulus dollars that were put into the program. So I’ve recommended that we extend the hospital provider tax for two more years to fully fund the health plan at the agreement we reached with the federal government, which means funding the first year at a 4.4 percent inflation rate, which is lower than what we have right now, and a second year at a 3.4 percent inflation rate.
That will save a total of $11 billion over the next decade. It frees up $100 million in this biennium. In the next biennium, it frees up almost $200 million, and in the 2017-2019 biennium, it frees up $400 billion. So the delta of available resources – by holding Medicaid growth to 3.4 percent – creates hundreds of millions of dollars in this decade that we can reinvest in public education.
Second is public safety. Our prison forecasts suggest that we’ll have to build 2,300 beds over the next decade at a cost of $600 million. Most of those beds will be occupied by non-violent offenders, and so my budget proposes holding the Department of Corrections bed population steady at 14,600 – and finding alternative ways to sanction non-violent offenders while still keeping Oregonians safe – by looking at the recommendations of the Public Safety Commission and investing $40 million of this budget in community corrections and prevention on the front end.
Finally, we need to address the cost drivers that are diverting dollars from the classroom. As you know, the cost to school districts is expected to go up by a $1,000 per student in the upcoming biennium. Five hundred dollars of that is the PERS increase alone; $300 represents salary and $130 represents other benefits, leaving little to reinvest at a time we desperately need to put money back into the classroom. And for this huge increase in costs, nearly $600 million system-wide, we won’t lower average class size, we won’t restore school days, and we won’t be able to add back electives like arts or vocational training.
When I say put children and education first, I mean just that. I mean that the first use of new resources should be directed toward student success. That’s an important principle, but it’s not one that’s always guided our budgets in the past. Until now, most of our budgets have taken a cost-plus approach to funding education. From now on, I want to take it a kids-first approach. A kids-first approach starts by asking a very simple question: if we’re going to add $1,000 in costs to our system of public education, what is the best use of those funds to improve teaching and learning and ensure student success? I would argue that the best use of those funds is to hire more teachers, to reduce class size, to add back lost school days, to hire counselors, to invest in professional development, and to add back electives.
Now I firmly believe that it is important to maintain a strong, stable retirement system for public employees, to pay good wages and benefits to teachers and school employees, but we can’t ignore the fact that the cost of PERS is adding $300 million to the system. Teachers and classified school employees are absolutely crucial: they are the center point in improving student success. They deserve competitive salaries and benefits that increase in line with pay and benefit gains made by Oregonians working across the state. So let me make this very clear: this is not about the value of our teachers. It is not about the value of our public employees. It is also not about a major overhaul of a retirement system that continues to be one of the best funded in the nation. It is simply about trying to have a conversation that allows us to strike a balance between the cost of our retirement system and our ability to put dollars in the classroom today to ensure that our students are successful tomorrow.
This budget also invests heavily in jobs and innovation, which directly addresses the immediate challenge of creating new jobs but also to position Oregon better for economic success in the 21st century. The budget contains a billion dollars in suggested infrastructure projects funded with Lottery and general obligation bonds. We’ve expanded ConnectOregon. We’ve added, as I mentioned, $270 million for capital construction and postsecondary education, including the OSU Cascade campus in Bend. It includes seismic upgrades, air, marine, and rail improvements, technology infrastructure improvements.
This budget also has $450 million in other bonding capacities for Oregon’s share of the CRC funding. After a decade of planning, after a year of legislative view, it’s time to get this project off the ground. Last week I met with a bipartisan legislative leadership of the House and Senate. We all agreed that the I-5 bridge replacement project is a critical state project that needs to move forward. And we received their commitment that we would prioritize this work in 2013, resolve any remaining issues, and find the funding necessary to service these bonds. I emphasize that it is important to get this done by March 1st to give the Washington Legislature time to act as well. I’ve spoken with Governor Gregoire, I’ve spoken with Governor-elect Inslee, and they plan to advance an I-5 bridge funding package in the Washington Legislature next year. It’s time that we build this bridge.
We’ve also followed through on the commitment to support locally driven economic development priorities. This would include work in eastern Oregon to expand irrigated agriculture from water from the Columbia and Umatilla rivers while improving and enhancing fish runs; support for scaling up the eastside forest collaboratives, to put people back to work in forest restoration; and continuing some of the funding capacity in our work to try to resolve the O&C issue in southwest Oregon.
I’ve also doubled down on proven public-private partnerships like OregonInC. I’ve increased that budget to $25 million; as you know it supports our three Signature Research Centers and also university-based research dedicated to innovation and agriculture and forest research. These partnerships support Oregon’s emerging clean innovation economy. It’s an economy rooted in our strengths: our strong base in agriculture and forestry and advanced manufacturing, promising technology research and development and commercialization opportunities, and our strategic location on the Pacific rim, with access to the growing Asian market. OregonInC alone has created 26 new companies in the past five years – everything from the next generation of water purification systems to a portable renal dialysis machine – and it has attracted hundreds of millions of dollars of private capital and federal grants and has given us a tremendously high return on investment for a very modest investment of state funds.
The budget also has $5 million in seed money for the Oregon Investment Act, three FTE to begin to move our regulatory program out to the regional solutions centers as the first step in implementing our strategy for regulatory streamlining, and $10 million to redesign Oregon’s workforce system to make it more effective for the challenges of the 21st century.
Finally, but very importantly, this budget supports the Oregon Business Plan commitment to drive per capita income back up above the national average by 2020 and to reduce our poverty rate. That requires that working families keep more of what they earn and have the opportunity to actually move up the income ladder. Toward that end, I’ve expanded the employment-related daycare program and increased the Earned Income Tax Credit by more than 30 percent. Both are proven programs that help deliver on our commitment to move more Oregon families from poverty to prosperity. These are proven elements of the Oregon Prosperity Initiative that’s being led by the First Lady.
Let me close my comments this morning with one observation and with a brief story. The observation is about the Oregon Business Plan. You know it’s really quite extraordinary and I think unique in this country to have a forum like this, were we can get together and deal with some pretty complex areas and talk about how our state can thrive. A year ago, I sat around a table at the White House with the President, and with 40 CEOs, mayors and governors from around the country discussing how we can bring manufacturing back to the United States. And noting that Oregon had one of the fastest growing economies in the state, President Obama asked me what was our secret. I said that we had a unified business plan to build our economy and to develop jobs. And it was a business plan that recognized the importance of education and the importance of reducing the cost of health care and public safety in order to be successful. But most importantly, it was a plan that we were executing and implementing.
Now, in spite of the progress we’ve made in the last two years, there are still voices in our state that are complaining that we haven’t invested enough in education in this budget and that we haven’t invested enough in human resources or in job creation. There are voices that are concerned about the difficult choices that are entailed in making these investments – choices about public safety and about PERS and about tax expenditures, choices about the provider tax. But to those people who raise those questions, and to those of you in this room, and to people throughout our state, I want to leave you with this story.
It’s a story that I think offers perspective on how far we’ve come but also on how far we still have to go. It’s a story that hopefully will inspire and motivate us over the years to come. Last Monday, in Coos Bay, at the annual government-to-government summit between the state of Oregon and our nine federally recognized tribes, a woman from the Burns Paiute Tribe got up to speak. I believe her name was Diane Teaman. Burns Paiute is a poor tribe in some respects. They don’t have the wealth of the Grand Ronde and they don’t have the land base of the Warm Springs. But they have something else. And she told me a story of her grandmother after the Banic War of 1878, who was marched to Fort Boise and then marched to a reservation in Yakima, from which she escaped as a preteen with another girl. They swam the Columbia River and they made their way back to Burns without resources and without land. And Diane said that when she looks out at the other tribes that are better off than the Burns Paiute, she is not envious. She remembers her grandmother and thinks, “Look how far we’ve come.”
It was a long hard path from December 2010 to here, and the road stretches on out before us. But let’s commit ourselves that when we leave this place, we commit ourselves to our partnership and to our vision so that two years from now, when we come together, we can again say, “Look how far we’ve come.”