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City Club (March 4, 2011)

First, I would like to thank the City Club for having me here today.  It is good to be with you again in this capacity.

I’d like to start by thinking back to those times, a decade-and-a-half ago. That time was an important one.  The 1990’s were the culmination of a long legacy of innovation, a rich tradition of civic participation; and we all reaped the rewards of an economy that produced over 120,000 new jobs marched by a 48% increase in wages.  But that was yesterday.

Ahead of us lies an unprecedented set of challenges which threaten our future prosperity: an unemployment rate that hovers stubbornly at 10 percent; a growing discrepancy between state revenues and the cost of public services; and a disturbing pattern of disinvestment within our general fund.

The demand for public services is increasing because of an aging population and because of the current recession – more people receiving nutritional assistance, more people on the Oregon health plan – while our public resources are shrinking – not just because of our high unemployment rate but also because the per capita income of those who are working has been eroding over the past decade.  And the public resources we do haveare increasingly being spent on corrections, health care and the human consequences of neglect, abuse while our investment in educating our children and building a better economy is decreasing. And this trend is accelerating.

I think that most of us are approaching these challenges with the belief that we need to get back to where we were before; in many cases our policies and our politics are based on an effort to return to the world before the collapse of our financial markets in 2008.  Today I am here to tell you: that is the last place we want to go.

I believe that embedded in the challenges we face lies an unprecedented set of opportunities – but to realize those opportunities we must change: we must change ourselves and we must change our assumptions in order to change our future.  We simply cannot go back.  

The good economy masked the fact that the underlying systems on which we rely are based on assumptions which are no longer valid.

Getting the private sector economy going again – as important as that is – will not, by itself, reverse the pattern of disinvestment that threatens our future.  Putting people back to work – as important at that is – will not, by itself, reduce our prison population or the escalating cost of health care; it will not ensure that all our children are ready to learn when the reach kindergarten; or increase the number of Oregonians who get at least two years of post-secondary education or training.

The reason is simple – although not necessarily obvious: the systems on which we rely to provide these important services are failing us; they are based on a set of assumptions that are no longer valid and no amount of money will change that. We need to change the systems themselves.

So securing our future requires two things: first, it requires getting the private sector economy going again; and, second, it requires redesigning the systems through which we deliver public services – in particular, education and health care.  Let’s begin with the economy where I think we have already taken a number of important steps.

First and foremost, let me say again:  Oregon is open for business.

My first act as Governor was to launch a number of immediate job creation action items, and I’m proud to report that we’ve made real progress on all of them. Today we can announce that over 6300 seasonally adjusted jobs have been created in Oregon since January.  Companies like Solopower, U.S. Geothermal, Facebook and Vigor Industrial are announcing new Oregon plants, acquisitions, jobs and capital investment – more evidence that the recovery is underway.

And today we can announce that Shimadzu U.S.A. has decided to make a significant commitment to Oregon, expanding its operations in Canby with over 50 high tech jobs in the next three years producing analytical instruments. This expansion also calls for an additional 54,000-square-foot manufacturing facility, with construction beginning in June of this year, bringing more family-wage jobs to the Canby area.

This is certainly a good start, but we can do more.

I have proposed $19 million in Lottery Funds for direct public investments through Oregon Innovation Council, helping Oregon companies become more competitive and sustainable. This initiative helped create and retain over 1,200 jobs in the last two years, any my budget goes further with investments to support other programs like the Infrastructure Finance Authority, the Office of Film and Video, and the Strategic Reserve Fund.

We’ve started the process to make “Cool Schools” a reality.  Cool Schools is our multi-phase, statewide effort to achieve improved energy efficiency at schools. This initiative will create good family wage jobs across Oregon fixings roofs, putting in insulation, replacing heating and cooling equipment, and conducting energy evaluations of school buildings. I’m also pursuing legislation to create a preference for biomass boilers so schools can replace inefficient fossil fuel-based heating with a renewable resource while helping spur the emerging biomass energy industry in Oregon.

We’ve taken steps to get our work force ready to be on the job. On January 25, I launched the statewide availability of Oregon’s Career Readiness Certificate, a nationally recognized program to provide objective documentation of an individual’s foundational job skills. I’ve included $3.4 million for on-the-job training in my budget will connect 1325 Oregonians to high demand jobs over the next year.

I am encouraged by the resilience and innovation of the Oregon companies I have visited, from Hill Meat Company in Pendleton to Select Onion in Ontario to manufacturers here in the Portland metro area.

And finally, this last Sunday Governor Gregoire and I met with Secretary of Transportation LaHood in Washington, D.C. to discuss the Columbia River Crossing Project, and I’m happy to report we have an opportunity to get all project approvals this year, complete engineering in 2012 and break ground in 2013.

Replacing the Interstate Bridge is crucially important to address safety and congestion problems on I-5; extend light rail to Vancouver; and enhance pedestrian and bicycle connections between our two states.  In addition, the region’s economy will benefit through as many as 20,000 direct and indirect jobs and improved freight mobility. 

I acknowledge that this project is not without controversy but I am confident we can and will build a bridge we can all be proud of.

Yet, even as we lean into the task of job creation and economic growth, however, we must recognize that changing our pattern of disinvestment to secure a prosperous and sustainable future requires not just change but transformationalchange in the way we provide public services: particularly in education and in health care. 

Let me offer you an analogy by comparing the development of the systems through which we provide public services with the development a successful organization – let’s say a business.

Successful businesses develop as the result of a business model and an investment environment that fosters growth and prosperity.   However, as the environment in which the business operates begins to change; the growth curve flattens out. And if the organization does not change its business model to reflect the new environment it will go into a decline.  General Motors is an excellent example of a company which failed to do so; persistently clinging to the past in the face of a changing environment: continuing to build big, fuel inefficient cars in the face of rising oil prices and concerns about carbon emissions and global climate change.

Successful business, however – when they recognize that the environment is changing – redesign their operational model in order to accommodate the changing environment – creating a new growth based of the realities of the present rather than on those of the past.

For a period of time, however, both curves must co-exist in order for the second curve to thrive – and the area of overlap between the old business model and the new one is referred to by author Charles Handy as the “Area of Paradox.”

This is an area of high anxiety; there is a lot of churning and insecurity; people know that things are changing; they know that the current system is not working for them – but they are afraid of the unknown.  As a consequence, they tend to defend and cling to the current system even though at some level they recognize that is unsustainable and carrying them over the falls.

I submit to you that this is exactly where we find ourselves today – in this area of paradox:  in public education; in health care; in energy and transportation policy; in our approach to economic development; and in the way we manage our natural resources.

We cannot transform all of these systems at once but we must start with education and health care – and we must start right now. I have put proposals before the legislature to do just that – and I want to emphasize; I want to make sure you clearly understand – that making these changes and transforming these systems is absolutely essential to our long term economic recovery; essential to building the workforce of the 21st century; essential to raising our per capita income back above the national average – in short, essential to a prosperous and sustainable future.

And ironically, bringing about the transformational change we need may be more difficult than putting people back to work. Because clinging to the familiar -- to the old ways of doing things – is human nature.  Reaching for the possible requires an act of faith.  It is not unlike the “ropes” game in Outdoor School.  You are placed on a post 10 feet above the ground and holding onto a rope.  You are supposed to move to another post some distance away which also has a rope dangling over it.  In order to move from the “old” post to the “new” post you have to lean out and – for a moment – let go of the rope you have in your hand in order to reach the rope over the “new post.”’

To be clear, our opportunity; our moment in time; the leadership challengeinvolved – is to be able to describe the new systems; the new business models, if you will – in health care, and in education – in such a way that people can see them; and believe in them; and let go of the past in order to embrace them.  To make that leap of faith – and surely we must make it – requires imagination; a willingness to question our assumptions; and a strong sense of community.

I believe we can see and reach the other rope.  

Let me start with education. The transformational change that I have proposed for public education in Oregon was developed by three transition teams focused on the three components of our system – early childhood; primary and secondary education; and post-secondary education.  Many of the leaders of those teams are here with us today and I would like to introduce them to you:  Lynne Saxton and Pam Curtis (Early Childhood); Nancy Golden and Ron Saxton (primary and secondary education); Duncan Wyse and Mary Spilde (post-secondary education).

Broadly defined, education (early childhood to post-secondary education) accounts for more than 50 percent of Oregon’s general fund budget. And yet the budget framework through which we allocate public resources for education views early childhood investments; primary and secondary education; community colleges and the Oregon University System (OUS) as separate competing entities rather than as part of an interdependent continuum.

Currently the budget for OUS is developed by the Board of Higher Education; the community college budget is developed by the State Board of Education; the K-12 distribution formula is set in statute; and the budgets for early childhood programs are developed by six different agencies across dozens of program and are not connected to the k-12 system.

These isolated education budgets move independently through the legislative process and funding is based largely on enrollment. Therefore, the fiscal health of our schools, colleges and universities is related to the number of students enrolled, not on how well those students achieve.

This budgeting system – as the incentives within it – must be fundamentally changed if Oregon is to achieve its long term educational and economic objectives.

And we don’t need to wait for more revenue to begin reinvesting. 

Our current fragmented budget allocation process must be replaced by a unified, transparent 0-20 budget in which the focus is shifted from enrollment-based funding of institutions to outcome-based funding of the success of students as they move along the continuum. We must replace our current segmented budget development and governance process with one that recognizes the interdependent nature of the entire enterprise of education.

And it all starts with ensuring early childhood success.

Investing early is the foundation to ensure that every child enters school ready and able to learn, enters first grade ready to read, and leaves first grade reading.

Every year about 45,000 children are born in Oregon. Roughly 40% of these children are exposed to a well-recognized set of socio-economic, physical or relational risk factors which adversely impact their ability to develop the foundations of school success. These include poverty, unstable family backgrounds, substance abuse, criminal records and negative peer associations.

Today, we spend over a billion dollars biennium on services for children ages 0 to 5 through a wide range of public, private and non-profit programs and organizations. But we are unable to track a child through these programs; we are unable to track results; these programs and services do not work in concert; and many are disconnected from the K-12 system.  In short, our current system is neither integrated nor accountable.

So I have set ambitious but achievable goals for a revamped early childhood system:

  • Within two years, at least 60,000 children will be served – a 50% increase.
  • At least 70% of children served will meet state benchmarks for kindergarten and first grade by 2020.
  • The average cost per child served will be reduced by 30% to $5225 per child per year.

New approaches are also needed for our K-12 and post-secondary systems. As 15 school superintendents pointed out in a recent opinion piece in the Oregonian:

"It should not be hard to let go of the status quo on education – limping from funding crisis to funding crisis with a system that does not deliver for students, bleeds resources away from teachers and leaves Oregon behind."

The State Board of Education and the budgetary functions of the Board of Higher Education should be replaced with a new Oregon Education Investment Board which would assume responsibility for the development of the unified, transparent education budget; and for developing performance expectations at each stage of the 0-20 continuum.

If that sounds like a lot, it is.  But I believe it is absolutely necessary – and to illustrate the problem we are trying to address let me offer you an analogy.  Much to the consternation of my late mother, I was once a student pilot.  To get your pilot’s license you need both book learning and practical experience.  That is, you not only need to pass a written test, you also need to be able to apply that knowledge in a very practical way in order to fly the airplane – and to safely land it.  Some people can gain this level of mastery in 80 hours.  For others it may take 120 hours.  The point here is that the variable in learning to fly and earning a pilot’s license is the time it takes to do so; while the constant is the knowledge mastered.

In our current system of public education, however, this is reversed.  The constant is seat time: all our students spend the same amount of time to earn a high school diploma – 13 years if we count kindergarten – while the variable is what they have learned and their ability to apply that learning to the real world.  That is one of the reasons why 20 percent of our community college capacity is committed to remedial education – students having to learn or relearn what they should have mastered before they received their high school diploma.

We have to let go of the old rope so we can reach the new one.

As we begin to take on the challenge of these transformational changes it’s also important to recognize those who have been on the front lines of our education system. Those teachers and administrators who have consistently had to do more with less, and many of whom, regardless of the system they are in, go beyond the call of duty day in and day out.

We have all heard the stories: about books that are outdated; about the shrinking of the school year; about classrooms that are too crowded. Mike Lamb, a high school science teacher in Klamath Falls, wrote to me about his classroom, so crowded with students he is physically unable to get to the last row of desks. Personalized attention, which we know is so important, is no longer an option for the back of Mr. Lamb’s science class. Despite the overcrowding, Mr. Lamb has served the science students of Mazama High well, many of them going onto college, not required to take any science classes because they’ve already earned all of their advanced chemistry credits from his class.

Oregon educators deserve our thanks for their extraordinary work – and I’m convinced the only way we can get them the resources they need is by revisiting the system as a whole, and working with the teachers, administrators, educators, researchers, parents, children advocates and business people that make up the Oregon Education Investment Team.

Even if we are able to successfully transformour system of public education, however, our ability to adequately fundit will be compromised unless we can reduce the cost of health care.  Health care is now the single fastest growing cost for state government – both in fulfilling our responsibility to provide health care for our low income and vulnerable citizens through the Oregon Health Plan; but also in our capacity as a large employer.

Health care is also becoming increasingly unaffordable for individuals, families and private sector businesses. It can no longer be allowed to grow at double digit rates for if it does, it will continue to rob resources from workers wages, from school funding, and from our common social infrastructure.

Let me be clear.  The problem here is nothow to pay for health care – the problem is the lack of value in what we are buying – which should be measured in producing health at a cost we can afford.

We also know that over 80 percent of the cost in our health care system comes from treating people with one or more chronic conditions like congestive heart failure, diabetes or asthma.  Furthermore, we know that ten percent of the population accounts for nearly 70 percent of the cost.  If we had a system that could identify and properly manage that ten percent; and if we could shift our focus from after-the- fact acute care interventions to prevention and wellness and the community-based management of chronic conditions – we could dramatically reduce cost while improving the health of our population.

Let me give you an example.  Let’s suppose there is a frail 92 year old woman with well managed, stable congestive heart failure living alone in a small apartment without air conditioning somewhere in SE Portland. During a heat wave the temperature in her apartment reaches 102 degrees.  This increase in temperature adds enough additional stain on her heart to put her in active congestive heart failure.

Under our current system, nobody is likely to know about this woman until an ambulance delivers her to the emergency room at Legacy Emanuel Hospital. Under a more rational system, however, she would have a case manager – a home health worker – wh0 would be monitoring her condition and checking in with her on regular basis.

Under our current system, Medicare will pay for the ambulance as well as the $50,000 cost of her hospitalization but not for a $500 window air conditioner which all she needs to stay at home and out of the acute care medical system in the first place. This makes little sense either economically or from the standpoint of improving the health of Oregonians.

What I am putting before the legislature is a proposal to address this problem by fundamentally changing our heath care delivery system to improve the health of the population, at a lower cost while improving the patient experience in terms of clinical outcomes, patient safety and patient satisfaction.

Unlike the short-sighted decisions of other states that are considering dropping Medicaid recipients from state coverage, we’re taking a different approach – because there’s nothing to gain and a lot to lose by stripping people of coverage, only to have them show up in emergency rooms – where we end up treating their stroke in the hospital rather than managing their high blood pressure in the community. 

Like the transformation we must make in our system of public education, the transformation of our health care system will not be easy. It will require courage, imagination and a strong sense of community.  Already some stakeholders are beginning to dig in and resist this transformation, clinging to the status quo in the hopes that somehow – the economy or the federal government, or the tooth fairy – is going to make a fundamentally flawed and dysfunctional system work; clinging to the belief that it makes sense to continue to pour money into a system which produces population health statistics just marginally better than Cuba’s.

We have to let go of the old rope so we can reach the new one.

We are on the down side of the growth curve here.  It is time – way past time – to design a new system that reflects a new set of realities because clinging to this system will surely take us over the falls … which, by the way is not a bad analogy.

Suppose our current health care system was a raft floating down a river.  And in that raft are all the economic stakeholders involved each holding their own stakeholder paddle: we have the uninsured; workers with good employer-sponsored coverage; seniors on Medicare; those with disabilities and other special needs; employers – both large and small, those offering and not offering coverage; doctors, hospitals, nurses and other providers; insurance companies and health plans; the pharmaceutical industry; and medical device manufacturers.

The raft floats around a bend and all of a sudden the river seems to disappear – and everyone hears an ominous rumbling and can see the mist rising from the rapidly approaching precipice.  And what do we do – now that the danger is clearly in sight?  Everyone in the raft turns around with their backs to the danger and grips their own stakeholder paddle even tighter until their knuckles are white – striving mightily to keep theirend of the raft upstream while deriving some perverse sense of security from the knowledge that those in the other end will go over the precipice first.  We can do better.

We can do better, but to succeed, we must do this together; respecting each other and restoring our sense of community.  We cannot and will not allow the challenges we face in the month ahead to tear our state apart.  And the most hopeful sign to date is the positive tone that’s been set in Salem. There’s been virtually no partisanship – and I commend President Courtney; Speaker Hanna; and Speaker Roblan for their leadership in this regard.  I believe we are beginning to gain a collective sense that Oregon’s success depends on our willingness to pull together and develop new partnerships and new coalitions.

Let me also say that this state will not go down the road that Wisconsin has chosen.  I have made it clear that I expect our public employees to make some concessions to help us through our current fiscal challenges – including contributing to the cost of their health care; and helping to absorb the increased employer contribution in the PERS system.  But these concessions will be made across the bargaining table and through our collective bargaining process with mutual respect.

We will not solve our budget challenge or the structural problems we face in education and health care by attacking the labor movement or

seeking to make scapegoats of our public employees.  The labor movement helped create the middle class in the last century and it will play an important role in helping raised per capita incomes in this century.  Oregon’s public employees are our neighbors, our colleagues, our families and our friends. 

None of this in going to be easy and we should not underestimate the magnitude of our challenges; nor should we question our ability to successfully meet them. Oregonians are a great and resilient people.  We have faced difficult times before, and we’ll do it again.

During my campaign and at my inauguration I said that “Somewhere in America a state needs to be able to demonstrate that we can weather this kind of challenge without losing our sense of community, without losing our commitment to one another, and emerge stronger and more united than where we began.”

That is the path we have started down. We’ve already reached out for the new rope, now join me in letting go of the old one.


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