This is my eighth – and final – address as Governor to the City Club of Portland. In April I gave what was billed as my last state of the state speech. If that speech had been a television drama, it would have ended with the tagline: “To be continued…” I say that because today I want to finish what I started in April. I said at that time that a collaboration of public and private citizens would make recommendations in June for restructuring state government. I called this the “reset” and promised any change would not be done with accounting gimmicks or by executive fiat.
June is here and I have received the formal report of the Reset Cabinet, the first truly comprehensive attempt to deal with the structural problems of Oregon state government. The purpose of my remarks today is not to go through each recommendation. My purpose is to look forward and talk about our collective future – using some of the major themes in the report to make my point.
I have many longtime friends in this room. And probably more than a few skeptics. But those who know me well know that I don’t dwell on individual accomplishments. And I don’t follow the path of least resistance. Instead, I try to do what is right – and do what I believe is best for Oregon. Today – with six months left in my term – is no exception.
I’m here to chart the road ahead. To shine a light – some will call it a harsh light – on the challenges we face, and to do my best to answer some hard questions. I don’t need to tell you what Oregon has been through the last ten years. Two recessions in the space of a decade have left many of our fellow citizens economically bruised and battered.
We weathered the first recession at the start of my term with some difficult years of budget cuts and high unemployment. But that was a traditional – even textbook – two-year recessionary cycle. Our economy went down and then came back up. And in Oregon’s traditional way, we rebounded strongly – making up for lost time by rebuilding and reinvesting.
We made new investments in energy and transportation, reached new peaks in funding for education, and expanded our health care system. And we started to follow the advice we give our children: Save for a rainy day. We created a Rainy Day Fund to help protect us from future downturns in the economy.
But what hit us in 2008 was not a traditional recession. What we now call the Great Recession was the economic equivalent of a 10-point earthquake – knocking flat almost every measure of prosperity: Employment, housing, business expansion, retail sales, consumer confidence, pensions, and public investment – to name just a few. This was unlike anything that most of us have ever experienced. Not only did this recession undermine our economy and throw millions of productive Americans out of work, it left us with less revenue to fulfill the core responsibilities of government.
And while economists – using statistical models – not Oregon family budgets – tell us that the Great Recession is over, for many Oregonians, the pain, frustration, and heartbreak it caused remains. The fact is: The cost of this recession is still being tallied, and like the oil spill in the Gulf – we can only guess what the final bill will be.
There is a lot of hand wringing now about the federal deficit. But the federal government has the luxury – and sometimes even the responsibility – to spend more than it takes in. But here in Oregon we do not have that luxury. We must have a balanced budget. There are no exceptions for deep recessions.
The hard truth is this: No matter who is elected in November, or who is in control in Salem in 2011– recovering from this Great Recession will be a long, slow, and difficult journey for Oregon. We may not be falling anymore. But it will likely be many years before we return to the robust growth we saw before this recession. In other words, next year will not be a repeat of 2007, when we could ride the wave of a rebound and make up for lost opportunities.
Since a traditional economic rebound is not in the cards, Oregon will have to create the next decade’s opportunities through hard work and tough choices. That means changing the way we think – our mindset – as well as changing the way government does business because the current structure of government is simply not sustainable anymore.
Last month my Reset Cabinet delivered a candid analysis of Oregon’s fiscal future: We will emerge from this recession with less revenue, higher costs, and greater demands for public services. That’s the unvarnished challenge at our doorstep – and we can either meet it now or spend the next decade stumbling from one deficit to the next.
When the Reset Cabinet released their assessment last month, some called it “bleak.” No elected leader wants to be handed a report that says: We’re in uncharted territory and facing a budget shortfall of 10-billion dollars over the next ten years. I half-joked that these predictions, like grief, have sent us through stages of shock and denial, anger and blame. But this process also leads to opportunity and resolve.
You might ask: How can I be optimistic when I just had to cut more than a half-billion dollars in services, when more than ten-percent of Oregonians are out of work, and when a decade of billion-dollar deficits looms on the horizon? Because joblessness and a decade of deficits is our fate only if we choose to make it so. There are solutions to our budget problems if we are willing to think differently and make hard choices.
We can turn that decade of deficits and joblessness into a decade of stability and prosperity. We can create a new path for Oregon’s future. But we must work collectively if we are going to reposition Oregon for long-term stability and success. Keep in mind that it’s not just the effectiveness of state government that’s at stake. The very foundation of our economy is at stake. Our ability to keep people safe in their homes and in their communities is at stake. The quality of our children’s education – from early childhood through high school and beyond – is at stake.
So we can choose: The vision to change – and the will to protect Oregon’s fundamental values. Or blind adherence to the status quo.
If we don’t rise to the occasion and get this right – we will lose far more than government services. We will lose our quality of life. Our civic house. Our economic competitiveness. Our ability to protect Oregon’s natural treasures. And many of our best and brightest students. So the case I make today is about nothing less than who we are as a people, what we want for our future, and why the time to act is now!
The bottom line purpose of the reset report is to rethink the problems that confront state government, families, and our economy – and reposition Oregon for a stable, predictable and thriving future. This is a major challenge, and these changes are not without controversy. But we must not let these recommendations turn into political ammunition for one side or the other.
The task of repositioning Oregon for long term success is too important to be sacrificed on the altar of partisan, political warfare. I realize that’s asking a lot. And the temptation will be to simply rerun the tired political debate of whether we have a revenue problem or a spending problem. This is not – and cannot be – just a conversation about more taxes or about a new tax structure to create more taxes. It must be about the proper functions of government – and how we spend our tax dollars.
With this report, we have taken stock of the role and functions of state government, and concluded that the government we have is too expensive to maintain in the wake of the Great Recession. And just as important: Too prone to failure when the next recession arrives. The report analyzes where we are today and makes recommendations for how we can provide better, smarter, more efficient, and more certain government services. We need that certainty to prevent the up and down, “fund and cut” practices that have become endemic to Oregon’s government.
A lot of hard work went into this report. So I want to acknowledge everyone who gave their time and skill to a project that required lots of patience – and had no easy answers. The authors of this report are some of the most committed and public spirited Oregonians inside and outside government. I know that some of you are here today. I thank you on behalf of all our citizens for the many hours of volunteer service that you put in creating this blueprint for Oregon’s future, a blueprint to turn a decade of deficits into a secure future for our children and our grandchildren.
As I said, I’m not going to recite every recommendation. But in addition to copies I have made available today, you can find the report on my website: governor.oregon.gov. I encourage you to read the full report. I also welcome additional ideas. That’s why my website will have a feature where you can add your own thoughts and recommendations. The report has a lot of very useful information and I guarantee there is something for each of us to like, dislike, and want to add.
I realize that the recommendations in this report will invite criticism and scrutiny. I welcome both – but reject any impulse to defend turf, point fingers or reject change. The reset report challenges us to find workable solutions that put Oregon on a more secure and stable fiscal path for the future. We must accept that challenge!
Since I know this report will provoke debate – let the debate begin at this podium. I want to talk about a proposal that is certain to attract the attention of headline writers: Crime and public safety. Crime in Oregon and across the nation has reached historic lows – both personal crime and property crime. We owe law enforcement, prosecutors, judges, community corrections, rehabilitation and treatment programs much of the credit for this dramatic turnaround. And, yes, we must also acknowledge the role of changing demographics – and that some of the reduction is due to increased enforcement and incarceration. But not all.
Incarceration is the most expensive tool in the public safety tool box. Every state across the country is being forced to review and reconsider expensive mandatory sentencing strategies in light of the Great Recession. Oregon must do the same! There are strategies, without jeopardizing public safety, that will lower the cost of incarceration through diversion programs that send people to training and local supervision and out of prison.
Public safety interest groups will argue that Oregon’s falling crime rate is due solely to mandatory sentencing. But other states have reduced their crime rates at less cost, using different sentencing programs. So this is a debate we must have. But there is no debating that if we change nothing, Oregon’s prison population will continue to increase substantially over the next ten years.
Consider this: Changes in sentencing policies since the mid-1990s, including the adoption of Measure 11, have doubled our prison population from 7,000 to more than 14,000 inmates. This has led to a 250-percent increase in the Department of Corrections budget – a number that is expected to grow at an unsustainable rate if we continue the policies in place today. Now let me ask you this: Have we more than doubled our investment in students over that same time period? Not even close.
So we have a real dichotomy, which I would summarize as: Locking up more people verses providing our children with a better education. There is a great imbalance between how we invest in incarceration – and how we invest in education. And right now children are trapped on the losing end of that imbalance. It’s not right. It’s not fair. And most of all – it’s not smart.
At a time of declining crime rates – and at a time we can least afford our current mandatory sentencing policies – let alone voting for more of the same in November – do we really want to continue on this path of a blank check for corrections, and a message of “check back with me in ten years” for adequate school programs and funding?
The time is now to find more effective and sustainable ways to use the hundreds of millions of dollars we spend on incarceration. This does not mean that we stop holding criminals accountable – or shorten sentences of violent offenders. I won’t tolerate that – and neither will the citizens of Oregon. But there are actions we can take to reduce some sentences for some offenders without sacrificing public safety – and ways to divert offenders from prison. These options must be explored. This will take political courage and will on the part of Oregon lawmakers to act and help Oregonians undersand that being smart on crime – and smarter about how we spend our limited dollars – does not mean that we are being soft on crime.
Another issue the report takes on is education – an issue that is critical to Oregon’s economic future. Here are a few questions we need to answer: Can we provide all of our students with a better education with the billions of dollars we invest each year? Can we be more efficient? Can we improve student performance while investing our dollars more strategically? All the data and the studies that address these questions tell us the answer is yes.
Right now the recurring debate in Oregon around K through 12 is about money. Every legislative session – and with each Governors Recommended Budget – our commitment to K-12 is measured by a number. That is what is debated and negotiated. But do you hear us debating student performance? Standards and curriculum? Teacher performance and evaluations? Consolidation of services and more efficient data systems?
No. On these questions the silence is deafening. The big debate is always about “the number.” Meaning the budget number. But rarely does the discussion turn to the number of students who succeed, much less how prepared they are to compete in this demanding economy. We must end our practice of evaluating the success of our education system based solely on how much money it receives. We must stop claiming political victories based on a budget number. Money is not an outcome – it’s a means to achieve that outcome.
So let’s turn our attention to outcomes – and what we’re actually buying with our K through 12 dollars. This is not about accounting, but accountability. Regardless of the number – the state has to start holding our schools accountable for the money we give them. The first step is to align funding with student outcomes. We must align teacher evaluations with student performance. And that is just the beginning. We should use emerging technology to improve educational options for students through online learning and virtual classrooms.
We must embrace charter schools and make them part of our education system. And if a school is failing, we must take the hard, but necessary steps, to turn that school around or shut it down. We must redesign the current Education Service District structure and create a new streamlined and more cost effective regional system to manage school district payroll, accounting, technology and transportation needs – at a minimum. The current structure is redundant, inefficient, out dated and simply put – a waste of resources. There is a smarter way.
Finally, if we are serious about accountability for our schools, we should return to the framework of our original state constitution and make the Superintendent of Public Instruction a position appointed by the Governor. Right now our approach to education governance and accountability is fragmented – and something of a Rube Goldberg contraption. The state board is appointed by the Governor. The State Department of Education is run by a separately elected public official. And the Legislature sets funding for 197 individual school districts – that each has its own local governing board, hires its own chief executive officer, and has the right to contract and bind the state to pay for those contracts.
Simply put: The lines of governance and accountability are broken. When the U.S. Secretary of Education wanted to know why Oregon would not be re-applying for a Race to the Top grant, I had to tell him that despite our best efforts over the last year, we weren’t ready. We still have more work to do. No function of government is more important to our economic future than education. The last eight years has only strengthened my belief that responsibility for education should rest with the governor.
I just talked about K through 12. But our post-secondary system is also in need of retooling – with new lines of accountability for the money the state invests. Here, too, failure or success cannot be based on a budget number. Instead, we need to ask new and different questions. Why are more students taking five, six and seven years to complete a four-year degree – at an added cost for them and for taxpayers? Are we making post-secondary education affordable for all qualified students – or has it become a system based more on one’s ability to pay than one’s determination to learn? Is our current governance structure for post-secondary education, both accountable to taxpayers – and flexible enough to deliver a quality education?
My Reset Cabinet recommends the creation of a compact between the state and the university system. The compact would allow each of our seven public universities to move forward with clear goals and performance targets – tied to their funding. This approach is long overdue.
But I want to give credit to our universities. They are more entrepreneurial – and doing more with less – because of the funding constraints imposed by our current structure. But now it is time to formalize these realities in a new relationship that balances accountability and flexibility – and gives proper attention to the unique mission of each university and the demographics of the population they serve.
The report recommends that we build on our Shared Responsibility Model for student financial aid, bringing more need-based aid into the system from our public universities, community colleges, and the private colleges and universities that participate in the Oregon Opportunity Grant program. This approach offers a new way to expand resources from private donors as we stretch to accommodate the surge of high school graduates seeking to further their education. The Oregon Opportunity Grant program promises that with reasonable contributions from students and their families, we will do our part to make a college education affordable for every Oregonian with the desire and ability to pursue it. This is a promise we must deliver.
Our focus on higher education must also recognize the critical role universities play in research and innovation, which in today’s economy are engines of growth and prosperity. No matter how tight our state budget, we must make room in our investment decisions for university-based research and development. Oregon’s economic future – including our ability to compete nationally and internationally – depends on it.
That’s true for many reasons, not the least of which is this: A research infrastructure at our universities will attract technology companies that will both use – and expand – research and innovation in Oregon, while creating high paying jobs for our graduates.
I want to talk for a moment about Oregon Health and Sciences University. OHSU is critical to our economy and to our ability to provide high quality health care for all our citizens. OHSU must have greater access to capital markets to support its public missions of education, research, and caring for some of our most vulnerable Oregonians. The Legislature must give the right to access these markets!
I’m just going to rip the band-aid off on this one and say it: Increasing labor costs will be a big contributor to future deficits if we do not change the way we budget and provide compensation for public employees. I stand second to no one in my belief in the importance of public employees and the value of the work they do. I know it is popular to blame public employees for every problem facing government. That is not true – and it is not fair. Public employees are not to blame for our deficits.
The problem is not what has happened in the past – but what lies ahead, with rising costs for retirement and health benefits and not enough money to pay for them. The costs to the state for the Public Employees Retirement System will increase by more than 350-million dollars in the next biennium and by almost one billion more by 2017.
The costs of health care benefits are another concern. With the cost of health care increasing more than 10-percent a year, I think it is fair to ask state employees and school employees to share the burden of bringing these costs under control. Add health care costs to retirement costs and we will soon be looking at benefit increases for public employees that far exceed the increases in pay and benefits projected for their private sector counterparts.
So my message to state and school employees is this: If you don’t want a decade of deficits to turn into a decade of layoffs and wage freezes – work with us to manage the cost of your benefits and keep your pay in line with your counterparts in the private sector. The fact is: We approach budgeting for labor costs in state government backwards. Instead of identifying the total cost of compensation, we budget separate amounts for cost-of-living pay increases, seniority step increases, health care, and retirement benefits. This fragmented approach must end. We need to approach labor costs as part of a total compensation budget.
Furthermore, we need to look at a system that is equitable for both the state and school employees. The state contributes twice as much of its general fund budget to cover the pay and benefits of school employees as it does to cover the pay and benefits of its own workforce. We need to make the labor costs of school employees as transparent to policymakers and fair to taxpayers as the labor costs of state employees.
For this reason, I believe the time has come to move to a system of statewide collective bargaining for teachers and school employees like other states do. Doing so will promote equity across school districts, reduce administrative costs, and enable districts to redirect funds now spent on extended labor negotiations into the classroom.
But whatever bargaining system is in place, we need to confront the rising cost of benefits in the next biennium. Budget projections show that the growing cost of PERS and health care benefits alone will drive our labor costs well above increases projected for private sector workers in 2011 – even if we continue the current wage freeze for state employees.
Let me talk to you about how we can address the rising cost of retirement and health benefits. With respect to retirement, we must end the practice of picking up the employees’ 6-percent PERS contribution. Some school districts have already ended this benefit for their employees. The time has come for the state and remaining school districts to do the same.
Health care is another big factor in the escalating costs of our public workforce. The state offers a comprehensive health care benefit. This is as it should be. But the time has come for employees to contribute to the cost of their health care benefits. The Reset Cabinet offers a list of options for accomplishing cost-sharing. Which of these options is best should be discussed and negotiated.
But there is no escaping this reality: The state can no longer afford to pick up the entire tab for health, dental and vision benefits when their costs are going up ten-percent a year. The time has come for the state to manage employee compensation the way the private sector does. This is the right thing for the state – and for Oregon taxpayers.
Lastly, my Reset Cabinet recommends that we build a strong reserve fund! This is the single most important step we can take to maintain fiscal stability and provide the core government services Oregonians depend on.
If you think a reserve fund is a luxury and not a necessity, consider this: We could cut the cost of government by 20-percent and still face a budget hole when the next recession hits – if we do not start saving. I won’t spend a lot of time on this topic because you’ve heard me talk and pound my fist about it for the last two years.
We must reform the kicker by creating a constitutionally protected emergency reserve fund that ends our roller coaster budgeting. We must stop the self-defeating policy of increasing taxes or slashing services as the answer to every economic downturn. We don’t have to have a repeat of the fight over Measure 66 and 67. We don’t have to keep making the kind of cuts that I just had to make in this biennium’s budget. We don’t have to settle for getting by in difficult times – when we could be moving ahead at all times. But to achieve this vision, we must find the political courage and will to do what is right – and give the citizens a better way to use kicker revenues.
In April I told you that the reset was coming. Today, I told you what is in the reset report. Now I want to tell you what I intend to do with this report. First of all, I’m going to spend much of the next six months traveling across Oregon – talking to citizens about this report, and sparking a vigorous debate about what it says, the consequences of inaction, and the most promising road to collective prosperity.
I’m also going to use the reset report to frame my budget recommendations for the 2011-2013 legislative session. Some reports end up sitting on a shelf. This one will be setting the table for our economic and fiscal future.
Let me close my remarks by that when you get hit by an economic storm, you can learn from the experience and prepare for the next one – or assume the sky will clear on its own and return to business-as-usual.
The lesson of the last two years is this: Some storms linger long after the rain and wind stop. The Great Recession did not hit us and move on. It hit us – and left us a changed reality. Working families, vulnerable citizens, educational institutions, and our economy have suffered real damage. And we now know that our traditional playbook is outdated and ill equipped to repair that damage. We must rebuild state government using a playbook that will weather future storms, serve us in good times and bad, and last for generations.
When I say “we” – I do not mean “we in government.” I mean “we as Oregonians.” These choices are ours to make. I know that there will be strident opposition from the interest groups that arrive in Salem each session, and that during a campaign year, some of these recommendations will make candidates want to duck for cover.
But we don’t have that luxury anymore. And frankly, Oregonians deserve better than a campaign of sound bites and glossy advertisements that deliver only empty promises and easy answers.
The issues confronting our state are too serious and too important to our collective future to let those seeking to represent us in Salem dodge their responsibility to engage Oregonians during this election cycle – in this critical debate. If they don’t like what the reset cabinet has put on the table – the public deserves to hear their solutions.
I also know that those threatened by some of these changes may dismiss the report – and my speech today – because I am nearing the end of my term. It would be easy for me to leave the stage quietly and hand the next governor this problem without offering any solutions. That would be unfair to the citizens I have been proud to represent for the last 40 years in public office. As I said, I do not take the path of least resistance.
So let me start this debate. Let me open this dialogue. Let us look at all of the options in this report – not as the last word on how to reposition Oregon for success, but as a work in progress and an invitation to other ideas.
Change is hard. But uncertainty is worse. We can turn a decade of deficits into a stable and prosperous future for Oregon. It just takes courage – and the will to believe that Oregon and our future are worth it.
I believe! Do you?
Thank you. God bless you, and God bless Oregon.