PORTLAND, Ore. – April 2- Following is the prepared text of Gov. Ted Kulongoski's (D) 2010 state of the state address.
Thank you President Wiewel for your kind introduction.
It is fitting that I deliver this state of the state address – which is my last – at a university campus. We are beginning to come out of a terrible recession and looking toward a brighter future, and because of the record growth of students in our community colleges and universities, that future is already starting to shine.
President Wiewel – I also want to thank you and your colleagues in the Oregon University System for giving Oregonians what they need most – opportunity. And for giving our economy the essential tools of research, innovation, and a skilled workforce.
Let me start by saying something about our fellow Oregonians. Once again the wonderful people of this state are responding to difficult times with determination, resilience and hope. That is the spirit that our students bring to our classrooms, that laid-off workers bring to our job training programs, and that volunteers bring to our food banks.
We have lost more than our share of jobs – because Oregon has more small businesses than other states – and more industries that drop hard and fast in a downturn. Too many workers are without jobs or underemployed, and too many families are still struggling to get back on their feet. But, in times like these, we learn new lessons that we can use to accelerate recovery, reshape our future, and return to prosperity. We weaken our state when we ignore those lessons, and we make ourselves better when we learn from them.
Much of what I’m going to talk about today are the lessons we’ve learned since 2003 when I took office – and the hope I’ve always had for Oregon. I’m going to begin in 2002 – before I ever took office. I went to Washington DC for what you might call: Governor School. The national economy was in terrible shape. And the Oregon economy was just as bad – or worse. The Legislature needed five special sessions that year just to balance the budget. Coverage for low-income citizens on the Oregon Health Plan came close to extinction. And cuts to public school funding forced early closures, larger classes, and elimination of programs.
At Governor School the facilitator said: I have good news and bad news. The bad news is that you are taking office at the bottom of a deep recession caused by the bursting of the dot-com bubble. The facilitator’s good news was this: Most of us would serve eight years in office, and any governor who serves eight years usually has to deal with one – and only one – recession. He told us, we were getting ours in the beginning of our tenure, and it would be clear sailing for the rest of our time as Governor.
But, as we all know, instead of a one-and-done recession, we ended up with three years of loss and recovery, followed by two years of gain and growth, followed by three years of loss, and what is likely to be a slow and challenging recovery.
Although the last eight years have been economically difficult in ways that were hard to imagine when I first took office – in the years since 2003, we’ve accomplished much – and learned even more. To accomplish our goal of building a better Oregon, we diversified our economy, invested in renewable energy and green technology, and budgeted not just for today – but for the future.
We provided every Oregon child up to age 19 with access to health care – and required health insurance companies to provide the same coverage for mental health as they do for physical health.
We increased our commitment to Early Childhood Education by providing more funding for Head Start, Early Head Start, and in February created a birth-to-3 early childhood education program.
We changed Oregon’s student financial aid program to a shared responsibility model that has reached thousands of new students in our community colleges and universities.
We reformed the Public Employee Retirement System – eliminating a 17-billion dollar unfunded liability and creating a surplus. If we hadn’t reformed the system in 2003, with the market losses sustained in the last recession, many local governments would be in bankruptcy today.
Over the last seven and one-half years, we invested between 4 and 5-billion dollars in our transportation infrastructure – creating thousands of family-wage jobs for Oregonians.
And we invested hundreds of millions more in airports, seaports, rail and public transportation through a program called Connect Oregon.
We learned from the past as we invested for the future. Oregon has important advantages that will allow us to do better than most other states as the national economy starts to recover. First – our location on the west coast gives us easy access to the Pacific Rim – and the growing economies of Asia.
Second – our population is relatively small – as is the size of our government – giving us an open and transparent government that is able to innovate, collaborate and respond to new challenges. The people of Oregon are not afraid of change! At the same time, we have abundant energy supplies, skilled workers, and the proven ability to get things done.
And third – Oregon is a magnet for young creative people who want to live in a state that treasures our natural resources – and invests in art and culture, even in difficult economic times.
So, yes, the last seven years were anything but a one-and-done recession. But we invested wisely. Focused on providing opportunity. And kept our fiscal house in order.
I say that while being the first to acknowledge that 10.5 percent unemployment is unacceptable. That’s why I will continue to do everything in my power as Governor – from marketing our exports, to creating incentives for green technology companies to locate here, to helping our small businesses innovate and grow, to fighting for every federal dollar available – to bring that unemployment number down.
But I want you to know that more than anything else – our investments in education, transportation, health care, and culture are the long-term solutions to high unemployment, and the path to a robust economy.
What is the biggest threat to that robust economy? Large budget deficits that have already hit many other states. Bob Herbert of the New York Times wrote this about California: “Budget officials travel the state with a glazed look in their eyes, having tried everything they can think of to balance the state budget. And still the deficits persist.”
We are not like any state that is cutting health care, school days, or support for families in crisis. This is not a coincidence – or dumb luck. When Oregon’s economy was growing we saved and invested. And when the economy fell victim to the business cycle and bad behavior on Wall Street, we preserved – and even expanded – services that other states are now cutting or eliminating.
For example, other states are cutting children from their health plans. We expanded coverage to all children and added more low-income adults. Other states exhausted their unemployment funds – and are taking loans from the federal government. We’re extending benefits – on our own dime. Other states are cutting their investments in transportation infrastructure. We’re expanding and accelerating ours. Other states are limiting enrollments in their colleges and universities. We’re educating more students and retraining more workers than ever in our state’s history.
In the decade ahead, states will be judged by their ability to keep their fiscal house in order, while educating their citizens, fostering innovation and creativity in their economies, and delivering critical social services to their citizens.
Oregon is passing that test. Here are some of the reasons why. Many states are still trying to balance their budgets for the fiscal year beginning July 1. We have a balanced budget for the next 15 months. And we balanced our budget the Oregon way – without expecting additional federal stimulus dollars.
In 2007 we created a Rainy Day Fund – and worked with the business community to divert the corporate kicker into that fund. Last year, hospitals and health insurers came to the table and agreed to put more of their own money into our health care system – which is how we will be able to cover all children and more adults. At the same time, state employees agreed to take furloughs and pay freezes.
We made cuts and found new efficiencies – reducing the cost of state government by almost 2-billion dollars in the latest budget period, compared to the service levels projected before the recession.
Our planning, saving, targeted investments, and commitment to shared sacrifice that grew out of the 2003 recession – enabled us to navigate the 2009 recession in a way that neighboring states have not. They’re focused on their July budget deadlines. We’re focused on next year – and the decade ahead.
But our focus on that future comes with new risks. Even with economic recovery, Oregon will face budget challenges in the future that may limit the state’s ability to meet its core responsibilities of education, human services and public safety. That’s why I describe the state of our state this way: Skies clearing – and a potential storm brewing.
We are facing a recovery that could turn out to be one step forward – and two steps backward. Why? Because much of what cushioned the blow for the current budget will no longer be available when the Legislature meets in January 2011 and tries to balance the budget for the next biennium.
On the revenue side: We will be challenged by the loss of federal stimulus dollars and the exhaustion of the Rainy Day Fund. The Education Stabilization Fund is close to tapped out. And federal county payments will soon run out too.
On the expenditure side: Inflation, population growth, and unfunded mandates – especially ballot measures that grow our prison population – are all keeping rising costs ahead of rising revenue.
Because of persistent unemployment – many of our citizens who never thought they’d need government assistance are now turning to our social safety net for help. That means hundreds of millions more for Medicaid, emergency aid for families in crisis, food assistance, and unemployment insurance. Public employee retirement costs will also go up because state and local governments have to backfill losses sustained in the recessionary stock market. And then there is the kicker – Oregon’s one-of-a-kind debit card that makes it impossible for the state to consistently put money aside in good times to help weather the bad times.
So while we are striding toward recovery – we are also speeding toward a budgetary cliff. Simply put: Time is of the essence. The Legislature must act in 2011 to avert a decade of deficits. If they don’t, we will end up damaging Oregon’s engines of economic growth: Education, transportation, health care, cultural tourism, research and energy.
What do we have to do to prevent a decade of deficits?
Let me start by telling you what will not work: First, relying on temporary fixes that hide the real structural problems in our budget – and second, believing that all we need is a short-term vision that does little more than help us survive the next revenue forecast.
Today, the starting point for every new state budget is this question: How much revenue do we need to provide the same level of services in the next biennium that we did in the current biennium? Anytime you start by asking, “How much revenue do we need?” – the answer has always been: More. That’s why the first step toward keeping the decade of deficits at bay is to dial back the starting point – to in effect create a new current service level. This is what I call the “reset.” The reset won’t be done with accounting gimmicks. Or by executive fiat. It will require changing how we finance and deliver services – and it will require the political will to make those changes.
The reset comes in three parts. The first is the need to stabilize revenues. Oregon has a very unstable revenue stream. And it is getting more volatile with each recession. Our income tax funds most of what state government does. In good times the tax revenues flow in – often in an amount that exceeds the State Economist’s most thoughtful and best prediction. In bad times – corporate and individual income tax receipts shrink by hundreds of millions of dollars.
We must stabilize state revenue!
The second part of the reset is to attract as much revenue as possible from outside sources. In budget jargon – these are called “other funds.” The largest share of “other funds” comes from the federal government. But they also include dedicated taxes raised for a specific purpose, and private funding from businesses and universities working in partnership with government.
The third part of the reset is reducing state spending, delivering services more efficiently, investing less in some government functions, and eliminating or consolidating programs, agencies and boards. Since 2003, we’ve been finding ways to cut the size and cost of government – everything from a smaller workforce, to more fuel efficient cars, to creating a business permit process that is faster, simpler, and doesn’t make your average business owner’s head explode. But we will be required to do even more in the next decade.
The reset cabinet, a collaboration of public and private citizens, have been looking at the structure and funding of state government since last September, and will deliver their recommendations to me in June.
I mentioned that in 2007 we saved hundreds of millions of dollars by diverting the corporate kicker into the state’s first Rainy Day Fund. We did this with the support of the business community because they knew that the business of government, supports the business of businesses. Businesses must have an educated workforce. A highly efficient transportation network. Low-cost renewable energy and adequate water. A functioning court system to settle disputes. Affordable health care. And a great quality of life for their employees.
Together, these assets are the working capital of business – and Oregon has done a better job of providing and protecting this working capital than any other state. Oregon’s tax burden on businesses puts us in the bottom 5 of all 50 states – and our quality of life is absolutely second to none.
Putting the corporate kicker into a Rainy Day Fund and passing Measures 66 and 67 helped get us through the worst of the recession – and laid the groundwork for creating a stable, accountable, and predictable way for state government to raise the revenue it needs – for the responsibilities it bears. But after laying the groundwork we have to build the building itself. And the building that will provide stability for Oregon’s revenues and budget is kicker reform.
The kicker – which is unique to Oregon – increases our cost of borrowing money and is predicated on the false assumption that state revenues can be predicted accurately two years ahead of time. It is much like a weather forecaster on July 1, 2011 predicting the temperature on July 1, 2013. And if you miss it by more than two degrees – we shoot you! If we want to keep that brewing storm I mentioned safely off shore – fixing the kicker must be our top economic priority.
I’ve been in politics for four decades. I understand political pressure. I understand what it means to cast a tough vote. I understand that raising money for a personal campaign becomes more difficult when donations are siphoned off to pay for a ballot measure fight. It is time for us to do what is right, to see past the next election, and to put the long-term interests of the people of Oregon ahead of short-term political expediency.
To bring about kicker reform – there are three hurdles we have to overcome. The first is sufficient political will to change a policy that is popular – but deeply damaging to Oregon’s economy and future.
The second hurdle is to have a credible plan that is both financially sensible and politically viable. Here are the basics of my plan. The time has come to amend the Constitution to establish amandatory savings plan for state government. The savings plan will be called the Emergency Reserve Fund. It will not repeal the kicker. Let me say that again – I do not advocate repealing the kicker. What I advocate is using some of the proceeds from the kicker, both the corporate and individual kicker, to build the Emergency Reserve Fund.
Under my proposal, half the kicker revenue will go into the Fund, and the other half will go to taxpayers. But we should treat the Emergency Reserve Fund like a bottle. When it is filled – put the cap on and don’t try to add more. In this case, the cap would be 10-percent of the prior biennium’s budget. After that number is reached, the full 100-percent of the kicker would be returned to taxpayers.
Ten percent of the prior biennium’s budget, combined with the Education Stability Fund, would give us a reserve equal to 15-percent of a two-year budget, or 30-percent of a one-year budget. This would create an Emergency Reserve Fund as good as any state in the country. The Emergency Reserve Fund could only be tapped in true emergencies as measured by objective criteria, such as declining employment and revenue.
The point of these strict rules is to make sure the Emergency Reserve Fund is not used as a routine budgeting strategy – but only as a response to extraordinary circumstances, such as a deep recession similar to one we’re just coming out of.
I also believe that the Emergency Reserve Fund is the best antidote to the argument that we have to keep raising taxes. If we have the Emergency Reserve Fund in place, we won’t be forced to turn again to measures similar to 66 and 67.
Which brings me to the third and last hurdle standing in the way of kicker reform: A process for getting it implemented. This is easier said than done. Consider what happened in February: The voters passed Measures 66 and 67 (demonstrating that they want to protect education and other vital services). The Legislature returned to Salem and rebalanced the 2009-2011 budget. After the rebalance, the State Economist then announced that we face a 2.5-billion dollar deficit in the next biennium.
But even this perfect storm of political opportunity, falling revenue, and ominous forecasts was not enough to get the Legislature to act. So I am going to continue to speak out on this issue, to create a sense of urgency, to explain the hard budgetary truths to the people of Oregon, and to fight – and fight hard – to convince the Legislature not to miss a second opportunity to prevent a decade of deficits. And I challenge each of the gubernatorial candidates to join with me in calling for kicker reform. It should be a litmus test for anyone who wants to be the next Governor of Oregon.
This is my 8th state of the state address. In that time our nation has been at war, and too many of these speeches have occurred during difficult economic times. But I want you to know that for the last 8 years – as well as the 30 years I spent in public service before I was elected Governor -- the people of this state have risen to every challenge, refused to trade their stewardship of our land and water for short-term economic gain, and time and again defied the conventional wisdom that we can’t do better. We can do better – and we always do.
This recession has been painful. I’ve talked to Oregonians from every part of this state. I see the anxiety. I hear the stories of jobs lost and bills unpaid. I recognize that Main Street is not benefiting from the turnaround on Wall Street. But this recession is also an opportunity to set Oregon on a path toward more certainty, more prosperity, and calmer economic waters.
I have a message for the Legislature and my fellow Oregonians: We have a choice. We can look ahead to next year and ask: What do we want today? Or we can look ahead to next year and ask: What should we build for tomorrow?
“What do we want today?” is about the short-term: Surviving the next election; keeping the budget precariously balanced; staying one step ahead of an infrastructure nightmare, and paying for necessities with borrowed money.
“What should we build for tomorrow?” is about the long-term: How do we prepare for 2012 – and2025? How do we create sustainable family wage jobs? How do we make sure that we’ll have enough water for fish, agriculture and recreation? How do we fund higher education so we don’t lose our best and brightest students to other states? How do we keep our transportation network from being strangled by congestion? How do we pass on to our children and grandchildren an even stronger, healthier and more promising Oregon than was passed to us?
This is the time to go all in. To have the courage of our convictions, hope in our hearts, and the very best for Oregon in our thoughts and actions. Am I asking for more than those who lead this state can deliver? Only if we fear too much – and believe too little.
I’m a believer – and always have been! I believe in the character of our people. In the strength of our values and institutions. And in the future of Oregon – this last best place we all love and call home.
Thank you. God bless you. And God bless Oregon.