Oregon Business Summit 2011

When we met a year ago, we did not pull any punches discussing the impact of the recession or magnitude of the problem we face in Oregon as the demand for government services outpaced revenue. We were on an unsustainable path. We recognized the need for transformative change, and we outlined a vision for a more sustainable future that included transforming outdated systems and institutions in order to lay a foundation for job growth, for capital investment and for economic prosperity to reach all communities -- urban and rural.

Most importantly, we agreed to take on this challenge together, with unprecedented collaboration between the public, philanthropic and private sectors, recognizing that our common interest as Oregonians at a critical moment in our history far outweighs what might divide us.

To that end, I vowed to focus on three priorities from day one of my administration. First, I wanted to ensure that the state would be an effective partner getting the private sector economy going again for big companies and small entrepreneurs alike -- and to set the stage for breaking the boom bust cycle that has plagued us for decades. Second, I wanted to transform our health care system to reduce the opportunity costs involved with spending an ever growing portion of our resources on this one sector alone. Third, I wanted to transform our system of public education to create a skilled workforce capable of competing and excelling in the global economy of the 21st century.

One year later, and a little grayer, I believe we have made significant progress. And while too many Oregonians remain out of work and facing uncertainty, we will emerge from this recession stronger and better positioned for the future.

So let me take a few moments and discuss the progress we have made on the goals we set for ourselves at the Oregon Business Summit last year; how we can accelerate that progress; and some suggestions on how the Oregon Business Plan can evolve to include elements of what I call a "sustainable clean economy" which can further insulate us from the boom bust cycles of the past.

HEALTH CARE

With legislative leadership and the involvement of Oregonians in communities around the state, I believe that we have been very successful in catalyzing a new approach in health care. The passage of SB 99 (which established our state health care insurance exchange); and HB 3650 (which established a pathway to transform our health care delivery system for the 600,000 people on the Oregon Health Plan), has allowed us to take the first step to reduce cost and improve health outcomes for all Oregonians.

Our new business plan shifts the focus and financial incentives from the emergency room and after the fact acute care to prevention, early intervention and community based management of chronic conditions. The potential cost savings for the state are substantial -- our goal is over $200 million this biennium -- will ensure that our most vulnerable citizens maintain coverage, while freeing resources for other public priorities and providing a model for the commercial health insurance market.

In the two decades since Oregon reformed its worker's compensation system Oregon businesses have saved over $14 billion. Imagine the competitive advantage those same businesses would enjoy if we could reduce the rate of medical inflation. That is exactly the long-term objective of our reform efforts and I will need your help in the upcoming legislative session to gain approval for this important work to proceed.

EDUCATION

With help from the business community, strong leadership from the legislature, and educators around the state we are also making progress on changes to our system of public education, which will deliver better results for students and more resources for teachers. With only two-thirds of Oregon students graduating from high school, I feel a tremendous sense of urgency about this effort. Indeed, our social, civic and economic objectives depend on meeting aggressive targets for all Oregon students to earn high school diplomas and at least 80 percent to earn a two or four year college degree.

With the passage of SB 909 and SB 242 we are, for the first time, aligning funding and governance across the full continuum of education from early childhood services through K-12 and post-secondary education and training to achieve these goals.

This approach includes a laser focus or early childhood to ensure that all of our children are ready to learn when they reach kindergarten; ready to read at first grade; and reading at level when they leave third grade. And we are also seeking a waiver from the punitive, one-size-fits-all approach of the federal No Child Left Behind Law in favor of tailored achievement compacts between the state and educational institutions that define expected student outcomes given the state's investment.

Again, I am looking for your support in the upcoming legislative session to ensure that this important element of the Oregon Business Plan continues to move forward.

JOBS AND ECONOMIC DEVELOPMENT

Yet even as we pursue these sweeping system changes in health care and education, we must lean into the immediate challenge of creating jobs now and positioning Oregon to be more competitive in the 21st century; driving our per capita income back up above the national average in every region of our state; and erasing the troubling income disparities which have existed for far too long in our communities of color.

On the jobs front, we are making progress. We've changed the tone at the top, and our collaborative partnership with labor, the Oregon Business Council, the Oregon Business Alliance, AOI, the Portland Business Alliance and chambers of commerce across the state has been the key to our early successes.

Lost in the headlines about the European debt crisis and the failed Super Committee is the fact that we are creating jobs in Oregon. So far this year we have created over 18,000 jobs -- and we are still working hard to meet the Oregon Business Plan goal of 25,000 jobs by the end of the year. And believe it or not, unemployment is lower in Hood River, Boardman and Corvallis than in the Portland metropolitan area. Why? Because we have islands of innovation in both urban and rural communities that are tapping into Oregon's natural assets and market advantages in new and creative ways.

From biomass energy entrepreneurs at the Port of Morrow creating jobs that pay 150 percent of local wage rates to the cutting edge, home grown companies that will emerge from the Oregon Nanoscience and Microtechnologies Institute in Corvallis, an economy of innovation is emerging in Oregon. It is our best hope for the future because it is locally-driven and rooted in our strengths -- from our solid base in agricultural, forest and advanced manufacturing industries to promising technology research and development to our strategic location on the Pacific Rim with access to burgeoning Asia markets.

During my recent business mission to Japan, South Korea and China, I was struck by the strong relationships and trust that have been built over a long period of time and help make this a bright spot of Oregon's economy. Today, nearly 5,000 Oregon companies export their products and services abroad, and one-quarter of Oregon's manufacturing jobs are export-dependent. And our innovation economy was evident everywhere I went.

I was joined on the trip by Fred Ziari, from Hermiston, who is introducing his company's irrigation technology to China and other Asian markets. It has the potential to be a triple win -- a win for his company's expansion plans; a win for efficiency and water conservation in food production; and a win for Oregon, and our desire to design, build and export the products and technologies of the 21st century.

State government can and must play the role of accelerator and barrier buster for this emerging economy of innovation.

That role is multi-faceted -- and begins with the basics -- like our success passing a balanced budget, which in turn was cited by Standard and Poor's as a prime reason to upgrade Oregon's credit rating to AA+. And that budget includes reserves that are cushioning the blow to Oregonians in need of essential services in a time of ongoing economic uncertainty.

Getting the basics right also means following through to invest in basic infrastructure like the Columbia River Crossing, while being flexible enough to take into consideration fiscal realities.

We've passed important policy to help reinvigorate manufacturing, like SB 766 which speeds up permitting for industrial property will help ensure that this backbone of our economy will continue to thrive.

Companies like Shimadzu USA, which is constructing a 54,000-square-foot manufacturing facility in Canby; Oregon Iron Works, which is building the first wave energy buoy in North America; Intel, with its $3 billion leading edge wafer fabrication facility in Hillsboro; and Schnitzer Steel, which has long been the bedrock of our manufacturing community -- provide exactly the kinds of family-wage jobs Oregon needs; and create robust economic multipliers all over the state.

We successfully launched Oregon's National Career Readiness Certificate, and I'm proud to report that over 11,000 unemployed Oregonians have gained certification -- one step toward ensuring our workforce can gain the right skills for new opportunities, with proficiencies aligned closely with the needs of our business community.

And we've accelerated economic development by appointing regional conveners across the state to engage business and community leaders in identifying their local job creation and community priorities. Local communities, local entrepreneurs and local customers are the heart of Oregon's economy and will be the foundation of its long-term recovery. Our Regional Solutions Teams are now established throughout the state with advisors from the local public, private and philanthropic communities to tailor local approaches -- and with this platform now in place, our ability to help drive economic success and opportunities for Oregon entrepreneurs and communities is much enhanced.

One early success has been the partnership between the state, the federal government and the Port of Coos Bay -- to secure $12.6 million in loans and get the Central Oregon & Pacific Railroad line reopened in October, after a four-year shutdown that impacted more than 700 manufacturing jobs and many coast businesses.

These steps are all key points in the Oregon Business Plan and we have been aggressively pursuing them with our partners in business and labor. But clearly, we still have a long way to go.

I want to call out three areas that need additional attention.

First, for an economy of innovation to flourish we need to improve the economic development and business finance tools available to Oregon companies to help them access the capital they need to grow. While the start up climate in Oregon is superior to that in other regions; we invest less per capita than in either Washington or California. This relative lack of investment capital puts us at a significant competitive disadvantage in creating and growing the kinds of companies we need to fuel a vibrant economy.

I have been working with Treasurer Ted Wheeler to develop the Invest Oregon Act, which we will bring to the 2012 legislative session. This proposal will allow the state to leverage public resources to encourage a greater level of private investment in Oregon; and to unlock the private credit that is now sitting on the sidelines to help our businesses seeking access to the capital they need to grow.

Second, we must revamp our tax policy so that it is more rational and equitable; adequate to invest seriously in public education and workforce development; and aligned with our long-term economic development objectives. The question is "how do we get there." Over the past two months I have been working with business and labor leaders to rebuild the coalition needed to move this important issue back to the top of our agenda. And that work will continue through 2012.

Finally, to truly move away from a boom/bust economic cycle that depletes our natural capital and leaves us highly vulnerable to fluctuations in the national and global economies we must continue to develop a more sustainable economy based on the following goals -- which I would like to incorporate into the evolving framework of the Oregon Business Plan.

Create and retain economic activity and family wage jobs while reducing our carbon footprint and restoring our natural environment.

Expand our manufacturing sector to reduce our need to import goods and services.

Minimize the export of our raw materials and maximize the export of value added products and advanced manufactured products.

Minimize the need for imported energy.

Keep capital circulating in our state through local sourcing and supply chains.

This economy has both a restoration component and a conservation component and should initially include at least the following six elements.

First, support the scale-up of energy efficiency upgrades for our existing building stock. Our Cool Schools Initiative is proving to be a smart investment in job creation and energy savings with retrofits underway in districts from Klamath Falls to Warrenton. But school facilities are just the beginning. Smart retrofits can be applied to all of Oregon's public buildings, and we can put people back to work in every corner of Oregon.

Financing mechanisms that fully recognize the promise of broad scale retrofits have been slow to materialize, but in November, Cool Schools caught the attention of national labor unions like the American Federation of Teachers, who helped secure up to $15 million in financing for the effort. This investment is a huge win for Oregon, giving significant validation to the project and making Oregon a leader in innovative infrastructure financing.

Second, adopt a ten-year energy plan that will provide a context for developing renewable energy resources; and balance them with other values; reduce the need to import energy; maximize energy efficiency opportunities and promote distributed generation.

We expect the Pacific Northwest to have an additional 4 million residents by 2030 -- increasing our population by nearly 30 percent. We simply must identify strategies to realize the efficiency gains that the Northwest Power and Conservation Council estimates can provide 85 percent of our energy needs over the next generation.

Third, support the emerging innovation in Oregon's biomass industry as a key component of our rural economic development strategy. Innovation in our forest industry is just as necessary as innovation in our "Silicon Forest." Projects like Wallowa Resources new biomass energy campus will create jobs as well as improving forest health and developing a new home-grown, renewable energy source.

Fourth, develop strategies to reduce the export of raw logs and raw agricultural products while increasing the use of Oregon agricultural and wood products in Oregon. This could include initiatives to create more robust and intentional farm-to-school and farm-to-chef connections and creating a new ONAMI-like signature research center focused on innovation in the use of wood.

Finally, we must develop strategies to identify and replace imports from external suppliers with market-competitive, Oregon-made products -- thus enhancing Oregon's "cluster" strategy by connecting cluster supply chains to Oregon-based firms and innovations.

One example is Naturally Advanced Technologies. With seed capital from Oregon's Meriwether Group, they are unlocking the potential of sustainable biomass resources, turning flax into fibers for business giants like Hanes, Levis and Georgia Pacific. And with their recent move from Canada to Lake Oswego, they intend to work with Oregon farmers to plant flax in the Willamette Valley for their new organic super fiber.

Or ZeaChem, which is using technology based on bacteria found in the stomach of termites to convert leftover plant materials into fuel. Their brand new biorefinery in Boardman is set to produce its first volumes of bio-based jet and diesel fuels in 2013, and they are working closely with their neighbor, Greenwood Resources, to provide up to 15 percent of their harvest as boiler fuel and cellulose material.

These emerging Oregon companies are intersecting multiple sectors, from manufacturing to agriculture to the traded sector, and they're doing it while supplying themselves with other Oregon products.

It's been a year since last we spoke at this forum, and I'm proud of the progress we've made. I am committed to advancing the good plan that we have in place, but we can, and must, do more.

While it won't be easy -- I am optimistic about Oregon's future. With you help, we can weather this economic challenge, and we can do it without losing our sense of community, without losing our commitment to one another, and emerge stronger and more united that where we began.

Albert Einstein once said: "You should not use an old map to explore a new world." And he was right, because each new generation faces a new world with new challenges -- challenges that cannot be met by clinging to the past but only by imagining a different world and a different set of tools with which to build it. Let's build a new map for Oregon, and let's build it together.

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