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Oregon’s Governor Performs Triage Exercise on Ailing Budget

Oregon Governor John Kitzhaber, who spent 14 years as an emergency-room doctor, knows what it is to make gut-wrenching decisions.

“When you suspect there’s been a penetrating wound to the heart, you open up the chest, you have the heart in your hands, and you better have been right,” Kitzhaber, a 64-year-old Democrat, said in an interview last month in his Salem office.

He now must stanch the $3.5 billion the state is hemorrhaging from its budget, a sum that represents almost a fifth of the $17.9 billion needed to maintain services at their current level. It is, he says, “an exercise in triage.”

Kitzhaber, who was governor from 1995 to 2003 before embarking on a third term in January, is breaking from states such as Washington by refusing to cut residents from health-care coverage. He says the approach would force people into emergency rooms, costing even more. As he tries to preserve health care, he is proposing reductions in social services and education that critics say will harm Oregon’s quality of life.

The governor’s plan calls for reducing benefits and provider payments in the first year of the budget cycle to save 7 percent in health-care costs. In the second year, he wants to focus on combining services, establishing incentives for disease prevention and encouraging community groups to help manage chronic illnesses.

Care for Pennies

“If you drop coverage for people, they don’t stop getting care: They end up in the emergency room,” Kitzhaber said. “And you treat their stroke for $50,000 instead of managing their blood pressure for pennies.”

Oregon is among at least 44 states and the District of Columbia projecting shortfalls that may total $112 billion in the next fiscal year, according to a March 9 report by the Center on Budget and Policy Priorities, a Washington-based nonprofit group focusing on issues affecting low-income Americans.

The state, where unemployment peaked at 11.6 percent in May and June of 2009, is starting to see signs of recovery. The unemployment rate fell to 10.2 percent in February, the U.S. Labor Department found. The national rate that month was 8.9 percent.

Turning a Corner

The number of Oregon properties with foreclosure filings fell 26.7 percent to 2,427 in February from the same month the year before, according to RealtyTrac Inc., an Irvine, California-based data seller.

“Growth among Oregon’s primary revenue sources has now turned the corner” as personal income-tax collections return to average rates, said a March report prepared by the state Office of Economic Analysis.

Even with that upturn, Tim Duy, an adjunct assistant professor of economics at the University of Oregon in Eugene, said Kitzhaber won’t find enough efficiencies.

“We’re at the tail end of a decade of weak revenue growth,” Duy said in a telephone interview. “We’re starting to cut more deeply into the bone. You’re getting deeper into the critical services that contribute to livability in the state, particularly when you start getting so deep into the education budget.”

One of Kitzhaber’s most contentious proposals is his plan to lower education spending to $5.56 billion from $5.74 billion in the current two-year budget cycle.

Dismissing Teachers

“Oregon’s schools have already seen over $1 billion in cuts over the last several years,” Gail Rasmussen, president of the Portland-based Oregon Education Association, said in an April 1 telephone interview. Kitzhaber’s cuts would mean teacher dismissals, closed schools and bigger classes, Rasmussen said.

Kitzhaber’s plan would limit payments to the Temporary Assistance for Needy Families program to 18 months of the two- year budget cycle.

Kristina Jeska, a 33-year-old mother who was imprisoned for two years on drug charges, said she needs the $432 she gets each month from the program to pay for rent, diapers and transportation to school.

Jeska, who has a 9-month-old daughter, is a full-time student at Portland Community College and plans to focus her studies on drug and alcohol counseling.

“I’m just trying to get my life back on track and raise my daughter and do things right,” she said in a March 25 telephone interview. Without the money, “I don’t know what I would do.”

Medico and Lawmaker

Kitzhaber graduated from South Eugene High School in 1965. He graduated from Dartmouth College in 1969 with a degree in biology and got his medical degree from the University of Oregon Medical School.

He practiced medicine in Roseburg from 1974 to 1988, winning election to the Oregon House of Representatives in 1978, and then the state Senate, where he served three terms, becoming president in 1985.

“Working in the emergency department and seeing kids, tiny infants, that we were resuscitating because their mother couldn’t get access to primary medical care” made him see “that what we do in this country is often about numbers and balancing budgets,” Kitzhaber said. “It’s not really about human beings with names and faces and hopes and dreams.”

‘The New Approach’

In 2006, Kitzhaber founded the Archimedes Movement, a group dedicated to overhauling U.S. health care, and was president of the Estes Park Institute, an Englewood, Colorado-based group that organizes conferences for hospital executives, from 2003 until 2010. Kitzhaber defeated former NBA player Chris Dudley, a Republican nominee for governor, by a margin of 49 percent to Dudley’s 48 percent.

“My challenge is to be able to draw a picture of the new system, the new approach to education and health care, that’s clear enough so people can see it, understand and believe in it enough to let go of the old system,” Kitzhaber said.

Oregon and its 3.8 million people have not shied from innovation or controversy. The state, the 33rd to enter the union in 1859, was the first to allow assisted suicides in 1997.

The state has spawned a “Silicon Forest” in suburban Portland that includes facilities belonging to Intel Corp. (INTC), the world’s largest chipmaker. It is also home to sporting-goods companies, including Nike Inc., the world’s largest maker of athletic shoes, and Columbia Sportswear Co. (COLM), the maker of outdoor clothing and footwear.

Systematic Exam

“One of the most important things that Governor Kitzhaber brings to the job is he’s looking systematically at the cost drivers in state government,” said Peter Bragdon, senior vice president of legal and corporate affairs at Columbia and a former chief of staff to Democratic Governor Ted Kulongoski.

Kitzhaber’s budget proposal does not call for general fund- supported debt, Treasurer Ted Wheeler, 48, said in a March 9 interview in his Salem office.

“We will have $282 million in lottery debt capacity for the next biennium,” Wheeler said. “We’ll have substantial capacity coming back in 2014.”

Standard & Poor’s raised Oregon’s general-obligation debt rating to AA+ from AA on March 9, citing its willingness to adjust its revenue and expenses.

Lawmakers will have to temporarily fund the government at current levels if they don’t approve a spending plan by June 30. Democrats and Republicans have 30 seats each in the House; the Senate has 16 Democrats and 14 Republicans.

Leaving a Legacy

“This is a realistic budget,” Representative Dennis Richardson of Central Point, the lead Republican budget negotiator in the Legislature, said in a March 24 telephone interview.

“In the past, there have been too many attempts to base budgets on hoped-for expenditures instead of dealing with the realities of anticipated revenues.”

Kitzhaber said he hopes his spending plan reshapes Oregon:

“I want my legacy to be the governor who fundamentally changed the debate from cutting programs and raising taxes to growing the economy and redesigning how we deliver public services.”

John Albert Kitzhaber at a glance:

Born: Colfax, Washington, March 5, 1947 (age 64); moved to Oregon at age 11.

Party: Democrat

Partner: Cylvia Hayes, director for the West Coast Clean Economy Collaborative at Rural Development Initiatives, a non-profit in Eugene, Oregon.

Child: Logan, 13.

Education: Bachelor of Arts, biology, Dartmouth College, Hanover, New Hampshire, 1969; Doctor of Medicine, University of Oregon Medical School, Portland, Oregon, 1973

Career: Emergency-room doctor in Roseburg, Oregon, 1974-1988; Member, Oregon House of Representatives, 1979-1981; Member, Oregon Senate, 1981-1993; Oregon governor, 1995-2003; president of Estes Park Institute, 2003-2010; re-elected governor in 2010.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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