The Remodeler: John Kitzhaber, Democrat

John Kitzhaber, 63, served as Oregon’s governor from 1995 to 2003 and in the Oregon Senate from 1979 to 1993. A trained physician, he is the director emeritus of the Center for Evidence-Based Policy at Oregon Health & Science University.

Chambers: What is the source of the fire in your belly to run again?

There’s a huge opportunity embedded in the recession. Oregon is heading toward California in [the sense of] being a state that can no longer operate in the public interest. When I was governor before, you couldn’t get people to agree on changing systems and structures because there was plenty of money. And now we have no money for what is a very, very profound fiscal challenge. There is a tremendous opportunity for transformational change in how we deliver public services. At age 63, there is no reason for me to do this unless I really believe that I can broker some significant structural changes.

Chambers: We’ve got businesses running for the border because of Measures 66 and 67. What will you do to keep them here?

It was very unfortunate the measures ended up on the ballot. I do not believe that they couldn’t have been brokered. I voted for them. But it was a stopgap, not thoughtful tax reform. There’s broad concern about the impact it will have on angel funding for new start-ups, on the philanthropic community, and on high volume/low margin businesses. The tax code needs to be aligned with our objectives for Oregon’s economy. We need a broad middle ground.

Forbes: The current governor has had limited success with the legislature, even though they are of the same party. How will you succeed?

We are going to face a $2.5 billion revenue shortfall in the next budget biennium. And there’s no pot of money that’s going to fall out of the sky. What I learned in my previous experience is the difficulty of managing the state budget with a two-year horizon. What business does that? We need a six- or eight-year budget frame, and then we need to have the very difficult conversations about what lies ahead in that context. I don’t need statutory authority to present a budget that’s framed completely differently.

Chambers: For every job we create that pays over $100,000, Oregon is going to take 11 percent. If those businesses move to Washington, they pay no income tax. How will you shore that up immediately?

One option is clearly a sales tax. I’ve been up that mountain a couple of times. We tried it under [Governor] Atiyeh in 1985 with a very well-crafted measure and only lost 4–1 as I recall! But there was never a context. Now you can argue with a very straight face that the reason for our volatile tax system—and why we can’t provide stable education funding—is due to our narrow tax base. Reliance on personal and corporate income tax for 90 percent of our revenue doesn’t make any sense.

Forbes: Some of Oregon’s university presidents have asked to change our universities to a public corporation model for governance. Would you encourage that?

I would like to put that in a wider context. No matter how good your post-secondary system is, if you can’t turn out qualified, highly motivated high school graduates, you haven’t met your workforce development needs. I have a bold higher-ed proposal: it starts with fixing the very broken, highly siloed model in which the Board of Higher Ed develops Oregon universities’ budget, the Board of Education develops the budgets for the community colleges, and state statute budgets K–12 by enrollment. I propose to abolish that scheme and replace it with the Oregon State Education Investment Board, a unified, transparent budget in which we stop funding institutions and start funding students by performance measures.

Chambers: When I was on Oregon State’s faculty in 1990, for every dollar I budgeted I allocated 19 cents for benefits and retirement. Today, it would be 52 cents. Now that I’m in the private sector, 59 percent of my earnings go to taxes. How are you going to control overhead costs?

The insurance premiums reflect the cost of delivering medical care. Congress has been arguing health insurance reform, not health care reform. I’ve made it very clear that I do not support fully paid health care benefits. I call my model “value-based cost sharing.” It creates incentives for employees to buy high-value health care. So, you might not have to pay anything for screening for diabetes or breast or cervical cancer. But let’s say you want surgery for lower back pain when there’s no medical evidence suggesting it’s most effective. In these cases, maybe there’s a 50 percent co-pay.

Peppler: What’s your position on the Business Energy Tax Credit (BETC) and the scenic concerns some environmentalists have over the energy development it has spurred?

We’ve decided that 20 percent of the utilities’ power must come from renewables by 2025. But we lack a holistic view. I support BETC, but it’s gotten way out of hand. You have to measure tax credits vs. jobs produced. On the environmental side, our commitment to wind energy is a commitment to natural gas because you have to have reliability in the transmission grid. So what role does gas play, and does LNG [liquefied natural gas] play a role? We haven’t asked any of those questions. We’re just having a knock-down, drag-out fight without a context. We need a real energy policy.

Peppler: What does Oregon look like after four years of your administration?

We’ll have agreed to fundamentally redesign the way we deliver and budget for public services. We’ll have decided what a tax system would look like that is equitable and aligned with our economic development strategy. We’ll be locked in a fight with the federal government to get the waivers to implement an Oregon solution to the health care crisis. And we will have articulated a 20-year strategy to increase the amount of renewable energy we produce in the state of Oregon.

For John Kitzhaber’s views on K–12 education reform, a state sales tax, public employee pensions, and other issues, check out the full transcript including a downloadable audio recording.