Kitzhaber addresses green tech, China and jobs

0111_Kitzhaber02John Kitzhaber was elected governor for the third time in November following one of the closest elections in Oregon history. He spoke with Oregon Business managing editor Ben Jacklet recently about business and economic issues.

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Kitzhaber was inaugurated governor of Oregon on Jan. 9, 1995. He was re-elected in 1998. His second term ended in January 2003. He returns for a third term on Jan. 10.

John Kitzhaber was elected governor for the third time in November following one of the closest elections in Oregon history. He spoke with Oregon Business managing editor Ben Jacklet recently about business and economic issues.

Is there a particular strategic area that Oregon should look to next to improve its economy?

Thirty years ago I was in the Legislature, and Oregon was in a recession that was even deeper than the one we are in now in terms of overall job loss. That was due to our dependence on natural resource industries, especially wood products. The strategy that we developed throughout the ’80s that led to the boom in the ’90s was a very intentional attempt to attract high-tech industries. We set up the Strategic Investment Program, we repealed the unitary tax and we were wildly successful. We had the third-fastest-growing state economy in the country in the ’90s, and we did that while shedding all these high-paying timber jobs. So what’s happened now is we still haven’t recognized that our natural resource industries can be sunrise industries not sunset industries. But we have to take advantage of the future not the past. We’re not going to go back to harvesting old-growth trees. We need to create new markets for wood products. Going forward we need to continue to support the traded-sector industries we have, but we need to capitalize on our natural advantages in environmental technologies — whether that’s green building or green chemistry or environmental management — and create a new set of traded-sector industries that are more knowledge-based.

What’s the best way to improve the economy: give everyone a better business environment or focus on strategic areas where it makes sense for Oregon to invest given our history and our strengths?

I think you do need an overall robust business climate. Part of the angst we’ve had over that issue is the hangover from Measures 66 and 67, which was a very divisive fight. But if you look at a place like Minnesota, which I think has 15 Fortune 500 companies versus our two, [the state has 21] they probably have a worse tax environment than Oregon does, but they have some flagship universities. When we talk about a business environment it’s regulatory, it’s tax environment, it’s good schools, it’s the university system and it’s the quality of life. We need to provide that general environment that will help our existing industries. But I also think in Oregon we do have some natural advantages that we need to capitalize on, particularly as the price of fossil fuels and energy continues to go up. We’ve got a world-leading energy management program at Lane Community College. We’ve got a world-leading green chemistry program at the University of Oregon. We’ve got the IBEW training solar installers. And we need to connect those dots. It’s the private sector that’s going to create the jobs, but the state can provide incentives and coordination for those new industries to prosper.

One component of your economic plan is manufacturing. Can Oregon ever compete with cheap labor overseas?

Well, we can’t compete on cheap labor. But we can compete on quality. The reason I targeted manufacturing is because the jobs we shed in the wood products industry were good family-wage jobs that were paying above the national average. We’ve had a gradual erosion of per capita income in Oregon, so we don’t want to just create jobs; we want to create jobs that pay the average or higher, or create pathways into that. Manufacturing is a central component to that. We have a number of very robust heavy manufacturing industries that are doing quite well even now — Oregon Iron Works, Schnitzer Steel, Greenbrier, Vigor Industries. We want to get those folks together who are doing well and identify factors that have led to their success and obstacles that could be removed to make them more successful and bring more manufacturing in. I also think that in a global economy there is the opportunity for direct foreign investment in manufacturing. China has a huge currency reserve they need to park somewhere.

China is now Oregon’s biggest trade partner. What are the opportunities there?

When I was governor we got Oregon grass seed into the Chinese market. If you can get something into the Chinese market it’s a pretty big deal. But there are a couple of things we should do with China. One is direct foreign investment. There are ways we can collaborate with the Chinese economy rather than compete directly with it. But I also think as they get bigger and bump into some of the environmental challenges that we have faced, we have a set of industries in Oregon that we need to ramp up that are based on environmental technologies and services that countries like China that are growing rapidly are going to need.

Another component of your plan is workforce development. Is that really a priority given how poor the job market is?

There are some high-demand jobs — welders, nurses — that are not being filled even during the recession. We want to connect people with these unfilled jobs through additional training, and to think ahead and ask ourselves, “What are the jobs that are going to lead us into a recovery?” For example, construction jobs in energy efficiency. We need to have a workforce ready when we begin to come out of the recession. I can tell you from talking to Terry Aarnio at Oregon Iron Works, he’s got a very mature workforce, nearing retirement age. We need to make sure we have a whole new crop of workers ready to take those jobs.

Do you support a lower capital gains tax in Oregon?

Yes. I do believe we should provide some capital gains relief for companies and individuals that invest in the state of Oregon. (Republican challenger Chris Dudley) supported an across-the-board capital gains tax cut even if those dollars were being spent outside of the state. I want to create incentives for people to spend that money in Oregon, creating jobs here.

Another aspect of your plan involves a proposal to sell bonds to create jobs weatherizing schools. How does that program avoid becoming an inefficient, top-down mandate?

The state needs to have a limited role on the front end trying to create a pool of resources to jump-start it. The idea is an energy conservation bond, which looks pretty much like a revenue bond. It’s pretty cheap money. You use that to attract investments from private companies like McKinstry or Johnson Controls to do those weatherization projects. It’s not a mandate. You’re just making resources available. Portland Public Schools is planning to do weatherization in its retrofits. But other school districts around the state don’t have the capacity to do that without some bonding pool. And the long-term goal is to develop a financing mechanism that is based on treating a kilowatt conserved in the same way as a kilowatt generated, from a regulator and tax standpoint. So PGE theoretically could meet its Renewable Portfolio Standard (to produce 25% of its power from renewable sources) through conservation rather than new generation.

Your plan also singles out biomass. This is something that Oregon has looked at for decades that has never penciled out. How is it different now?

It’s a convergence of energy prices and concerns over climate change and carbon footprints that creates an opportunity for a powerful new market… People use wood products intermittently to build their houses, but they heat their homes every day.

Many people worry that putting a price on carbon emissions would cost jobs. You seem to consider it an opportunity.

Absolutely. I’ll give you an example: 7% of the wood used in green buildings is Oregon wood, even though we have a nationally renowned green-building sector. If you did some carbon accounting and let that count for LEED certification, you would have a much lower carbon footprint bringing in wood from Coos Bay rather than from New Zealand. Maybe we can create a LEED-O version of incentives specific to Oregon. There’s a fascinating thing going on in Vernonia where they’re trying to keep family-owned timber stands in harvest and not just cut down and put into development [in order] to monetize the carbon sequestration benefit of part of the forest. There are active carbon markets around the world and Oregon should think smart. What are the opportunities in the transition? We are so perfectly positioned to take advantage of it if we’re smart and we look ahead. Sooner or later a price will get put on carbon.

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