It is like to lead a state through our recession. Good morning. Im a policy writer and today we are welcoming to governors with us. They both served 23 2011. Right in the meat of the last recession and prior to it. So this panel is going to be a bit of a History Lesson. I think they put this off, depressingly wonderfully. If you can say that is a phrase. Ive heard him speak a few times. Ive never heard him speak on something negative. This is going to be a bit of a History Lesson so i want to set the stage of it or what was going on in the years and months leading up to when it started. So its just a reminder, the Great Recession started in the end of 2007 and it was the largest instate revenue on record. By 2010, a loss of 191 billion in total revenue that they glossed from the downturn. In times of economic downturn, theres more pressure on services and things that confiscate more money. You have the effect of more budget pressure and money disappearing. Id like to set the stage a bit for these two states. For vermont, heading into 2009, before the stimulus began kicking in, the state was looking at a 82 million defic deficit, heading into 2009 and you think thats bad, they were projecting a 252 million deficit for 2010. It got so bad that the university of vermont cutting millions of dollars from the budget scrapped the baseball and softball teams. That was something that was common in recessions. For i think vermont, in 2009, a state revenue trough, revenues were down 8 from a recession peak. Then we have organ which was even worse. [laughter] it dropped revenue 15 . In 2009, it was looking at 1 billion and governor ordered agencies to cut 5 of whatever was left for the remaining six seven months of the fiscal year. Another comment moved by lawmakers during the recession. They had a 1 billiondollar deficit that tackled the following years. They were predicting the state would look at a 762 milliondollar hope. Overwhelming numbers and i wanted to start off by asking you all, every state is different and Different Things drive different budgets. So i wanted to start off by asking the economic drivers for your individual state budgets and how they started showing up as red flags. When you started getting the inkling that things were going south. Thank you for setting the stage. The reason the budget shortfall projected to triple from zero nine ten in vermont, i believe was at the legislature overrode my budget veto and spent more than they should have. It exacerbated the talent we were already confronting. We have a diversified economy, manufacturing, Higher Education, agriculture, health care and tourism so it wasnt an over reliance on a single sector. I remember chatting at the time and some of our colleagues and expressing relative pleasure that i wasnt the governor of michigan. Dominated by a particular industry. Have some diversification. We acted quickly in vermont beginning january 2009, i took off 5 pay cut and invited all the folks in my administration to do the same. That allowed us to go to the watching table with the union and we got a 3 cut from that which never happened in our state history or since. We downsize our workforce by 7. 8 . Mostly but not entirely, we had layoffs which was unpleasant but the reality that we were confronting at the time. We took advantage of the foodstamp opportunities. We faced the challenge as you know of a time of revenue contraction, exactly when the burden of publicservice demand. Its a real collusion of fiscal pressures that made it challenging for all of us at the time. There was an analysis done by one of the major Media Outlets after the recession and they rated vermont as a fourth least economic recession so i felt really good about the public and private sectors coming together. I stocked fire word for families who needed it. They were called in vermont in the winter. I think the combination of our response is well. It was a challenging time and one that we will remember but hope not to experience again. Wonderful. Organ has an economic structure that is difficult for us to handle recessions. Organ in 1980, there is a resource based economy, agriculture and fishing and goldmining. We did not have Much Technology and organ prior to that. They had a couple of spinoffs. Intel did not come to organ until 1978. They built out, have a bigger footprint but the important thing, its a Manufacturing Technology base that they have. The other is the income tax state. I think only one or two states in the countries do not have a sales tax or taxation system. I shouldnt say that because our neighbors to the north who we are always looking at, washington is the opposite. They have no income taxes. So when recession comes to us, what happens is we have a quarterly forecast based upon income tax filings. We were picking up very quickly in 2007, people were not smiling. Business holding back. Employees that were going to file, they were filing temporary advanced payments were not filing. We had a good idea into the other thing i have to tell you, organ is one of those out west that had an ongoing relationship ongoing since inception. For example, federal government owned part of organ. It isnt just september. A large number of National Resources from the ocean, fish, birds and Everything Else saw what happened, and a snapshot of organ, in the 70s and 80s, we count on cutting 89 billion. Both federal and State Government being the dominant piece. After the environmental legislation of armed bigger species, Everything Else, the federal government today probably left it off. The reason its so important is that theres a Number Program that off of the land run by agriculture, we got 25 of the receipts from the sale of the land and there were 24 of the 36 counties in oregon heavily reliant upon that money. The other big agency is land management, they gave the railroads, there is a land scam. The government took the land back. We get 75 of the cut off those lands where the trees are located. These counties who have for years arrived on the pavement, the federal government for financial straits today, still. Twelve counties there. Heavily reliant upon it, there was a cultural problem for us because they had gotten so used to it. 500 million. Not you tell them to rate their poverty taxes and everyone says we wont pay at that rate. And they wont. So this was putting pressure on the state because of the decline in the forest land and because of the nature of our tax system and because of our economic manufacturing predominantly and we have a budgeting process, we start off with the governor with the last budget. This is how much money you need in front of what you had the last time and we were 2. 6 billion down. Organ, as an example, i think the National Unemployment rate was around ten but in oregon, it was 125. We knew it was coming in because i was getting the reports that we were in trouble. Weve made the budget cut at the end of the budgetary process, 5 of what they had at that time, probably more like 20 . How we handled it was the thing that i thought we did best of all. The president and i had known each other for years. I used to have breakfast with him every saturday morning. The sole purpose was to keep the legislature from coming to recession. We both concluded, this is true. If they came in, this would be a food fight. Everybody has an Interest Group in our objective was to keep them out and i would handle it through a process which designates where the budget cuts come from and we were able to do that. Ive always thought the president hadnt stepped up, you need the house and senate to agree and he just wouldnt do it. He wanted to be part of the cards and we agreed it wasnt good. Thank you. What you do in terms of cutting, its the response and reserve, that historic veto. We did not depend tar reserves. In 2009, as you suggested, legislature overwrote my budget veto, i think most would suggest that i was right but it exacerbated the challenges of years Going Forward including those after i left office. Its not easy, we have a process where a joint fiscal committee, five members of each chamber empowered to improve budget changes when legislature is not in session up to a certain level. We utilize that process. We reduced our headcounts, as i mentioned, i remember talking about my budget team going over potential cuts and i had a Major Initiative in terms of health for kids, my wife was a dental assistant. They said we have to turn back on this and i said initiative. He said yeah but everything is on the table. So we got back on that. Process the most controversial was closing some of our rest area or welcome center, i got a lot of pushback on that. I said well, its going to be keeping the rest area open or Human Services for the people mistake, i think i know where the priority is. I remember saying to people, i get that but i think its something that will help to heal. Thats what government is all about. I explained to the legislature, it was our responsibly and we had to Work Together to make choices and over all, we get that. Leading into 2009, in zero eight there was talk about federal stimulus and the government played a role. Im curious between in zero eight and up to zero nine when they figured something out, how were states involved and what were those discussions like . Right after the zero eight election, president elect invited the governor to come to talk about everything or anything, particularly the financial crisis we were facing, about a week and a half foot notice, 50 showed up. Then in december, i was vice chairman of the time, i interviewed with a couple of colleagues so they began to work on this before the new administration came in and i could get a sense of what was coming with the members of the house, every subcommittee chairman was determined to get something within his or her jurisdiction into the package so i realize early on this was going to be more constrained than governors would prefer. I realize theres a school of thought that the earlier packa package, there is too much discussion although they never told me. [laughter] i think it was an over reaction because take education for example, the second biggest beach of the package, in vermont, we are facing a crisis. The number of kids in Public Schools declined for 20 years by 1 and it will continue for 20 more. We dont need more teachers, we dont need as many as we have, we need fewer squirrels. So rather than bolster future salaries, wouldnt it be nice to use that money for transition funds to achieve School Consolidation . I think there should have been more flexibly for states because one size does not fit all. What you think about that . With the flexibility have been better . I think morgan has a longstanding history and relationship with federal government. Its a club hate relationship. We agree sometimes and sometimes we dont agree. I was just remembering somethi something, i remember right after i got elected and we came back, i think there were 12 governors who were new at the time. I remember somebody saying to us, you guys are really lucky. I was saying to myself, we were coming out of this recession invasive book, every governor in eight years will have a eight year recession. You are lucky because you got yours coming and. This is a free ride for you. And i believe that. [laughter] if you look at it, im thinking, they were right about this. Looking at how you handled these things, i remember one particular debate i was having with the head of my Human Services, it was corrections. It is just me and these two, never talk about money. He was ahead of the department. He always talked about people inside this is whats going to happen if you cut that budget here. He would show a picture of his children and it gave me tears in my eyes. Max williams, now the executive director of the largest organization, he looked at me and he ran the Corrections Department and he said governor, you and i both know this is why we hate lawyers. He said if government can only do one thing, just one, State Government, we dont have to hear acute military but one thing you have to do is ensure the citizens are safe and home. Thats why you have to prioritize this. Those are the debates you have with people about what youre going to do. I served on the Supreme Court so i lean toward that argument but i wasnt about to tell the public. I cut the Human Services budget to keep more people in jail. I didnt think i was a good thing to do. So he one. Its difficult because when i say we cut the budget 5 , they are not equal. They have different impacts. A lot of them are just administrative process, we did the same thing. The stimulus that came in and they asked us before we got he here, i vaguely remembered it because it came into pieces. One piece was direct and more on the social side. It was the tax cut. The other side was this, i cant remember. Ten or 20 billion, we got about 200 million. I cannot remember what we did with that 200 million. It was unrestricted. I think i dumped into the school fund is what i did. An interesting distinction because i love getting unrestricted funding. You put more pics on the one in zero eight that required us to import and do a number of things. I called our old budget guy and i asked him, you know what we did with back . He couldnt remember. Thats why we should have some transparency and accountability. Im curious, now that youre not in office anymore, this idea of accountability and with the federal stimulus, its a real pain in constrained with how you can send the money and reported. Is that the better way to do it or is there a happy balance between free money and what came in zero nine . With all due respect to our federal partners, they said the balanced budgets every year. These folks who can rack up a trillion dollars deficit and spend money on bridges to nowhere telling us how to manage our money. So i trust states to get the job done to make responsible decisions about spending priorities, there certainly has to be accountability and the era relied on state auditing functions and it was reviewed at the federal level. I said earlier, one size does not fit all. They fit in different places. Oregon had an Unemployment Rate well above National National average, ours was consistently below. We cant find anybody to work in vermont. So i think states are different. This kind of federal restriction really is not the way to go. I remember now talking here, this should have came in the stimulus, for me to want more money as a democrat, i was thinking, why do i want to do this . We probably got a billion dollars for education for squirrels. What happened was that the largest chunk of it, 600 million as i recall, went to special education. We were sitting around talking at first there was, hate this is quote. Look how much money we are getting. Then we started into what we know we are doing, most of the money we got for social services or housing or whatever, theres a benchmark because there are people and when the money for special education went, it was not about case, it was a single grant but we did in the school district, you increase both budget for us and this was a one time payment. I know how to problem because the state supply 70 of this funding. I had to come up with how i felt that call. It was a debate about you want to take it. After the Affordable Care act, i remember there were a number of Southern States that didnt want to increase the medicaid match. This is our relationship with the federal government. Biggest concern is that government makes promises. After 2019, was 90 . Those 80 in every governor knows from experience the government is given, they can take it away and a lot of people say why what i want to do this . We are going to roll our budgets up and hold the bag. We will be the ones who have to hold this no matter what the government says. Morgan wasnt one of the states. The Medicaid Program could fund it but look at it from our position, its good today, as a consequence for your goodness and we will have to pay for it. We do many times. Over several years, we were able to wean ourselves off it. Over the course of two or three years. Youre right, the state has to pick up the slack. I thought it worked well and that there was such an unexpected collapse over revenue structure, the infusion was necessary and unwelcome at that particular time. There were two types of funding that the support was in medicaid and discussion that you discussed. The grants that were competitive and handed out by various agencies. Those were less concerning in terms of ongoing budget. I guess it was okay. I still think there could have been more discussion for states but it was the right remedy at the right time. Lets talk more about where the money went. Whether some categories that were easier to get money to you than others . We had an unusual land for smart grid grant that we requested at the federal government. Every electric utility, their only 20 got together and filed an application. When i heard at the time, some were competing with each other. In vermont, we had only one unified application and it was successful. I was helpful in accelerating toward a smart grid. There were some sluggishness on parts of the federal agencies. I know some of the broadband grants from ansi are i and we got into the first couple months of 2010, a year after the act passed and they only distributed 15 of the grant. Some places were wondering whether should apply and they havent heard whether the application for the first round had been approved. There was some administrative issues at some points of the federal level. It went largely for the bill and the smart grid it was very helpful. It did accelerate paving projects. Im not sure it prompted new projects but it accelerated once they already had in the pipeline. The accountability piece is kind of interesting, we had to quantify the number of darkness created or retained. Its a little squarish. I remember talking, you think of it as absolute power but thats the government. We were hy