SALEM — Gov. Kate Brown issued her policy and fiscal agenda for the next two years on Wednesday, saying she will focus over the next six months on negotiating a massive tax increase to improve public schools.

“How our state provides for the needs of our children is a marker of who we are as a community,” Brown said. “After years of underinvestment, it will take more than just additional funding to bring our schools back to a level Oregonians can be proud of. Our education system is in desperate need of repair, reform and reinvestment.”

She said it would take more than $2 billion to both improve K-12 schools and cover their soaring public pension rates plus prevent cuts to higher education that Brown included in her budget. But she declined to offer any specific proposals for how state lawmakers could raise such a staggering amount of money, let alone secure voter approval for big tax hikes. She is counting on business leaders, employee unions and lawmakers to reach consensus, knowing how much parents and the public want improved school outcomes.

Since taking office in early 2015, Brown has not pursued any sweeping, long-range policy changes, and the governor faced criticism that she lacked a vision for Oregon’s future. Brown made clear on Tuesday that her two top policy goals directly speak to her goals for the years ahead: prepare children to succeed and rein in greenhouse gas emissions to limit changes to the climate in which those children will grow up.

“Our children are also going to inherit a drastically changing climate,” Brown said. “Oregon must continue to pursue solutions that reduce emissions while creating good jobs and building a clean energy economy.”

The centerpiece of Brown’s climate policy is her strong support for the carbon cap-and-spend program known as Clean Energy Jobs, legislation that failed to move out of the Legislature’s last two sessions. That plan heads into 2019 with the backing of Brown, Senate President Peter Courtney and House Speaker Tina Kotek.

As part of that policy, Brown’s agenda calls for Portland General Electric and PacifiCorp to receive direct allocations of emissions allowances instead of being forced to purchase them in state auctions – a significant concession that could win the utilities’ support for the legislation or at least convince them not to oppose it. The governor is also touting policies that could benefit a number of other interest groups in the climate debate, such as expanding energy efficiency incentives for industrial and rural customers, as well as protection of forests and farmland to sequester carbon.

She is also proposing to replace the scandal-plagued Department of Energy with a new agency, called the Oregon Climate Authority. The newly named agency would take over existing energy programs and also take on responsibility for implementing the state’s climate policies. That would include the cap-and-spend program if it passes next year, which would move responsibility for tracking emissions and establishing the state’s carbon marketplace out of the Department of Environmental Quality.

Brown said the reorganization would create new efficiencies, allowing the state to reduce controversial fees on energy suppliers, though it’s unclear how the program reshuffle would accomplish that. Some energy programs, she said, could ultimately shift to other agencies.

From both a functional and symbolic standpoint, the move would put climate policy at the center of state government. Brown does not have the authority to accomplish that on her own, however, and would need the Legislature’s support. The Legislature contemplated giving the Energy Department responsibility for climate policies when it held hearings in 2017 to consider reorganizing or abolishing the agency. But lawmakers ultimately rejected the idea, leery of saddling the troubled department with significant new responsibilities.

In her presentation Wednesday, just three weeks after winning re-election, Brown announced her administration already has a tax plan to patch the state’s budget for Oregon’s Medicaid health insurance plan for the poor, also known as the Oregon Health Plan. Although state tax revenues continue to grow thanks to the good economy, the long-anticipated decrease in federal Medicaid funding starting next years is the primary reason the state would face a budget gap of about $623 million in its 2019-21 budget, absent such a fix. Her team spent months negotiating with the health care industry to secure support for the mix of fees and taxes necessary to keep the program whole.

Her plan would increase taxes on certain hospitals, raise and expand a tax on health insurance plans, ramp up cigarette taxes and charge businesses with a large share of employees earning wages low enough to qualify for Medicaid.

Altogether, Brown’s proposal would raise roughly $700 million over the next two years and even more in future biennia when a $2-a-pack cigarette tax hike would take full effect. That would bring Oregon’s tobacco tax closer to Washington and California.

The governor’s budget plan also features much smaller policy proposals likely to generate buzz, including a $2 million fund to cover legal costs of fighting President Donald Trump’s administration, $2 million in legal assistance for unauthorized immigrants who face deportation proceedings and $2.7 million to begin providing prepaid postage for Oregon’s vote-by-mail system. That last item has support from Republican Secretary of State Dennis Richardson said Brown, a Democrat.

Education officials and the statewide teacher’s union expressed appreciation for Brown’s plan, although their praise was restrained.

Portland Public Schools’ superintendent and board members issued a statement praising Brown for “prioritizing education,” while Oregon School Boards Association executive director Jim Green described her plan as a “very positive first step in moving toward funding education at a level that our children deserve.”

John Larson, high school English teacher from Hermiston and president of the Oregon Education Association, called it a “meaningful start.” However, the teacher’s union pointed out Brown’s plan would cut the community colleges’ budget by approximately 4.7 percent.

Universities are already raising concerns about Brown’s proposal, which would maintain their current funding level with no increase to cover inflation and other costs.

The governor said Oregon schools need an infusion of $2 billion to become highly effective, with a focus on extending the school year to 180 days and reducing elementary class sizes. Brown wants to cap kindergarten classes at 20 students and limit first through third grade classes to 23 pupils.

“That data’s really clear in terms of those four grades, that if we invest in lower class sizes, we’re going to see better outcomes,” Brown said.

Research does show benefits from creating very small class sizes for young students, particularly those from disadvantaged backgrounds. But it does not show significant gains from small decreases. Nor did Brown address the question of how schools would find enough classrooms for all the new, smaller classes her proposed hard caps on class size would create.

Brown didn’t say anything in her budget overview about whether or how she would help the state generate an extra $1 billion a year for schools, except to say she “expects the legislature to reform Oregon’s revenue system to adequately fund our education system.” In response to a reporter’s question, Brown said she had no specific tax proposals in mind for the Legislature to consider.

The governor did say that bouncing ideas around in private meetings with public employee unions and businesses including Nike, a group known both as the Common Good Fund and the Coalition for Common Good, is a key facet of her tax policy strategy, describing them as the “folks at the table.” Several members of the group played a central role supporting Brown’s re-election.

Brown said the process of negotiating a school funding bill would be similar to the development of a 2017 transportation revenue law expected to raise $700 million a year. To secure the necessary support and votes for that package of taxes and fees, lawmakers first built support for a spending wish list and then identified sources of money to pay for it.

Republicans in the Legislature issued statements criticizing Brown’s proposed tax increases. “This is not a challenge to the Legislature, it is a challenge to the wallets and pocketbooks of hardworking Oregonians,” House Republican Leader Carl Wilson, R-Grants Pass, said in a press release. “This is a call to drastically increase taxes on everyday Oregonians.”

In addition to the $2 billion she wants to make schools much stronger, Brown wants the Legislature to give K-12 $200 million more than budget analysts said is needed for them to simply maintain the status quo. George Naughton, the state’s chief financial officer, said the governor’s plan is a more realistic reflection of the costs school districts will face in 2019-21. He acknowledged Brown’s plan called for getting that money by flat-funding universities. It’s unlikely the Legislature, which typically picks and chooses elements of governors’ budget proposals, would support her on that item.

Oregon’s $22 billion public pension shortfall is increasingly a drag on public schools and other governments’ budgets. Brown said she would devote an additional $100 million to a fund to help schools cover the costs, but did not offer other solutions. Schools would have to sink $1.5 billion into the pension system to head off further increases in their required contributions. Those rates are expected to go up by $375 million in the coming two-year budget period, and continue increasing from there. Brown said she’d like the Legislature to raise revenue to cover that cost, too.

Brown touted state government savings since she’s been in office, once again referencing an overblown figure of $500 million. The actual figure is significantly lower, since the governor is counting federal money the state didn’t spend as well as routine activities such as agencies leaving some jobs unfilled and returning unspent money to the state.

Other highlights of Brown’s budget plan include:

· Hiring internal auditors across multiple agencies and at the state’s central Department of Administrative Services. Those auditors could help the government deliver services efficiently. But an audit by the Secretary of State’s office earlier this year found agencies were increasingly leaving the jobs unfilled even when the Legislature approved funding.

· $50 million to help individuals and families experiencing homelessness, through funding for shelter operations and other emergency housing assistance

· $5 million for a program to help drug addicted mothers during and after their pregnancies.

Reporters Ted Sickinger and Betsy Hammond contributed to this story.

This story has been updated to reflect the following correction: an earlier version of this story incorrectly stated the statewide teacher’s union’s description of Brown’s proposed cut to community colleges.

– Hillary Borrud | hborrud@oregonian.com |503-294-4034 | @hborrud