Oregon is headed for a fiscal catastrophe unless its leaders make dramatic changes in the way the government spends its money and delivers services, business leaders told state officials Monday.

Gov. –elect John Kitzhaber agreed and said he is willing to work with the business community on specific actions to boost the state economy and make state programs more efficient.

"On its current course, Oregon is literally on a death spiral," Kitzhaber told about 1,000 business, political and community leaders at the annual Oregon Business Summit.

The summit, held since 1992, brings together the state's top business groups with a who's who of decision-makers, lobbyists and community leaders at the Oregon Convention Center in Portland. It is organized by the

Oregon Business Council.

Kitzhaber's comments helped set an urgent tone for what is expected to be a difficult year of paring back in Salem and around the state.

The main problem, which Kitzhaber and a number of other speakers outlined, is that a soaring demand for government help -- caused by the recession and an aging population -- has outstripped the state's ability to pay.

And if that's not bad enough, business analysts at the meeting reported that Oregon wages have slipped well below the national average, making it all the more difficult to pay for schools and to keep families on the edge out of expensive safety net programs.

Notably absent at this year's summit was the usual boosterism about Oregon's opportunities as a place to work and raise a family. At times, the meeting seemed like one big encounter session to lay bare the state's problems as part of the effort to reform it. Pacific Power Chairman Pat Reiten, who introduced the speakers, noted that the state has moved way beyond the "visit but don't stay" era.

"It's painful to say this, but Oregon isn't so special a place any more," Reiten said. "It's in decline. It's below average."

But the one-day meeting wasn't only about bad news. The thrust was to offer

to Kitzhaber and the next Legislature that includes dozens of ideas for bringing in new jobs and spending state dollars more wisely.

Speakers said the state could start to turn things around by adopting a "results-based" budget, which other states have tried. That means focusing on how to provide the most important services with the money at hand, rather than worrying exclusively about how much a given state agency is being cut.

"The real issue is what we're going to get for that dollar amount we're going to spend," said Brett Wilcox, CEO of Summit Power's wind energy program. Strict prioritization is key, Wilcox said. "Every good thing you do means you won't have the money to do another good thing,"

A plan circulated at the conference calls for creating 25,000 jobs a year for the next 10 years, and for raising per capita incomes above the national average by 2020. To get there, the plan says, the state must do better by schools and universities. It also must offer a more industry-friendly environment, including providing land for business growth and cutting capital gains taxes that put a damper on growth.

Oregon in ''death spiral'' Gov.-elect Kitzhaber tells business leaders 8 Gallery: Oregon in ''death spiral'' Gov.-elect Kitzhaber tells business leaders

Kitzhaber said he likes many aspects of the business plan, but warned that it must include labor interests and not malign the state's natural environment. But he clearly embraced the move toward a new way of preparing -- and explaining -- the state budget.

During a breakout meeting on education, Kitzhaber asked participants in the room to consider how they would pay for schools with $5.4 billion, which he said is "about what we can count on" for the next two years. That's a bit less than what the state gave K-12 schools in the current two-year budget.

"How do you take $5.4 billion and generate $5.7 billion worth of value, or $6 billion worth of value?" he asked. "This is a frightening period of time if you look at it through the lens of scarcity. I think it is an extraordinary, probably once-in-a-generation opportunity, if you look at it through the lens of opportunity."

In an interview afterward, Kitzhaber said the $5.4 billion is a starting point and that schools could get more later. But he said he wants people to go through the exercise of cutting to a bare bones level.

"You have to get people in the squeeze chute to get them to think about solutions," he said.

Conference speakers emphasized working together, regardless of party affiliation or special interest. Cross-party cooperation will be even more critical given the recent election, which left the state House evenly divided between Republicans and Democrats. "Simply said, extreme agendas or ideas for either side will be left out," said Rep. Bruce Hanna, R-Roseburg, who is slated to be co-speaker with Rep. Arnie Roblan, D-Coos Bay.

Senate President Peter Courtney, D-Salem, talked about the difficulties Oregon pioneers faced, then likened what needs to happen to a barn raising. They worked together, he said, put their backs into it, and prevailed.

"It's time for us to do what the pioneers did. It's time to build an old-fashioned barn," Courtney said. "We must rally to build our economy."

Reaction ranged from the hopeful to the wait-and-see. Tom Hughes, newly elected Metro president,was in the waiting crowd.

"We'll know better in the next couple of months," Hughes said, "whether this has taken hold, or whether it was a nice way to spend a December afternoon."

Rep. Jules Bailey, D-Portland, noted wryly that for lawmakers, "The bar is set pretty low."

"People expect us to fall on our face," he said. "It's a real opportunity to show the public we can work together."

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