the government activism is slowing the economic recovery. that's the conclusion of the economic report he was presenting. mr. greenspan, who headed the fed until 2006 has said in the past that his standing seat to avoid regulation may have been partially to blame for the economic collapse. and this is an hour.

>> good morning everyone. i am roger altman. welcome to the council and welcome to this morning's breakfast. we are very fortunate to have as our guest alan greenspan. there are a few people who need no introduction but i would like to say allan and i have been friends quite a long time. i'm a big admirer of his, and so i'm particularly pleased to be here with you this morning. i think you all know he has an extraordinary record of public service both in the executive branch and of course of the federal reserve system and the extraordinary record of intellectual contribution he's made to this country and other contributions. let me remind you of the format this morning.

present and for most this discussion is on the record and i would like to ask all of you, please, to turn off sell phones and blackberrys and ipad and every other imaginable device you may be carrying and please, turn them off, not just on library. -- on vibrate. we are going to begin with a discussion so to speak between alan and me and then open up to questions from all of you. and we will quote this meeting probably at 9:30. i'm going to base my question is upon i would say a very provocative article which alan has just written and which i

think a number of you have seen. the title of the argument is that some, as in the enormous state of activism we saw at the federal level following of the credit market collapse and the onset of the great recession and it's a very provocative piece because in effect, and feel free to challenge me on this, please, in effect it's a critique of that activism. so i have a series of questions and let me start with this one. alan, the thrust of this is that capital expenditures as a share

of corporate cash flow are lower than any place since 1940, and of course there is a big cut from the point of view of productivity and jobs and incomes and so forth. and you attribute that weakness through the negative reaction among the business or in the business world through the activism as you call it which followed the credit market collapse. what particularly struck me about that observation was that it implies that the benefits of

the activism, the stimulus program for example, they have been offset somewhat entirely or more than entirely offset by the economic cost of this weakness and investment. so, possibly the stimulus program was ineffective and i would like to ask if you agree with the characterization and if you would like to take me on in some form or another in my interpretation. >> i think the interpretation is correct. what i tried to do is try to examine what struck me right from the beginning from the recovery in the economic activity to the bankruptcy crash. it shows up most particularly in the structure of the gdp.

and since most people look at the gdp as an expenditure which is exactly where it is or that they try to put a life expectancy on each of those elements in the gdp because when you do that you see something very interesting that all of the loss of the economic activity which is in this huge rise in unemployment is attributable to expenditures on assets with life expectancies, and this is basically buildings, residential in part, but since 2008 crash its what we're seeing is modest

and reasonable good recovery and the equipment and software structures of capital investment is dead in the water and showing signs of coming back but it hasn't. the reason this is important is that points out if you are having this data one percentage point of annual growth change in private, domestic gdp excluding those. so in a sense if you were to convert the gdp assets into the overall gdp in fact and convert that to the employment, you will

find with this extraordinary opening up of the gap since 2007 it would account for all of the unemployment from the 4.5 to close to 5% up to the nine to ten. so the issue is what is causing that. what i try to examine is what is obvious immediately and the assets being most heavily discounted. and where we started to look is to go essentially is the process by which the corporate investment is made, and in my experience prior was pretty much the corporate control capital

projects, and what they do is the fact of the have liquid cash flow and they have to make a decision of how much of that liquid cash flow they are going to invest in the liquid long-term assets. this isn't taking the cash flow and putting it into securities of one form or another because remember, the securities markets there is no effective long-term because you can sell it in three minutes. you can't sell the routes of return are usually quite submissive, but they are obtained in the asset and not up front, and what i recall is the basic way in which the

corporation made the decision of choosing one proportion of the liquid cash flow than would move is they took a look at the expected rate of return on the new assets, most likely expected rate of return, but then the assimilation of the different forms to the distribution of the rates of return. and if you have to invest over a very long period of time assets are making a big critical choice and have to have some confidence in part at least that you know what the structure would look like and right now they are having major problems because they know the common costs are going to be and that is causing them to pull back to move

towards the short term type assets in order to get electric power but in general, what this tells me is that have become if we have had in this crisis a collapse in the ratio of capital investment to cash flow you have to remember the corporations are choosing to make that allegation so will get this be done and what is amended to this is the fact as we point out why carry the cash flow analysis that and remarkably characteristic about the current program is very much like they did back then. and i don't think it's an accident, but i do recognize

that isn't statistical proof that there is a very much similar of what the government will do and they go through a little bit of the natural who investment recovery act dictated most everything knocked down by the supreme court. that sort of the extreme form of that is some. the activism has never existed as pure laissez-faire and pure laissez-faire has never existed in the society but it is an issue of relatives, and the reason why you have activism as a problem is it increases the number of variables the corporation must deal with. in short from the statistical

since it spreads out the distribution expected rate of return, and just as importantly me be even more so as evidence also suggests while both risks meaning the potential rate of return, but the evidence also suggests that it is the risk that moves up the most. >> let me press the point a little bit. if as you said a moment ago the gap between historical relationship of long lift corporate fixed investment and cash flow that we are now seeing, what that accounts for the entire rise in unemployment, and if the primary reason for the gap as the paper says is business and a version to this

activism than the implication is if we hadn't had the activism labor market conditions would actually be better. >> that's the conclusion that it has to be proven. my concern about that is i don't find what businessmen say as usual. [laughter] >> the basic issue is what they do. and this ratio of the capitol investment appropriations which is the more appropriate a statistic as the cash flow isn't simply what they are doing. and it's that which is creating this pulling back in the average expectancy of the gdp.

in fact, one of the charts in the article i pulled the average annual expectancy and it's drifting down from a number of years as the rate of the population slows and for many more buildings you need in the growing population, more buildings of all sorts. it's going down very gradually and through about into 92 and then flatten sold and into those in seven and falls sharply. pulling back is obviously. what is unqualified is essentially showing where the hole in the economy is. it's a question of proof that's the activism which is the major

cause. so what i try to do is take the actual ratio of capital investment to cash flow and this is true in the businesses with households throughout the private sector you can see the pullback which is quite significant. you basically put this data together and what you find is asking the question why are the households doing this? with the start doing in the most surprising part of the paper is the fact that approximately one-fifth of the shortfall in the capitol investment is attributable to so-called crowding out.

it's always been a general agreed upon proposition that over the long run large federal deficits crowd out private investment. or it's kind of a surprise to me how well invested the statistics or in the short run. the point here is if you would look it doesn't come as a surprise. if you disaggregate the investment in the balances of households, business from state and local governments and anything else, remember the investments as a whole has got to be equal and the difference between each country is an account balance. and so we can set up a series of

relationships and to which you can see if you set up the difference between savings and investment by a sector by households, state and local governments, corporations and others. when you find is a very sharp rise in cyclical adjusted deficits accounts for the visually it's very significant part of the shortfall between the capitol investment and then you go into the metrics the numbers are very robust for those of you that like that sort of thing. they are expected to get that result and i came upon it by accident. but i tried to do it in other countries and it works even better in the united kingdom. it doesn't appear to be working

and it's a general proposition throughout the world as best i can judge. partly the the the but partly i also suspect on the observations here that there is a threshold in which the deficit is a percentage of gdp two, three, 4%. it doesn't shell out any particular impact on the private investment. but there is a reality that for those of you who care i using equations which pick up part of a but without going into the other details have in the segregated the stimulus program is really all sum up close the issue of the shortfall in the capitol investment quarter by quarter on the official

government deficits and the national income deficits which are approximately the san. but the reason they are important is the balance to the rest of the flow of the funds. so we can come at this in a number of different ways but i would say it is unequivocal and the result it appears as though the stimulus program which is a gross statistic requires at least in normal offset which the business is growing out. but there is also additional important issues here. on the ratio of the investment to cash flow about a quarter is attributed to the normal adjustment of capital business cycle conditions and abstracted

from the cyclical adjusted deficits. the rest, however, is difficult to judge where it's coming from other than the uncertainties, because if you introduce the position which is essentially we are doing that unless the government comes in and keeps pushing it won't be right itself. my sense is what we need to do now is calmed down and just let things moved by themselves and then the activism has flown off quite significantly and the ratio of capital investment to cash flow back up. you can make that statement and

then the cause and effect -- >> you can see why this is provocative because as i said, the implication is had we not have the stimulus and had we not had for that reason and others the intended surge in the deficits and growth, investment and growth is would have been better, and that's a very important question. i want to ask about lending. the point is made of the analogous reading and my reading implies dodd-frank and certain other aspects of the regulatory response to the crisis have suppressed lending in a way that together this has also been harmful to the recovery.

>> i think it will but i don't think it has significantly because remember that dodd-frank isn't scheduled to actually be implemented by the regulatory agencies until july. the extraordinary amount of regulatory rules required under dodd-frank is swamping the regulatory agency. when i was at the fed, each month that was a lot because we required at adjudication, something like a couple of hundred required under dodd-frank. now, one of the problems i have with dodd-frank is that there is

implicit conceptual structure of how form markets work. and i think it strikes me as rather simplistic and doesn't really capture the complexity of what is currently going on in the marketplace. there has been a major move towards regulating the financial system and effectively to alter the market's. but what they are finding even now early on is the unanticipated consequences of the government system. for a simple, when they asked the bill signed to try to issue the asset backed security but it required by law to solidify but

they couldn't get any and the reason they couldn't is there was a provision in the dodd-frank bill specifying the credit rating agencies to what type of credit rating to the legal case to show that it's some form of -- >> negligence. 66 negligence. but the fact so what happened this they quickly got the reversal where the staff were electing this issue up to the commission which effectively made the provision in dodd-frank mou -- moot to read and we saw the fixing of fees with the site

and mastercard stock prices collapsed. what caused it? it was an implementation of dodd-frank allocation and basically the debit cd basically the debit cards. what struck me about it is the legislation required the sharp reduction but the actual judgment was unless it is a poor minority rule was even stronger than the market that expected it was flooded with all sorts of arguments. i don't know how that's going to come up and i don't know the final rule on this is. i do know that this is the tip

of the iceberg. we are going to be willing to see it meaning that to understand the secondary consequences of what the rules are going to do. and remember one of the aspects to respond to your question, one of the aspects of the process of determining the cabelas investment -- capital investment is what to expect and refinancing so it is not a simple ram shot deal. to the extent there is uncertainty in the financial structure, it raises issues which would affect the capitol investment to the cash flow ratio. by how much? i have no way of measuring. but that it does and that experience over the years it's a

significant but it's not critically important to the investment process as well as the financial system. i still think we have a number of things out there which are still in play and we don't see the impact but i think what is clear at this stage is that to come to the bottom line the data does not directly show the stimulus program as calculated. i can't demonstrate using the gross stimulus which the omb and cbo are making. >> it doesn't prove that it's negative. it just suggests that. >> it suggests that. but there's another aspect. this is a two legged stool. one is there is no question in my mind we have to take the

stimulus impact for of leased the crowding out and other aspects. one of the greater concerns in my part is i think it is faulty and i will tell you why. the structure in estimating the in fact of the government program this is an 814 billion-dollar program spread out over a number of years. with most of it being up front. well, you have to make a judgment of an increase or tax cuts below the different so-called impact will the players and gdp. the difficulty and the economic

models as the need to be because there is no other way to do it which fails to forecast the recession of 2008 and failed to forecast every recession are not the world and the reason is the way we build those models. i don't want to get too technical but we have the standard to stage for it to the whole series, but the technical estimates, the coefficient model tend to converge towards the need of this the the, and if you put the need of the government natural models i would define with the model to create and it's not an accident that the

best of these models were the federal reserve hasn't ever forecast recession. it can't and that is not the way i would have used and don't. but the idf didn't and i don't know anybody that did. the reason, therefore, is why do we assume the impact multiplier would have a gross effect are any more accurate than the models which have demonstrated. there's got to be at least some against the universe which is the basic crowding out issue. and i then go back and say how do i even had no the gross estimate is correct? and i don't. so that leaves me in the position where the bill that i

had directly only applied to the offset to the gross stimulus. i heard the order of magnitude of that is of itself it doesn't meet the standards turned negative. but i had very serious concerns and about what the actual impact will the players are especially and i am still struggling to find a mathematical move by which i can convert rhetoric into numbers to this but let me ask about another aspect of this. in the paper, you say that the one area which the government in effect left alone at the equity market has recovered strongly. and the 35 trillion or so of guelph lost has been three-quarters of that has been recovered.

>> its global. >> and it's also provocative because it implies that the one engine that's working for example the intended wealth effect stand so long is the equity price which is not the object in the government response and in the implication is by leaving it alone is managed to recover quickly and have a quite powerful affect on household balance sheets and the propensity to spend households and so forth. i think he might comment on that a little bit. >> let's go back to the 35 trillion loss. you know better than -- >> now we don't, but go ahead. [laughter]

>> the market value equity let's say financial institutions claim very sharply. it means the liability of the institution has come down dramatically, and therefore credit quality of the liabilities are worsened. so if you get a collapse in the financial equity which are the financial institutions, the collateral process has cut very close and the support of t.a.r.p. is injected into the banking system because the value

of collateral which is normally debt collateral, but the collateral is priced to a large extent to which the market to fill you of equities and financial institutions are rising or falling and it could see the financial collapse in terms of the declining stock prices even though it's the debt which created the problem because with the quality of debt as the stock prices went down. and finally, in march, 2009. and what we have seen is a dramatic rise. i should point out the fact which clearly impacts consumers,

but just as importantly in the financial system and what this has done is frankly it has enabled a good deal of talk to be paid off with capital gains, and you can't actually stipulate, but if you look at what they're the equity this paying it off this kind from. so what happens is this case is you get a dramatic rise in the stock prices which liquefy is the whole system and increases the value of collateral in the system and therefore longer-term which indeed took place sycophant lee. even though it was never enough to build capital investment it was no leader return on the capitol of investment i don't

care what your financing the capabilities. so to turn this around this for other reasons. corporate profits have risen very sharply. it's to a very large extent the result of a relatively short period of a very significant amount of cost savings capital and investment. this is not structures or building, its software and equipment and the like basically to reduce the costs of the exercise which it did for quite awhile, tools and labor. so it was a very strong growth

in not only the labor productivity but in the tools which propelled the profits very materially and the cash flow associated with. that is beginning to flatten out. all of the profits were the result of the rising profit margins and the stages which came from increases. we are seeing now is the profit margins are flattening out the evidence that the sales increases are picking up. but it's that big surge in profitability which pressed against what economists call equity premiums which is the rule of return that is required to invest in equity which

indicated six or eight months ago -- >> very high. >> was the highest for 50 years. it's come back down i would say the last few days it's gone up, back up. but it's still there and it's reflected in the equity premium, but the surge is such that it's propelled a very substantial rise in the stock prices and the wealth effect to which it's crossed the border and it's a global phenomenon. it's not just in the united states. and you are quite correct i think that we have to stop and

allow it to function by yourself and it turned around up through three weeks ago. >> what's open this up to questions. just one or two observations before hand. wait for the microphone. please identify yourself. if you don't mind my saying so please be sure you ask a question and not give a speech. yes, sir, right there. >> thank you. fred tips and with the u.n. development program. how does this differ from herbert hoover's who got the microeconomics right but seemed to miss the whole macropsychology of the economy the required government activism to restore, how can we see the stock market was left alone when the huge banks and huge auto companies were rescued in a way that gave investors confidence to stay and go back into the

stock market? it was dependent on the government activism. in the supreme court they put a brake on the degree of fact some and you could argue the content of the degree of activism but wasn't that the central to maintain the economy in a way that presented something much worse cracks >> let me first say that as i indicated before, was in favor of the government act of the some right after the crisis and i argued in another piece which was published at the institution -- >> a poll to be too small place somewhere around here. >> i argued that the basic surge that has occurred is very

largely localized to what i would argue was the largest financial crisis certainly the question in the thirties was in an economic sense much greater but as far as we have never seen a shutdown the short-term money markets of the type that we saw subsequent to the lehman brothers bankruptcy and the commercial paper market closed down. even the repo market was shaking they didn't move the money market funds so i'm arguing that as i've written in my piece that

if you've got the type of structure in which the financial system tries to have the capitol adequate to meet every long lost profession up to say .999 as hard as the probability is concerned, that seems adequate. the trouble is the .999 as it happens .001. and i think what we've just been through as i called it pathetically in the speech a long time ago in the central banking is if you have a fraction reserve system and do not cover all of the

possibilities you are always left with the possibility what about the very small probability which becomes 100% when it happens? i can't prove that what we've just been through is a unique or almost unique phenomenon and that's my presumption and i grant that a lot of things rest on it. i would say with respect to the activism of the 30's, remember that the initial act of the sum was negative and the federal reserve was tightening up in the 20's and the whole thing came tumbling down but there was a huge amount of activism in the 1930's which of course led to the nira, but it did not alter

the continued supreme court ruled of the nira unconstitutional in 1935. but the evidence is the causation coming from that continued on and i tried to -- there are several interesting papers on that issue which i site in this paper and people think it's a given much of what was done during the 30's which is essential, and the evidence is unclear on that. >> let's have another question. >> yes, sir. >> about two years ago i had a conversation with the now famous

friend carmen reinhardt, and we were talking about whether the stimulus would have a rapid effect as the administration hoped or whether it wouldn't and she set don't worry, this recession is going to be with us for some time anyway. and as understand, her reason for saying so was that the recovery from the financial crisis, banking crisis was hysterically much slower than the recovery from the excess demand recessions. now i'm not describing the economics just right, but the book is essentially documents the slow recovery from the financially driven recessions and that might be the proper comparative not recovery from previous recessions that were less fundamental crises driving

them. >> you're raising the question as to what is cause and effect and first of all there is an on necessarily mutually exclusive explanation. first of all, if you can basically get to as i tried to the specific decision making process which is creating the problem, i submit that this somewhat superior to historic and obligee's and now these. carvin reinhardt has credentials as an employee of great esteem. so i'm scarcely going to argue this since her and her husband

are both very good economists. the problem here is the problem with economics. what constitutes proof? , by analogy isn't approved. most of the type of stuff we do, i do, everyone else does and carmen thus is by an allergy. i try to get and stepped deeper into looking at the actual decision making process as it impacts through the distribution of paabo will to -- cibula these and rate of return, and i submit that should be a superior view or analysis of what is causing a what. i'm not certain that the retrospect when reinhart puts the expedition now or something

like that they are going to find this one was lagging and i think you have to ask the question why is that? the breakdown instructor occurs in finance is related to the collateral issue as the four. it's a question of how deep and prolonged it continues. all i can say is i think i've gone a step beyond trying to ask the question what specific decision making process creates the rise in economic activity? why has the recovery been so tepid? we couldn't draw analogies and say it is essentially because when the financial system runs into problems it takes a longer time to pick up.

i don't deny that. that isn't necessarily contradicting what i'm saying. i am just saying that we need to get the data by an algae in order to come up with specific analysis. in other words, i demonstrate on the issue yet by analogy the body of the the data which is statistically significant and not basically by analogies to the historical episodes which in most instances are very valuable and probably essentials for getting first judgments. i am saying i don't consider them to be enough because i don't know without knowing the individual reason as to why

individual financial crises led to the specific delete economic activities has to get down to why did the 1873 crisis defer from say 1893? why did the 1893 last so long? this was before the government activism of the type we are talking about. these are questions i don't know the answer to, but i recognize that they are important to answer. and i don't know the answer, but i do know that sufficient conditions to explain the existing state of affairs captured by the statistic which analyzes what the choice of the capitol appropriations committees and business is with respect to the liquid assets

they are willing to convert to the liquid assets to the long term investments. that is a very critical decision to go through our shareholders equity. and this incidentally is the reason why the equity to the asset ratio in the non-financial business or the corporations is close to 50%. in finance its ten, and the important issue i raised in this paper is that the liquid assets are very different than the investment. the effective maturity of an

investment depends how long it takes you to get your money back the bond, for example, has an effective majority even if the market which is liquid five minutes. what is interesting is that the crash as the typing 2008, the liquid markets turned illiquid or partially so, and the convergence between the regular turn on the fixed long-term investment and these previously liquid yield spreads against treasurys starts to converge. >> with another question. yes, sir.

>> pete peterson recently described what we've lived through cents 2008 beginning with the lending for mortgages. he says it is the reflection of come of ferrous and inelastic capitalism. do you share that viewpoint? >> what kind of capitalism is that? >> pete is a very old friend of mine. if you told me he said it on that form i don't think he means it exactly the way the implication is. it's a very pro capitalist person, but there are aspects of human nature which you could characterize that way. i don't think that it's the economic structure that is the problem, and i would have never

argued for a sample that if you go back and look at socialism in the early stages it looked far more rational to the many people than adam smith's model. yet the reason the argument went is that the investment and distribution of your assets was done by the people most knowledgeable rather than individual market professions and the like. now indeed, when the british essentially moved out of india in post the socialism on the ground it was the best way to organize the society and he did it as far as i can judge in the most rational way i can imagine.

it didn't work, and it didn't work because the nature prevented it from happening. and so i will say the problems the we find in capitalism and socialism and communism are the reasons why marks was wrong was sent but it was sort of a book which was inconsistent, it's a very rationally constructed book this presupposes human nature which doesn't exist and i would submit when we have problems we see in marketplace is whether it is short term aspects of the way the markets tend to behave i don't see it as the structure that's basically human nature and no way we can alter that. >> one last question, very brief.

go ahead. >> mr. greenspan and having a little trouble with your logic. i heard you say at the beginning of the capitol expenditure ratio is were the lowest level to the cash flow since the 1940's. and then you talk about crowding out. when i hear the lowest level of expenditure i hear the companies have enormous amounts of money that they could spend on capital expenditures if they wanted to. how are they crowd out? i don't understand that. second problem i have is i would be interested to know -- >> the crowding out issue here is such that you have this very large cash flow occurring, and the question is they don't want to invest in what do they do with it? be added to the liquid assets. there is a 500 billion-dollar increase in liquid asset

holdings. they have got all of that cash to spend but they felt they had the rate of return to do it. >> how are they crowded out? if they have that cash hoard a crowded out by the government? >> contribution savings that the federal government of storms which you start off with the proposition let's assume the balance is zero which means the savings investment in the economy are equal. it necessarily means the amount of investment which can take place must be equal to the amount of savings. now what the data shows is you see what happens when a federal deficit drives which is negative savings it must be offset some where in the rest of the system and with the data shows, and this was basically an analysis

of the flow of the funds as you see the huge increase in the savings and the huge decline in the capitol investment those are the two major clothing parts of -- >> excuse me, but do we still have corporations sitting on a $2 trillion in cash, and if so, how are they proud of? i hear your numbers and your charts, but it just doesn't correspond with what i am seeing and hearing. ..

>> that means interest rates are moved up to a level in which there's certain people in the economy who would like to invest, but can't afford the interest rates. >> interest rates are low as they have been in decades. >> rick, that's not true, only of -- ibm is not being crowded out. the ones crowded out are shown to be those which are, say b-rated corporations. if you look at ccc interest rates, yields are very high, and if you look at where the shortfall in investment is, it is very largely in signaler business and construction in particular, but it is not the large corporations that are

crowded out. they would be crowded out if the deficit were twice the size it is. they do not crowd out at this level, so i would say to you, who's crowded out? well, i can't put the list of names down, but i can find them if necessary. it's those who find that an 8% or 9% interest rate which are required of some junk bond issuers or smaller business is too high for them to get a reasonable rate of return, so the crowding out exists is just not -- you can't argue because microsoft is not crowded out that therefore nobody's crowded out. it's a question of the required balance between savings and investment. there's no alternative to that. >> on that note, i do want to be

reasonably faithful to our closing time, and i want to thank all of you for coming this morning. [applause] most particularly, i want to thank alan, and i want to remind the members that the next meeting here on march 17 is with afl, cio president. thank you for coming, and have a good day. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> up next on c-span2, house leaders discuss jobs and the economy. ohio governor, john kasich

discusses his state budget.

>> house majority leader eric cantor unvailed a study on reducing federal spending and the effect of the federal debt on the economy. from the capitol, this is 15 minutes. >> good afternoon. thank you for coming. we're here today because of the great work of the joint economic committee, whose vice chairman, kevin brady, has once again done a terrific job. as you know, we republicans started in the majority saying

our majority is about jobs and the economy, but we have some tough things to do in order to demonstrate results, and what we said first is we have got to reduce the growth of government and bring our fiscal house into order in order for the private sector to grow, and that's exactly what kevin's report that eel talk about -- he'll talk about says. less government spending means more private sector jobs, period, and as you know, kevin brady was the author, if you will, of the chart, the now famous chart of obamacare, and it was his work and the joint economic committee that produced that that's so stuck in the minds of so many americans about the complexity and really the monstrosity of the obamacare bill. with that, i want to turn it over to the majority whip, kevin mccarthy. >> thank you, i'm the other

kevin, but i tell you, the work that kevin and the committee has done is the right time. four decades, 107 countries, 26 of them lowered their deficit, and what happened? you don't wait for decades to get the job growth. it comes right away. america is at a cross roads. there's different ways to do it. this study also shows if you raise taxes, it's not a way to end a crisis. if you cut government debt, private sector grows, jobs grow. i want you to take one moment and imagine, imagine the potential for all americans if they were freed of the burden of the debt that we have before us. that's the path we're on, so as republicans stated in their pledge they are here to grow jobs and cut government spending and kevin brady and the joint economic have just found out by the facts that everybody else

that that is actually what works, proven, and that's the path we're on. i can't thank kevin enough for the work they have done. >> i serve in the ways and means committee, and you can imagine there two basic pathways to try to close a budget gap. one is to raise taxes, and the other is to cut spending. what the joint economic commission has demonstrated is a global perspective and a his historical perspective that sets out a pathway that's straightforward. it's not easy, but it's clear, and if the american public joins with us, house republicans, and we're reflecting their values in this debate, what we're doing is creating a pathway for prosperity, and there is an urgency to this, not just in the shorn, but ultimately -- short term, but ultimately in the long term, and with that, i want to yield to the gentleman from texas, mr. brady. >> peter, thank you to leader cantor and whit mccarthy for

being here today. for the past two years, the american people have been told the only way for a path forward to economic recovery was more federal spending that drove up federal debt in the white house and washington democrats, unfortunately, continue to cling to this failed economic model, refusing to listen to voices of respected mainstream economists here in the united states. the job gap between their promises and the results is significant and disappointing. after throwing nearly $5 trillion in fiscal and monetary stimulus at the economy, there are actual 2 million fewer jobs today than when the stimulus began. the white house promised the unemployment rate would be down to 6.9% by now, and as for total jobs in america today, the white house fell short of their promises by 7 million american workers. the government spending is the

answer crowd had their chance to jump start the economy. they failed. it's time for a proven approach. republicans in congress are determined to remove barriers to new jobs by tackling america's dangerous deficit in removing the resulting uncertainty that detours business from hiring new workers. there's nearly $2 trillion in capital sidelined in america. americans are determined to bring that capital back to the economy to create jobs as a result. let me run through a couple charts here if i may. this child support -- chart we tracked the last 40 years in our economy in spending. this first chart shows private sector job increases, jobs on main street, business investment. what it shows is the direct correlation. when companies large and small buy new buildings, new

equipment, and new software, private sector jobs grow. look at the next slide. go back two. perfect. here you see the blue line which is federal government spending in the last four years. the red line is job creation. if you track job growth and if you track federal government spending, you realize there is no correlation. in fact, federal spending grows, jobs along main street shrink. that's because without private investment, you don't have the jobs to go with it. there is no substitute for private business investment, not federal spending, not rebates, not even ready projects. the new report is entitled spend less and let's grow the economy. it surveys mainstream peer review economic studies over the past four decades examining our global competitors are high debt.

it provides clear and convincing evidence that the countries that reduced their government debt through spending cuts boost the economic growth and job creation in the short term. republicked economists found a number of instances from 1970 to 2007 where many of our u.s. competitors successfully reduced their debt to gdp ratio predominantly or entirely by savings through spending cuts and they grew their economy at the same time. canada, our neighbor in canada shrank spending by 12 percentage points. starting in 1994, thaw -- they boosted their economy from less than 1% to a more than 9.4% average in three years. sweden's economy was shrinking, but after reducing spending by 11 percentage point of gdp, the

negative growth economy revived to an average of 3.5% annually. new zealand did the same, but they are not alone, and that's the point of the study. economists found 26 episodes in nine developed economies where reducing debt through spending cuts provide a large boost to economic growth in the first three years after this reduction began, and perhaps the most important finding is this, while most economists agree that reducing federal spending reduces economic growth in the long term, what this study found is reducing federal spending through spending cuts boosts the economy in the short term as well. what spurred the growth when countries reduce their debt? two things. businesses no longer expected the government to levy large tax increases in the future to pay for this excessive spending so businesses did what they do. they stepped up investments in buildings, equipment, and

software. households no longer facing higher taxes had higher expectations for permanent disposable income, and they became for confident and bought bigger ticket items because that ensornty -- uncertainty with taxes went away as well. countries saw higher economic growth. to maximize, there's a point two in this study that i thought was fascinating. to maximize the economic boost in the short term and to max maximize the jobs you create, the report found that spending cuts must be large, credible, to reverse the ones made. those cuts had to be creditable, significant, and difficult to reverse in the future. it included right sizing the government work force in its

compensation, eliminating dupe kasichtive agencies in the government, and reforming and reducing transfer payments to individuals, and within this study what became clear as well is countries that tackled entitlement reform and made changes boosted their economy. the conclusion i'd like to make is delaying the spending cuts are risky to the u.s. economy. president obama and democrats emphasized the risk of reducing now, america's deficits and debt, but they ignore the risk of delay. as this mainstream study shows, ample real life data proves there's significant economic growth in job creation benefits that come from reducing spending and reforming entitlement programs to restore their stainability for future generations. for america's economic future, it's time for a different, a prifn path forward to grow our

economy. it's time for washington to spend less and owe less as a nation. >> questions? we do have a vote on, so -- yes? >> [inaudible] >> in this study, economists identified different subsidies throughout the world. you know, the equivalent of ours is an amfrak subsidy, and there's a range of them, but to my knowledge, they are looking at the whole range of those items, but leader? >> listen, this goes back to the underlying premise. you can't come to washington, wave a magic wand, spend taxpayer dollars, and expect growth. kevin's report points out that those who subscribe to that theory had their day, and clearly the results were not

there. >> yes, sir? >> [inaudible] it says here in some cases it may not be strong enough and expansion in the short term as well as the long term. you're not guaranteeing. >> you can't. if you look at 107 countries they are different. it didn't work in all cases. what we identified was a winning formula, how you create jobs by reducing debt. they gave us a good model to follow as we go forward as well. >> yes? >> an employer said they are waiting out for a counter offer. you said yesterday, you are waiting an officer from them. can you respond to that? >> it's time for the games to stop. we are where the american people are. we want to resolve this spending

question for the remainder of this year as quickly as we can. begin, let's not forget the reason why we are here is that the majority of last congress was unable to pass any spending bill other than hang on to current rates, and i'm hopeful that we can see that this is a last stopgap measure, and that we can come to some resolution to cut spending so we can begin to facilitate an environment as the report indicates for job growth. yes? >> maded point that at least -- [inaudible] >> first of all, let's say this. if we can't cut some discretionary spending, how do we expect to go about the even more difficult issues of the mandatory spending and the

entitlement spending? what we're doing here is actually delivering on the promise we made of changing the culture in washington. imagine what the discussion was a year ago? we're discussing how much to cut now, so, again, it is taking us, you know, a deliberate plan, an effort, to go about cutting spending, you know, everywhere in this town. we all know the facts. we are borrowing nearly 40 cents of every dollar spent. that is unsustainable. families can't do that. businesses can't do that. government can't do that. again, i would say that, yes, we're going to deal with all of it. we've said when the budget comes forward out of the budget committee with chairman ryan in the next months, you'll see where republicans stand, and that's to reform entitlements. we're going to protect today's seniors and those nearing

retierm, but for 54 and under, if we want those programs to be around, they are going to look a lot different. yes? >> can you make projections about job growth with cutting spending? >> well, again, i think that that is the trap that the administration and the democrats fell into last congress, to ensure that they would demonstrate their government spending would produce x number of jobs. we don't believe that you necessarily can wave a magic wand in washington and create jobs. what the study indicates that the trends say is if governments get their fiscal house in order, there is a much better environment for growth and job creation. >> we do know that the view of the stimulus didn't work. that cost us $1 trillion. >> thank you very much.

>> earlier, house democrats talked to reporters about the economy and jobs. they called for an end to the short term budget bills currently governing federal spending. we'll hear first from democratic caucus chairman, john larson. this is 20 minutes. >> are we ready? thank you very much, and good morning. we continue to focus on the creation of jobs in this country. the president said it best during his state of the union message that we simply have to outinnovate. we have to outeducate, and we have to grow this economy. democrats are prepared and stepped up to do that. we recognize in these difficult times that cuts have to be made,

and we've stepped forward to that as well putting everything on the table, but drawing a line when it comes to important programs that we face in continuing our focus on jobs. it's been 11 weeks and the republicans have focused on nothing but a social agenda. the american people are crying out for jobs, asking us to deal with this deficit, democrats continue to step up to the plate and offer our handout to a republican colleagues to come and join us and participate in this. with that, let me turn it over to the vice chair. >> mr. chairman, thank you very much. didn't we just see each other a couple weeks ago here? same time, same location, same situation. deja vu all over again. here we go, two week, three week budgeting. that is no way to run the

largest economy in the world or the smallest business on main street, but here we are sputtering two to three weeks at a time. this republican road map towards budgeting is ultimately going to edge us towards a government shut down if the republicans continue this way. baby step budgeting has never worked for the united states, and it's not going to work this year. we need to have a course that america knows it can follow. the last thing we need to have is further instability. we've seen what happens with instability in places like the middle eastment we've seen what happens when government is temporarily out of service as in japan. we see what happens when we have chaos reigning in america when it comes to budgeting. the american people don't like it. the american peoplement -- want us to get to work. this republican budget essentially takes 700,000

americans off the payroll. three weeks? that's 75,000 jobs that are in jeopardy as a result of this republican three week budget, and so it's time to get back to work and do the business of america of putting americans back to work. that's what democrats have been about. we started two years ago with president obama talking about creating jobs. we hope at some point after 71 days, republicans now in the majority in the house will talk about creating jobs, not losing jobs, and with that, i'll turn it over to the democratic leader, nancy pelosi. >> thank you for bringing us together this morning. before i join my colleagues in associating myself with their remarks and expanding on them. i want to once again express the sadness and sympathy that we have for the people of japan who are watching -- we are watching closely to see how we can be e helpful in a

humanitarian way. the administration has sent technical regard with the plants there. it's beyond biblical proportion in the loss of life, the change of economy and society there. we wish them strength. we want to help them as friends, and again our sympathy and our support go out to the people of japan. my colleagues have said that when president became president we started creating jobs right away. it's so. president obama has been a job creator from day one. recognizing the recession near depression that our country was in at the end of the bush administration, in his inaugural address, the president called for swift, bold action now. one week and one day after the president's address, the house of representatives passed the

recovery act, a recovery act that created or saved 3.5 million jobs. not enough, we need more, but we are going in a very strong new direction. by contrast, here we are, what is it? 11 weeks? we're in the 11th week of this new term in congress, and we vice president seen one -- haven't seen one sign of job creation. in fact, we're going in the opposite direction. whether you're talking about one economist or another and whatever their measure it is, it's always what -- the direction the republicans are taking us in now will harm our economic recovery. it will create, not create jobs, but lose jobs, and the speaker says hundreds of thousands of jobs, so be it. so be it? no, i don't think so, but we must have this job creation. actually, the only job creation that's been on the floor of the house in this 11 week period has

been our democratic initiatives. build america bonds to build the infrastructure of america's strong way, make it in america, and other legislation to stop jobs going overseas by reversing the tax breaks of companies taking jobs overseas, so there's the initiatives, and the republicans overwhelmingly voted against those initiatives, so all we've seen in job creation has come from the democrats. what we're seeing from the republicans is taking us in the wrong direction. we have made it clear that we will extend a hand of friendship as congressman larson said, but we will judge every initiative that comes to the floor by three criteria. one, does it create jobs? two, does is strengthen the middle class? >> three, does it reduce the deficit? all on a par with each other all

on one piece. what we see with the reversing the economic recovery in the bill is not an initiative of that what will reduce the deficit. instead it's false economies that must stopped. now, we have proposed we save $41 billion at the end of last year. 41 billion cut in president obama's budget. only one republican voted for that. . .

and from different sides of the country but very strongly committed to the middle class. first he will hear from david cicilline from the new member from roane island. >> thank you, madam leader. i'm delighted to be here with the democratic caucus as the leader said i mean the members of congress. i came here because rhode island send me do everything i can to get people back to work and i expect even though we lost control of the house that i was the agenda, the republicans would take up a job plan and jobs agenda. we might debate at the fine points all the we've been working together to get americans back to work. i've been here 11 weeks. there hasn't been a simple job bill proposed by the republican leadership in the house. we haven't had a committee hearing on the job skills.

we haven't been able to engage the republicans in the urging of work of getting americans back to work. instead the focus on reducing investments necessary to rebuild our country and to rebuild the economy of america. cutting a pell grants and head start and women's health services and reducing investments in infrastructure. all of the things we need to do to to rebuild taricani and get people back to work. enervate, investment infrastructure, that's not happening. so i'm here to join my colleagues to say our number one priority has to be to get americans back to work to focus on job creation. i've been here at 11 weeks. the republican leadership hasn't done that. this is a call to action either sent out a job agenda, jobs plan for work with the democratic leadership to get out the jobs agenda but focus on what is most urgent to all americans and that is getting people back to work.

>> thank you, david for your leadership as to why said the former mayor of providence who became a congressperson and rhode island he knows up close and personal the pain of the american people are feeling when they come here to fight. from the other side of america, a woman to serve in the state legislature there so she came to the house effective from the start a leader in the legislature in hawaii and now from the start in the conflict of the united states, congresswoman. >> thank you for your kind words from the people. like david, i knew. i.t. people we made california the midwest. hawaii of course anybody complains about the air travel, come see me. when we look upon what happens,

the devastation that has hit japan and its impact we have already felt it. projections on the revenue have gone down for the first time as a result we know that is attributed to. we do know that when we were voted in particularly david and i people wanted us to come and address of the economy and specifically jobs because jobs is what makes each and every one of us feel good and makes us have public confidence. jobs is what tells us we are on the right track and we haven't seen one. 11 weeks have gone by. we haven't seen a jobs bill yet. what is worse than that is we have seen cuts and i am hoping the people do not accept just the mantra that if you cut that some of the same. look at what we've experienced in hawaii, for example. there is a cut, the specific tsunami center hasn't been cut.

what does that mean? will get all of you watching the news reports and how many of you rely on those reports? those are essential jobs not only for us and the states but throughout the pacific region. it is and how we build public confidence, that is not how we tell people we are on the right track. it isn't just cuts. we believe in cutting the deficit. that is part of like the leader said that's part of the agenda that's equal in the creation of jobs. but there's a right way to do and we are here to say republican colleagues let's do it together, let's do the right way. we can get it done. we all pull together. to simply say cuts it's not going to create jobs, jobs, jobs, and more important than that it's not going to make the people feel good about where we are headed. thank you. >> questions? >> we will take a couple.

>> [inaudible] the sentiment of the caucus and opposition to another short-term and in your discussions also with the white house as well. >> i certainly think that is a growing sentiment in the caucus. >> many of us didn't vote for this [inaudible] >> i don't believe they will. >> people are just voting as they want to convey what this is the we support cuts, yes, that this is as the gentleman said as far as we are willing to go. but for some of us we don't even want to go that far. but this, how the democrats vote on this is not what we should be watching. where we go from here is what it's when to stand for. >> many feel this is just a

matter of death by a thousand slashes and somehow as we said as of the year pointed out two weeks ago with the american people are looking for is the idea of certainty and what we've created here is this aura of uncertainty and with the cloud hanging out in the future they continue to project that they will shut down the government and so this is of great concern to the american people and certainly members of the caucus. >> we heard last week from the military leaders about kind of budget approach this is causing. we hear from our constituents that accompanied with it every two weeks so this is an important issue to raise. we need a resolution in a comprehensive way. we need a budget resolution that is destabilizing incredible anxiety with military leadership, civilian leadership.

it's just not a waiter and the government. >> i think the most important part and i sit on the armed services when you do recognize is when you start to tweak one part and it's done in this very almost defined blocks of money and it's cutting, then you don't know the consequence is. right now we know for the pacific in particular, the role that the military need to play in the attempt to help stabilize and help rebuild is going to be critical, very critical. but they would each begin their testimony before the armed services with the statement that the c.r. is the worst thing for them. it doesn't get a sense of security. they don't know how to plan. the other people are saying if the cuts come through it means they are going to have to shut down. one of the things to talk about the economic growth and creation of jobs, apec in this year. the east and west center is the lead agency to do that.

the east-west center is cut in the first to 10 million. now, if it goes like that what is going to happen, and the cut to zero by the way that didn't go through. if it continues, guess what? they shut down. what happens to a pack in this critical time especially looking at what is it that our partner of japan is down going to do? what will happen? that's probably something they can look forward to to help build. these are the kind of cuts that are going through and that isn't the way for us to act here. >> the republicans are complaining that your colleagues on the senate side are reaching out [inaudible] does the president [inaudible] >> i'm very satisfied with the leadership of the white house on this. we had the meeting leadership in the house and sent the cassette and a bipartisan way with the vice president. we had a course of action that

came out. it was positive more needs to be done and we will continue our work together and that is what we will do. but let me say as we go into this continuing this debate we are talking about cutting here and there and what the impact of it is. we're talking about trying to find middle ground. that may not be enough, this middle ground is to say 6 million seniors who are homebound will no longer receive meals on wheels but we can compromise at 3 million. i don't think that that is an appropriate debate. the debate is on the higher ground, not just middle ground but the higher ground of the value. it's not just about the dollars come it's about the value, and again, we can cut in a way that doesn't undermine our values. it's not about, again, about money. it's about the morality of what we are doing. the debate in the public about who we are as a country, how we

keep the americans eighth and continued economic growth in the creation of jobs, how we educate our children, how we protect people in their neighborhoods, how we keep our country strong and measuring the health and well-being of the american people. that's where the d.a. has to be. not a misrepresentation about this or that cut is wasteful. the gao gave a road map to cut waste and fraud and abuse and we are doing that. ha e time in the report. the fiscal commission gave us direction on how to reduce the deficit but cautioned that you can't make these cuts right away early in domestic investments because you will harm the economic recovery. so this is bigger than some of the individual cuts even though they are illustrative of the damage that is going to be done. i think we have an opportunity

now for the president and the american people and the congress to engage in the direct debate the direction we want to go, certainly fiscally sound. when we talk about fiscal soundness it isn't just about cuts as the fiscal commission talked about, it's about what they call the revenue earmarks. the tax breaks are within our tax code that do not belong. we need to cut those and i am so pleased the president in his state of the union address once again said we cannot afford tax cuts for the wealthiest people in the country. so if you are talking about fiscal responsibility we want to cut waste, fraud and abuse, in plications -- applications, of course and in a fiscally sound way that as again opposes our values. but we also have to look at tax breaks at the high end which do not create jobs but to increase

the deficit. i just want to say in closing that as president obama this past year, 100.5 million jobs created in the private sector that was in 2010. in 2009, the first year of the president's term in office he created more jobs in the private sector than president bush did in the eight years of his term in office. so it's really important for us to put on the table with the president inherited in terms of the mir and depression, how the president pulled us from the brink of that and a financial crisis and

is doing away with the entitlement programs that are the core of this party including the programs that are paid for by the american people liked the social security and medicare. so democrats in the caucus confirm on social security, medicare and the education

needed to drive innovation in this economy to help educate and grow this economy. thank you very much.

ohio governor john kasich has released a budget that contains a two year income tax cut that went into effect in january and includes tax incentives designed to create jobs. there's also a plan to assault the cause of prisons to private operators. governor kasich talked about his budget proposal at this town hall meeting in columbus. >> good evening. not in my lifetime have so many people gathered in one place to hear details of ohio state budget. this truly is a critical point in the history of the state. one that will help define ohio for generations to come. the sad part, this could have been prevented. i have previously expressed

concerns about budgets that address short-term problems while ignoring long-term consequences. in 2003, the state representative lee refused to support a state budget that i included a temporary tax increase that kicked the can down the road rather than dealing with current budget tax problems. two years ago as the auditor of the state, i released thisalingt report. the sustainability analysis. answering one of the biggestrept questions in the minds of susaby ohioans.analy what happens when all of the one time a federal stimulus ohioans, what happens when all of the one-time federal stimulus and state money disappears? the answer was just as daunting then as it is now. ohio faces an unprecedented $8 billion budget shortfall. two years ago i was criticized. some refused to believe the stark reality of the budget mess that lie ahead. turns out i was correct. for more than a year, john kasich and i told ohioans that

once we take office, everything goes under the microscope and it has. tough budget challenges are nothing new to john kasich. in congress, he balanced the federal budget for the first time since man walked on the moon. he built a bipartisan team, they climbed mountains together. with john's leadership, they got the job done. well, tonight, we find out what it means to have a true visionary leading and occupying ohio's governor's office. tonight, we will unveil a reform agenda, a package of ideas and solutions that will not only solve our massive budget hole for the short term, this budget solves our long-term structural imbalance, as well. it is my pleasure to introduce ohio's governor john kasich.

>> thank you all very much. >> thank you. you obviously haven't seen the budget yet. could be the last standing ovation i'll ever get. tonight is a special moment for me, and i want to announce to the citizens of the state of ohio that i kept my word. i said that we could, in fact, cut taxes. we intend to preserve the income tax cut we received january 1st. it appalachian us our competitive, allows us to create jobs. i promised to work to set us on a path to growth. that's where we have to be, folks. we can't tax our way to

prosperity. we can't cut our way there, either. what we have to do is set a platform. we need to set the ohio in a position of where people want to expand the jobs here in our state, and where we can go all over this country and all over this world, if it can matter, to bring jobs to ohio. we lost $14 billion worth of payroll in the last four years. that means our most mobile citizens are leaving. we've got to stop it and place ohio on a path for growth. so not only were we able to keep the tax cut and also to work with mary to make sure we get rid of rules and regulations that kill our entrepreneurs and small business people who want to open their doors and create jobs for our families, but we have balanced this budget with no smoke and mirrors, and we have done it with a reform agenda that will put ohio on a

path to growth. let me tell you -- [ applause ] people might say, how could you do this? it's not doable. well, i said all along we didn't need to look at just half of ohio's budget to get it straightened out, but frankly, we needed to lengthen the field. we need to consider everything that the state of ohio touched in terms of spending. instead of looking through the lens of an $8 billion revenue with a budget only $26 billion, we decided to look at the other 50% of ohio's budget, which means it was necessary to take $4 billion out in the first year out of the $52 billion budget. for all of us, even if we are not good in math, 52 is bigger than 26. we did it in an unconventional way, a way we should have been doing it in this state for many years. first of all, this is not

something we started doing when the election was over and we started doing when i was sworn in. this wasn't robert redford saying -- well, that's pretty clear. what do we need to do now? that wasn't the issue. i want you all to understand this process started before i even decided to become a candidate for governor. about three years maybe 3 1/2 years ago, i assembled that ragtag team of friends of mine and said we need to help fix ohio's problems. everything was on the table. we started thinking big then. can we, in fact, balance this budget and reduce taxes and create jobs? that was the question at all times. after a while, working with people i worked with for 20, 25 years, i knew we could get this job done. folks, i have to tell you, no politics here. maybe a smidge here and there about the reality of what you do, but we got rid of the

politics. if you try to balance budgets and you show favoritism or you have favorite groups or somebody that you know and you start doing that, you lose the high moral ground. people can accept change as long as the change is distributed in a fair and an honest way. that is why in this budget and the way we've governed from day one, there just are no favorites. i represent 11.5 million ohioans and i've got to serve them, not any individual special interest group who could move us from where we need to be. no smoke and mirrors, no more kicking the can down the road. can't do that any more in ohio. tim keen and i the budget director have to make a trip to new york to talk to the bond agents, the rating services. if we hadn't done this, i don't know what would have happened to our ratings here in the state of ohio, in addition to the loss of jobs and loss of payroll. we had no choice but to meet the

challenge and to do it in a fair way. you know, folks, gordon ghee looks our budget. gail tenenbaum who is there every day to protect our children, she likes our budget. to get the committee for citizens for tax reform to like our budget, when you get those three groups working together, you start wondering what the heck you put together, to tell you the truth. but there are things i'm very proud of. we needed to protect the most vulnerable. you cannot damage those who are the least of them in our society. at the end of the day, we'll answer for that. i have a great directors of the services that mean the most. we've got john martin, son is developmentally disabled. i told jn we need the savings, john. we will not hurt the kids and we

will not hurt the families. you know what? he figured out a way to engineer a better product. where he came in with savings out of his budget, but he assures me that the clients are going to be protected. our developmentally disabled, maybe the most fragile people in our society. we looked out for them. if there is a hole or a mistake, we'll figure out how to come back and deal with it. i've done it before in washington with food stamps, we'll figure out a way to deal with it. together, and not with with the last gasp of breath in the coal mine which means we would be selfish and not pull together and raise our fwam together. tracy plouth, we made a decision to put people before buildings and made a very tough decision. i'm proud to say the mayor of cleveland, while not happy, has become a friend of mine. you know why?

he says, john, we both have the same issues. he says, you're a straight shooter and the mayor has a great heart. i had to say you can't have this building in cleveland. he's not happy. if i can build a better facility, improve a better facility in summit county and move the folks there and not build a new hospital, i can eliminate the need for capital improvements over the next four years and save $4 million a year in operating expenses, which helps those who are mentally ill. that's the way we have thought about this budget. there are other vulnerable people, including those on medicaid. i'm proud of the work that greg moodie has done to pull all the folks in the health care field together. let me also tell you i think people are frankly surprised that in this budget in basic foundation aid for k-12, based on state support last year, we have slightly increased spending

for k-12 education for our kids. [ applause ] we couldn't replace all that stimulus money, but you don't run a family on one-time money. nor do you run any operation on one-time money, but from the state support basic foundation aid increases slightly. universities. it's important, but boy, do they need reform. to be able to provide a curriculum so that our children -- well, they are our children, but our students are in a position to have a curriculum that allows them to match with the job availability in this state. something we haven't done -- well, we don't do well at all. we'll fix it. universities are critical. a little bit more money into the universities. medicaid. i believe that the medicaid program that we present to the people the state of ohio and to

the legislature will put ohio on a 21st century path. i believe that our medicaid program is far reaching. you heard me talk about underweight babies. if a mom has one, we think she is likely to have a second. how about prenatal. how about spending money upfront that saves us money in the long run, makes the baby healthier. how about you go into a hospital, get an infection and leave the hospital, you have to go back in. we are not paying that hospital. we are not going to do it. medicare doesn't do it, why should we do it? if mom and dad are more comfortable staying at home instead of going into a nursing home, let's let them do it. if they qualify for the nursing home and can stay at home, that's great. the home health care providers, don't go running in and seeing mom for 15 minutes, collect $54 and think we are not going to find out. that is not acceptable either.

medicaid was divided -- occurred in seven separate agencies of the government. it's our biggest program. it's spread out into seven different entities of the government. try running a business like that. what we found what we found is 4% of ohio's population drive over half the costs. we don't have to cut services for everybody. we've just got to deal with the population that has special needs. 1% you can't control. they just need the services. the other three, if you coordinate the care for anybody on medicaid, and how about mom coming out of a hospital? if you could tell her what setting she needs to be in to be healthy and happy, it's common sense, folks. i'm so proud of the work greg moody and the health transfo transformation team has done. prisons. we are going to sell some prisons. at the end of the day, we are going to manage the population. we have too much violence in our

prisons. our great director of corrections gary moore -- somehow the good lord sent an awful lot of smart people who made enormous sacrifice leaving their private sector jobs, taking a pay cut coming here and making a difference. you know why they are doing it? because it's happening now. no more talk. no more navel gazing. we are out to save ohio. they came. gary moore took his vast experience. gary moore, four-time warden, private sector experience will tell you about his programs to help communities with more revenue and to save jobs, and also to make sure that we're not driving up our recidivism rate. we'll take an outdated, outmoded system called liquor and transfer it into jobs ohio where it will have use and by transferring it in there, we'll provide a revenue stream so we can keep jobs in ohio and use that revenue stream to travel

this country to begin to get on the offense. we are tired of being on the defense when it comes to creating jobs, attracting jobs and expanding jobs. mark will get into that later. first year of the budget, toughest. second year gets better. we've been conservative. we believe there are other opportunities to produce revenue. i want to do a budget every year. i promise i won't make you sit through this every year. we are going to do a budget every year because we can continue to improve the systems. we can continue to reduce taxes. we can do so many things in this state. you know what i have found is we haven'been managed righ >> it gave us an opportunity to take a business-like approach and to move ohio forward so tha we can have that beautiful, fertile environment for the app creation of jobs that helphave i families.fu file enough of all the rhetoric.. let me say to you all tonight,

this is of long process. this is not -- there is no laser show going on. you have to go down the cost side for that. this is not a orchestra music.s this is how you do a budget. we are going to walk through this budget because all of ohio needs to understand this. you need to understand it.udgete you need to think about it. i hope you're going to support it because, you know what, weuns are running out of time.support if we can deal with ourng out o. challenges today and not passed in down the road together and i think pass them down the road together, then i think we can save -- i don't think, i know we can save this great buckeye state. three years ago i met a man by the name of tim kean. he's been in government for a long time. he's seen a lot of budgets. he's known a lot of governors. he's done a lot of budget

analysis. he joined our team about three years ago. so many people are so important, one of the most important. he is here to describe in greater detail precisely what we are doing in this budget. tim? >> governor, thank you. good evening. it's my pleasure to be here to provide a budget overview of governor k.'s budget commission. i want to say a word of thanks to the employee of the office of budget management, my agency. it is through the hard work of the.budget analysts, support staff, information technology folks that it's possible for our office to put this budget together on behalf of the governor. i want to single out my

assistant director chris whistler for his very valuable contribution to this process. obm staff, chris, thanks very much. i really appreciate it. the governor has a vision for the state. he has a focus on what is most important. that is creating jobs, economic competitiveness. he also had a vision for this budget and there were principles we followed as we worked to put this together. i want to run through those now. first principle of the budget is a means to an end. not an end in and of itself. the end is economic competitiveness and job growth. make this state an attractive place for business to invest. so citizens can have good jobs. secondly, to eliminate

structural imbalance and return ohio to firm financial footing. lieutenant governor taylor mentioned the $8 billion structural deficit. that was embedded in the current budget that we faced. we spent the last nine weeks working to eliminate that structural imbalance and we have succeeded. third, review all spending. every agency, program, line item, careful review. what's the right amount of money? can we reduce it? is it important enough? should we allocate resources there? this is not about an across-the-board cut. it's about carefully thinking about what we need to do in each area reform and restructure state government. there is significant reform and restructuring elements you'll hear from tonight from a number of speakers following me that are integral to the success of this budget process. lastly, perhaps most

importantly, preserve social safety net for ohio's most vulnerable. i think we've done a great job with that. very cognizant of about those least able to take care of themselves and ensure appropriate funding levels are provided in those programs. you have to consider the economic environment. a quick word about those items. i think we all know we are in a fragile economic recovery. the economic recovery has been under way for some time. it's unsatisfying. too many people out of work. economic growth too slow. these are factors we have to consider when we project where does the economy go. what kind of revenues can we expect? what kind of spending can the state support? for too long in this state, many of the difficult choices have been put off. certainly in the last two-year

period, one-time money was used leading to the structural imbalance. beyond that, many programs that needed a hard look that hadn't gotten it, many programs where entrenched special interests resisted change mightily. the governor was prepared to take that object through his leadership. we've done a lot of that. i mentioned the significant structural imbalance. we worked on that. overcome that. excessive reliance on one-time revenue. this slide illustrates the one-time revenues that were used in the previous budget. it's a long list. not going to go down the whole list. it would take some time. federal stimulus, significant state one-time resources. challenge to move through. but today, we are here to unveil

the fiscal year '12-'13 budget. governor kasich's reform and reform package that will fund state government and provide resources to local governments over the next two-year period of time. i encourage you to visit the website of the ohio office of budget management to carefully review this document. it's only about 800 pages. good nighttime reading. get more information about this budget, which are very proud of putting together. just talk a few minutes about the highlights of this budget. i'll go back to closing the structural imbalance without raising taxes. matching ongoing revenues with ongoing expenses. so that ohio is fiscally strong and prepared for what may come in the future. prepared for opportunities that we may have. as the governor mentioned, we preserved the $800 million personal income tax cut that

became effective on january 1 of this year. we were able to increase basic state support for k-12 and higher education. k-12 state grf formula aid increases by $170 million over the upcoming two years. higher education state aid, formula aid, increases by $62 million over the next two years. significant medicaid reforms and cost containments encouraging home care for seniors, integrating behavioral health and physical health that you'll hear more from later on this evening. thoughtful allocation of limited resources. again, this is not just a budget where there are across the board reductions. there are a lot of reductions. there's less money for a lot of programs. there are instances where we felt it was important to target resources, so you'll see even amongst reductions and gary

moore's department of rehabilitation and correction, there are resources for important security programs in these institutions. there are additional resources for mental health community programs. lastly, i think we provide significant reforms and cost relief for state and local governments. again, many of the reforms you'll hear about later tonight, k-12, higher education, prisons, local government, shared services initiatives. all budgets rely on a forecast of the economy. get a sense of what the economic environment will look like. on february 17, the governor's council of economic advisors convenes with economists from many of the state's leading firms to give us an insight into what their thoughts on the national and state economy were.

what they told us was they expected a slow and sustained economic recovery driven by moderate growth over the upcoming two-year period. they saw the u.s. gross domestic product growing at about 3% a year. they envisioned unemployment both in the u.s. -- employment growth in the u.s. and ohio moderately increasing over the period. they see projected unemployment decreasing slowly. these numbers, these economic figures become some of the key components that we use to project the revenues of the state that allow us to prepare a budget. this chart displays revenues for the state's largest fund which is known as the general revenue fund. this is the fund that receives most of the your tax dollars and where the governor and general assembly have the greatest amount of discretion in making

decisions as to allocate resources. the largest income sources here are the personal income tax, sales and use tax, federal grants that we get to help us support the medicaid program and certain other social services programs. $55.7 billion over a twoer-year period of time. the revenue estimates for this budget, i believe, are conservative and reasonable based on the economic forecasts that we received. this chart displays the preposed spending from the general revenue fund i just mentioned. general revenue fund spending supports primary and secondary schools, our support for state colleges and universities. supports the medicaid program. also supports prisons, our park

system, many of the other important services provided to the citizens of the state. about $55 billion over the two years, as required by the state constitution, the governor's budget is balanced and the structural imbalance of the previous years is eliminated. ongoing revenues and ongoing expenditures are matched. essentially no one-time money in the second year of this budget. as the governor mentioned, the grf, that's only half of the picture. there is another $25 million, $26 million out there. this represents the proposed all-fund spending, close to $120 million over the two-year period of time. if you just thought about the grf and didn't think about the resources of this other fund, we

might not have been able to accomplish the task. many of these funds come with certain restrictions, but there are many programs and revenue streams that we had to think about that we could question, is this the right way to use it? should we do this differently? we did a lot of that in this budget. we carefully examined every line item in this budget. grf, non-grf alike. ultimately all those moneys come from the tax payer in one way or another. budgets are primarily about the allocation of state resources. of course, discussions about the policies surrounding those resources are important, too. i worked on a lot of budgets. this one is unique in the sense there are so many significant reform proposals that are integrally tied to the appropriation and resource allocation decisions.

they are critically important to allow this state to move forward, to improve the efficiency and effectiveness of our programs and operations, and allow the state and local governments to manage with the resources that are provided in this budget. this is the jobs budget. transforming ohio for job growth. throughout the process that, was the focus. just want to talk about some of the key elements that help us, that we have included to respond to that imperative. you balance the budget without raising taxes keeps us competitive. not just with indiana and north carolina, but with other countries, as well. makes businesses interested to be here so we can create jobs. jobs-friendly climate, preserving the income tax cut.

let people know we understand the importance of income taxes, on decision-makers, businesses small and large, so they know ohio is a place where they can do business, get a return on their investment. dedicating resources for job creation. the governor mentioned this. this budget provides a dedicated revenue source for the private, nonprofit jobs ohio that is dedicated to creating more jobs. you'll hear mark kwame talk more about that in a minute. you'll hear a little talk about services in a few minutes. what is the bottom line on this budget? i think it's an outstanding document. that addresses many of the issues that had been put off for too long. that focusses on the imperative

of ohio's competitiveness, creating jobs for ohio citizens, improving our opportunity to grow in the 21st century. thank you. [ applause ] . >> tim, there are going to be people that will be upset saying there is not enough this or that. frankly, i think when you take a look at the landscape, i talked to a number of my friends in the legislature at a briefing last night. it's pretty remarkable amount of work, ingenuity, creativity and reform. how did we do it, tim? >> well, governor -- >> i think i was better at fox. >> let me tell you, what you

need is a vision. you have to have a broad program that you seek to achieve. of course, that's what we had. we did not walk in on january 10 and say we are here, now what? you knew broadly what you wanted to achieve. we knew what direction we needed to go, assembled a great group of people and kept on working over this nine-week period of time to make sure we got it right. >> tell them what it was like three years ago when you met me, tim. >> i tell you, governor, i worked for many years for many folks. you had a vision for what you wanted to achieve. you were willing to take on issues that for a long time others had not been willing to take on. frankly, that's the attitude that was going to be necessary to close an $8 billion

structural imbalance without raising taxes. i think the proof is in the pudding. >> we had people over three years didn't get paid a dime. met every week to stop and think about stuff like this. if you can get people motivated and thinking and have a good purpose for them, it's amazing what you can do. i don't care where you are, set people free to think and feel that they're an important part of something that can make a difference. tim, we talked about the first year and we talk about the second year. just take a second to talk about how you feel about the second year. i'd like everybody in here to understand. first of all, there is a lot of revenue that is not calculated here. we believe in medicaid. there is a great possibility of taking care of the dual eligibles. medicare system will put people

into medicaid and drives our costs up. i pleaded with the secretary of health and human services, written letters to the president asking that we fix this problem. i'm hopeful we'll see reform which will save as lot of money. as you all know, we are going to consider whether we are going to have vlts or any other gaming. i'm not going to make that decision until we hire a gaming expert. vlts have the possibility if done statewide, to provide about $800 million, $900 million. that we can think about next year. this is a conservative budget. we didn't cook the books or use big revenue estimates. we may have erred on the caution side. that's where you want to be when you do these things. you don't want to cook your way, smoke and mirrors and cook the books out of this. nevertheless, without that revenue being included, the sale of prisons, the money we

received downgraded. the second year is different than the first year. would you talk a little about that and the potential, tim? >> clearly, the first year was the biggest challenge. if you look at the first year, you will see more negative numbers. there are greater reductions in the first year than in the second. first year is the year that the federal stimulus money, the disappearance manifests itself. so we had to work hard and be very careful about what we did to ensure we got toward balance. in the second year, the pressure is off a little bit. now, it's not like we go wild. the negatives are replaced in many instances by zeros, flat, flat funding, but then we're able to take care of some issues in the second year. clearly, give the opportunity for agencies to catch their breath a little bit and focus on the reform and improvement of

their programs. >> i don't want to paint this everything is great. the local government fund will be cut by 25%. what we are doing is providing a lot of the flexibility and means for local governments to control costs. further more, local governments are going to get casino dollars. state of ohio gets a pittance. we almost get none of the revenue, we get a casino fee which we haven't been paid yet which is not calculated in this budget. with the shared services we are doing and additional measures to allow local government, managers and tax payers to control costs all figures in. tim, when we think about this second year and the ability to perhaps see more growth and more revenue, that gives us an opportunity to do some investing. is that the way you see it? >> i think because we have been

appropriately conservative and put together a second-year budget that is structurally balanced, that we will be prepared for what opportunity might present itself. and take on those issues and look for those opportunities to further your agenda in appropriate ways at the appropriate time. >> tim is obviously going to be here for questions. we'll take questions until the cows come home tonight or at least until we lose 3/4 of the audience or whatever. i do want to tell you that we don't need to go with applause, boos or anything else here. tim did a terrific job. he is a critical part of our team working with wayne struble and ben cansick, formed a team of people to attract other people who think differently. tim, we'll move now to greg

moody. greg moody is director, i created department of health transformati transformation. when he lays it out to you, you'll understand without controlling this program, the state of ohio could -- everything was going to be squeezed out, everything. it was vital we looked at this program differently. greg left the private sector to come to work for us. his wife is a minister. i said why are you doing it? he said my wife said it's in your gut, honey. you go and do what you need to do even if we have to get a little bit less money. he's been great. i think you'll enjoy this presentation, greg moody. >> thank you, governor. [ applause ] my wife is here so a little prayer right now would be welcome. thank you, governor. early in this process, and for

us it was two years ago, governor kasich recognized that health policy is a team sport, and then he put together an incredible health transformation team. i'm looking forward to introducing you to that team in a few minutes. i also want to welcome all the staff from those agencies who are here tonight. we are all concerned that ohio's health system performance is not what it could be. ohio ranks 42nd in the overall health of our citizens. that means 41 states have a health advantage over ohio when it comes to work force productivity. with these outcomes, you might think we pay less for health care, but we pay spends more p health care than all but 13 cares and more for nursing home

care than all but five states. in a way, the system, itself, is a part of the problem. fragmented care is dangerous care and it is expensive. the challenges in the health system overall are also the challenges in medicaid health coverage for low income ohioans. medicaid is ohio's largest health payer and accounts for 4% of the ohio economy. and it's growing. medicaid is crowding out other priorities. it's difficult to get a handle on this, because medicaid is scattered across multiple agencies. the purpose of the governor's office of health transportation is to get the systems working together. we have to do this. the governor mentioned this, a few high-cost cases, 4% of the medicaid population consumes

more than half of total medicaid spending. some in this group are expended because they have a complicated condition and no amount of budget policy will make this situation less expensive. but some in that small group are expensive because the system failed them. they didn't get the right care at the right time and now they are suffering and they are expensive. but some in that small group are expensive, excuse me, medicaid budget strategies tend to tinker with changes that impact everyone. but most spend very little and those strategies miss the mark. we do the reverse in this budget. we focus on the areas where people are most at risk to improve the health of ohioans and the economic health of ohio. if we do nothing, medicaid will grow 30% in just three years. that is unsustainable, and puts

access and benefits at risk in the futurement i also want to point out something that tim and the governor both mentioned. you can see in slide that if we do nothing, the ohio taxpayer share of medicaid, those are the red bars in the picture, the ohio taxpayer share of medicaid will increase 1.5 billion in one year. that's a 43% one-year increase from 2011 to 2012. that's the amount required to back fill the loss of one-time federal stimulus money. so, again, doing nothing here is not an option. this is how we propose to act. i'm pleased and relieved, but i'm not surprised that these changes get a handle on medicaid spending without arbitrary, across the board cuts. we proposed to coordinate care

and health and cost savings and including the whole person and physical and behavioral health and give ohioans chances to live with dignity where they prefer and to set val youes and not volume. and provide better care and not more care or wrong care. we believe our medicaid budget will have clear benefits for ohioans. it results in long-term sustainability and short-term cost containment, and 1.4 billion in savings over the b buy -- bienniaum. but there are more, we are challenging nursing homes and medicare and medicaid plans to improve the system. we are challenging ourselves to do better. this is an incredible moment in

time. we are ready now the do what it will take to provide better health. better care, and cost savings through improvement, and we vine -- we invite you to join us in that effort. >> we want to invite, greg, everybody up now. is that correct? >> correct. >> and do you want to introduce your team and bring them up on the stage? >> sure. if the health transformation team wants to come on up. orman hall, director of drug and alcohol services. johnirector of medicaid, and tracy plout, dreker to of mental health, and michael coll vert of job and family services, and bonnie cantor burrman, aging, and dr. ted winslow, department of health. >> all right. let me say a couple of things. first of all, something that greg talked about that you may not know unless you are in the business, the integration of physical and mental health is

something that people have talked about for a long time. in some ways the issue of turf may have gotten into the way of being able to integrate that, but if you have a mental health issues, it is likely that you will have physical health issues. so, the ability to coordinate care and to put somebody who has a mental health issue and integrate it with a physical health issue is a very significant accomplishment in this budget which tracy, i want you to comment on. the second thing is that there are reductions to providers. there is a reduction to physicians. but we don't believe that the reductions are so much that people will drop medicaid patients. it is important that they don't. secondly, there are reductions to hospitals, but we are putting together a program that's actually logical and forward thinking. in other words, a roadmap, a roadmap for everybody to be comfortable that over time we will control our costs, will be

forward looking and that people will be treated fairly. it is always a struggle, but i am so proud of the work that greg and his team have done, that i believe when people talk about health care reform they say minnesota, i'm very hopeful that in a short period of time people say, look at what they are doing in ohio. tracy, would you comment on the importance of being able to integrate physical and mental health issues. >> sure. governor, i volunteer on the crisis line in my community, and i talk to people often who have severe mental illness problems, challenges in their lives, and they go to the community mental health center and go to see the caseworker there, but they don't want to go to the doctork because they don't feel comfortable in that environment, and go to hear what might be wrong with them, and they have side effects related to the medications for their mental illness, and they are confused

and so i think that just even anecdotally in my own experience, there is an opportunity there to better coordinate care. dr. winslow will probably talk more about this, but to the extent that we can incentivize some collaboration between the primary care physicians and the primary care community and mental health providers, that is going to help people have a better comprehensive approach to the way they are treating their bodies overall. >> tracy a word about the decision that you made to try to do some consolidation of our facilities, and wh you faced with what the staff said about it, and what do you think that the outcome will be? >> in light of the difficult financial circumstances facing this state, the mental health services have had a great day with this development, but we are careful about the development of the budget and it was our philosophy to try to put as much money into the community h based services as possible.

we have seven psychiatric hospitals across the state right now that serve different regions and effective july 6th, we will have six. we have hospitals that will consolidate, and the good news is that we will offer the same in-patient capacity in that region that we do today and the good news is that further we won't have to make as large a capital investment to build a new facility in northern summit county as if we had relocated to cuyahoga county, and people are upset about this for different reasons, but given the fact that we have capital dollars and $4 million in operating expenses each year going forward as a result of the decision, that is $4 million to protect in community services as a result. that was my bedrock philosophy throughout the development of this budget. >> john martin is a holdover from the previous

administration. john came to see me on the 19th floor of this building soon after i was elected. he told me incredibly touching story about his developmentally disabled son. and his efforts to feed his son. and the lessons that he learned and the fact that the good lord himself has put john in a position to help so many of the developmentally disabled. he may be my favorite person. i don't know whether he is a republican or democrat. i never asked him. i don't know. probably a liberal democrat for all i know that. is okay. >> and i'm not answering that tonight. >> we have to have a few bleeding hearts around, i mean, come on.

and so, john, when you went about this, you have been able to make significant savings how have you done this and how have you been able to protect the most vulnerable? >> before i answer that, could i tell a quick story? >> of course. >> it was interesting after being interviewed by the governor which was a real interesting experience. i have to say that. the next day, tracy calls me up and tracy says, hey, i have an interview with the governor for the mental health job. she said, you know, how do i prepare for it, and i said, tracy, there is no way to prepare, because you have no idea what questions that man is going to ask. so, anyway. sorry for that diversion. one of the real advantages in our field is that we have very strong governor stakeholer community that really has come together and has worked hard

together to solve problems as a community as opposed to individuals. and so, as we looked at this budget, we had a pretty good knowledge of what we thought that our system looked like. and one of the things that was really important for me that we be able to protect is that we have over 25,000 of ohio citizens that receive services through a program that our system operates. those services are incredibly valuable. it's staff who come in to family homes or to the individual homes and have to take care of private personal needs that are sometimes have very difficult, or we have other staff who provide support. you talked about job, and jobs are important to people with disables. we want to be productive members of this society as well. and so our system provides

support for that. and one of the things that was most important for us to protect was those service, and i'm proud to say that this budget coming forward protects those services without any substantial cuts to them, and it will maintain the pay of the direct care staff that is so important to that provision. that is one of the things that i am most proud of in this budget. >> let me try to figure out, michael, i think that i will go to hor mon hal to horman hall and i call him orman hall for those who went to ohio state. but let me tell you who he is. he comes from fairfield county and he has been fighting the scourge of prescription drugs and involved in rehab. folks, you don't know what hell is until one of the members of your families gets hooked on these drugs. it happens a lot in appalachian

and poor areas, but it happens all over this state. i picked orman because he's a rehab guy. he still has hope for people who people have given up hope on. and a number of people we find in the prisons, and the number of people that we find on the medicaid rolls staggering when you think about the issue of addiction and prescription drugs. orman has led the fight to drive the devil out of the county. think about this, folks, 10.8 million openate prescriptions to 78,000 people. what are we doing about it, orman? >> well, governor, you just stole my statistics, and by the way, there are state senators now calling me orton hall, just so you know. we are making important progress on this issue. there are several piece, and by

the way, let me step back. the statistics that you quoted are really staggering. back in my home county of fairfield county in 1999, we were able to identify four people addicted to prescription op opiates or heroin, and you go back to 2010, the number of people in the treatment centers for disorders were there because they were addicted to prescription opiates or heroin and they were turning away people every month. if you look at the jails in fairfield county, we were spending $350,000 incarcerating people with opiate addiction and by 2008, 52% of all of the jail days were consumed by people who were opiate addicted. 90% of the people in jail for opiate addiction were repeat offenders and had been there for

fife times. we are putting the same people in jail, over and over and over again. back to the e q whatquestion, w we doing? there are several important initiatives under way. first with house bill 93, we are giving the pharmacy board and the medical board the tools they need to close the pain clinics inside of the county that are there for no other reason than to feed people's desperate addictions. that is number one. number two, with your executive order, we are able to purchase through odais, the medication assisted treatment, the medicaid-approved treatment center that is approved, and we will organize a intraagency task force to coordinate the efforts across all of the state agencies and this year will be the year that we turn the corner on opiate addiction. >> let them know what we did

with the adam boards in a 48-hour period of otime. >> and by the way, there is a story, too. coming back from the county, the governor is concerned about the possibility that we will lose $33 million in our rsc funding. so this is on a monday, and the governor says, orman, you call those adam boards and tell them to elevate the money by friday. i started to tell him all of the reasons why we could not do it by friday and he just looked a at me and said, get it done. we didn't get it done by friday, but it is getting done. and there were $33 million in federal rehabilitation services commission money that is, that could lapse in the state of ohio. it lapsed last year, but kevin miller, who is by the way also an innovative administrator at rmc approached our system, and we will have local drug and alcohol boards to elevate their

treatment to cover not only drug and alcohol services, but mental health services through odh, and they will elevate $33 million in match and we will drawdown $33 million for care for people with disorders and addictions. >> we will meet with the governor of kentucky and west virginia and thank you to the two great pals of mine, bill be beshhelder and the democrats passed a bill to get by this with a unanimous vote and my great friend tom knnekneehouse, president of the senate, and capri, i know over in the senate, you will get this done. we are united in the state to beat this scourge. so, thank you. michael colbert was the cfo of jobs and family services. it has got the biggest chunk of the money in it. i couldn't think of anybody better to lead this than

somebody who understood every piece of it. michael has been a tremendous team player. he has done a fantastic job. tell them about the priorities that we set in this budget, and maybe a little bit, michael, also, about some of the awards that people working in your operation have received. >> well, thank you, governor. the first thing that we needed to do was to prioritize our programs for our most vulnerable ohioans. the food stamps, the cash assistance, the children's programs, and those programs that would protect our most vulnerable citizens. this budget does that. the next thing that we looked at is those programs that would assist ohioans in getting back to work. so, our priority then shifted to child care. we know that child care is instrumental in ohioans moving back to work, because people want to know that their children

are protected. we also know that the lack of affordable child care is critical as the economy gets better and people want to go back to work. our budget as it is now all children that are in subsidized child care will be able to stay on subsidized child care. and michael, let's talk about an area that you want to be flexibility in the federal government, and talk about workforce development. >> thank you, governor. workforce development is critical to getting people back to work. we took a two-pronged approach to workforce development. the first is incumbent worker training. that is simply those individuals that are already working. we provide training to help those individuals get skills to move into different positions.

as they move into the different positions, it creates a vacancy and then the new individuals can come in and it creates job opportunity. the second prong of the workforce development is on the job training. on the job training is simply matching employers with employees, getting them trained, and then guaranteeing them a job at the end of the program. >> well, we have a lot of work to do in this area, and we talked to members of the legislature and republicans and democrats, and it is critical that we get this darn job training working the right way, because it has just not been and michael and i have to go to washington and who knows to meet with everybody we can. and in fact, we are heading to washington on thursday with our bipartisan leadership team to talk to the congressional delegation about people working together in this state. michael, one word about the call center and the awards. >> ohio recently had a major

spike in unemployment come pensation. as you know the economy dournturn forced us into a situation where many ohioans had to receive unemployment compensation benefits, and our state was recently awarded one of the top servant states for unemployment benefits and distribution of the benefits throughout the nation. so what that tells us is that ohioans are receiving the benefits and getting them timely and quality of benefit that is critical to moving forward. >> we have with us tonight, a -- she's a visionary, bonnie cantor, and if there is anything i love, it is a visionary. bonnie has a vision for the seniors. bonnie, what is that vision? >> how long do you have? first, before i say what the vision is from a budget standpoint, the most important thing i can share with you today

is the seniors that we will be serving are our elders. and an elder is a very important person in our lives. and one of the first things that we are going to be doing is to change our frame of reference from seeing the folks who built this great state as folks who are dependent or as folks who are needy and kacan't grow. to seeing folks, our elders, as people who aren't cobbing to grow, as people who have wisdom, and as people who can continue to contribute to society. so we want to view folks differently, and that's part of the broader vision, governor, to promote something that we are calling person-centered care, throughout our long-term care system, and of course, throughout our entire health system. and a person-centered care system is not about location of

services. it is about the person who needs the services. so you will see that all of the services that we are going to be talking about are united because they are about the person. and what the person wants is choice. what the person wants is to live with dignity. it doesn't matter where they are living, whether it is assisted living or in a home, it is where that person calls home. so what we want to promote is putting the person before task. and governor earlier this the presentation you talked about folks trying to care for people in an apartment complex and going from one apartment to another. you can't do that in person-centered care, because how do you know that mrs. jones wants to wake up at the same time as mrs. smith?

so, we are not just addressing that from the budgetary standpoint, but we have a philosophy that says that doesn't work. i think that one of the former long-term care recipients said it best. when she said to us in absolute dismay, you have never lived until you have had to go to the bathroom on somebody else's schedule. and so, if you think about that, you think that we're going to make sure that everyone has choice in relationship, choice over schedule, and choice over to location of their care. the reason we are able to do this is not just because we have a vision and i think that this team has a stupendous vision, is that there is actually a business case to support this. the business case indicates that this is actually good for our organizations, it is a good business model for a nursing

home occupancy goes up, and per bed operating margins go up, and retention goes up, and so that these are all win-win. but as importantly or maybe more importantly, health outcomes go up. so it is wonderful for the citizens as well. and what we are really saying is that if health goes up and costs go down, it is great for the taxpayers as well. so, what we are doing is to blending our vision with a good financial message for the state as well. >> all right. bonnie, thank you. we talk about visionaries, and we, you know, the guy is a doctor and comes to work in government. i don't know that i'd do it. i always wanted to be a doctor, but it didn't work out. but dr. winslow is from dayton and developed a concept with other physicians called the medical home. i want to go to scott mccarthy

before i am yanked off of the stage. tell us about the concept of medical home. they will like this. >> thank you, very much, governor. the the medical home concept is an old concept that has been translated into new modern technology and so, it is basically family practice on steroids is how they identify it. it islinking a patient with the caregivers and other caregivers involved in their life so they can coordinate care. and the key and the special part of coordination is that it is coordinating care when they are not in your office, because it is easy to take care of people when they are in front of you, but what most people miss is the opportunity to receive care when they aarewa away from the from office so it helps to stay in touch and make good decisions for patients by staying not only available to them, but also connecting largely electronically is what you will hear more and more about, the electronic health record is a

large part of that. >> why are you doing that, doctor? >> well, my patients ask me the same question. you know, it is an opportunity, i think here, to link patients with this type of care around the state of ohio. there aren't enough opportunities for patients to experience this now. and this is a great chance for me to get the word out to impact decision-making and to work with the very exciting team who are very much motivated for this same things. so as tracy talks about, gosh, we have to think about behavioral issues, and as we talk about aging and the issues of the elders and as we look at the issues with developmentally disabled -- all of those overlap with the focus on the patient, and how do we get better care to patients but make it affordable, too. a real challenge. so our goal is as a group here to enhance quality of care, but at the same time get that cost under control, and the medical home model is the model that is focused on achieving that value goal. >> they have been doing this for 50 days.

think about the potential. john mccarthy is moving here from columbia. he ran the medicaid program from district of columbia and bringing the family here. that is enormous sacrifice. john, just why don't you wrap it up on how you see the medicaid situation, the developments, the reforms and where we are headed. >> it is exciting. it really is exciting. we are going through processes now of putting together new programs that have never been done before, the initiative for the centers of medicare and medicaid innovations where we are pulling together what is, what you talked about previously with the medicare and medicaid programs and coming up with one coordinated care center for that person is something that no other place is really doing like we are proposing to do it. one of the things that we talked about previously is that when i showed up here and i said to my staff, let's go through the

program and they showed me a list of waivers and there were eight waivers on there. i was like, how do you decide how to pick? what is for this one? well, if you are this age or that age or this disable, i said, it makes no sense that you are leaving the hospital with a broken hip or whatever is wrong and you are leaving the hospital and where do you gor to the hospital discharge plan or how do they know how to take you and one of the big pieces of coming in with this innovation is how to pull together for across all of the different programs person-centered care and how do we move that forward with all of the different paying systems. >> i love these folks. i think that you do, too, and the maestro greg moody and i don't ask for applause, but they deserve it here for what they have been doing. thank you all very much.

we are just going to keep going. we want to talk about education now, k-12, higher education. let me explain one thing to you. we have a very significant reformed a jen da on k-12. ohio can no longer accept the fact that we are not giving our kids all of the chance and the opportunity that they deserve. we are going to have our doctor summers here go through the list and we are doubling the vouchers and lifting the cap on charters, but we are not going to let bad folks or people who don't know what they are doing to run that program. you fail once, you don't get a second chance. in a failing school? we will give the teachers an opportunity to take over the school. and parents an opportunity to take that school over. we are going to test people in failing schools. we are going the reward teachers if they can teach a kid more than one year's worth of content, we are going to reward them, pay them for that. we are going to do a lot of

things that they are going to move education. and teach for america is coming to a schoolhouse near you. the system is changing. dr. summers. >> well, thank you, governor, any questions on what we are going to do? first of all, i want to thank all of you to come hear about the exciting things in educationk but i want to begin a few years back. in 1983 a report entitled nation at risk warned that the children were falling dangerously behind in academic achievement compared to foreign students. approximately one quarter of the century later, our nation's children perform below the developed countries. if ohio were a country, our children would perform right up there with par with students from iceland and estonia. i'm not sure what that does for

you, but it scares me to death. in ohio spending is increased while achievement is flat. whatever we are spending on or whatever we have bought has not produced higher student achievement and not the fault of any one person, but the the system. in some districts spending inclines as the student enrollments inclines. we are 47th in terms of dollars in the classroom and ninth in terms of spend on the administration. recent report by "knowledge works" indicates that we could save $1.4 billion annually in an nonconstructional costs ifel schools followed the practices of the best schools who have already implemented these things. ohio's educational system can do better. we are having schools that are proving that is possible every single day. principal melanie magoo has transformed columbus's east

haven elementary and same program, and different students and administrator, but same results. and real students, real school, and real tough situation getting results in higher graduation rates. and charles school, a grant school is getting the job done for students here in columbus. this early high school college is beating the odds because of the hard work of students and teachers. with us this evening are ed i ingram and a student from this great school. please join me in thanking them for their hard work. [ applause ] these schools and other high-performance schools have several characteristic in common. first of all, everyone in the schools know how they stand on student