Japan, china, korea, india, france and germany. Four years ago, the Auto Industry was in crisis. Last year, kentucky auto makers produced more than a million cars and light trucks for the First Time Since 2007. And the construction of two bridges in Jefferson County after 40 years of talk will create 4,000 construction related jobs over the next six years. So yes, our momentum is accelerating. But as we emerge from this recession poised to do great things, fundamental weaknesses stand in our way, weaknesses that both require substantial investments in our future and at the same time prevent us from making those investments. What are those weaknesses . A tax system that works against us, not for us. A workforce that isnt as trained and skilled as it needs to be. An Education System that isnt as efficient and rigorous as the world demands. A population whose health ranks among the worst in the nation. And a heavy sword called the public pension unfunded liability that dangles by a thread above us. Ladies and gentlemen, if we solve those challenges, kentucky will lead the nation out of this recession. If we dont, well begin slipping backward, and our progress will fade away. Can go either way. The good news is we know what we have to do. But delay could be deadly. And my friends, it over the past year, in National Debates about the fiscal cliff and other issues, youve heard warnings about kicking the can down the road. Its almost become a national slogan, and yes, that phrase is a cliche. But phrases become cliches because they ring with truth and here in kentucky right here, right now that cliche rings true. We have to stop putting off uncomfortable decisions for future generations. We have to stop pretending that these problems arent holding us back. Because they are. Aboutt im going to talk a way forward on addressing these weaknesses. And let me tell you upfront im realistic. Were already six days into this 30day session. Its 20 percent over. Theres not a lot of time. And so the agenda im setting forth tonight is not only for this short session but also for the year ahead. The biggest challenge is finding the resources we need to strengthen our core. I know this isnt a budget writing year. But fiscal considerations loom over every decision we make. After inheriting a global recession, you and i spent five years bringing common sense to state spending and weve done so in three ways one, cuts. We reduced the state budget 13 times in five years, cutting spending by 1. 6 billion and trimming the state workforce to its smallest size in nearly four decades. Some agencies have been slashed up to 38 percent. Two, we found more efficient ways to run daily operations. Through our multiyear smart government initiative, weve realized both onetime windfalls and annual savings by selling surplus land, buildings and vehicles, consolidating offices, renegotiating contracts and bids, and changing how we buy goods and services. And three, we made revolutionary changes to huge budget drains closing a state prison as part of a wider corrections reform, privatizing medicaid and reining in benefits for public employees. In many ways, you and i have remade state government. Our goal is simple make every tax dollar count. Now many changes and cuts were desperately needed. State government had become bloated and inefficient. We will not restore those cuts, and we will not return to the old way of doing business. But efficiency alone wasnt enough to balance those budgets, and so we made cuts to certain programs that hurt, cuts that none of us would have made if we had not been forced to make them to survive. Well, we survived better than most states but now we must ask ourselves what damage did we do . Let me describe some of it. We froze funding in our k12 classrooms, despite rising costs. We eliminated funding for textbooks, going from 21. 7 million in 2008 to zero. Instead of taking books home to study, students often must leave them for the next class. We cut School Safety funding by 60 percent at a time in which we must be more vigilant, not less. We cut funding to our universities causing tuition to go up an average of 4 percent a year at our community and Technical Schools and nearly 7 percent a year at our largest fouryear universities. At the same time, we reduced aid to needy students. In fact, we were forced to slam the door in the faces of some 73,000 wouldbe students in just one year who came to us asking for help to go to college. We cut funding for childcare assistance programs that help lowincome families return to the workforce and that allow relatives to care for children taken from their parents. As a result, for the next year and a half, we wont be helping any more lowincome parents return to work. And because eligibility requirements will become stricter, some parents who are already working will no doubt have to quit. We cut funding to local health departments, meaning fewer children received immunizations, fewer pregnant women received prenatal care and fewer diabetics received comprehensive care. And we cut agencies that help our senior citizens. In one agency alone, the number of meals delivered was reduced by almost 300,000. I could go on and on. But, now that were emerging from the recession, its time to repair the worst of this damage, rebuild those programs we never wanted to cut, and reinvest in our future. But where will the money come from . Well, some say we dont need to do anything, because a growing economy and the accompanying revenue will be enough to both pay the bills and create a stronger kentucky. My friends, with all due respect, that is simply not reality and the math shows it. Yes, the economy and our revenues are projected to grow, but not fast enough to even keep up with expenses, much less to address fundamental weaknesses. Secretary of the cabinet mary lassiter, who has been putting together state budgets for 15 years, testified in great detail yesterday before a joint meeting of the appropriations and revenue committees. She showed with overwhelming evidence how anticipated growth will be more than eaten up by decisions you and i made in previous sessions. Assuming we hit the consensus forecasting groups outyear prediction of about 3 percent growth and yes, thats an assumption any new revenue will have to be used to cover things like structural imbalances, obligations to health care and pensions, inflationary growth in medicaid, and Health Insurance for teachers and state employees. The projected growth in revenues and more is already spent. And that doesnt leave a single penny for addressing critical investments in our future. F for example depending upon whose estimates you use, it will take up to 300 million a year to fully fund the arc for the kentucky retirement system. Fully funding seek the basic formula for classroom instruction will also take substantial new revenues. Now im very proud and i know you are too that we have protected seek from cuts. Bu but preserving funding doesnt mean making progress. From 2000 to 2008, seek grew an average of 3. 4 percent each year. Year. From 2008 to 2014, it grew zero percent zero percent in a time when enrollment was growing, maintenance and other costs were increasing, and local support in some areas was dropping. Our schools arent treading water. They are slowly sinking. If we had maintained that 3. 4 percent a year growth for seek, we would be spending right now an additional 550 million more than half a billion dollars more on classroom instruction. Obviously, at this point, thats an unreachable figure. But even if we adopt a more realistic goal to increase seek by 3. 4 percent for just one year, next budget year it will take 98. 6 million. Now, in addition to seek, it will take 75. 8 million to restore cuts made since 2008 to textbooks, ongoing teacher training, School Safety, technology, and programs like afterschool and tutoring that prevent dropouts by helping struggling students catch up. In postsecondary education, weve reduced funding by 166 million since 2008, leading to higher tuition, increased class sizes, fewer academic programs and course offerings, delayed repairs, more reliance on part time teachers and layoffs. Last budget, we lifted 24 million from lottery proceeds to keep the general Fund Balanced money that would have gone to financial aid. Well also need money for new debt service for critical maintenance projects, to reduce caseloads for social workers and for Health Insurance. And then, we need to start looking at fully funding allday kindergarten, expanding preschool to reach more 3 and 4yearolds, as well as increasing substanceabuse treatment. [applause] meanwhile, state employees havent had a pay raise in four years and most of them had furlough days. So my friends, anticipated Revenue Growth will not be rigorous enough to transform this state. Again, thats not rhetoric thats math. The numbers are just too big. The need is just too great. We will not be able to invest in critical areas like job training and education, nor solve monstrous problems like pension liabilities, unless we think strategically and act aggressively and courageously. In fact, if we dont act, well [applause] , well if we dont act begin slipping behind. Let me use k12 as an example. Last month, the National Publication education week, in its annual Quality Counts assessment of public schools, ranked kentucky no. 10 in the country for School Achievement and progress up from 34th just two years ago. We got an a on efforts to connect the k12 system with early learning, Higher Education and the world of work, and an aminus on our accountability and standards policies. Moving up 24 spots in just two years is stunning improvement. But you know why we didnt score higher . One word funding. In the alltelling area of funding adequacy, we received an f. And a low f at that. More than 88 percent of our students attend schools in districts where per pupil spending is lower than the national average. Now, we have a lot to celebrate in that report and our students, teachers, principals, administrators, boards, staff, parents and volunteers should be proud of what theyve done. [applause] but just think of how much more they could accomplish if we were adequately funding our schools. Money doesnt solve every problem, but when we dont spend even a dime on textbooks, progress is difficult. The question for us in this room is simple but soul searching are we courageous enough to invest in our childrens future . Another looming problem is public pensions. I made pension reform a priority during my first year in office, and in 2008 i worked with you to pass wideranging changes. We reduced Employee Benefits for future hires, improved governance, introduced Innovative Solutions to address Retiree Health care, and created a payment schedule to get funding back on track. But the work isnt finished. As you know, a legislative Task Force Led by senator damon thayer and former representative mike cherry worked hard on this issue over the last year. Th the task force has recommended further reducing benefits for future hires and paying down our unfunded liability by increasing the states annual employer contribution. Much has been made of the fact that the state hasnt fully funded the arts for quite awhile. That is true. We have not. While i cannot speak to the years before me, i can tell you exactly why we havent fully funded the courts since i became governor. Because we have insufficient revenues and it would require us to gut our most fundamental priorities, k12 education, public safety, and jb rcreation. I refuse to do it and previous legislatures agree with me. I refuse to do it in the years ahead. As we work to make our public Pension System whole again, i will not allow our School Children to be collateral damage. [applause] i agree that we need to reduce our unfunded liability. I agree that the longer we put this off, the bigger the problem will be. The question is where will the money come from. The answer is obvious, we must organize our outdated textbooks. We must modernize our outdated textbooks. Kentucky has commissioned 12 studies of its tax system since 1982. I created another one last year. Every study has reached the same conclusion, kentuckys tax code works against us, not for us. We need a tax structure that is fair to all our citizens and easy to understand. That helps recruit business, not drive it away. And that because it is aligned with 21st century economy, it is able to bring in the revenue we need to fund critical services. [applause] we must strengthen kentucky possibility to compete with other states to attract and retain jobs. Ability to compete with other states to attract and retain jobs. It could be better. The world is changing. The Commission Recommended several ways to improve our tax climate for business. Other goals concern what is called elasticity and inadequacy. We need a system that grows with the economy, bringing in money and not because it increases tax rates but because it is aligned with the des world commerce. Recommendations included changes to include a 21st century tax code for a 21st century economy. I want to thank the commission for their hard work. I know several of them are up in the audience, i wish they would stand up. We want to thank all of you. [applause] i have been evaluating their recommendations and started meeting with leadership in both chambers to discuss what progress is seasonable. Is siezable. What may be able to pass is not clear. We must use this time to begin finding consensus on both of these complex topics. We Must Find Solutions to them this year. [applause] by the end of this session, we must move closer to an agreement of both what needs to be done and how to pay for it. There are other Critical Issues that i hope we will address the session. We need to treat we need to tweak house bill 1. Notice i said tweak. We are not going to backtrack because our families are suffering too much. Can the passage of house bill 1 declared our intent to bring integrity to the prescription pain medication. By protecting patients who need a legitimate relief, by better educating about the dangers of those drugs, and by targeting those destroying our communities with greed and recklessness. These men should be commended for their tireless efforts on this issue. Please give them a round of applause. [applause] progress has been measurable. When it came to nonmedical use of prescription painkillers, kentucky had the sixth highest rate in the nation. Prescription drug abuse in kentucky has dropped so much that we have improved 24 spots. Nearly half of the states known Pain Management clinics have closed, rather than submit to new rules that protect patients. The use of our National RecognizedPrescription Monitoring Program has increased almost sevenfold as providers work to ensure that pain killers are used legally and effectively. And prescriptions for some of the most abused drugs have cropped up to 14 from just a year ago. As with most reform efforts, there are minor instances where we can improve upon the new regulatory system. We should move quickly to do so. We are not going to return kentucky to the prescription playground that it was before house bill 1. [applause] another big priority is the graduation bill. Let this be the year. We must keep our teenagers in school. A democratic senator is pushing changes that would phase in increases in mandatory schooling from 16 to 18. This was set in 1920, in a world that barely resembles the world we live in today. In kentucky alone 6000 students drop out every year. They are more likely to be unemployed, to earn significantly less money if they do find work and to find themselves on welfare or in prison. Every School District in kentucky now has alternative and support programs available for students at risk of dropping out. We just have to keep them in school to take advantage of those programs. Every Education Group in this state supports this legislation. A new survey reveals that 85 of parents favor it. It is time to commit to our childrens future. [applause] another priority is Child Welfare legislation. You will be asked to pass bills that protect our children and get them off to a better start. These include closing a gap in booster seat rules, toughening the penalties for texted while driving, how to define the review panel on deaths due to neglect. Improving our response to child victims of Human Trafficking and improving prenatal care. A special focus of this screening will be babies born addicted to drugs and suffering withdrawal. This is a horrendous and worsening problem. In 2000, reports show 29 babies in the kentucky born addicted to drugs. In 2011, there were 730 babies, more than 25 times as many. That figure is starting to go unreported. The image of an innocent baby born into this world suffering drug withdrawal is almost too horrible to visualize. Let it inspire us to act now. We also need to authorize agency bonds. A few weeks ago many of us gathered to endorse letting our public universities self funded building projects on their campuses. That was a refreshing display of bipartisan consensus. The universities are seeking authorization for six schools to issue bonds worth of 363 million for projects. They have identified Revenue Streams and will require no money from the general fund. In addition, it is estimated that those projects will create over 5100 jobs. We should not delay in improving that proposal. [applause] finally, we need to continue improving the health of our people. Over the years we have taken numerous steps to reduce kentuckys historic addiction to tobacco. We still ranked either dead last or next to last in the number of adults who smoke, teens who smoke, and pregnant women who smoke. Our addiction hurts productivity, it jacks up healthcare costs, and it literally kills our people. Our smokingrelated mortality rate is the worst in this country. Yet we have never instituted a statewide law to protect kentucky ms from secondhand smoke. Kentuckians from secondhand smoke. Smaller communities, like manchester, hopkinsville almost half of kentuckys citizens live in communities that have adopted protections for the residents and their workers. It is time for us to begin looking seriously at doing this on a statewide level. [applause] we must extend its protections for all of our citizens. Six in 10 kentucky adults favor a statewide smokefree law. That support increases with each survey taken. This isnt a rights issue. People can still smoke, just not in places where theres smoke endangers the health of our workers. [applause] i know that you share many of the priorities that i have mentioned tonight. I believe success is within reach, even in the sort section. I know how much you care about the people of kentucky. I saw that over the course of our time together. In hearing you describe families ravaged by prescription painkillers you built your career around protecting kentuckians, as a member of the General Assembly and attorney general. It has turned to the respect of many, including myself. Senator palmer, representative hoover, you have proven that the path to consensus is one that can be traveled 11 demonstrates pragmatism, honesty, persistence, and a willingness to reach out to the other side. I look forward to working with you. Other members of leadership and all 138 members of the General Assembly in the months ahead. There is no election in kentucky this year. Hallelujah for that. [applause] that is one less distraction, one less temptation to fall in the partisan track and of thinking that our differences matter more than our shared goals. While elections are the tools that democracy uses to hold leaders accountable, too often as a nation we are unable to the venom behind when the campaigning is over. Our leaders use flaming rhetoric use more flaming rhetoric than they can deliver. That division grows larger and uglier with the poisonous and reckless words speed on talk radio and social media sites. We must continue to lower the volume and turn down the tension. [applause] we must continue to prevent washingtonstyle politics from dictating our agenda and setting the tone for our discourse. Here in the bluegrass, we know we are kentuckians first, and democrats or republicans second. [applause] over the past few years we have proven that divided government need not be divisive. Differences need not define us. A shared power can work. If we set aside party labels and geographic distinctions and instead concentrate on common problems and solutions. No matter what your political affiliation is we all want the same thing good jobs with respectable pay, rigorous schools, safe neighborhoods, Economic Opportunity for our children, accessible and Affordable Health care. I know that you and i hear the same voices, the critics who call for government to just disappear. You and i also know that these same critics want and need much of what government provides. They want their children to come home from school each day a little smarter than when they left. They want their faucets to run with clean water. But what to drive on roads free of pot holes. They want assurance that the gasoline they buy is actually a gallon. The want to eat in a restaurant and know they will not get sick. They want government to help recruit jobs and investment. They want firefighters to extinguish fires in their homes, state troopers to stop crimes, and when a disaster happens, for our citizen soldiers of the Kentucky National guard to bring food and hope. What is the lesson here . What is to take away . The take away is that people do not oppose all government, they oppose bad government, wasteful government, out of control government, inefficient government, and ethical government. It is our duty to ensure that the trust they given us is treated with respect and sanctity. It is our responsibility to make sure government solves problems, not contributes to it, that it nurtures economic development, not hinders it. That taxes are used wisely, not wasted. And our time and from work is spent addressing the complex and difficult issues confronting this state, not passing those problems to future generations. In short, the people expect us to lead. In the coming year, you and i must come together to attack the weaknesses that are Holding Kentucky back. I believe we can. I believe we will. Thank you. [indiscernible] [applause] watch many more at the cspan video archives. Tomorrow, live coverage of the climate rally at the National Mall here in washington. Expected speakers include the rhode island senator, and representatives of the sierra club. Our live coverage begins at noon eastern here on cspan. We have a habit in this country of glossing over president s. We have decided that some people are bald eagles and they all have to be treated as if they were symbols of the country. What that means is you have a smoothing over of their rough edges. And there is a feeling among modern president s that they have a right to a certain generation. Even if they are gone, their children and their former allies, their tenants who live longer, they continue this. In many ways they are even more ferociously committed to the legacy because the old man is gone and they want to show their loyalty. What does the government do, because it is responsible for these libraries, when you have a flawed president . Timothy nattali addresses challenges he faced as the First Federal director of the nixon library. Next, Douglas Elmendorf testifying on the 23 budget and u. S. Economy. On the 2013 budget and u. S. Economy. From the house budget committee, this is two and a half hours. Thank you again for coming and testifying. I want to thank you for your staff putting together the latest Budget Economic outlook. We understand you had a time crunch given the end of year episodes that occurred. I want to say that you didnt miss much of a deadline and to put out your baseline in a fairly quick form given the circumstances you had to contend in. I am sorry to say that the cbo says our economy will grow by only 1. 4 this year. Unemployment will hover around 8 this year. We will add another trillion dollars to our debt. That is the news we have received. Further down the road things get worse. The cbo says will add 10 trillion dollars to our debt by the end of the budget window. It will weigh down our economy like an anger. By 2018, the economy will grow by two 0. 2 . When people cannot find jobs, many stop looking altogether for work. This report is a warning of what is to come if we do not get spending under control. We will hit 76 of gdp by the end of this year. That is the largest share of that since 1951. In the 1950s we pay down our debt and our economy kicked into high gear. These days we still havent gotten a handle on spending. Total debt already exceeds 100 of gross domestic product. We are in the danger zone. Investors might begin to doubt our abilities to pay obligations. They might demand higher Interest Rates. If they did that Interest Rates across the country would skyrocket. On mortgages, credit cards, car loans. One estimate says an Interest Rate increase of a single percentage point will cost the average family 404 more each year. We could have a debt crisis. The result would be catastrophic. Unlike during the financial crisis government would not be able to borrow more money. The only way out would be the austerity we are witnessing in europe. Interest goes up we start to literally lose control of our own fiscal situation. We become slaves to debt. You do not have to look far for a debt crisis in action. In rhode island, pensions have been slashed by 55 . In stockton, california a quarter of the police force has been laid off. The social safety net would unravel. The most vulnerable would softer. Would suffer. This report says that spending is primarily the problem. Spending on interest is set to quadruple. The cbo expects revenue to double in the next few years. Even with the president s tax hikes, the budget never ever balances. It doesnt even come close. By 2023 the deficit will be nearly one trillion dollars. The president says we need a balanced approach, which means one tax hike after another. Of mathematically we cannot tax our way out of this problem. We need to get serious on spending. Unfortunately the president has yet to produce a budget. In violation of the law it has yet to be received by congress. Democrats have not passed a budget in nearly four years. Hopefully that will change. We will offer our budget here in the house on time next month in accordance to the law. We will put our plan against the president s and we will have a healthy debate in the house. I would like to yield to the ranking member. , mr. Chairman. I want to join the chairman in welcoming dr. Elmendorf. With respect to the timing of the budget submission, i think all of us know that we struggled and toast january 2 to pass legislation to avoid the fiscal cliff. The results of that legislation was to make sure we did not see a sharp increase in taxes on middle income americans. We ask higher income individuals to begin to contribute to reducing the debt over the long term. That action help strengthened the economy. It took us until january 2 to do it and we do not know how much revenue will be coming in this year or the next 10 years. It is understandable that the president needs a little bit more time on the budget. As the budget committee, our challenge is to try to come up with a blueprint for our countrys decisions on spending and taxes. While we talk about numbers, ultimately it should be a reflection of where the American People are in terms of their values and their priorities. I hope we share this you, as we approach the budget our number one priority has to be expanding economic growth, making sure we promote job creation, making sure we strengthen the middle class. And a plan that meets the commitments we made to people throughout the country, including our seniors. That is the overriding goal. Reducing deficits, especially over the long term, have to be an important part of that. It has to be seen in the context of the overriding goal. I hope, as we have these discussions over how we reduce our deficit, the timing, pace, and target of that, we look at through the lens of job creation and strengthening the middle class. That should hold true whether we are talking about shortterm, mediumterm, or the long term. Over the long term there is no doubt we see rising deficits. The challenge is not whether we reduce the deficit but the magnitude of the reduction and timing of the reduction and how we do it. As the president said, we support taking a balanced approach. I would remind my colleagues that over the last two years we will reduce spending by 1. 5 trillion dollars by capping discretionary spending. We will raise 600 billion in revenue from higher income earners. If you add up the interest savings on that, that is two 0. 5 trillion dollars in deficit reduction. In order to do it a right way and meet our committed mince to our citizens we have to make sure we deal with that in a balanced way. Let me just say in the short term that means dealing with the sequestered. The cbo