Promising a stronger economic future, Gov. Chris Gregoire Tuesday delivered her annual State of the State address before the 62nd meeting of the Washington State Legislature.

“We have been through tough times before, and we emerged stronger than ever,” Gregoire said. “Two years of discouraging news about employment and the economy may have dampened our outlook for the future. But nothing can dampen our resolve. Let me be clear — Washington will rebound. We will come back stronger than ever and we will provide a brighter future for our children.”

Using examples from the past, Gregoire reminded legislators of our state’s great economic potential, noting that some of the state’s most successful companies emerged during some of our state’s and nation’s most difficult economic times, including Nordstrom and Boeing in the 1930s and Starbucks and Microsoft in the early 1970s.

“In America back then, as it is now, job prospects were dim, our optimism was shattered and people wondered if we would ever recover,” Gregoire said. “I’m here today to confidently predict that just like then, those who think America is in decline have overstated our problem, underestimated our resiliency and misjudged our potential.”

Urging legislators to truly transform state government, Gregoire outlined her legislative agenda to reduce state costs and streamline services, while ensuring our most vulnerable our protected, our communities are safe and our children receive a quality education. Gregoire’s proposals include modernizing our state pension and health care systems, consolidating and eliminating agencies and commissions and finding a dedicated source of funding for our state ferry system.

“I know change is hard, but this crisis is our force for change,” Gregoire said. “Families, businesses and non-profits across this state have been forced to change to survive. We must do the same.”

– – – – GOV. GREGOIRE’S STATE OF THE STATE ADDRESS – – – –

Mr. President, Mr. Speaker, Madam Chief Justice, distinguished justices of the court, former Governor Mike Lowry, honored officials, members of the Washington State Legislature, tribal leaders, local government officials, members of the Consular Association of Washington, my fellow citizens:
First of all — here’s to being the home of the 2010 WNBA champions — the Seattle Storm!

And how about those University of Washington Huskies! They were underdogs against Nebraska and won.

And here’s to the Eastern Washington University Eagles, who trailed 19-0 at halftime, and in one of the most exciting games ever, came back to win 20-19.

And how about those Seahawks on Saturday!

Never doubt our players — and never doubt the great State of Washington.

Harry Truman said if you want a friend in Washington, get a dog.

Well here in this Washington I have First Dog Trooper — but more importantly, I have two of four of my closest friends joining me — my husband Mike and daughter, Michelle. Our daughter, Courtney, and son-in-law, Scott, could not join us, but are here in spirit.

First Mike is a Vietnam combat veteran, and I’m proud of all he does for the state on behalf of our veterans. It’s especially important for those from earlier eras, but also for those now returning from conflicts abroad.

Mike was born and raised in Everett, and I am proud to have with us today his mom, Mary Gregoire, a retired Everett schoolteacher. With her are members of the Gregoire family and our extended family.

This summer Mike and I were fortunate to join Michelle, Courtney and Scott on a climb of Mt. Rainier. While the young ones charged right to the top, Mike and I are pretty pleased to report that we made it to Camp Muir — and then quickly got out of there!

But our hearts were with the kids as they unfurled the state flag on a snowy summit. From our perch at Camp Muir, I was struck by the incredible view and reminded of the incredible riches of Washington State. I’m always proud to be a Washingtonian — but I was especially proud that day.

Welcome members of the 62nd Washington State Legislature.

In particular, welcome to the 25 new members who are attending their first session.

You join a group who stands with the long tradition of public service and dedication. You will come to know of the selflessness of not only those who serve this body, but the thousands in our state who protect, serve and educate our citizens.

Our National Guard, our military men and women, our law enforcement members, our firefighters, our teachers and our state employees — you are my role models: Service above self at the risk of tremendous sacrifice. Thank you.

Over the weekend the nation witnessed a terrible tragedy with the loss of lives and devastating injuries in Arizona. Please join me in a moment of silence for them, their families and the people of Arizona.

In the months ahead, all of us will be severely tested.

While there are signs of economic recovery around us, state government’s budget remains in a deep freeze, and with a revenue shortfall unprecedented in state history, you will have extraordinarily difficult budget choices.

The tough times we are going through will demand equally tough decisions from all of us. You will have choices that seem unfair and unjust.

You will have to make decisions that will make life harder for people back home.

And you will have to make decisions that may keep you awake at night, because in your heart, they just seem wrong.

I know because I have had all those thoughts while drafting the budget I have presented to you.

But just remember, our decisions aren’t nearly as tough as those being made by too many of our friends and neighbors who have been forced out of work, out of their homes, out of food and out of hope.

This is not the first difficult time in our history, nor will it be the last.

Here’s some perspective. On October 29, 1929, after eight years of unprecedented growth, the stock market took a nosedive.

Sound familiar?

Just like this recession, the fallout hit Washington later than other states, but with equally devastating impact on virtually every sector of the economy.

With incomes declining 44 percent by 1932 and unemployment soaring to 25 percent, well above the national average, poverty became a way of life for many.

Even the most fortunate were shocked and saddened by the faces of poverty they saw all around them.

The most visible symbols were shantytowns called Hoovervilles. In Seattle, 639 men and women lived south of Pioneer Square in 479 makeshift shanties crafted from packing boxes.

In 1933, the Unemployed Citizens League marched on Olympia. Nearly 1,200 unemployed men from Seattle were met here by 800 police officers and vigilantes.

The protesters wanted the Legislature to assess higher taxes, end foreclosures and provide hot meals for their children.

Sound familiar?

In 1935, Governor Clarence Martin signed a revenue act that was the most comprehensive tax overhaul in the state’s history.

After what was described as a “stormy” session, the bold reform was enacted, and that reform has endured for the past 80 years.

I have no doubt that some, possibly many, at that time questioned our economic future.

Yet five Washington companies survived the Depression and have emerged as strong, international, Fortune 500 companies.

In 1933, Boeing introduced the Boeing 247 — the first truly modern airliner, and today, amid another devastating economic downturn, it is introducing the 787.

Nordstrom opened in 1901 as the shoe store Wallin & Nordstrom, and on the eve of the Depression, held a grand opening to announce new ownership and a name change to Nordstrom.

Weyerhaeuser began in 1900. Paccar began in 1905 and Safeco in 1923.

I remember the recession in the early 1970s that crippled the region and prompted the billboard that read, “Will the last person leaving Seattle turn out the lights?”

The doomsayers writing us off didn’t foresee a company called Microsoft, which was still four years away from being founded. Today it has nearly 89,000 employees and revenues of $62 billion.

When the pessimists were wringing their hands in 1971, Starbucks had one store — in Pike Place Market. Today the company has almost 17,000 stores in 50 countries.

These stories remind us that the people of Washington are resilient.

We have been through tough times before, and we emerged stronger than ever.

Three years of discouraging news about employment and the economy may have dampened our outlook for the future. But nothing can dampen our resolve.

Let me be clear: Washington will rebound. We will come back stronger than ever and we will provide a brighter future for our children.

In America, back then as now, job prospects were dim, our optimism was shattered and people wondered if we would ever recover.

Well, I am here today to confidently predict that just like then, those who think America is in decline have overstated our problems, underestimated our resiliency and misjudged our potential. We will show them wrong.

So let us go into this session not with our confidence shattered and our hope for the future dimmed.

Let us go into this session with the clear knowledge that we have an opportunity, like those who lived through the Great Depression, to be bold and help the people and businesses of Washington rebound and prosper.

As we do our work here, we can’t forget that the real work, the hard work, is being done back home.

Men and women are struggling to keep a job and house their families.

Businesses are worried about meeting payroll and keeping the doors open.

As they struggle, their view of government is pretty clear — they want government to stay focused on its core services, live within its means, and use every taxpayer’s dollar efficiently and effectively.

So this year, this time, this session, amid the worst economic climate in eight decades, our challenge is to actually transform Washington State government.

I think each of you will find in the weeks ahead our budget crisis leaves us no other option.

It will take tough, but wise decisions.

I’ve offered a path forward. Here it is:

1. We must create a stable, financially secure path for our future;

2. We must recognize government cannot do it all; and

3. We must transform government into a leaner, 21st century organization that is more effective and efficient.

This session is not just about getting us through this crisis.

It’s also about setting our state on a trajectory that ensures a strong financial foundation for our kids and grandkids. This is a budget and agenda that build the platform for better service and recovery in the years to come.

We need to use this economic crisis to get control of spending in two critical areas — pensions and health care costs.

In the past decade our health care costs doubled to more than $5 billion. In the next biennium alone our pension costs will double.

Every dollar we spend on health care and pensions means we have one fewer dollar to educate our children.

I am proposing we repeal a 1995 law that gave automatic benefit increases to retirees in the old PERS 1 and TRS 1 pension plans.

The pension law was well intended but it carries a staggering price tag and we simply cannot afford to continue it.

Pension reform will save $2 billion over the next four years and more than $11 billion during the next 25 years.

I am proposing we partner with the Center of Innovation at the U.S. Department of Health and Human Services to provide real health care reform as a state. We should set a goal: Keep inflation at 4 percent over the next 10 years. We can save $26 billion while increasing the quality of care.

We must get a grip on these two budget busters. Unless and until we do, we cannot invest like we must in the education of our children.

I have looked at every state program and asked if it can be provided by others, if users should pay for it or if there are better ways to deliver the service.
If the Legislature in 1935 — in the midst of the Great Depression — could enact landmark change that has lasted for 80 years, then we, today, can also transform Washington State government to better serve our people for the next 80 years.

Now is the time to challenge the status quo. Why, for instance, do we assume all taxpayers should pay for programs that benefit a few?

Should a small business owner in Spokane pay the cost of processing a water right for a landowner in the Yakima Valley?

Should a Bellingham family with young kids help pay for the license of an adult family home in Vancouver?

And what about our great state parks system. Should those who use the parks pay for their operation and maintenance?

Let’s adopt a user pays policy so that when only a few benefit from the service, they pay for it.

I’ve asked you the past two years to reduce the number of boards and commissions. This year I’m asking you to reduce the number of state agencies.

I have sent you proposals that would reduce the number of natural resource agencies from 11 to five, cut the number of state central service agencies from five to two, and merge a number of small agencies into a new Office of Civil Rights.

These consolidation proposals will reduce those agencies from 21 to nine, eliminate duplication in back-office costs, save more than $20 million a biennium and make state government work smarter and better.

We must do everything we can to stimulate the economy and put Washington State back to work.

I propose cutting the unemployment insurance and workers compensation rates by more than $1 billion to help businesses and our unemployed get back to work.

We need to provide retraining to unemployed workers whose jobs no longer exist. And we need to get injured workers healthy and back to work as soon as possible.

I’m asking you to get a bill to my desk by February 8 so more than 65,000 small businesses can receive a 48 percent reduction in their unemployment insurance rates. The savings can help small businesses invest, expand and stimulate economic growth in every community across our state.

Jobs are the way out of the recession, especially in one of the hardest hit areas — the construction sector. Through the capital and transportation budgets and the Public Works Trust Fund, we can start shovel-ready projects, modernize our infrastructure and put almost 40,000 people to work. As the construction industry goes, so goes our state budget.

Education, the number one duty of the state, is the key to the jobs of tomorrow.

Today we have eight education agencies with 14 plans. They spend critical time and resources trying to coordinate and provide an education system built in silos.

I propose we enact legislation creating one agency — the Department of Education — which will be focused solely on student education with one plan for a seamless system from pre-school to Ph.D.

Our students deserve it and our parents demand it.

With that focus we can start by making the 12th grade relevant and exciting.

Twelfth grade should be the launch year of a career. We can give our students a leg up in the competitive world of tomorrow by ensuring they leave their senior year on their way to certification, apprenticeship or college credits.

In 2009, those with a bachelor’s degree had an unemployment rate of 4.6 percent, while those with a high school diploma were unemployed at the rate of 10.5 percent.

We need to encourage every student to “complete to compete” — complete an AA, bachelor’s or advanced degree so he or she can compete for the jobs of tomorrow.

We need tuition flexibility at our colleges and universities to keep the doors of higher education open to all and to maintain high-quality education in good and bad times.

I will ask you to adopt the recommend-ations of the Higher Education Funding Task Force, which increase the number of graduates, require greater accountability from our colleges and universities, ensure stable funding, and establish a $1 billion Washington Pledge Scholarship Program.

Educating our students is their future; a world-class education system is our state’s future.

I also asked if someone else can manage the work better. I answered that question “yes” and I urge you to join me in providing 21st century management models for our state ferry system and information technology in state government.

Our ferry system, the largest in the nation, is in financial crisis.

More than 11 years ago, one-fifth of operating funds and three-quarters of the system’s capital funding were eliminated. Ever since we’ve been bailing out the ferry system, and there is simply no place to bail from any longer.

But that’s not enough. For communities that rely on our ferries as much as others rely on our highways — for those 23 million passengers each year — we must find a better way.

I’m asking you to create a regional ferry district run by an elected board of directors to manage the ferry system. Funding would come from a state subsidy, fares and regional taxing authority to pay for the service the region decides it wants and needs.

You may not agree with my solution, but I know one thing — we cannot leave here without a solution.

Secondly, taxpayers spend $1 billion each year for information technology that processes hundreds of thousands of transactions a week.

Like large businesses, we are in the process of consolidating and modernizing. And I’m proud to report that our new data center is ahead of schedule and under budget.

I’m asking that we create a charter agency that can contract services with the private sector, just like a public utility, to ensure reliable service at the lowest possible cost. It will save $30 million over four years.

I know change is hard, especially here in Olympia where too many have become deeply invested in the status quo.

That’s why it’s easier to hear why change won’t work instead of why it will.

But I think voters are out ahead in understanding the need for change.

Voters sent us here to lead, to solve problems, to work together, to get things done and to be bold.

Families, businesses and nonprofits across this state have been forced to change to survive. We must do the same. Like the boldness of the 1935 Legislature in the midst of the Great Depression, we can set a path for success in our state.

There are those who say we won’t be courageous. There are those who say we can’t provide real change.

Well this year, let’s prove the cynics and skeptics wrong. Let’s be bold. Let’s stand up for change. Let’s put state government on a new path, a 21st century path.

I stand ready to help, support and work with you.

But make no mistake: I expect you to have the courage to make changes that will benefit the state today and for the next 80 years.

Last month the Legislature came together and passed a supplemental budget in one day. It was the first lame duck session in history, and it demonstrated what we can do when we put politics aside and work together as Washingtonians.

That was a great start, but we have unfinished work on the supplemental budget, and that has to be our first order of business.

Let’s finish what we started and let’s finish it together.

We are down, but we are not out by any means. We can take a page from those who lived during the Great Depression. Like them we accept the challenge. We are ready to do the hard work and make the tough decisions. We will remain hopeful and optimistic. We will be bold and set a course for a better tomorrow for the State of Washington.

We are and forever will be a great state. Our agricultural products from potatoes to cherries to wine are known for their high quality.

Our businesses, whether a leading international company, a startup or a small business, are the most innovative.

Our workers are the most skilled, educated and competitive. Our communities are compassionate. And we live in one of the most beautiful places in the world. No recession will take that away.

We are the proud people of the great State of Washington.

Thank you and God bless the great State of Washington and all her people. And God bless America.

In the months ahead, all of us will be severely tested.

This is not the first difficult time in our history, nor will it be the last.

Let me be clear: Washington will rebound.

This session is not just about getting us through this crisis.

Now is the time to challenge the status quo.

Jobs are the way out of the recession.

Voters sent us here to lead, to solve problems, to work together, to get things done and to be bold.

Let’s put state government on a new path, a 21st century path.