2005 STATE OF THE STATE ADDRESS

Madam President, Mr. Speaker, Mr. Chief Justice, Members of the General Assembly, fellow citizens:

We are a state of people who speak plainly. We are a state of people who get to the point. Let me try to do both this evening, right now.

The state of our state is far from sound. The state of our state needs serious attention. The foundation is still firm, but major repairs are overdue.

Diplomats have a saying. When they present themselves for an important discussion, they sometimes say "I come instructed." I come instructed tonight. My instructions, and yours, come from our common employers. The people of Indiana have sized up our situation. When they spoke last November, they spoke plainly, and their instructions were clear. They sent us here, all of us, to make repairs too long postponed, decisions too long delayed, to make changes in the way the people's business has been conducted in our state.

Our approach to that business must not be "usual" because our problems are anything but usual. Our challenges are extraordinary, and we must not be ordinary in wrestling with them. Our new administration has already set out on the long journey to more efficient, more effective, more open, and more ethical state government. We will take all measures within our authority to bring a new era into being. But much needed change must come, as it should, from you, the duly elected representatives of the people's branch of government.

This is a great moment for everyone in this chamber. How lucky we are to have been chosen at this particular time. Some of you must have had the same experience as I these last two months. In every conversation, it seems, the other party sooner or later uses the word "excited." Our fellow citizens are excited because, knowing full well the state of our state, they believe fervently that Indiana can be a better place. Who could ask for more as a public servant than to serve at a time of large issues, true crises, and high expectations that things can be vastly different?

I will spend very few words describing the severity of our situation. By now, those who claim not to see it must be victims of a denial beyond my ability to dispel. Any who would dwell on it for the purpose of assigning blame must turn their thoughts entirely to the task of reconstruction. Even a quick catalogue is useful only to frame the extent of damages and the nature of the most urgent repairs.

Let me sum things up: Our state's economy is too weak, too narrowly based, and too often impeded by the very state government that should be its chief advocate and promoter.

That state government is too expensive, too antique in its practices, too indifferent to real, provable results, and in place after place after place, too slow.

It operates under rules of conduct that fall far short of those found in other states, far short of what is necessary to ensure Hoosiers that the people's business is being done solely in the people's interest.

Our educational results lag behind other states, and other nations, but worse still, behind the potential of the kids and the devoted teachers in our classrooms. Those teachers, and the principals who lead them, are engulfed in rules and requirements that add no value to the life preparation of any child. We have doubled the amount of money spent per child with scant improvement in the only thing that matters, the readiness of those children. If money were the answer, this would no longer be a problem.

Local government is too hamstrung by top-down state control, and consequently stuck with an unbalanced and unfair dependence on the taxation of property owners. Having tied much of its own budget to local spending, a bankrupt state government has desperately sought to control local decisions from the top down, a doomed exercise in balloon-squeezing that has squeezed property tax payers worse than anyone else.

And overhanging all our difficulties is the simple, brute fact that our state's public finances are in ruin. We have outspent our income year after year. We have increased spending faster than any state in the Union. We have emptied every coffee can in the backyard and maxed out all the credit cards. When your past due bills exceed your cash on hand, when your month-in, month-out expenses far exceed the size of your paycheck, when your once-hefty savings have all been run through, the average family knows what to call it.

All right, so we have some problems. Tonight is about solutions, and the road ahead.

Economic recovery in Indiana will ultimately depend on the acumen, hard work, and bravery of free men and women pursuing their dreams in the marketplace. Government does not create jobs, it only creates the conditions that make jobs more or less likely. All our hopes in other areas depend on our ability to bring about a more growth-friendly Indiana of rising incomes, sales, and wealth.

And so the organizing objective of our administration will be higher personal income for Hoosiers. Every department is already being tasked with identifying the actions and improvements it will make to contribute to that goal.

On arrival at work last Monday, I signed orders to reorganize our economic development efforts, to strengthen our focus on agribusiness, and to require that we spend more of our tax dollars here in Indiana. I delivered to you a set of proposals to foster the faster formation and growth of the small businesses from which most new jobs come: I ask you, in particular, to provide a Small Business Investment Incentive, giving modest relief, without lawyers or paperwork or any special permission from government, to small firms that take the risk to add jobs.

To stimulate the formation of new small businesses, I propose that existing local economic development funds be freed to establish new venture capital funds in each region of our state. And we must lower the crushing cost of health insurance by authorizing new, low-frills policy choices.

Our economic distress is deep and widespread, so our recovery package attacks on multiple fronts. To help towns hit hard by the retreat of traditional manufacturing, I ask for the passage of brownfields legislation to encourage new investment in abandoned sites, and for new pre-permitting authority to speed the time for new investor interest to turn into new jobs.

Meanwhile, we must modernize our tax laws and build out our broadband infrastructure, so that we become as hospitable to the jobs of the knowledge economy and motorsports as we are to manufacturing.

And, the time has come to stop penalizing Indiana businesses through our quirky treatment of time itself. If it were just a matter of the rest of the world's laughing at us, I'd say let them laugh. But the loss of Hoosier jobs and income is no laughing matter and any step that might help is worth trying. So, without changing anyone's time zone, and without spending a penny, I ask this body to lift this handicap from Indiana's businesses and join the national and global economy in the use of Daylight Savings Time.

You have already proven your ability to act and act fast on behalf of Hoosier workers. By month's end, I am told, you will have approved our bill to replace a failed government Department of Commerce with a public-private action agency, built for speed and built to sell Indiana to businesses here and world-wide as the best place for them to grow. Thank you for this impressive down payment on our economic comeback.

Indiana will not catch up to our competition dragging the anchor of an outdated, slow, unresponsive state government. I suggested to Hoosiers last year that every garden needs weeding every sixteen years or so, and they agreed.

Last Tuesday, I signed orders dismantling the state's largest and most expensive bureaucracy, with paramount goals of better protecting endangered children and better serving the single parents of our state. I appointed the state's first Inspector General, and gave a seasoned county prosecutor the job of searching for waste, fraud, and abuse all day every day. Then I submitted to you bills to transform the Bureau of Motor Vehicles, abolish the scandal-ridden Intelenet Commission, and lift the ethics rules governing the conduct of state employees to the highest levels in America.

Among the weeds choking out growth and good government are the hundreds of boards, commissions, and advisory committees that have sprouted over the years. They devour time, money, and energy far beyond any real contribution they make. All address worthy goals, but often we could get more real work done if we spent less time conferring and more time working. I ask this Assembly to help us clean up state government's garden, to allow the most important parts to flourish and serve Hoosiers better.

State government has no nobler duty than the preparation of young people for citizenship, and no more important workers than those who strive to provide that preparation. Last week, I sent you bills to speed the spread of charter schools, to move the I-STEP test to the spring where it belongs, to take the job of our top educator out of politics, and to enable our kids to start kindergarten as early as they do in other states. I ask their rapid consideration and passage. We must catch up and surpass our competition in the only educational measure that ultimately matters, the academic results achieved by our kids.

Tonight, I want to underscore some issues in our educational system that must be faced squarely, because they threaten to undermine not just the effectiveness of the system but also the public confidence on which it depends.

As it should be, public education is the number one expense of state government. We have more than doubled our spending in just over a decade. When we have restored the state's financial solvency, these increases must continue.

But the way in which we deliver these dollars is broken, and indefensible. It produces senseless outcomes like providing more and more dollars for districts with fewer and fewer children. It is so confusing that no one can explain it to a taxpayer. This formula has been jury-rigged over time in back rooms into a complicated mess based not on principle but on a bare-knuckles scramble of every district for itself. Especially at a time of fiscal crisis, when there is no new money to distribute, the way in which we share the funds available must be as fair as possible.

It is time for a system the average citizen can understand, one based on clear, fair principles. That system should begin with equal dollars per child, adjusted for the special care we must provide to children of poverty, or with genuine disabilities, to any kid on whom life has placed a special burden. I ask this Assembly to replace today's Rube Goldberg formula with a fair, principled system openly arrived at.

Another major defect of the status quo is the imbalance between classroom and non-classroom spending. Too many of the $9,500 we now spend on each student are swallowed up by purposes unrelated to the only result that counts, readiness for life.

Every student today should learn in a place of safety and reasonable comfort. But we have often gone beyond the point of common sense. Our test results lag behind other states, but the size and cost of our school buildings is second to none. They are larger per student, more expensive per square foot, and more tilted to non-academic facilities than makes good sense. We have drifted into practices that work well for architects and contractors, but not well for teachers or property taxpayers, and it is time for change.

Tomorrow, I will direct the Department of Local Government Finance to impose a 120-day moratorium on any new school bond issue. During that interval, the agency will draw up guidelines related to size, cost, and the ratio of academic to non-academic spending in school construction. We will continue to have fine facilities in Indiana, but teachers, taxpayers, and academic results come first - instruction must come before construction.

Finally, we come to the matter of the state's own finances. Let's not waste a minute on how we got here, or whom to blame. We are where we are - now which way forward?

As I said earlier, our problem is two-fold: how to bring annual spending back down to the level of annual income, and how to restore some reasonable balance in our state savings account.

On the first question, there is nothing left to debate. The wolf is not at the door, he is inside the cabin. So no more accounting tricks. No more raids on pension funds; no more coerced borrowing from schools and local government. And no more self-deception; this crisis will not go away on its own. Without bold and difficult action now, the lines of spending and income will never cross. Tonight, it falls to me to propose a program full of steps I find regrettable and unpleasant, but steps that I believe our duty commands if we are to end our fiscal embarrassment.

We must bring spending growth down below - in the near term, well below - the growth of revenue. Tomorrow, I will release the details of a budget that does this, but let me share the fundamentals here and now. In everyday terms, we must clamp down on the family's total spending until our paycheck catches up.

In many places, spending must simply be reduced. We have been joined in government by some truly extraordinary people, many of whom who have led large and complex businesses. They know their assignment. We will pull or trim every weed we can find. I learned at Saturday's Cabinet meeting that we have saved the first several million dollars in our first week on the job.

We will work on saving money every week. Those programs that have fulfilled their purpose, outlived their usefulness, or cannot demonstrate results justifying their costs, will have to go. I will use the governor's allocation power to capture the savings as we identify them.

State government owns assets it doesn't need; we will find and sell them. We need motor vehicles, but not 13,000 of them, more than one for every three employees. We need aircraft, but probably not eighteen of them.

State entities are doing things for themselves that other Hoosiers can do as well or better, and less expensively. If it ever made sense to clean our own buildings, cook our own food, or operate our own power plants, it doesn't anymore.

In Medicaid, where cost growth is exploding at over 10 percent per year, we will make changes that are long overdue, and some changes we would rather not make: in benefits, in eligibility, and provider payments. We will slow this unsustainable growth rate by half. Over time, we will rebuild a broken, antiquated system so that it delivers better care to those who cannot afford to care for themselves, while remembering that taxpayers deserve compassion, too.

Those purposes too important for reduction must take a pause from constant increases. We can strengthen the state budget, and simultaneously begin Indiana's journey away from property taxes, by freezing the state's subsidy of local property taxes while expanding localities' current power to tax income or other sources. Education, both K-12 and postsecondary, must play essential roles in fiscal recovery by managing temporarily with current levels of state funding, no less but no more.

This is the time to set aside self-interest in the cause of restoring responsibility to our management of the people's finances. If we show this discipline, if revenue holds up and everything goes just right, we could achieve an honestly balanced budget, two years from now. Some might say, good enough. But I cannot.

Because, please note: Even if we do all the difficult things I just outlined, we would still run a quarter of a billion dollar deficit next year, and still have no real savings set aside for the next rainy day. Duty commands us to finish the job, to put our house in order and do it now.

So tonight I propose one more step that I would rather not propose. I ask the most fortunate among us, those citizens earning over $100,000 per year, for one year, to pay an additional one percent on the income they receive. With this money, we will achieve a balanced budget not two years from now but in the year immediately ahead, and bring our savings account to a level near the minimum standard of prudence.

Let me stress that this surtax must be temporary, and one-time only. I will veto any attempt to raise general taxes on our citizens, and any attempt to extend for even one day the one temporary measure I reluctantly propose tonight.

And, I will veto any attempt to substitute tax increases for spending restraint. The spending freezes and reductions I have called for, which many will complain are far too severe, to me are the mandatory essence of our fiscal repair job.

It is hardly a secret that I believe in limited government. I believe deeply that no dollar should be taken from any free citizen by the force of state power without a solid reason for doing so.

But that was an oath I took last week. That was a Bible I took it on. I have sworn to uphold a constitution that directs us to produce an honestly balanced budget, and I was hired by the people of this state on a pledge to meet that assignment. I hope you see your duty the same way I do. Let's each agree to do a thing or two we'd rather not do, temporarily, so that the state we all love might get back on its fiscal feet, and do it now.

I say once more, this is our moment. Whether veterans of public service, or newcomers like me, we will not see again such an opportunity to change things for the better. We must shake free of the tendency to mistake the edge of the rut for the horizon. Breaking with business as usual is never comfortable, but once accomplished it is exhilarating. It would be disappointing - no, it would be disgraceful - to procrastinate and paper over these festering problems when we can deal with them decisively, and position our state for greatness.

In Roman times, it was the custom for the architect of a new temple to stand beneath the archway when the keystone was put in place and the scaffolding removed. Now, those were people who understood the concept of accountability.

I am under such an arch tonight, by choice and at the instruction of the people of our state. I invite you to join me there, with confidence that the structure we will build together will stand the test of the moment, and of time. Our choices are not easy, but compared to the dangers and crises that Hoosiers before us have overcome, they are not intimidating, either. Besides, as Edward R. Murrow said, "Difficulty is the one excuse history never accepts."

It is given to few people to be where we are, in a position to change the course of an entire state from drift and decline to purpose and progress. This time around, let any errors be errors of action, not timidity. We must not allow indecision, the thief of opportunity, to rob us of the courage to move aggressively. Gen. Douglas MacArthur said that the history of failure in warfare could be summed up in two words: "Too late." This year is our year to attack Indiana's problems, so that history never applies those words to us.

This time, let everybody relent just a little. Let every interest demand just a little less. Let those who can give just a little more. Let this be a legislative session of historic energy and action, and cooperation.

Let politics stand down for a while. Let future elections wait their turn. Let's all do our duty these next few weeks such that, years from now, when people look back to these days and say then, in 2005, that was when Indiana's comeback began, we can all say right, I know - I was part of it, I was there.

Thank you for your commitment, and your love of our state. Now on to the people's work.