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Leveraging Federal Flexibility to Innovate

One state that is leading the way in building bottom-up solutions is Oregon, which is providing a roadmap on issues from health care to infrastructure to a "clean" economy.

Oregon pinot noir, food carts and pristine public beaches are the kinds of local innovations and amenities for which our state is best known. Less well known is that Oregon is among a handful of states that are leading the way in building bottom-up solutions to some of the most entrenched problems that seem to defy resolution inside the Beltway.

In our view, the answer to unleashing the 21st-century economy is not big money, but big flexibility.

Three initiatives in particular offer examples of how such locally designed initiatives--which assume accountability for outcomes--can redefine the grand bargain among states, cities, regions and the federal government by re-thinking how we spend hundreds of billions of dollars now directed to siloed economic development, infrastructure, and community programs.

The first example is in the area of health care. Medicaid is the fastest growing part of most state budgets, with enrollment increasing dramatically as millions of Americans have been losing jobs over the past few years.

Traditionally, when trying to balance the demand for health care with available dollars, states have cut Medicaid services, reduced rates paid to providers or, even worse, simply dropped people from coverage. The Supreme Court decision on the Affordable Care Act has further fueled this conflict. Yet Oregon has chosen a different path because we saw little to gain by playing zero-sum politics and much reward by redesigning the way care is organized and delivered--shifting the focus and the incentives from after-the-fact and expensive acute care to less costly prevention, wellness and community-based management of chronic conditions.

With substantial bipartisan majorities and the support of businesses, labor and health-care providers, Oregon passed legislation creating new local and regional "coordinated care organizations" that will integrate physical, mental and dental services; focus on care coordination; and partner with community organizations to address wellness and true prevention. While assuming clear accountability for improving access, clinical outcomes and population health, these new organizations are committed to reducing the per-member Medicaid inflation rate by two percentage points within two years, saving a total of $11 billion over the decade.

The national implications are significant. If all states reduced Medicaid inflation by the same amount, the nation would save $1.5 trillion over 10 years--more than the congressional "super committee" was charged to deliver. Not a bad outcome in health care consistent with the Affordable Care Act, and not a bad model for developing performance-based partnerships in other key issue areas.

Take infrastructure, a second example. Like funding for health care, federal and state funding for critical infrastructure and economic development is on the decline, as is local voters' willingness to pay for these investments unless they see specific community benefits, a fair allocation of costs and assurances that public works deliver serious bang for the buck.

In recognition of these trends, Oregon is building a new blueprint for designing and financing its infrastructure--not just "core" infrastructure such as roads and bridges but also "innovation" infrastructure such as energy-efficient buildings, a smart grid, water-savings projects and needed community facilities, from courthouses to health clinics. In collaboration with California and Washington State, we are creating a regional innovation mechanism, the West Coast Infrastructure Exchange, to bundle innovative infrastructure projects and create a new nexus point to attract private equity and institutional capital that is currently sitting on the sidelines.

At the state level, we are standardizing a "common app" for grant-seekers, through a community investment "dashboard" system that will allow community leaders to set their own priorities. To break through regulatory drift and speed up project deployment, we've created go-fast teams under our unique Oregon Regional Solutions process, mirrored on the Obama administration's Strong Cities program.

The overall goal of our new community infrastructure and investment strategy? To create a marketplace for innovation infrastructure projects because we cannot continue to rely on federal resources alone. We also think this new bottom-up approach can improve the congressional debate in 2013 over what a national infrastructure bank needs to look like, as acceleration entities such as our West Coast Infrastructure Exchange and the Chicago Infrastructure Trust will likely be key to growing an investable project pipeline faster.

Yet states cannot solve this problem alone. To create competitive conditions for emerging businesses and entrepreneurs in high-growth areas such as home health care and home energy retrofitting, we are working with local partners in the Portland metro region through new, performance-based partnerships. For example, our still-expanding Clean Energy Works program has directed over $8 million in new economic activity to women and minority-owned firms that didn't exist before, paying 800 workers an average wage of $22 an hour for skilled work. We also are looking at new ways to revamp workforce training in this emerging market region-wide through a Jobs and Innovation Acceleration Challenge grant, and playing our part to spark an American manufacturing resurgence, supporting the work of United Streetcar in Clackamas, Ore., which is building the first American-made streetcar in 57 years.

These are just three examples--in health care, infrastructure and efforts to build a "clean" economy--of how federal flexibility and state-local innovation can work. We think this community-based approach can also redefine how we manage forests and farmland, improve the workforce system and connect declining federal dollars to community foundations looking for local impact.

While these and other new collaborative efforts do not always fit well with the conflict narrative of Washington, D.C., they do fit with what we need to do to be competitive: invest in collaborative community priorities, give small companies a boost, and lift up innovative ideas before they fall between the cracks of traditional government. These new performance partnerships demonstrate that reclaiming a sense of common purpose is not yet beyond our grasp. Now is the time to move from top-down, one-size-fits-all programs to results-based investments in what communities want and need.

John Kitzhaber is a former governor of Oregon.
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