Oregon Democrats and Republicans were gridlocked. The Legislature had been in session for weeks but had passed only one piece of major legislation, a bill to implement a program it had approved one year earlier. Gov. John Kitzhaber, a Democrat, was demanding that Republicans enact a sweeping overhaul of the state education system. Democratic legislators also wanted foreclosure relief and legislation setting up a health exchange.

Republicans were balking. They supported the education package, but before they would give in to the Democrats’ other demands, they had a few of their own -- more water from the Columbia River for agriculture, more enterprise zones and more timber harvests from state forests.

Neither side could force the other to act. The House was evenly divided, with Democratic and Republican co-speakers. In mid-February, Kitzhaber attempted to break the impasse on education reform by summoning business leaders and their representatives to a press conference at the Capitol. It didn’t work. No sooner had Kitzhaber begun his remarks than the House Republican leadership, led by Co-Speaker Bruce Hanna, marched into the room and lined up, glowering near the governor. When the governor offered a greeting, he got no response. Behind the scenes, Hanna had worked the phones to remind business constituencies who their “real” allies were in this fight.

“Power struggle emerges between Kitzhaber and Hanna,” cried The Oregonian later that day. All outward signs suggested that Oregon was heading down the path blazed by U.S. House Speaker John Boehner and President Barack Obama -- the path to partisan rancor, political warfare and no deals to address the concerns of voters.

Instead, Oregon’s leaders did something unexpected. After the press conference, Kitzhaber called Hanna to ask if he could stop by the co-speaker’s office to talk. The governor reiterated his desire to make a deal. Hanna replied that he wanted to make a deal too, but that the Republicans needed certain changes. “Never once did I think that we were never going to do this,” Hanna says. “I said at the time, ‘We may not quite agree, but I am going to keep bringing back solutions.’” Eventually, they reached a deal.

Democratic legislators came around too, announcing that they would accept an expansion of enterprise zones and consider agricultural regions’ water requests. Republicans reciprocated, passing the governor’s education initiative, foreclosure relief and a version of the health exchange bill -- an intensely partisan issue in most states that passed in Oregon by a vote of 55-5.

The ability of Oregon’s elected leaders to work together wasn’t a one-off event. Last year, Democrats and Republicans closed a $3.5 billion revenue shortfall. Democrats forced public-sector unions to accept slower salary growth and less generous benefits. They also embraced the Republican position that the state should move from a “current use” budget, which bases future spending on current spending, to a “current resources” budget, which begins with how much money the state actually has. Republicans agreed to pass the Health Transformation Act, one of the nation’s most ambitious health reform efforts. The Salem-based Statesman Journal described the legislative session “as one of the most remarkable in the state’s history.”

What makes these achievements all the more remarkable is the person at the center of them: Gov. Kitzhaber.

Kitzhaber, a former emergency room physician, served as governor from 1995 to 2003. In 2010, he became one of three former governors to return to office. The others were Jerry Brown of California and Terry Branstad of Iowa. Like Brown and Branstad, Kitzhaber touted his experience during the campaign. But that experience wasn’t all positive. The end of his second term in particular had been marked by an almost complete breakdown in relations with the Republican-dominated Legislature. Kitzhaber ended his first eight years in office with an unprecedented 203 vetoes, in the process earning the sobriquet “Dr. No” and delivering a now-infamous charge: Oregon, he said, was “ungovernable.” When he left Salem at the end of his second term, virtually everyone believed that his career in state politics was over.

It wasn’t. Last year, he took office under deeply divisive circumstances similar to those he faced in 2003. Over the course of the past year and a half, Kitzhaber and the Oregon Legislature have toted up a streak of bipartisan achievements that most governors only dream of.

How, in an era of poisonous partisanship and in the context of divided government, have Kitzhaber and Oregon legislators managed to engage in the kind of bipartisan problem-solving that so many politicians promise but so few deliver?

John Kitzhaber has always been an unusual politician. Born in 1947 in Colfax, Wash., he moved to Eugene, Ore., when he was 11. His parents were academics -- English instructors at the University of Oregon -- but Kitzhaber grew up surrounded by talk of politics: His mother, Annabel, was the president of the Oregon League of Women voters and a well known expert on public finance issues (a thorny issue in Oregon, which has high income tax rates, a property tax cap and no sales tax). A gifted student, Kitzhaber went to Dartmouth College as an undergraduate. He returned to Oregon for medical school, and in 1974, he moved to the place that would shape his unorthodox political persona, Roseburg.

Roseburg is a town of 20,000 residents, 70 miles south of Eugene. Eugene is big (the metro region’s 350,000 residents make it the state’s second largest urban area) and famously liberal. Roseburg is small and conservative. (In his three gubernatorial elections, Kitzhaber has carried Douglas County, where Roseburg is located, just once.) Kitzhaber became an emergency room physician there. An avid fisherman and whitewater rafter, he soon became involved in local environmental and water issues. He also picked up his signature style -- pressed Levi jeans, cowboy boots and a blazer. In 1978, he was elected to the state Assembly. Two years later, he won a seat in the state Senate. He became Senate president in 1985, a position he occupied until 1993. There he helped craft the Oregon Health Plan, which sought to expand health insurance coverage beyond the traditional Medicaid population by prioritizing medical treatments using cost-effectiveness measures. In 1994, he announced that he was preparing to challenge incumbent Democratic Gov. Barbara Roberts. Roberts bowed out, and the following year Kitzhaber was elected as Oregon’s 35th governor.

Kitzhaber is usually described as reserved -- even a bit shy. The second most common descriptor is smart. According to political scientist Bill Lunch, a longtime observer of Western politics, Kitzhaber is “one of the two smartest people in terms of raw intellectual horsepower I’ve ever met.” (The other was California Democrat Phil Burton.) Kitzhaber’s background as an ER doctor and his cowboy-boot style gave him credibility beyond the liberal strongholds of Portland and Eugene. But despite his legislative experience and personal appeal, the transition to the governor’s office was a difficult one. Timing wasn’t the best: 1994 was the year of Newt Gingrich and the Republican revolution. Democrats in Oregon lost control of the Senate, giving Republicans control of both chambers of the Legislature for the first time in 50 years. The Republican majority was so large that they didn’t need Democrats to make a quorum. Kitzhaber’s old caucus, now greatly diminished, turned to him for leadership and guidance.

“I do think I was the 91st legislator my first term,” says Kitz-haber ruefully. Oregon had also imposed the nation’s strictest term limits law, and that meant the new governor didn’t have the personal relationships with members that he might have otherwise developed from serving in the Legislature for so many years.

“You can just imagine the dynamic,” says former Kitzhaber Chief of Staff Bill Wyatt. “Nine Democratic senators had to rely on the governor to make them relevant. It’s not a healthy situation.”

Oregon’s booming economy smoothed over these tensions for most of the 1990s. But when the state economy crashed during his final term, long-simmering animosities quickly boiled to the surface. In his last year and a half in office, Kitzhaber had to call five special sessions to close revenue shortfalls. By the end, he was, he says, “burned out and disillusioned.”

So in 2003, constrained by term limits himself and fatigued from five sessions of infighting, Kitzhaber left office, determined to build grass-roots solutions to the issues he cared about most: health care, energy and natural resources. But this time, he would do it from a base in the nonprofit sector. “The problems we face are not conducive to a government solution,” the man who had spent the previous 23 years in public service now told audiences across the state.

From his 16th-floor office in downtown Portland, Duncan Wyse can look north to Washington state. Wyse heads the Oregon Business Council, which represents the viewpoints of more than 40 of the state’s most important business leaders, including executives from Nike and Weyerhaeuser. These days, Wyse spends a lot of his time looking north. It’s not the view that commands his attention, but rather Washington state’s more resilient economy.

Washington’s per capita income has long been higher than that of Oregon. However, for many years, income in the two states moved more or less in tandem and in the same direction -- upward. That changed in the late 1990s. Though Washington per capita income continued its upward trend (falling but then recovering after the last recession), Oregon’s per capita income began to fall.

Oregon has no sales tax, and its property taxes are capped. As a result, the state and its municipal governments are highly dependent on income taxes. Between 2007 and 2009, during the worst of the recession, total state revenue fell by 8 percent. But while incomes and income tax receipts were falling, the costs of certain public services, particularly Medicaid and corrections, continued to rise. Policymakers responded by shifting money away from education, particularly higher education, and toward health care and incarceration.* Educational attainment is one of the best predictors of income growth. By that measure, Oregon was losing out. Instead of investing in education, Oregon was defunding it. Wyse and his group describe the process as “the cycle of decline.” Reversing it, he believed, would require a complete reorganization of government.

“My experience is that there are people who understand that the system we created 50 years ago probably isn’t going to make it in the 21st century. There are people who don’t understand it,” he says. “It’s really not a partisan thing.”

John Kitzhaber was one of the people who understood it.

After leaving office, Kitzhaber started working for a Denver-based foundation focused on health reform, seeking to jump-start a grass-roots movement for health reform. However, as the recession of 2008 deepened, Kitzhaber sensed an opportunity for truly transformational change.

With one of the highest per capita revenue shortfalls in the country, the state had, in Kitzhaber’s opinion, “no way to tax or spend our way out of the situation.” The only way to reverse “the pattern of disinvestment” was to innovate. In particular, Kitz-haber wanted to curb health-care costs while improving quality.

“I began to think that in the depths of crisis is profound opportunity,” Kitzhaber says. By the fall of 2009, he was ready to run for a third term. (Oregon law prohibits three consecutive terms, but places no limit on the number of overall terms.)

Kitzhaber’s platform emphasized jobs, health care and education. This time around he had, he says, “a crystal clear idea of why I was doing it” -- a tacit acknowledgement that his goals were less clear back in 1994. Kitzhaber also worked hard to cultivate the support of the business community.

A comparison of Kitzhaber’s campaign in 2010 with the campaign run two years earlier by another post-partisan politician, Barack Obama, is revealing. Both promised to work across party lines. Both focused on bringing accountability to education. But on health reform, their paths differed. Kitzhaber was focused on containing costs and improving quality, not expanding coverage. Jobs came first: Containing health-care costs would enable the state to invest in education and give Oregonians the skills to find and develop better jobs.

On the campaign trail, Kitzhaber also promoted a flexible, highly localized version of health reform. One of the consequences of the Oregon Health Plan in the 1990s was a shift away from big, commercial health plans toward regional Medicaid managed-care plans. To achieve further efficiencies, Kitzhaber and his chief health-care adviser, Mike Bonetto, a former Republican aide to the Oregon Senate Finance Committee, sought to build on that platform by encouraging regional health plans, hospitals, providers and county governments to form “coordinated care organizations.” CCOs would be locally run and organized. The state would provide the funding, but decisions about how to deliver care would be made at the local level. In essence, Bonetto says, the message to providers was that “instead of just cutting, we want to pay you more to do less.” Providers who found ways to increase value would share in the savings.

Kitzhaber did not sugarcoat the fact that cuts were on the way. Public-sector unions, for instance, would be expected to contribute to the cost of their health plans. Stances like that cost him the support of the Oregon Education Association and other public teacher unions in the Democratic primary.

Nonetheless, Kitzhaber handily won the Democratic gubernatorial nomination, and in November 2010 eked out a 25,000-vote general election victory over former Portland Trailblazer star-turned-businessman Chris Dudley. However, Republicans picked up six seats in the House, resulting in a 30-30 tie.

What happened next explains much of Oregon’s success. Instead of trying to attract defectors, the leaders of both caucuses agreed to a power-sharing arrangement, complete with co-speakers and rules of engagement. In the months after the election, seven Democrats led by Rep. Arnie Roblan, and five Republicans led by Rep. Bruce Hanna drew up painstakingly detailed accounts of how the House would function. It was a long negotiation -- one that was finally completed only the night before the legislative session was slated to begin. But the process, says Co-Speaker Roblan, “built a lot of trust.” That trust has continued to this day.

The split forced Kitzhaber to govern from the middle. Two days after the election, according to Hanna, the governor-elect called him and said “something along the lines of, ‘You kicked our butt, but in a fair way. It’s early, but I am going to work with the Legislature.’” He did, reaching out to Republicans far more vigorously than his predecessor, Democrat Ted Kulongoski. Before the Legislature even convened, Kitzhaber was inviting the Republican leadership and Ways and Means Committee members and staff, along with Democratic legislators, out to Mahonia Hall, the governor’s official residence, to review the budget.

“He’s been open, honest and straightforward,” says Hanna. “He comes to you and says, ‘Here is what I would like to do. Can we work on it together?’” The answer isn’t always yes, adds Hanna, and what happens next is equally revealing: “We talk about how we manage the process so that we are not killing each other doing it.”

The governor’s straightforward approach worked. “He’s a lot more accessible than the last two governors -- and that includes him,” quipped Senate Republican leader Ted Ferrioli a few months after Kitzhaber was sworn in. But Kitzhaber was also fortunate in the Republicans he was dealing with.

“You can convene people and bring them together, and they may not respond,” notes the Oregon Business Council’s Wyse. However, Republicans such as Hanna have prided themselves on bringing solutions to the table. “We can keep coming back and not agreeing,” acknowledges Hanna, “[but] I can guarantee you this: If we meet five times a day, I am going to bring five solutions.”

Even the most conservative members of the Legislature, such as Rep. Tim Freeman, the Republican whip who describes himself as “far right” and represents Kitz-haber’s old hometown of Roseburg, have shown a desire to get things done. In particular, Freeman has worked closely with House Democratic leader Tina Kotek, who represents Portland and is known as one of the state’s most liberal legislators, as well as its only openly gay one, on the governor’s highest priority issue -- health-care transformation.

Freeman doesn’t support the Affordable Care Act. However, he did support Kitzhaber’s Health Transformation Act. “We looked at the Oregon Health Plan’s spending -- the state Medicaid program -- and it’s unsustainable,” says Freeman. The idea of making Medicaid more efficient at the local level through CCOs -- “delivering an entitlement program more efficiently with better outcomes” -- appealed to him as a conservative, so much so that Freeman shepherded it through the House Ways and Means Committee.

It’s hard to know if the current era of good feelings will last. Last year’s biennial budget banked on $239 million in savings from health-care reform, which even health reform supporters concede is unlikely. In fact, Oregon has requested $500 million in bridge money over five years from the federal Centers for Medicare & Medicaid Services to help the state transition to CCOs. In exchange, it is promising to slow annual increases in Medicaid from 5.5 percent to 3 percent. Meanwhile, a hospital tax that provides the state with some $500 million a year in revenue expires next year, raising the possibility of Kitzhaber’s first major third-term revenue fight. Kitzhaber has only taken the most tentative steps toward addressing the state’s larger public finance issues, notably a tax system that lacks a rainy day fund and is overly dependent on income tax.

It’s an election year in Oregon, too.

“It took 152 years to get the first split House in Oregon history,” Roblan notes. “I don’t see it happening too often in the future.” But whichever party wins out in November, Roblan hopes it will take away something important: “When you don’t give credible voice to the minority, it creates real animosity.”

When Kitzhaber expressed a willingness to work with Republicans after winning a third term of office, “some of us were surprised,” concedes Hanna. “Now I would tell you, it’s an expectation.”

Correction appended May 2, 2012: An earlier version of this article incorrectly cited who Kitzhaber's precedessor was before his first term. His predecessor was Barbara Roberts. Thanks to commenter dave barrows for the correction.

An earlier version also claimed that only 20 percent of Oregonians had bachelor's degrees. According to Census data, 28.6 percent of Oregonians have bachelor's degrees or higher, slightly better than the national average. The percentage of Oregonians with bachelor's degrees or better has been taken out of the story.