How state budgets are breaking US schools | Bill Gates

170,367 views ・ 2011-03-05

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00:15
Well, this is about state budgets.
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This is probably the most boring topic
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of the whole morning.
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But I want to tell you, I think it's an important topic
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that we need to care about.
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State budgets
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are big, big money --
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I'll show you the numbers --
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and they get very little scrutiny.
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The understanding is very low.
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Many of the people involved
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have special interests or short-term interests
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that get them not thinking
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about what the implications of the trends are.
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And these budgets
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are the key for our future;
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they're the key for our kids.
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Most education funding --
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whether it's K through 12,
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or the great universities or community colleges --
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most of the money for those things
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is coming out of these state budgets.
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But we have a problem.
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Here's the overall picture.
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U.S. economy is big --
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14.7 trillion.
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Now out of that pie,
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the government spends 36 percent.
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So this is combining the federal level,
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which is the largest,
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the state level and the local level.
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And it's really in this combined way
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that you get an overall sense of what's going on,
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because there's a lot of complex things
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like Medicaid and research money
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that flow across those boundaries.
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But we're spending 36 percent.
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Well what are we taking in?
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Simple business question.
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Answer is 26 percent.
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Now this leaves 10 percent deficit,
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sort of a mind-blowing number.
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And some of that, in fact, is due to the fact
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that we've had an economic recession.
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Receipts go down,
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some spending programs go up,
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but most of it is not because of that.
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Most of it is because of ways
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that the liabilities are building up
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and the trends,
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and that creates a huge challenge.
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In fact, this is the forecast picture.
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There are various things in here:
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I could say we might raise more revenue,
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or medical innovation will make the spending even higher.
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It is an increasingly difficult picture,
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even assuming the economy does quite well --
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probably better than it will do.
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This is what you see
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at this overall level.
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Now how did we get here?
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How could you have a problem like this?
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After all, at least on paper,
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there's this notion that these state budgets are balanced.
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Only one state says
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they don't have to balance the budget.
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But what this means actually
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is that there's a pretense.
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There's no real, true balancing going on,
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and in a sense, the games they play to hide that
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actually obscure the topic so much
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that people don't see things
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that are actually pretty straight-forward challenges.
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When Jerry Brown was elected,
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this was the challenge that was put to him.
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That is, through various gimmicks and things,
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a so-called balanced budget
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had led him to have 25 billion missing
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out of the 76 billion in proposed spending.
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Now he's put together some thoughts:
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About half of that he'll cut,
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another half,
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perhaps in a very complex set of steps,
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taxes will be approved.
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But even so,
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as you go out into those future years,
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various pension costs, health costs go up enough,
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and the revenue does not go up enough.
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So you get a big squeeze.
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What were those things that allowed us to hide this?
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Well, some really nice little tricks.
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And these were somewhat noticed.
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The paper said, "It's not really balanced.
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It's got holes.
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It perpetuates deficit spending.
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It's riddled with gimmicks."
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And really when you get down to it,
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the guys at Enron never would have done this.
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This is so blatant,
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so extreme.
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Is anyone paying attention
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to some of the things these guys do?
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They borrow money.
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They're not supposed to, but they figure out a way.
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They make you pay more in withholding
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just to help their cash flow out.
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They sell off the assets.
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They defer the payments.
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They sell off the revenues from tobacco.
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And California's not unique.
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In fact, there's about five states that are worse
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and only really four states
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that don't face this big challenge.
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So it's systemic across the entire country.
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It really comes from the fact
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that certain long-term obligations --
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health care, where innovation makes it more expensive,
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early retirement and pension, where the age structure gets worse for you,
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and just generosity --
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that these mis-accounting things
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allow to develop over time,
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that you've got a problem.
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This is the retiree health care benefits.
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Three million set aside, 62 billion dollar liability --
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much worse than the car companies.
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And everybody looked at that
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and knew that that was headed toward a huge problem.
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The forecast for the medical piece alone
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is to go from 26 percent of the budget
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to 42 percent.
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Well what's going to give?
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Well in order to accommodate that,
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you would have to cut education spending in half.
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It really is this young versus the old
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to some degree.
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If you don't change that revenue picture,
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if you don't solve what you're doing in health care,
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you're going to be deinvesting in the young.
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The great University of California university system,
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the great things that have gone on,
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won't happen.
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So far it's meant layoffs,
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increased class sizes.
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Within the education community there's this discussion of,
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"Should it just be the young teachers who get laid off,
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or the less good teachers who get laid off?"
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And there's a discussion: if you're going to increase class sizes,
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where do you do that? How much effect does that have?
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And unfortunately, as you get into that, people get confused and think,
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well maybe you think that's okay.
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In fact, no, education spending should not be cut.
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There's ways, if it's temporary,
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to minimize the impact,
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but it's a problem.
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It's also really a problem for where we need to go.
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Technology has a role to play.
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Well we need money to experiment with that,
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to get those tools in there.
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There's the idea of paying teachers for effectiveness,
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measuring them, giving them feedback,
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taking videos in the classroom.
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That's something I think is very, very important.
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Well you have to allocate dollars
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for that system
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and for that incentive pay.
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In a situation where you have growth,
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you put the new money into this.
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Or even if you're flat, you might shift money into it.
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But with the type of cuts we're talking about,
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it will be far, far harder
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to get these incentives for excellence,
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or to move over
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to use technology in the new way.
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So what's going on?
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Where's the brain trust
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that's in error here?
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Well there really is no brain trust.
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(Laughter)
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It's sort of the voters. It's sort of us showing up.
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Just look at this spending.
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California will spend over 100 billion,
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Microsoft, 38,
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Google, about 19.
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The amount of IQ in good numeric analysis,
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both inside Google and Microsoft
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and outside, with analysts and people of various opinions --
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should they have spent on that?
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No, they wasted their money on this. What about this thing? --
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it really is quite phenomenal.
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Everybody has an opinion.
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There's great feedback.
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And the numbers are used to make decisions.
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If you go over the education spending and the health care spending --
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particularly these long-term trends --
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you don't have that type of involvement
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on a number that's more important
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in terms of equity, in terms of learning.
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So what do we need to do?
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We need better tools.
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We can get some things out on the Internet.
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I'm going to use my website
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to put up some things that will give the basic picture.
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We need lots more.
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There's a few good books,
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one about school spending and where the money comes from --
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how that's changed over time, and the challenge.
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We need better accounting.
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We need to take the fact
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that the current employees, the future liabilities they create,
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that should come out of the current budget.
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We need to understand why they've done the pension accounting
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the way they have.
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It should be more like private accounting.
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It's the gold standard.
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And finally, we need to really reward politicians.
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Whenever they say there's these long-term problems,
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we can't say, "Oh, you're the messenger with bad news?
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We just shot you."
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In fact, there are some like these:
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Erskine Bowles, Alan Simpson and others,
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who have gone through and given proposals
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for this overall federal health-spending state-level problem.
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But in fact, their work was sort of pushed off.
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In fact, the week afterwards,
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some tax cuts were done
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that made the situation even worse
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than their assumptions.
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So we need these pieces.
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Now I think this is a solvable problem.
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It's a great country with lots of people.
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But we have to draw those people in,
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because this is about education.
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And just look at what happened with the tuitions
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with the University of California
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and project that out for another three, four, five years --
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it's unaffordable.
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And that's the kind of thing --
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the investment in the young --
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that makes us great, allows us to contribute.
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It allows us to do the art,
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the biotechnology, the software
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and all those magic things.
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And so the bottom line is
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we need to care about state budgets
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because they're critical for our kids and our future.
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Thank you.
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10:06
(Applause)
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