Someday soon, Gov. John Kitzhaber will sit across a conference table from Richard Sanders, the little-known man behind the biggest bankroll in Oregon politics.

Together, the two will shape Oregon's fiscal future for years to come.

Sanders, 62, an erudite, high-energy union leader, is new to Oregon. Bearded and bookish, he arrived from Massachusetts two months ago to run the Oregon Education Association, the statewide teachers union.

He takes OEA's helm at a time when public employees are under heavy fire nationally.

Kitzhaber, 64, a Democrat and the son of teachers, will not seek to strip public employees of collective bargaining rights as Wisconsin Gov. Scott Walker recently did.

"This state will not go down the road that Wisconsin has chosen," Kitzhaber told a Portland City Club audience March 4.

But he will seek to wring concessions from OEA to save a state budget that is in far worse shape than Wisconsin's—in fact, fifth worst in the nation, according to a March report by the Center on Budget and Policy Priorities. 

Oregon's teachers did not cause the state's fiscal crisis, but because so much of their compensation comes directly from the general fund, Kitzhaber and lawmakers will balance the budget on their backs.

There are other large public-employee unions in Oregon, but none gets as large a chunk of the state's general fund as teachers.

Due to Oregon's unusual tax structure, teachers here are more closely tied to the general fund—the pot of money over which Kitzhaber and lawmakers have the greatest discretion—than anywhere else in the country.

Sanders isn't exactly sweating, however. He knows Oregonians love their schools and their teachers.

Sanders also knows that money talks, and that the OEA contributes more money to elected officials—including Kitzhaber—than any group in Oregon. 

In fact, no teachers union in the country gives more generously. Those donations give OEA extraordinary access to lawmakers and the governor and help them preserve the status quo.

"OEA would cut off at the knees any Democrat who really wanted to reform education," says former two-term Portland School Board member Steve Griffith. "The effect of OEA's bank account is to silence a discussion about accountability that needs to be had.” 

Then again, the landscape has shifted in Salem. During his campaign, Kitzhaber told teachers he would take their money but would not be their errand boy.

"I am not willing to make promises I can't keep just to get your endorsement. And I am not willing to sugarcoat the extraordinarily difficult fiscal environment that lies ahead of us," Kitzhaber told the OEA convention last year. "The fact is that we need to make some fundamental changes…some 'reforms,' if you will, if we hope to secure the future and the funding on which that future rests."

Despite that message, the OEA still spent more than $1.1 million to get Kitzhaber elected in the general election. That funding was about 12 percent of what it cost him to win last November.

As a lawmaker and two-term governor from 1995 to 2003, Kitzhaber earned a reputation for independence, but the OEA is about as central to Democratic politics as any group in this state.

"I don't think [people] understand the relationship between labor and the governor," says Oregon Republican Party Chairman Allen Alley. "They don't understand the level of donations—and that those donations can make driving real change really difficult."

States of the Union
REPORT CARD: Contributions to state and federal campaigns, political parties and ballot measure committees in 2007 and 2008 by teachers unions, their affiliates, employees and PACs, divided by the number of teachers in that state (in 2007). Sources: National Institute on Money in State Politics, Digest of Education statistics, 2009

Oregon's financial problem is simple. In the words of former Gov. Ted Kulongoski, "we cannot afford the government we have."

Here's the clearest representation of that shortfall: At the end of 2009, lawmakers projected they would spend $18.3 billion in the 2011-13 biennium. Today, Kitzhaber's budget projects the state will have only $14.8 billion available.

There are various explanations for the deficit. Tax receipts plummeted in the recession; Oregonians' median income is only about 90 percent of median income nationwide; the state's cumulative tax rates are low, about 40th in the country. And the cost of government keeps rising.

Where does the money go? State figures show that about three out of four general-fund dollars end up in public-employee salaries and benefits.

The biggest component in the state general-fund budget is K-12 education, which accounts for 38 percent of expenditures. 

"The governor and the Legislature don't have a lot of choice about reducing the K-12 budget, because that's where the money is," says Oregon State University political science professor Bill Lunch.

Teachers are not overpaid, at least in salary terms (comparative data on benefits is difficult to find). National Education Association statistics for 2008-09 pegged the average Oregon teacher's salary at $54,320. That is 17th in the country and right at the national average.

In February, Kitzhaber released a budget that allocates $5.56 billion to K-12 for the next two years. That's $1 billion less than the projected cost of maintaining the status quo.

K-12 funding is allocated across 197 Oregon school districts. So local school boards will have to find $1 billion in savings through some combination of teacher layoffs, shortening the school year and cutting compensation.

Historically, Salem has shipped cash to local districts with little or no guidance as to how it is spent. Kitzhaber wants to end that practice.

"The governor has been clear about what he sees as the post-Measure 5 [the 1990 ballot measure that shifted school funding from the local to state level] disconnect between what is bargained for at the local level and the actual fiscal condition of the state," says Kitzhaber's spokesman, Tim Raphael. "That disconnect is one of the elements that creates instability in school funding."

Kitzhaber has floated a couple of ideas so far. He's made it clear that teachers will be losing jobs next year. But he has said he'd be willing to agree to a floor—say, 38 percent of the general fund to K-12—in exchange for OEA agreeing not to ask for total compensation that increases faster than inflation. 

Kitzhaber also wants teachers to absorb more of the costs of their health care and pensions. 

(About half of teachers in Oregon contribute to their own pension, whereas the districts pick up the the rest of the tab. Kitzhaber wants to reduce that cost.)

If teachers go along with his financial proposals, Kitzahaber has said he would consider releasing $200 million in one-time money from the Education Stability Fund, a savings account funded by Lottery dollars. 

But, Kitzhaber is also pushing OEA to accept reforms, aimed at more efficient spending and better educational outcomes.

Kitzhaber's proposals include collapsing all state educational boards into one K-20 board, shifting the state superintendent of public instruction to an appointed rather than elected position, consolidating some school districts and allowing them to opt out of co-ops called Education Service Districts, and increasing online learning.

There is also discussion about changing the way teachers get laid off. Oregon is one of only 15 states in which teacher layoffs must be done by seniority, an approach critics refer to as "quality blind."

Such a policy removes principals' discretion, and accelerates the increase in Oregon's student-teacher ratios, which in 2008 NEA figures pegged at 18.9-to-1, the fifth highest in the country.

The student-teacher ratio goes up faster because a beginning teacher makes about half of a senior teacher's pay. That means districts must lay off twice as many younger teachers to save the same amount of money, thereby increasing the student-teacher ratio twice as fast.

Merit-based rather than seniority-based layoffs would be a major threat to the status quo—as would another Kitzhaber priority: ending the practice of allocating money without regard to performance.

"Generally, the governor believes the state should be moving away from funding based on enrollment and toward funding based on outcomes," Raphael says.

Now, all Kitzhaber has to do is sell that package to OEA.

When Richard Sanders came this year to Oregon after 30 years of union organizing in the East, he took over a colossus.

"It's an honor to lead what is widely known as one of the top two or three teachers unions in the country," Sanders says.

Sanders is being modest.

Since Jan. 1, 2008, OEA has contributed more than $8.5 million to political campaigns.

That's more than the state's other two largest public-employee unions combined and more than six times the amount spent by the top business lobby group, Associated Oregon Industries.

A 2009 comparison of teachers union campaign spending per member put OEA in the top spot nationally—by a substantial margin. 

OEA is in a fundamentally different position from private-sector unions such as the United Auto Workers. The UAW, for example, does not select Ford's chief executive or the company's board.

But in Oregon, one of only five states that does not limit the size of political contributions, OEA plays an outsized role in electing the very people who decide the K-12 budget.

Perhaps because unions usually support Democratic candidates, the relationship between public-employee unions and elected officials has mostly troubled Republicans. But historically it has also been a concern for some Democrats.

"The process of collective bargaining, as usually understood, cannot be transplanted into the public service," President Franklin Delano Roosevelt said in 1937.

Roosevelt worried that the financial interests of public employees conflicted with the public interest, making the unions' position untenable.

Sanders scoffs at that idea. But he acknowledges OEA is formidable.

The group says it represents more than 48,000 members—a number higher than the populations of all but 10 Oregon cities. (Unlike other large public-sector unions in Oregon, such as the Service Employees International Union, OEA does not report precise membership numbers, or officers' compensation or other financial details, thanks to a successful 2003 lawsuit teachers unions filed against the federal Department of Labor. OEA was willing to disclose Sanders' salary—$160,000.)

"They are extremely powerful and they are very proud of it," says former state Sen. Rick Metsger (D-Welches). "On a regular basis they can and will spend as much as they need to, which makes opposing them very difficult."

Sanders is a Stanford- and Princeton-educated scholar whose desk is covered with books such as Diane Ravitch's The Death and Life of the Great American School System and Michael Lewis' The Big Short, a cautionary tale about the mortgage meltdown.

Sanders argues there's a strong link between excessive financial speculation and union bashing.

"What we're seeing is nothing less than a concerted attack on the middle class," he says.

Sanders is also a sports junkie who keeps a teddy bear sporting a Boston Red Sox jersey on his credenza. 

But while the athletic contests he loves are all about competition, ranking and sorting, he has no time for such concepts when it comes to his members.

When the subject turns to looming teacher layoffs, Sanders defends the seniority-based system of last hired, first fired with a rapid-fire argument worthy of a high-priced trial lawyer.

Sanders bristles at the notion principals should be allowed to assess teachers in the absence of a teacher-designed evaluation methodology. 

"Quality is very subjective," he says. "There is no fair way in the current system for principals or a district to decide which teachers are better than others."

OEA is also hostile to another form of competition—charter schools. Sanders says they are ineffective and a thinly disguised effort to destroy public education and undermine unions. 

"I'm not sure the corporate class as a whole wants an educated society," Sanders says. "They are looking for a foot in the door to overthrow democracy."

Sanders says he's aware OEA has a reputation for being "the party of no" in Salem, and pledges to be more open to change. That transformation is happening slowly.

On March 14, for instance, OEA called in chits from two House Republicans to kill a high-profile bill that would have lengthened from three years to five years the initial contract term for a charter.

The defeat incensed House Education Committee Co-Chairman Matt Wingard (R-Wilsonville), the bill's sponsor, in part because OEA lobbyists had sat silently through a committee hearing on the bill, never publicly announcing their position.

"They [OEA] didn't say anything," Wingard said on the House floor. "We didn't hear from the opposition, so I was left to conclude there was no opposition."

That is OEA's style. When the SEIU opposes legislation, its members storm the Capitol in purple T-shirts and its lobbyists raise hell. The American Federation of State, County, and Municipal Employees sends in an army in green T-shirts and also states its positions publicly.

OEA is stealthier. Dressed in business attire, staff lobbyists for OEA and its allies gather in a pack at the rear of committee hearing rooms. They save their opposition for closed-door meetings.

"I call them the 'panel of no,'" Wingard says of the OEA-led public education lobby.

OEA can be tough on Democrats as well.

In the February 2010 special legislative session, Rep. Ben Cannon (D-Portland) introduced a modest school-reform bill. OEA did not like the bill, which died quietly.

When the union made its 2010 election picks, Cannon was the only incumbent Portland lawmaker not to get OEA's endorsement.

"I was disappointed," Cannon says. "I have been one of the most outspoken advocates for increasing the level of investment in education. My wife is an OEA member and I am a teacher myself.” 

If Kitzhaber had to face down Richard Sanders alone, he'd probably be outgunned.

But the 30-30 party split in the House gives Kitzhaber some unlikely GOP allies: Wingard, who works for an online charter school when not legislating, and Rep. Dennis Richardson (R-Central Point), co-chairman of the budget-writing Joint Ways and Means Committee who makes Wisconsin Gov. Scott Walker look like a moderate.

In the Senate, Education Committee Chairman Mark Hass (D-Raleigh Hills) is mostly in lockstep with Kitzhaber.

And unlike in previous legislative sessions, the union faces an organized coalition of advocacy groups also aligned with Kitzhaber.

Those groups, which represent thousands of parents, many of the state's largest employers, and influential foundations, can help Kitzhaber bring pressure to bear on OEA.

There's perhaps no better example of the new face of K-12 advocacy in Salem than Sue Levin, executive director of Stand for Children. Elfin, with a mop of black curly hair, the 47-year-old Levin hardly looks like a threat to the country's strongest teacher's union.

A co-founder of the women's clothing company Lucy Activewear and adviser to startups, Levin brings a tough, bottom-line focus.

She's good at what unions excel at—organizing. Last year, Levin sat down with representatives from the Oregon Business Association, several big-district superintendents and the Chalkboard Project.

The groups agreed on a common, one-page agenda, which dovetails with Kitzhaber's and is aimed at improving schools rather than just asking for more money.

"Stand [for Children] believes Oregon schools should be well funded and high functioning," Levin says. "Well funded does not guarantee high functioning."

Part of what galvanized advocates was Oregon’s showing in the federal “Race to the Top” process in 2010. 

The Obama administration dangled billions of dollars for states that could demonstrate they were aggressively pursuing effective new approaches. Oregon placed 33rd out of 40 states that applied for the money.

Sue Hildick, Chalkboard's president, says that debacle opened people's eyes.

"Oregon is at the bottom in terms of having progressive conversations on how to move the bar on student achievement," Hildick says. "Race to the Top exposed that. In the past, we have focused so much on the number, it has been hard to move the debate beyond that.” 

The upshot is this: When Kitzhaber sits down with Sanders and OEA to talk money, the weight of groups that used to simply push for more dollars will be with Kitzhaber, not OEA. That's a big difference. 

"In the past, the debate usually started and pretty much ended with 'the [K-12 fund] number,'" says OBA president Ryan Deckert, a Democratic former state senator. "Now we're talking about governance and achievement and how to spend what we have more efficiently."

Kitzhaber and Sanders have met a few times so far, without coming to any resolution.

Sanders says his members are listening and open to change, but "want some hope" from Kitzhaber. That could take the form of promises to seek future new taxes on the rich, to reform the "kicker" law, or to reduce the number and value of tax breaks corporations get.

"Our members have made sacrifices," Sanders says. "If people focus on the wrong problem and want to make the union the enemy, that's really hard."

Given OEA's power and Kitzhaber's tendency to get frustrated, it's worth looking for clues as to how serious he is. Two of the personnel choices he's made so far show education insiders he's taking an independent approach.

First, he selected former Portland School Board member and two-time GOP gubernatorial candidate Ron Saxton to lead his K-12 “budget work team.” Now an executive at Jeld-Wen, the Klamath Falls housing-products manufacturer, Saxton is no union sympathizer. 

As his staff education adviser, Kitzhaber chose former Springfield Superintendent Nancy Golden. 

That's a big shift. Kitzhaber's Democratic predecessor, Gov. Ted Kulongoski, named OEA president James Sager his education adviser and later made OEA lobbyist Chip Terhune his chief of staff. Kitzhaber has said he is willing to “burn all his political capital in six months.” 

"I have been clear from Day 1 that changing the funding and governance systems for public education in Oregon is a heavy lift,” Kitzhaber told WW. 

"I have discussed the need for change and specific proposals with a wide range of stakeholders, including school districts, teachers, parents, legislators and the OEA," he said. "Although we don't always agree, their input is critical to ensuring we design a workable system that delivers better results."

Advocates are eager for him to strap on his weight belt and start lifting today. 

"I think what he does in the next six months will tell the tale of his entire term," Chalkboard's Hildick says. "The governor needs to use his political capital now.”