PORTLAND - Gov. Ted Kulongoski told top business and political leaders Monday that higher education funding must increase in Oregon if the state hopes to be part of the "knowledge economy" of the future.

Kulongoski said his appointment last month of former Gov. Neil Goldschmidt as Board of Higher Education chairman signaled the beginning of funding reform, noting the Legislature spent less on public universities in 2001-03 than it did when Goldschmidt was governor in the early 1990s.

"This is one area we have consistently shortchanged in Oregon," Kulongoski told the second annual state economic summit.

"While the economy boomed in Oregon in the 1990s, we still continued to shift resources away from higher education, the one clear engine for future economic growth," the governor said. "This disinvestment must change."

It was one of the few remarks that drew heavy applause from the audience of more than 1,400 business, political and community leaders from all 36 counties who gathered at the Oregon Convention Center to hear a progress report on the ambitious "Oregon business plan" drafted last year.

The plan also called for improving the transportation infrastructure, giving Oregon a unique "brand" identity to market the state and its products, streamlining government regulations, expanding available industrial land and finding ways to increase international trade and compete in the global economy.

The driving force behind the plan has been Sen. Ron Wyden, who again served as the host for the summit.

Wyden praised the governor, a fellow Democrat, for shaping the plan and its 12 economic goals, but he also gave generous credit to his co-host, Sen. Gordon Smith, and to Oregon House Speaker Karen Minnis, both Republicans.

"We've never had anything like what you're seeing here," Wyden said.

"We are united behind a shared vision for moving our state's economy forward. Beyond the rhetoric and beyond the ideology, first and foremost we're Oregonians, and we're Oregonians who want to move forward together because we care deeply about the future of our state," Wyden said.

But the reception was markedly cooler than the first summit Wyden organized last year, just after Kulongoski had been elected governor but before he took office.

This year, instead of looking forward, the focus was on reviewing the progress made since setting statewide goals last year, and Kulongoski had to mix criticism with his praise for what he called significant accomplishments since December 2002.

Kulongoski noted the failure of the Legislature to create a rainy day fund to cover budget shortfalls and its refusal to use highway revenue to stabilize funding for the Oregon State Police.

The governor counted Oregon Public Employee Retirement System reform as one of his victories after it was listed as the top priority last year. Before Kulongoski was elected, the state was facing a potential $17 billion shortfall for PERS, which pays the pensions of teachers and other state workers.

But the governor worked with lawmakers to revamp the plan, trimming the level of benefits despite widespread complaints and a rush to early retirement by public employees trying to save as much of their pensions as possible before the changes took effect.

"The changes slashed the PERS liability by more than half," said Richard "Dick" Reiten, chairman of Northwest Natural Gas. "It will save Oregon taxpayers billions and the state from a fiscal calamity."

Reiten served as chairman of the business plan steering committee last year, a duty he formally handed off Monday to Bill Thorndike, president and CEO of Medford Fabrication.

Thorndike said the state has consistently suffered the highest unemployment rate in the nation for most of the past two years, but its manufacturing base has declined less than the national average. He also noted the state is one of the top in the country for growth in the number of young college graduates, who will help drive the transition to an economy based on a higher level of education and training.

But Smith reminded those attending the summit that basic family wage jobs will remain important to the economy, including timber and agricultural jobs.

The unemployment rate has hovered around 8 percent overall in Oregon since 2001 but in many eastern counties it has ranged from 16 percent to 20 percent for the past decade, Smith said.

"We need wood chips and computer chips," the senator said. "Family wage jobs are the best social service program available."

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