Here are excerpts from Gov. Neil Abercrombie’s State of the State address yesterday before the state Legislature:

This new day begins with an honest account of the state of our government.

Seven weeks ago, when I began my term as governor, I assembled a team of talented and dedicated public servants, and I asked them to make an immediate assessment. Today, I give you our report. What appears on paper as an $844 million fiscal deficit through the next biennium belies the fact that there is also a severe operational deficit in government. In other words, as difficult as it will be to balance the budget, that effort will merely be life support for what has become a battered, under-resourced, and often dysfunctional democracy.

A weakened government affects everyone — business owners waiting for permits that are piling up in offices with a fraction of the necessary personnel; school children without proper tools to learn; public facilities in disgraceful disrepair.

We cannot take full advantage of the rise in visitor arrivals because we are not able to maintain these public facilities or invest in the culture and arts programs that make our communities stronger and make those visitors want to return.

Public employees steadfastly perform their duties in an increasingly demoralizing work environment. Furloughs and hiring freezes that supposedly saved money have sometimes resulted in more expensive private contracts and excessive overtime pay.

Basic operations of government are stymied by an information management system that hasn’t been upgraded in decades. And as our capacity to provide core services has diminished, our tax dollars have become vulnerable to lawsuits and expensive court orders.

Meanwhile, we continue to send billions of dollars out of our islands to pay for food, fuel, and other basic goods and services that we could and should produce right here. Worst of all, we have put off making the sacrifices necessary to provide for the education, care and financial security for our children and future generations.

And as we suffered through this erosion of capacity and public confidence — distracted by the question of who was to blame for all this — we are seen as protecting narrow interests to the detriment of all. We have been steadily losing our ability to work together and the trust of the public that we can reverse our course.

The breakdown of our government is tearing our social fabric and undermining our economic recovery.

As governor, I will take full responsibility for our current situation. But with that responsibility comes an obligation to tell the truth. The truth is that the canoe, which is our beloved Hawaii, could capsize. We are in that unnerving moment when we could all huli. All of us are at risk and we have to face this.

GOVERNMENT SERVICES

We start with restoring critical government services.

Tax revenues will increase as the economy recovers, but that recovery will be stalled as long as there is a fiscal deficit and a government incapable of performing core duties.

I am putting forward a plan that will balance the budget, reallocate public resources to the most important government priorities, and restore the basic functions of government.

Some of these proposals have been presented and discussed in the past in the Legislature. But in the present context — with the challenges facing our state, with long-term liabilities that can no longer be ignored, and with new possibilities for collaboration with the executive — we can look at these ideas with fresh eyes. Proposals that may have been rejected in the past are not only possible, but likely necessary today.

I want to credit past legislatures for bringing us this far along the path of dealing with the fiscal crisis. What follows are some of the measures we will now need to address.

» I will be filing a bill to modernize the terms of our employee retirement system to reflect the economic and social realities of today, so that it can be sustained into the future. Absent action in this regard, the retirement system itself is in jeopardy.

To this end, I am proposing that we end the current practice of state-funded reimbursement for federal Medicare Part B benefits for Hawaii government employees. I am personally one of those recipients of this benefit from my previous service in state government. But it is a bonus paid for by taxpayers that can no longer be justified in light of our current fiscal and social crisis. I did not earn it and cannot justify asking taxpayers, public and private, to pay for it.

» I am proposing two fixes to the tax code that will increase revenues to the state. One is a repeal of the state tax deduction for state taxes — an absurdity in the tax code, the elimination of which is long overdue. This change will affect all taxpayers who itemize, so we will phase in implementation for middle-income earners to lessen the immediate effect.

» The other fix is to implement the recommendation of the Tax Review Commission to treat pension income like all other income for tax purposes, as is done when preparing federal taxes. My proposal includes a provision so that those who are most dependent on their pensions will not be taxed.

» I am proposing what is an overdue increase in the alcohol tax and will also propose a fee on soda and similar drinks. We can no longer ignore the fact that consumption of these and other such products contribute to rising public health costs. Revenues from these fees will be used to repair the public health infrastructure and also to fund prevention and education programs.

» I expect collective bargaining negotiations to be conducted in good faith and with common goals in mind — to achieve savings without disrupting service to the public, to keep state employees on the job with paychecks for their families, and to exercise creativity and long-term thinking in the bargaining process to improve the work experience and achieve a resolution of the crisis of unfunded liabilities in pension funds and runaway health costs.

» We need to ensure that our visitor industry is sustainable by bringing the impact fees paid by the increasing number of timeshare occupants into alignment with hotel room occupants who pay the transient accommodations tax.

» I will also reallocate funds from the Hawaii Tourism Authority to basic government services such as environmental protection, improvements to public facilities, and advancing culture and the arts. The amount we are spending in the name of marketing Hawaii has grown disproportionate to the amount we need to spend on Hawaii’s own infrastructure, social as well as physical. We need to reprioritize and reinvest in our Hawaii — in the things that make our islands unique.

» Now, I must address perhaps the most emotionally trying subject we face. We will have to scale back on those social services for which funding no longer exists. There are some contracts entered into by the previous administration that assumed the existence of additional federal funds for Temporary Assistance for Needy Families. These unfunded contracts are for worthy programs, and we must now find new ways to support our neighbors.

» We must acknowledge, without flinching, the fact that the rising cost of health care also requires that we cut back on benefits provided to Medicaid patients in the coming years in order to sustain health coverage of any kind for eligible individuals and families. This is one of the most difficult things I have had to come to grips with as governor, but we cannot and will not avoid it or evade the necessity of confronting the issue. I am calling on community organizations, private foundations and all of us to work together with state agencies in helping to absorb the blows that these changes will bring.

All told, this plan will allow us to reduce and in time eliminate our fiscal deficit and to turn around our operating deficiencies in government. This plan will speed up our recovery, result in increased revenues and create a healthy, functioning government that can serve the public good and restore confidence in ourselves.

This proposal is presented as a package for consideration. I am wide open to other ideas from the Legislature and the community. But make no mistake, we cannot and will not entertain ideas that are designed simply to shift responsibility to someone else or to some future time. In the end, we must come to an agreement now that is balanced in its impact, that is adequate to restore the functions of government, and that does not create counterproductive barriers to economic recovery.

The challenge before us is not to balance a budget. Our challenge is to ensure that our values and priorities are reflected in the decisions we make and actions we take. The time for debate — debate which merely goes through the motions, or rhetoric for the sake of a safe harbor political agenda — has expired. Everyone must be prepared to contribute.

NEW DAY WORK PROJECTS

For my part, as governor, I propose the New Day Work Projects.

In the time I have been in office, our team has been preparing to launch the central part of our economic strategy — a broad-ranged series of capital improvement actions to be called the New Day Work Projects.

The New Day Work Projects will directly attack unemployment and jumpstart business activity. It will provide an economic boost that will reverberate throughout the state. We will utilize the bonding power of the state, partner with willing private parties, streamline processes and provide work that will result in paychecks for families across our islands. We will take a systematic and integrated approach to the New Day Work Projects to ensure broad distribution of economic benefits, and we will be thoughtful about the projects we select to make sure they match our long-term priorities.

» For example, we have ambitious capital improvement plans for the University of Hawaii system, including the UH-West Oahu campus and the Palamanui campus in Kona, which will provide new educational opportunities for students. And our Department of Transportation is freeing a backlog of work to improve our roads, airports and harbors — a transformation of our infrastructure that will have widespread, positive effects on our visitor industry and local families for decades to come.

» The New Day Work Projects will look for long-range cost savings. Right now, for lack of action, we have state buildings that have been vacant for years, such as the Lihue Courthouse and the Kamamalu building on Richards Street. We will get these buildings back into working condition so that we aren’t wasting taxpayer money to lease additional properties. We will take cost effective measures to make state buildings energy efficient. This will result in long-term savings for taxpayers and lessen our dependence on foreign oil.

» I will also convene a group of experts and University officials to consider the future of sports and the future of development on Oahu to make a definitive decision on Aloha Stadium and any future stadium we might build. Other than maintenance related to health and safety, I will divert all other capital improvement dollars for Aloha Stadium to other projects. Right now, multimillion dollar plans to extend the life of Aloha Stadium by 20 years could take 40 years to implement. It is time to reprioritize.

» The New Day Work Projects will look to the future and what our community and economy will look like decades from now. For example, as Honolulu moves on its transit plans, the state will actively encourage and support attractive, sustainable transit-oriented redevelopment. The Legislature has proposals on these concepts, including looking at density rights and other zoning initiatives. I look forward to participating in the discussion and moving quickly.

EDUCATION

This will call for reinvesting in our future.

As we right our canoe, our top priority must be education. This past Saturday at Washington Place, both the superintendent of schools and the president of the University of Hawaii participated in our first Cabinet retreat.

» The Department of Education is on the cusp of transformative change as a result of winning President (Barack) Obama’s Race to the Top. I am totally committed to that effort. But to move this forward, we need an immediate resolution to the appointed school board issue. In the coming weeks, the Legislature needs to give me the enabling legislation allowing the governor to appoint the school board. The Senate Education Committee is meeting this afternoon and considering a bill that will create a clear line of accountability and direct appointment by the governor. I am already receiving applications and recommendations through the governor’s website that will allow me to move quickly. This is the clear will of Hawaii’s people. I am prepared to act now.

» As for the University of Hawaii, I have high expectations for how it will transform our state under President (M.R.C.) Greenwood’s leadership. Through its Hawaii Graduation Initiative, UH will increase the number of college graduates by 25 percent by 2015. We can achieve this goal by keeping education affordable and reaching out to students across the state who have not been traditionally well served at UH, including native Hawaiians and neighbor island students.

» The university is also the state’s think tank. The Thirty-Meter Telescope on Mauna Kea, and the Beacon health information grant at UH-Hilo are two examples of the kind of practical research and innovation that will provide jobs for our people and revenue for the state. Research programs at the university will play a big part in our economic recovery by bringing external dollars into our state and building innovative industries. The university’s current research activity brings $450 million to the table. I will strongly support measures to increase that capacity.

» For our youngest children, my office has been working with private and public agencies and will be utilizing federal, state and private resources to develop a leadership position in the governor’s office for early education. This person will coordinate efforts across departments and in the private sector as we lay the groundwork for the future establishment of a Department of Early Childhood.

ENERGY AND FOOD SECURITY

We will also move to ensure energy and food security for Hawaii. I have spoken of and sustained my interest in an independent Hawaii Energy Authority to move the clean energy agenda.

» However, I am encouraged by the ideas put forward by legislators and the energy community that propose a significant restructuring of the Public Utilities Commission to move energy projects and better connect our islands with the information and transportation infrastructure that is needed to make us more self- sufficient. I look forward to working with the Legislature to come up with a solution so we can move on these matters with dispatch.

» Jobs in energy, agriculture and environmental protection will be a cornerstone in a new sustainable economy in Hawaii. The Department of Labor and Industrial Relations is ready to deploy a $6 million federal grant to implement a plan to do the necessary workforce development activities needed to increase these green jobs in Hawaii.

» Another element of our economic security is increasing our broadband capacity. Simply put, our information highway is essential to the future of our islands. We have an outstanding plan produced by the Hawaii Broadband Task Force. Now we will implement it. The potential for Hawaii to be a model state and access outside funding is before us. Our broadband initiative will parallel what we will accomplish in clean energy, and it will be key to all our economic development plans.

» The Department of Business, Economic Development and Tourism will take the lead on these energy and broadband initiatives. We will also refocus our efforts in creative industries such as film and television–a $400 million industry that we can grow many times with smart investments and strong leadership. …

…» By far one of the biggest factors that is hampering government and costing taxpayers is our outdated information technology. The Department of Accounting and General Services and my office are preparing to launch an unprecedented public-private partnership to accomplish an unprecedented goal.

We are poised to transform our government and make Hawaii the envy of the nation in its use of technology.

A PONO WAY

Government is and should be the literal representation of us as people of Hawaii. My expectations are high.

I am asking every person — each legislator, administrator, business owner, worker, advocate, teacher, doctor, parent — each and every citizen to help restore our government, restore our sense of community and restore our Hawaii.

Let us right our canoe; Let us act in a pono way and begin our journey back to the heart of our island home with humble hearts and above all, with aloha for each other.

Imua Hawaii.