Excerpts from Gov. Linda Lingle's State of the State address at the Legislature yesterday:

2005 will go down in history as one of our best years ever.

Our gross state product — the most comprehensive measure of the economy — increased 4.7 percent in 2004. That is the biggest increase since 1991 and the fourth biggest increase in the nation.

We achieved longstanding goals — from opening a new medical school in Kaka'ako to establishing a refuge to protect our precious marine resources in the Northwestern Hawaiian Islands.

We strengthened our ties to Asia. Our delegation to China and Korea returned with significant agreements covering education and economic development.

We regained our fiscal equilibrium because we were willing to make the tough choices, and exercise restraint in our spending.

When I came into office in 2002, the state was spending $215 million more than it was collecting. Today, rather than red ink, we are projecting a $574 million positive balance.

Now is the perfect time to share the results of this success with the people who made it possible — taxpayers, who are struggling with the high cost of living, including skyrocketing housing prices and property taxes.

It is also the right time to address many unmet needs — from dilapidated school buildings, to a lack of access to healthcare, to deteriorating public housing and a growing homeless population, to overburdened transportation systems.

I am suggesting that we double the size of the state's rainy-day fund from $55 million to $110 million. Combined with the $188 million in the Hurricane Relief Fund, this is a good start in creating a cushion for those times when the unexpected occurs.

At the same time we are putting something aside for future unexpected events, people need help — right now — in coping with the high cost of living.

TAX RELIEF

I want to use about half of the state's $574 million surplus for tax relief for those who need it most.

The bottom line is that we are collecting income taxes from people who simply can't afford to pay them.

Given our current fiscal condition and projected future revenue, we can raise the standard deduction further than I suggested last year, to 75 percent of the federal level. Raising the standard deduction helps hundreds of thousands more people than the earned income tax credit.

I realize there are other points of view on how to get money back into the hands of our citizens, including (Senate) President (Robert) Bunda's call for adjusting the income tax brackets.

I like his approach as well. That is why I am calling on the Legislature to adopt both ideas.

Combining an increased standard deduction with a widening of the income tax brackets would reduce the tax burden by $86 million and benefit over 80 percent of taxpayers and their dependents.

It would mean that a family of four earning $50,000 or less a year would save an estimated $568 a year.

This proposal alone, however, is not enough.

TAX CREDIT, REFUND

In light of higher prices for so many necessities of life, I am proposing two additional tax relief measures this year in recognition of the reality that people across the state are facing, especially the hundreds of thousands who are living paycheck to paycheck.

First, I am suggesting that we grant a $100 per person tax credit to those households earning $50,000 or less a year in order to offset the taxes people pay on food, medical services and non-prescription drugs.

This tax credit would equal $400 for a family of four and would benefit 707,000 taxpayers and their dependents.

Finally, I am proposing a one-time tax refund of $150 per exemption for all but the highest-income residents.

A couple with two children would receive a check for $600 early next year. This one-time tax refund would benefit 857,000 taxpayers and their dependents.

If the Legislature enacts this $285 million tax relief package, a family of four earning $50,000 or less would receive $1,568.

I don't view this session as a fight between tax relief and more money for education or between education and saving for a rainy day, or between saving for a rainy day and securing our economic future through investments in new energy resources.

I view it as a chance to literally have it all.

Perhaps not in the exact form and amounts that each of us wants, but surely we can manage to compromise now that the treasury is full.

SUPPORTING EDUCATION

Almost all of us have been in a DOE or UH building that was run down — peeling paint, lack of electrical power, broken fixtures or worse.

And new housing developments have created overcrowded conditions at some schools.

I am proposing a dramatic increase of $132.5 million for K-12 public education, including $90 million in additional funds for school construction and repairs and maintenance.

This money is on top of the $570 million already appropriated but not yet spent by the Department of Education, for a total of $660 million.

Before we give the DOE a blank check, we must be certain we are getting our money's worth for the more than $2 billion we are already spending each year on K-12 operations, and the $570 million already approved to construct, repair and maintain our schools.

Besides the need for a robust repair and maintenance program and new school construction, the DOE is facing a severe teacher shortage. I am proposing four laws to immediately address the shortage:

1. Allow retired DOE teachers to be hired for difficult-to-fill classroom positions for 24 months without any loss of retirement benefits.

2. Start a Master Teacher Program that would pay a $10,000- a-year bonus to any of the 111 National Board Certified Teachers who agree to teach in an underperforming school for three years. They must mentor the other teachers and would be allowed to return to their original school.

3. Create an Emergency Certified Teacher Program that would allow anyone holding a bachelor's degree or higher to teach in the subject in which they have degrees as long as they complete the substitute teacher training program or similar course.

4. Use $500,000 to re-establish the Hawai'i Educator Loan Program, and reduce the amount of time you must teach from 10 to six years in order to qualify for loan forgiveness for tuition at any certified teaching program.

I have also included money in the supplemental budget for 100 more students in the College of Education at Manoa and West O'ahu and 150 more community college transfers.

The charter schools are an important adjunct to the traditional DOE schools. This important option for parents, students and teachers has never received fair and equal funding, and we should change that this session.

Also, we should give the charter schools their own school district so they are able to receive funds directly from the federal government.

This will be a net gain for our state school system.

I am also requesting that you remove the cap on the number of charter schools so that we can establish seven new charter schools around the state that would use environmental education as their foundation.

I view environmental threats as one of the most serious problems for us to address.

While public schools garner most of the education headlines, both good and bad, our university system is equally important and deserving of additional support.

Last month I proposed that the UH receive an additional $45.6 million in operating funds and $252 million more for facilities, including $175 million in private funding to make the dream of a UH-West O'ahu campus a reality.

HOUSING OUR RESIDENTS

A good education is still the surest way to a higher-paying job, but even with rising wages, the price of rental housing and home purchase is out of reach today for too many people.

And as anyone knows who has visited Ala Moana Beach Park, the breakwater at Kahului Harbor on Maui and other areas across the state, the number of homeless among us is growing.

It is simply not pono for our families to be living in cars, people to be sleeping in the doorways of businesses downtown or on picnic tables in our parks.

There is no one silver bullet to solve the problems of homelessness and affordable housing, but there are many good ideas that can and should be enacted.

We should begin by learning from our successes.

I am proud to report that the Department of Hawaiian Home Lands has awarded more residential leases and provided more families with opportunities for homeownership in the last two years than in the entire decade of the 1990s.

The department achieved this success through many innovative programs, such as leveraging federal rural development funds, preselection credit reviews and ongoing counseling to assure successful homeownership.

Such approaches can serve as a model for other affordable housing programs.

But we need more housing for our non-Hawaiian residents as well, so I am making good on my commitment to ask the Legislature to redirect Legacy Lands tax money from the general fund into our housing funds.

Coupled with this infusion of additional state funding, I am proposing that the Legislature authorize the use of special-purpose revenue bonds to encourage the construction of additional workforce housing across the state.

To address the problem of homelessness, I am proposing that we spend $10 million to renovate and repair existing homeless shelters, which have long suffered from neglect, and another $10 million in grants for supportive housing services.

Experience has shown that the homeless need more than just a roof over their head.

They need services as well — substance-abuse counseling, mental-health treatment and job training — that will give them the tools they need to stay off the streets.

Supportive housing provides all of that in one package.

I have submitted again this year a complete package of housing proposals, including: increased rental subsidies, a program to pay the first month's rent and security deposit, the lack of which keeps many people homeless; streamlined land-use processing, and a redefinition of affordable housing in order to qualify more families.

Lastly, we need to keep our eye on the ball and severely restrict the raiding of any of our housing funds, as has been done to the tune of more than $200 million over the last 10 years.

I am proposing a new law to require that any future diversion of funds meant to finance housing projects would need a two-thirds vote of the Legislature.

PROMOTING HEALTH

While tax relief, education and housing may be the state's most obvious needs, access to medical care and social services has also suffered during the lean years and now requires more funding.

Now is the time to move forward to extend Medicaid coverage to more low-income children and adults.

I am proposing programs to extend coverage to an additional 29,000 people over the next six years, with the majority of the cost borne by the federal government.

It is also time to restore dental coverage for needy adults, specifically preventive care for adults in the Medicaid program.

ENVIRONMENT

WE'VE ASKED FOR A RECORD

$92 million budget for the Department of Land and Natural Resources that is unprecedented in scope and scale.

The disrepair of our state parks deserves immediate attention.

I have asked you for an additional $10 million to repair our park facilities as well as additional funding to clean them more regularly and to provide nighttime security patrols.

And I am again calling on the Legislature to invest in the repair and reconstruction of our small-boat harbors.

I pledge my continued support for those programs and efforts that preserve and perpetuate the Hawaiian culture.

PROTECTING THE PUBLIC

The natural disasters of the past year made it clear that civil defense preparedness is a necessity, not a nicety.

Last month, I announced a comprehensive emergency preparedness package.

First, we must harden our public and private buildings to better resist natural disasters when they do hit.

Second, we must be better prepared to respond before and after a disaster strikes by modernizing our warning systems, stockpiling supplies, doubling the funds available to respond in the first hours after an emergency, and entering into an agreement with other states so we can call on them for aid when disaster strikes.

Third, we must create additional shelter spaces, including special areas for those needing medical care, and a place where people can bring their pets.

Finally, we must adopt severe penalties for those caught looting during or after a disaster and make it a serious crime to attack a civil defense worker.

ENERGY

Earlier this month, I proposed a sweeping set of proposals designed to move us from our decades-long overdependence on imported oil toward energy self-sufficiency based on renewable resources.

Weaning ourselves from oil won't be cost-free, but we must do so if we want our economy to survive the next time the price of a barrel of oil increases by 50 percent.

I am proposing a bold new initiative to make Hawai'i the center of America's development of hydrogen as an alternate fuel source.

Already internationally recognized leaders in this field have expressed interest in using Hawai'i as the place where hydrogen can move from the research phase into production.

Additionally, we need to provide expanded tax incentives for people or businesses who install energy efficient appliances — solar hot-water heating, photovoltaics or wind-energy systems.

We also need to encourage the development of biofuels as a substitute for oil — fuels through farming.

Just as we want to mandate 20 percent alternative fuels for electricity production by 2020, we also want to adopt a standard of 20 percent use of biofuels in gasoline by 2020.

The price of gasoline is just one of the challenges that we face when we drive each day.

Another is gridlock on our highways.

This is why I am seeking an additional $137 million for highway construction for projects such as the North-South Road and Kapolei Parkway on O'ahu, the expansion of Kuhio Highway on Kaua'i, the realignment of Honoapi'ilani Highway on Maui and the design of an afternoon contra-flow zipper lane on the H-l Freeway.

Along with improved traffic flow, we have an obligation to make sure that pedestrians are safe when crossing the street.

Just last week, another senior citizen was killed by a driver while crossing the street in a marked crosswalk.

I am proposing tough new measures to place traffic violators in jail and revoke their driving privileges for failing to yield the right-of-way to a pedestrian.

DRUG ABUSE

I am again calling on legislators to recognize that tougher penalties for repeat drug offenders and the manufacture of ice are essential if we ever hope to make a dent in this community crisis.

But we also need to increase prevention efforts. As an example, I am proposing $10.2 million in federal funds to expand the About Face and Healthy Lifestyles programs for at-risk youth and needy adults.

This is the final State of the State address I will have the privilege of making during this term of office.

I'd like to take this opportunity to thank the members of the Legislature for working with me to move our state forward.

While we haven't always seen eye-to-eye, the debate has benefited the public and often made the results better.