Gov. Linda Lingle said yesterday she is optimistic about Hawai'i's future but does not want to sugarcoat the severity of an economic downturn that has pushed the state's revenue forecast into the red.

"In order to maintain the public's trust and confidence, we must be open and honest about the nature and magnitude of what we are facing," the governor said in her State of the State speech at the state Capitol. "The reality is that we will have to make some unpopular choices that will reduce some services and cause others to be delivered in a different way.

"Not because we want to, but because we can't afford business as usual."

Lingle did not identify any new ideas to close the budget deficit but said state workers would have to accept some salary and benefit reductions and that tax credits, exemptions and deductions could be reduced or eliminated.

The Republican governor, in the most somber of her seven annual addresses, said it was a time of sacrifice and urged people to resist a search for blame. "This is a time of shared sacrifice when everyone must be willing to give up something," she said. "This is a time when we must rely on each other, because no one is coming to rescue us."

Lingle told reporters afterward that her administration would soon announce how it would close a $75.6 million deficit for the fiscal year that ends in June. The governor and state lawmakers will then work together over the session to reduce a $315.4 million deficit in fiscal year 2010 and a $549.8 million deficit in 2011.

Yesterday afternoon, Lingle asked lawmakers to take an additional $20 million from the state's rainy-day fund to get through this fiscal year. The governor previously had said she would ask to transfer $40 million from the rainy-day fund, so her request now stands at $60 million.

The additional $20 million from the rainy-day fund, combined with $31 million extra the state has learned it would get from federal Medicaid reimbursements, would bring the administration closer to erasing the $75.6 million deficit this year.

Lingle said she also wants to meet with county mayors and union leaders before publicly discussing some of the budget options, particularly those that deal with collective bargaining.

DEFERRED RAISES URGED

Some lawmakers who have been eager for Lingle to be more specific about the budget deficit were disappointed.

"I did not hear any of those specifics. And I don't know whether it's still in the works or what," said state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha). "But I was disappointed that we didn't have those specifics."

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said he appreciated the governor's overtures about collaboration and is optimistic that "we'll get the job done."

Along with her request to divert more of the rainy-day fund, Lingle yesterday also recommended a bill that would help replenish the fund during times of budget surplus. Money in the fund today comes from the state's share of a settlement with tobacco companies over the health-related costs of smoking.

In the theme of shared sacrifice, the governor backed a bill that would preserve health, retirement and other benefits for state workers if furloughs are used to close the deficit over the next few years.

Lingle, arguing that state leaders should lead by example, said the state should defer for two years the salary increases for legislators, judges and senior executive-branch officials that are scheduled for 2010 and 2011. The bill would not apply to pay raises that took effect last year and this year.

COMMUNICATIONS, FOOD

In her speech, Lingle highlighted previously announced plans to increase the use of alternative energy, improve highways to enhance traffic safety and reduce congestion, and embark on a "recreational renaissance" through investments in parks, trails and small-boat harbors.

The governor outlined two new proposals that are also being discussed by lawmakers: the creation of a Hawai'i Communications Commission to regulate communications services under one agency and help improve broadband access; and food self-sufficiency to promote locally grown produce and meats and help preserve agriculture.

Lingle also used her speech to further explain her reasons for appealing a state Supreme Court ruling on ceded lands to the U.S. Supreme Court. The state court has ruled that the state could not sell ceded lands until Native Hawaiian claims are resolved. The governor said the issue is not whether ceded lands should be sold, but whether the state has clear title to the land that was transferred by the federal government after statehood.

"I call upon all who cherish what is the essence of Hawai'i to come together with a willingness to understand and respect the nature of this case and it's importance to the future of our state," she said.

THE TRANSIT TAX

Honolulu Managing Director Kirk Caldwell said he was disappointed Lingle did not mention the city's $5.3 billion commuter rail project as a means of traffic relief and economic stimulus. He said he also hoped Lingle would table a suggestion to divert money from the transit tax.

Last week, the Lingle administration suggested that one year's worth of proceeds from the transit tax — about $165.3 million — could be transferred to the state's general fund to help close the budget deficit. The tax could then be extended for a year beyond a scheduled 15-year sunset to make up for the loss.

"I think most people believe it is ill-conceived, improper and illegal, and it should come off the table now," Caldwell said.

Outside the Capitol, more than 100 people turned out for a rally urging preservation of state spending on social services. Wearing lime green T-shirts and waving signs, the advocates argued for the need to maintain health, human services and housing programs during the economic downturn.

"We serve underprivileged families, abusive families and at-risk families," said Cione Gumboc, who works at Comprehensive Counseling and Support Services. "We don't want funding to be cut, or there will be more dysfunctional families."