As Hawai'i residents and businesses try to make sense of the economic news dominating the local, national and global media, it is critical to keep an objective perspective on what we need to do as a state to overcome the immediate short-term economic challenges, while remaining focused on the long-term transformation of our economy.

Whether it's the recent news from Wall Street, the sub-prime mortgage crisis on the Mainland earlier this year, or the volatile cost of oil worldwide, factors outside our Islands, and not of our doing, are being felt in every community throughout our state. Residents are feeling the impacts in the form of higher prices and even job losses.

As residents and businesses cut back on spending and fewer tourists visit, state government feels the impact in the form of lower than projected tax revenues. If government spending continues unchanged, and the lower revenue projections prove accurate, the state is facing a potential $903 million gap between revenue and expenditures over the next three years.

The financial challenges we must overcome as a state are not unlike what every Hawai'i household and business deals with every day. Even in the best of times, balancing your family's or your business' budget can be difficult. If leadership is lacking, if there's no strategic plan in place, or if people are not on the same page, those challenges increase.

The need for unity and collaboration also applies at the state level, which is why all of us, whether we are part of a business, union, nonprofit organization, executive branch, the Legislature, or county government, must work together to overcome the negative effects that outside factors are having on our economy. The focus needs to be on solutions, not partisan politics.

Fiscal responsibility has been a consistent cornerstone of my administration for the past six years. It has allowed us to replace the $215 million deficit we inherited in December 2002 with record surpluses, including a $331.2 million surplus for fiscal year 2008. But the strength of our state's fiscal foundation also owes to the state's conservative budget structure mandated by law.

The state Constitution created an independent body of seven economists, called the Council on Revenues. Their job is to issue quarterly projections of anticipated tax revenues. In turn, the Legislature and the executive branch are required to use these projections in preparing the state budget. Once the budget is adopted, I, as governor, can restrict previously approved spending so that the state does not overspend when revenues do not meet projected levels.

The importance of strong constitutional-based fiscal controls by my administration is recognized by national bond rating agencies such as Moody's, Fitch and Standard and Poor's. Last week they retained our high bond rating and projected a "stable" outlook, signaling to investors that bonds issued by Hawai'i are a sound solid investment. This will help keep interest rates low as we borrow funds for airports, harbors, highways, state parks, the university and education construction projects.

Having an economic roadmap is also absolutely critical now. Over the past several months, in light of the lower projected revenues, my entire administration has been hard at work developing innovative ways to maintain public services at the highest positive level without raising the cost of living or the cost of doing business.

Starting July 1, we implemented a 4 percent restriction on discretionary spending for all government departments. We are taking necessary steps to control spending for new programs, implementing a hiring freeze except for critical health and safety positions, restricting out-of-state travel, and curtailing the purchase of new equipment and vehicles. We are also holding frank discussions with the employee unions to clearly outline the need to forgo raises until the revenue picture improves. Combined, these and other control measures are helping to narrow the revenue gap every day.

We are also implementing a five-point plan to stimulate the economy and encourage investment.

In addition to public construction and repair projects, we will continue to lower business fees and not increase taxes; attract more outside investment especially in our renewable-energy and high-technology sectors; maximize federal dollars and public-private partnerships; and increase tourism promotion and marketing.

While working collaboratively to overcome the current economic and financial challenges, we will continue to pursue a comprehensive strategic plan to transform our economy, ensuring Hawai'i can successfully compete in the global economy.

The core of this multi-pronged plan includes transforming our economy away from land development to one that capitalizes on the innovation capacity of our residents. A key component includes developing our work force to ensure that people have the education, skills and knowledge needed to compete successfully in the global economy, especially in the areas of science, technology, engineering and math, or STEM education. In addition, we will increase Hawai'i's energy independence by replacing our over-reliance on imported oil with renewable, indigenous sources of energy.

I firmly believe that as a state we are on the right track in pursuing these long-term goals.

I am also confident that the resiliency and innovation of our people will pull us through the current economic situation and result in a stronger, economically healthier state in the years ahead.