Gov. Linda Lingle gives her State of the State speech this morning in a climate of economic uncertainty, as people worry about their jobs, their savings and their home mortgages and whether state government is up to the task of responding to an unprecedented drop in revenue.

With less than two years left in her second term, Lingle has to help guide the state through what could be painful spending cuts and politically unpopular ideas to raise revenue.

Unless steps are taken, the state has estimated a $75.6 million budget deficit for the fiscal year that ends in June, a $315.4 million deficit in fiscal year 2010, and a $549.8 million deficit in fiscal year 2011.

"It's certainly an unprecedented situation in the state's history," Lingle said in an interview. "If you compare it to any year that I've been here, it will be the toughest year from a budget point of view."

The Lingle administration has offered several suggestions to close the deficit, including cutting the salaries and benefits of state workers, diverting money from special funds and the Honolulu rail transit tax, higher taxes on cigarettes and alcohol, and repealing high-technology investment tax credits.

OUTREACH EFFORTS

The Republican governor, more than at any time since she has taken office, has also been more open and accessible to Democrats who control the state House and Senate. Both the governor and state lawmakers have spoken publicly about the importance of collaboration and have been meeting privately on a strategy to close the deficit.

But there is still significant frustration among lawmakers who believe Lingle has not adequately explained the severity of the budget situation to the public and has not offered specific solutions. Many lawmakers also believe that Lingle's outreach is an attempt to avoid being perceived as the one most responsible for spending cuts.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), who is widely thought to have among the best instincts on budget matters, may suggest his own spending restrictions to fill the vacuum of concrete proposals. The speaker has been telling colleagues to prepare for revenue projections to go lower after the state Council on Revenues meets in March to update its forecast.

The revenue free-fall is unique because of its size and swiftness. Within the past year, projections have tumbled from 4.1 percent growth to a 3 percent decline.

"It's a very large amount in a very short period of time," Lingle said. "We've had reductions before from the Council on Revenues, but nothing of this magnitude in such a short period of time."

Outsiders watching the pro- cess unfold believe there has been a lack of information from the state since the governor's two-year budget proposal was eclipsed by the council's lower revenue forecast. The options outlined last week by Georgina Kawamura, the state's budget director, did not include much analysis or background data. Honolulu officials, in particular, were upset that the rail transit tax was mentioned as a possible source of revenue by Kawamura and state lawmakers without more explanation.

"Even with the menu, I don't see the creativity," said Jim Shon, a former state legislator and charter school administrator. "One of the fundamental things that faces the state is how do we absorb the pain as painlessly as possible, particularly in terms of the level of services?"

Shon added: "I really think the state has been caught flat-footed in a lot of this stuff."

CRITICISMS PRO AND CON

Randy Perreira, the executive director of the Hawai'i Government Employees Association, the state's largest public workers union, said the Lingle administration has not shared enough specifics. He said, however, that he was encouraged the governor has said she would consider revenue-generating options — even legalized gambling, which she has opposed.

"I don't think anybody, neither the governor nor the Legislature, wants to get caught taking the blame. And that's unfortunate," Perreira said. "Sometimes, beware what you've asked for, you might just get it. They have that responsibility and they're going to have to take the bullets that come with it. To some degree, I trust that she's very concerned about being fingered as the one identifying all the budget cuts. But it comes with the job."

State Rep. Gene Ward, R-17th (Kalama Valley, Queen's Gate, Hawai'i Kai), said the complaints by some Democrats in the House and Senate are part of a "cat and mouse" with the governor. He said Lingle has been optimistic about the state's ability to respond to the economic downturn and he trusts she will come up with creative and innovative ideas.

"We can make lemonade out of lemons," Ward said. "I think she's been upbeat and positive. I don't see her worried or nervous. I think she knows, like we know in the finance community, there are a lot of pots of money. It's really the cash flow and a prioritization that we have to work out in a very consensus kind of manner."

Ward, like state Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai), did on opening day last week, also criticized the news media for what he described as the overly negative coverage of the economy.

"You guys who buy the ink by the barrel are really doom and gloom," Ward said. "If people lived by the headlines, they'd say, 'We're going to hell in a handbasket.' There's no hope left. There's no choices. Every statistic is a downturn. Every attitude is, 'Oh, we're in really deep kim chee.' "

Lingle, as the state's chief executive, often gets disproportionate credit and blame for the economy even though state government policies have only a modest influence on economic cycles. The governor has said her administration's fiscal management helped create the state's record budget surplus a few years back. She has described the economic downturn as more national and global in scope than anything caused in Hawai'i.

State Sen. Shan Tsutsui, D-4th (Kahului), the vice chair of the Senate Ways and Means Committee, said Lingle has shown signs of being more cooperative with Democrats. "She's trying to engage more with the legislators, and having her department people try to be more accessible," he said. "I mean, there's a lot to do, and we have a lot of work that we're going to have to do. But I think it's a good start.

"Quite frankly, I think the governor realizes she can't do it alone. And we, as legislators, we'll take whatever help we can get."

POLITICAL PROBLEMS

State House Vice Speaker Michael Magaoay, D-46th (Schofield, Mokul''ia, North Shore), noticed that Lingle dropped by his office and several others during opening day receptions.

"Right now, the governor is being very amicable as far as willing to work with us," he said. "She has to because we're in this big canoe. She has to want to be part of it. If she's not part of it, how do we offer these solutions as a state?"

Over the past few months, Lingle has been going through what many observers consider a rough patch politically.

Her decision to skip a meeting between governors and then-President-elect Barack Obama on the Mainland in December was seen as an uncharacteristic public-relations mistake. She backed away this month from pressing lawmakers to give up pay raises, calling the issue "really quite small in the scheme of things." The governor said she had not realized when she made the proposal in December that, while raises for her administration took effect last year, lawmakers did not receive their significant raise until this month.

The governor, who has had a good relationship with many Native Hawaiian leaders, was hung in effigy this month at a Hawaiian rally over ceded lands. Lingle has asked the U.S. Supreme Court to overturn a state Supreme Court ruling barring the state's sale of ceded lands until Hawaiian claims to the former crown lands are settled.

Lingle said she believes her ability to work productively with the Legislature is at its height. She said she has earned public trust through her track record on the budget. She has also gotten to know more lawmakers than during her early years as governor.

Her administration, in consultation with lawmakers, has launched major transportation and recreational improvement plans. A consensus has also been reached between the administration and lawmakers on moving forward with alternative energy proposals, although the details are still being discussed.

"I think this session has the ability to be the best one that we've had, which is ironic considering the fiscal challenge that we face," Lingle said.