Hawai'i residents are reading and hearing a lot about negotiations with state employee unions. Our citizens are also keeping a sharp eye on the state's broader effort to address its budget shortfall resulting from the unprecedented global economic downturn. The public is engaged in the discussion and clearly wants to know more. Here are the facts:

Final tax collections for the fiscal year ending June 30, 2009, have confirmed a budget shortfall worse than the already bleak projections from the Council on Revenues. The state's cumulative budget shortfall over the next two years now stands at $2.8 billion.

The economic and fiscal circumstances facing the state today are significant and real. Just one year ago, the state enjoyed a budget surplus of $330 million. In a matter of months, the global economic crisis caused the state to face a loss of $2.8 billion in projected revenues.

When families and businesses spend less money because of a shrinking economy, and fewer visitors come to Hawai'i, the state collects less money in taxes. Stark reports such as the current 61 percent occupancy rate of hotels statewide and rates below 50 percent on the Big Island illustrate this reality with uncomfortable clarity.

Losses such as these in all sectors of the economy translate to a decrease in available revenues that state government has to spend on public services and programs.

This shortfall is not the direct result of anything the state of Hawai'i did but rather the result of the global economic downturn. The fact is the world has changed.

My administration has already accounted for $2 billion of the budget shortfall without savings in our labor costs. Cuts in discretionary spending; a freeze on most hiring, travel and purchases of new equipment; the restructuring of our long-term debt; the transfer of excess balances from certain special funds into the general fund; and the utilization of federal stimulus dollars enabled us to make up a large part of the shortfall. Despite these efforts, the state remains $786 million short of a balanced budget over the next two years. This is a real number and we all must come to terms with this new reality.

In June, I announced my administration's proposals to close the budget shortfall through labor savings. This was the first time we included labor cost reductions in our financial projections, despite the fact that 70 percent of our budget goes to pay the wages and fringe benefits of the 46,000 employees who work for state government.

Faced with significant revenue decreases, and the possibility that revenues could decrease even more when the Council on Revenues meets in late August, it would be irresponsible not to seek savings from the single largest expenditure in our state's operating budget — labor.

In good economic times, our labor force received healthy raises ranging from 16 percent to 23 percent over the past four years. Now, during these historically difficult times when our entire state is struggling economically, we are seeking reductions of 13.8 percent, which is the equivalent of three furlough days a month.

This is a very difficult position for me to take because I know it will cause hardships for so many families, but I also know in my heart it is the right thing to do to ensure our state's long-term viability and to avoid a California-like economic and fiscal disaster.

Furloughs along with other cost-cutting measures will be difficult for the public and state workers alike, but they are essential to closing our revenue shortfall.

In light of the July 2 court ruling against our furlough plan, my administration is moving forward on several tracks to resolve the budget shortfall. Because we believe that furloughs are still the best way to address the fiscal crisis, we will likely appeal the Circuit Court's recent ruling.

In the meantime, we are scheduled to meet with public employee unions tomorrow to negotiate furloughs. We are also developing layoff procedures, which may become a necessary but undesirable reality.

Some have proposed alternate means of making up the budget shortfall, including raising taxes, implementing a 5 percent across-the-board pay cut for state workers, a shortened furlough schedule or delaying judicial appointments. I cannot support raising taxes because it would cause further hardship for families and businesses, and delay our economic recovery. None of the other suggestions will produce nearly enough savings to solve the problem at hand. My administration's current proposals do.

It is my constitutional obligation to ensure the state operates with a balanced budget. We must live within our means, and that requires that we provide public services that the government can afford while maintaining service levels as best we can. After losing one-third of our expected revenue, we simply cannot afford to continue operating our state government in the manner and at the cost that we are currently. In order to overcome this period of adversity, it will require a dual focus to contain operating costs while also moving forward to spur our state's economic recovery. And it will require a shared sacrifice by all.