Excerpts from Gov. Linda Lingle's eighth and final State of the State address yesterday. To read the full text, visit www.honoluluadvertiser.com.

My administration began seven years ago during challenging economic times and enters its final year in an even tougher economic climate.

The difference between then and now is that the challenges we face today are so much greater, revenue loss so much larger, and the statewide impact so far-reaching that the decisions we have to make are much tougher.

Simply put, our state government is spending at a rate that substantially exceeds our revenues and at a level that cannot be sustained.

We have to create a government that is more efficient and able to provide essential services in a way that is affordable today and sustainable over time.

Visitor spending plunged, construction stalled, unemployment doubled over 18 months, and businesses and consumers uncertain about the future retrenched.

It will take many months before our economy begins to rebound, and likely years before it returns to its pre-recession strength.

Because of the tough lessons we have learned about sudden and severe economic downturns, I will be proposing a constitutional amendment to rename and revise the state's rainy day fund to create a Fiscal Stabilization Fund.

This fund will shield us in future years from the need to raise taxes during periods when the economy is contracting and citizens can least afford to pay more.

The Fiscal Stabilization Fund will ensure that in years when tax revenues are growing, 5 percent of the general fund's end-of-year balance will be placed in the Stabilization Fund prior to granting the currently mandated refund to taxpayers.

REACHING OVERSEAS

Among all the world's nations today, nowhere is the pace of economic activity more breathtaking than in China.

On my most recent visit, I was personally involved in kick-starting direct flights between Beijing and Honolulu, had substantive discussions on clean energy partnerships, and signed an agreement to establish the first showroom for Hawai'i products in Shanghai.

I will return to China in a few months to further strengthen our relationships and continue efforts to promote business opportunities for local companies.

We will join with business and cultural groups to celebrate Hawai'i Week at the American Pavilion this June at the Shanghai World Expo and celebrate the 25th anniversary of our sister-state relationship with Guangdong Province, China's manufacturing center and homeland to most of Hawai'i's residents of Chinese ancestry.

Being a state located in the middle of the Pacific Ocean, Hawai'i faces greater challenges than most states with similar size populations.

Because of our geographic isolation, we must do more than merely wait for opportunities to come to us.

We will be hosting government officials and others from 28 different countries this fall at the Pacific Asian Energy Expo and Summit, the Asia-Pacific Homeland Security Summit and the International Women's Leadership Conference.

It is vital for Hawai'i to have a cohesive and ongoing international outreach strategy that is advanced by state and county governments, business leaders, public and private universities and various NGOs, including our ethnic chambers of commerce.

It is this kind of comprehensive and integrated approach that enabled our state to be chosen as the site of the prestigious 2011 APEC Leaders Conference.

It was the team of federal, state and local government officials, visitor industry and business leaders along with the expertise of the East-West Center and support from almost every business organization in the state that produced the winning bid for APEC.

CLEAN ENERGY

This legislative session I am proposing a package of initiatives that builds upon the foundation of the Hawai'i Clean Energy Initiative, including a ban on the construction of new power plants that burn fossil fuels.

It is time now to show the public by our actions that we will no longer allow our economic well-being to be dependent on burning oil and coal that must be shipped here over thousands of miles of open ocean.

Another proposal will grant a general excise tax exemption to renewable energy projects of at least two megawatts that are placed in service between January 1st of 2011 and January 1st of 2015.

In the transportation sector we propose a rebate of general excise taxes paid on electric and plug-in hybrid vehicles as well as the charging stations that will make it practical and convenient to drive electric vehicles in our Islands in the coming years.

These proposals and others will serve as effective incentives for investment in clean energy, create new jobs and make a clear public statement that clean, renewable energy is a state priority.

Finally, I am proposing that property owners across the state be empowered to help create a green jobs sector through the establishment of a new program called Hawai'i Clean Energy Investment Bonds.

Similar programs, which already exist in 15 states, assist residential and commercial property owners with the upfront costs of installing clean energy systems or energy efficiency upgrades by allowing them to borrow the money from the state and then repay the loans over a period of years via an annual assessment on their real property tax bill.

This program spurs both immediate job creation and economic activity, and moves us closer to our goal of 70 percent clean energy by 2030.

TAX CREDITS

Recognizing the economic and social imperative of getting people back to work, I am proposing a package of incentives, including help covering the costs of health insurance, and income tax credits for the creation of new jobs.

The income tax credit proposal grants credits equal to the wages withheld by the employer for each new, full-time permanent position filled by a resident who is currently receiving unemployment benefits.

Also, we will actively work to expand our SEE Hawai'i Work program that currently reimburses an employee's wages and benefits for up to one year for companies that hire people off of the welfare rolls.

The expanded program will use federal stimulus funds to cover for six months parents who are collecting unemployment and whose household income does not exceed a certain level.

In addition, we will begin a program next month to allow workers on unemployment to volunteer their time at a business or non-profit organization while still drawing unemployment benefits.

This program will give workers an opportunity to demonstrate their skills to prospective employers and also help businesses evaluate an individual before they incur the cost of hiring them permanently.

Because the construction and visitor industries have been hit especially hard during the downturn, and have the capacity to significantly stimulate the economy, we are proposing a 10 percent construction and renovation tax credit for hotels and resorts.

At the same time we are moving forward with these job creation initiatives, nearly every business in the state is worried about scheduled increases in unemployment insurance taxes if the Legislature does not take quick action this session.

UNEMPLOYMENT TAX

My administration has been working with legislators as well as business and labor organizations to develop legislation that will moderate any increases while returning solvency to the unemployment insurance trust fund.

Under our proposal, employers will pay only 60 percent of anticipated tax hikes, saving businesses $497 million over the next four years.

We believe strongly that anything beyond this 60 percent threshold will cause large job losses.

EDUCATION

I came into office seven years ago believing we needed an entirely new governance structure in order to realize meaningful improvements in student achievement, and I enter this final year more convinced than ever that continuing the status quo structure of our public school system will never produce more than mediocre results.

Despite consistently spending more than $2 billion a year on education, we have not achieved the kind of meaningful results any of us can be proud of, and we continue lagging far behind other states.

The current school system lacks clear lines of authority, responsibility and accountability.

Because the Governor, the Legislature, the Board of Education, the Department of Education, and the superintendent of education all have roles to play, the public does not know who to hold accountable for consistently mediocre performance.

If President Truman had analyzed our public school system, he might have said, "The buck doesn't stop here, or there, or there — it just gets passed around and eventually lost."

I propose we offer our citizens the opportunity to vote on a constitutional amendment that makes the Department of Education a cabinet department with a superintendent hired by the next governor so all of us will know clearly "where the buck stops."

If you want to see what can happen when the governor's office gets involved with just a single aspect of education, look closely at the success of our robotics programs, which are among the finest in the country.

ROBOTICS

When our administration began a concerted focus on promoting science, technology, engineering and math programs through robotics in our schools in January of 2007, there were 95 robotics teams statewide.

Today we have 400 robotics teams, primarily because of federal and private funding and enthusiastic and dedicated volunteers, including many teachers and some principals.

But more importantly, robotics has proven that our children can excel in the very skills that will be in great demand by our state, national and world economies in the years ahead.

Every public school student in Hawai'i deserves the opportunity to participate in this kind of project-based learning program that can enhance their STEM skills.

That is why I have allocated $10 million in discretionary federal stimulus funds to place these types of programs in every public and charter school in the state by the start of the 2011 school year.

Regardless of the number of days remaining in my term, time will not alter our intentions or diminish our commitment to an even better future for Hawai'i.

It is my intention and that of my cabinet to make each and every day a day devoted to improving the well-being of our citizens.

I cherish the fact that I have been allowed to serve as the governor of the great state of Hawai'i, a place that is so deeply traditional and yet thrillingly young.

I know you agree that our Aloha state's greatest days are yet to come.

I stand before you rededicated to the job ahead!

Mahalo nui loa, and God bless Hawai'i and the United States of America.