Following is the full text of Gov. Jane Dee Hull's State of the State Address, which was delivered on January 8 in Phoenix, Arizona:

Thank you and good afternoon. It's good to be before the 45th Legislature. President Gnant, Speaker Weiers, Senate Floor Leader Brown, House Minority Leader Cheuvront, honorable members of the House and Senate, members of the Arizona Supreme Court, distinguished guests, and all Arizona citizens; thank you for that warm welcome.

Before I begin, I'd like to take the time to thank one special group in the audience. They put up with my long hours and the work I bring home. I'd like my family to know how much I appreciate them.

When I was a member of this honorable chamber, I sat, where you now sit, and heard four different governors deliver 15 state of the state addresses. Even with that history, I still am deeply moved. I'm reminded how fortunate I am to live in this great country and what a gift we have in our beautiful state of Arizona. Today, 29 of you are being sworn into the legislative branch for the first time. Whether you're new or returning for another term, I know that when you take the oath, we share the same feelings of opportunity and responsibility.

Today is a day to be with your families and colleagues. I know the sacrifices you and your families will continue to make. You're here today because you want to help make Arizona better. Personally, I know that last year I lived through the highest of highs and the lowest of lows.

On the high note, approval of Education 2000 will directly impact the lives of Arizona children. Those students are the ones who will set the course for Arizona for generations to come. Everyone who worked on that effort should be very proud of the strong coalition that made Education 2000 a reality.

On the other hand, the alternative fuels situation was a disaster. It is a chapter that never should have been written. But we did fix it. I want to thank you, especially those on the informal committee headed up by Representative May and Senator Guenther. I also thank Attorney General Napolitano for working with us to craft the legal solution. No, it didn't satisfy everyone. Most solutions don't. But we did what we had to do to stop the state budget from hemorrhaging. We've all learned a valuable lesson.

But we cannot let that episode overshadow the positive things accomplished by the 43rd and 44thLegislatures and my administration. Our work will go smoothly this session because President Gnant and Speaker Weiers are committed to improving the law-making process. Their work builds on the efforts last session by Senator Burns and the Arizona House to make the Legislature accessible on the Internet. I strongly support all measures designed to open government to the people. I am very optimistic about this Legislature. As I look across this chamber, I see many long time friends, some in a new role, all ready to dedicate themselves to a new era of cooperation and accomplishment. And I see new faces, ready to move Arizona forward.

One familiar face is the new representative from my legislative stomping grounds, District 18, Deb Gullett. Deb, I know that we will all gain from your policy experience. I see Representative Pete Hershberger. I had the honor of serving with both your father and mother in this chamber. As a parent, I know how proud they are to see their son sworn in today. Senator Marsha Arzberger is taking over where her husband Gus left off. She knows first hand the value of education and how it impacts economic development in rural Arizona. I know the contributions from new members will combine well with the experience of returning legislators and the result will be a successful legislative program for Arizona.

SUCCESS FOR ARIZONA

As we begin a new session, I want to share a thought on politics from Thomas Jefferson. He said, "Every difference of opinion is not a difference of principle.'' I believe we are always better served when we seek common ground over partisan advantage. We have more in common as Arizonans then we have differences as partisans. Or as former Majority Leader Burton Barr said, "Be kind to your opponents today because tomorrow they'll be your allies."

As a longtime veteran of the House and now as Governor, I have profound respect for the political skill that gets things done. But recently politics has become mean-spirited. It's easy to sit back and throw bombs, but it's more difficult to be a leader, the one who steps forward and acts. We now have a new opportunity, a leader in Washington who believes in the need to work together for the good of the people.

In Arizona we have a record of putting differences aside to accomplish change for the greater good. Look at our record of accomplishments -- all done by coalitions of people who recognized they have a responsibility to represent the entire state. Look at the big problems we have turned into positive programs through cooperation: Kidscare, Students FIRST, Education 2000, growth management, tax cuts and a new state hospital. Every major initiative of my administration has been a consensus effort. And the work is not finished. The unfinished business sets the agenda for 2001 and 2002. We set a direction in the last three years and with your help, I intend to finish the job in the next two years. First and foremost is Kidscare. Today, three years after legislative approval, 94,000 children who previously had no healthcare coverage are receiving the care they need. We still haven't reached as many children as we should. Enrollment was below projections, both in Arizona and nationally. As a result, Arizona left more than $70 million in federal funds on the table, helping no child. A recent national study found that the most effective ways to tell parents about programs like Kidscare are through word of mouth, the schools, and the media. We do publicize Kidscare and we're working with citizen groups and community health centers to reach more families. Unfortunately, Arizona law restricts using the schools to reach eligible children. I think it's time to use every resource, including our schools. There is no question that healthy children are better able to learn and more likely to become productive young adults. Let's assure that our children have the healthcare coverage they need.

Next, I want to mention Students FIRST. Phil Geiger and the School Facilities Board do an excellent job allocating funds to build new schools and fix existing ones. I've asked Phil to be my guest here today and I'd like him to stand and be recognized. We can say Arizona will soon have a public school system where every student can study in a safe and modern building. Thanks to Students FIRST, seven new schools are built and filled with students and another 125 new schools have been approved. The rest of our K-12 schools are on the way to having their deficiencies addressed. Now it is up to the school districts to make sure that these facilities are properly maintained. There are several of us who will be watching very closely. During the Students FIRST debate, we heard that we should concentrate on the education in the classroom, not the classroom itself. We decided to do both, to provide a quality education in a sound classroom. And we did so, by following Students FIRST with Education 2000.

The political pundits told Superintendent Lisa Keegan and me that Arizonans would never tax themselves, even to improve education. You had the courage to give the people the chance to prove those experts wrong and a majority of Arizona voters had the foresight to approve Proposition 301. Proposition 301 means $459 million will be available for education programs in just the first year. Our schools now have a dedicated revenue stream to improve learning. And even better, 85 percent of it will go directly into the K-12 system for teachers, smaller classrooms, fewer dropouts and improved classroom safety... and not one dime to administration. If you want to know more about the good things in Arizona classrooms, let me introduce you to Mrs. Lynn Alloway, a second grade teacher at Madison Rose Lane School. She is here today to represent all the teachers in Arizona who give so much to our children. Joining her are two of her students, Miranda Lewis and K.C. Dixon. I would like all three to stand and be recognized. Addressing education was the right thing to do, the best thing to do and the necessary thing to do.

I would be remiss if I didn't mention Growing Smarter -- Arizona's program to save open space and manage growth through improved local planning. We passed strong planning and management laws last year and they are changing how growth unfolds in urban and fast-growing areas. Citizens have new power when it comes to determining the future of their neighborhoods, including the right to vote on their general plans. Now, to make sure all Arizona communities can prepare for the future, I am asking for an appropriation of $800,000 for small community planning assistance. And to make sure our new growth management laws are effective, I will appoint a public/private Growing Smarter Oversight Council to keep an eye on implementation, compliance and refinement. Unfortunately, Proposition 100, a constitutional change that would have allowed some state land to be preserved without payment to the trust, was defeated.

Before we begin another costly initiative battle, I want to reach out to all those who care about growth and the value of our trust lands. I ask them to join me in discussing how we can best achieve our goals. I pledge my best efforts to form a working partnership with all those interested parties.

At the same time, the work continues on two important conservation projects, Lake Pleasant and Spur Cross Ranch. I've been working with Interior Secretary Bruce Babbitt, Senator Jon Kyl and Representative John Shadegg to protect land around Lake Pleasant. The defeat of public land exchange authority in Proposition 100 means it will take more time and money, but I believe we can still implement our agreement. We will work with the new administration in Washington.

Now the best news: Spur Cross Park is ready to move from dream to reality. We will be closing the agreement for its preservation in the near future. Our grandchildren will thank us for having the foresight to protect this astonishing property.

THE BLUEPRINT FOR THE FUTURE

Overall, the state of the state is good. We have made progress, but we are by no means finished. I have an aggressive agenda to fulfill our obligations to the people who sent us here. It outlines my major priorities for this Legislature. I say legislature, rather than session, because the issues I am highlighting today extend over the next two years. It is a "blueprint" for the future. The first order of business is the biennial budget we will complete this session. Saying it is the easy part. Getting the job done right is another matter. I have my budget proposal and I know your Appropriations Chairs Solomon and Knaperek have their own recommendations. I look forward to working with them. As we discuss the budget, it is essential that it adhere to these five principles:

First, the budget must be based on a defensible revenue estimate. Our economy is healthy but there are signs it may be slowing down. My budget reflects that possibility and follows sound, conservative economic principles.

Second, if the state's economic outlook improves and forecasts are revised upward, I will insist that all excess funds be deposited in the Rainy Day Fund. Until the Fund is made whole, it would be irresponsible to do otherwise.

Third, the budget must address the pay deficiencies for state employees.

Fourth, the budget must move us closer to a final resolution of Arnold v. Sarn.

And fifth, the budget must extend tax cuts and relief for another two years. That means 11 straight years of economic stimulus and tax relief for Arizonans.

Just one more thing: returning lawmakers know how I feel about budgets and bills that commit Arizona taxpayers beyond the two-year budget cycle. Let's just say I don't exactly warm up to them. I look at the budget as the most important legislative issue we must address. It is our blueprint for the Arizona we want to build. You will see that I recommend increased spending in some programs. These recommendations are driven by solid, measurable criteria: growth, inflation and our previous commitments. State services must keep up with Arizona's growth. For example, in the last ten years, we've opened miles and miles of urban freeways but added only four Department of Public Safety (DPS) officers to patrol them. As a result, I am requesting funding for 116 new DPS officers to protect our citizens.

Inflation still drives up certain costs, especially in health care. For example, medical inflation is a significant factor behind the increases in the Arizona Healthcare Cost Containment System (AHCCCS) program. Sound management helps but increased funding is inescapable.

Finally, we need to keep our commitments to vital state services like education, Kidscare and programs for the elderly.

Now I want to mention some specific areas that need attention. First, I want this legislature to work with me to lay the groundwork for resolving Arnold v. Sarn. I am committed to additional funding for this issue and details can be found in the report I submitted to the court on December 18th. Each of you will be given a copy. Perhaps more important, we must see this as a question of helping our most vulnerable population. The answer is not just more money. The answer is assuring that people are getting the services they need. When we have done that, then we've resolved Arnold v. Sarn .

My commitment to this issue is more than rhetoric. On my watch, the behavioral health budget increased 84 percent, up from $225 million in fiscal year 1997 to $415 million in fiscal year 2001. While this is positive, more must be done. My budget proposes an additional $155 million for Seriously Mentally Ill (SMI) programs, which more than doubles funding for these services. More important than the dollars are the services we will provide to a population that has been neglected far too long.

Next, I want to raise an issue critical to the effective operation of state services. That is our commitment to our state employees. Most of us agree that a small and efficient government works best. But we can't expect to keep the best and the brightest if we offer bottom-of-the-barrel compensation. Let me give you some examples. State employees are now paid 13 percent less than the market average. Nearly 41 percent of new employees leave state government within the first six months. Among all employees leaving, 55 percent cite low pay or a similar job with a local government for better pay as their reason for leaving. System-wide turnover is 18.5 percent. This is unacceptable. We need a modern, efficient state government staffed by highly educated and properly compensated employees.

Think about it: state hydrologists ensure our clean water supply; prosecutors put criminals behind bars and correctional officers keep them there. Believe me, this is not the place to cut corners. I am recommending we take a major step toward closing the gap with a state employee package of $290 million, including pay and benefits. Our employees should be fairly compensated and I know Senator Cirillo agrees with me.

Next, we must address the implementation of Proposition 204 as approved by the voters. Other programs like Kidscare addressed healthcare for children; now we must roll out healthcare coverage for the adults who qualify. Under my proposal, coverage will begin on April 1 and be phased in over a six-month period. It is estimated that 380,000 adults are qualified for the new program. We must implement this program in a prudent, responsible manner. Right now we don't know how many people will enroll. We don't know what the federal government will provide in additional resources. We don't know how much in tobacco settlement funds will ultimately be available. Most importantly, we don't know the impact of the counties' lawsuit. My plan takes these uncertainties into account.

First, in keeping with the language of the initiative, I have instructed the director of AHCCCS to reserve all available resources for the 100 percent of Federal Poverty Level (FPL) expansion. We know the cost of that part of the program will increase in the next few years, so we must make funds available.

Second, we are aggressively pursuing a federal waiver. Put simply, a waiver means the federal government will pay its fair share. Without a waiver and the federal funds it brings, Proposition 204 will cost the state general fund an estimated $900 million over the next five years. With the waiver, the cost to the general fund is around $100 million in the same timeframe. The choice is clear. We need the federal waiver and my budget recommendation is based on securing it. The other side of appropriating money, however, is the obligation to return a portion to the taxpayers. I said it last year and I'll say it again. Prudent tax cutting empowers our citizens and limits government growth, both of which improve Arizona. Arizonans have enjoyed some form of legislatively-enacted tax cuts for nine years in a row, something that can be said by no other state. Today, I am asking you to extend that streak. My budget includes $40 million in selective tax cuts targeted to help the economy. Arizonans will receive another $40 million in cuts through truth in taxation provisions. That's a total of $80 million over the next two years. I propose that our tax cuts build upon our success in creating high-paying jobs. In particular, I suggest that we: Target a tax cut to high tech companies. They bring wealth into our state through their exports and create quality jobs. I also suggest that we lower our insurance premium tax by 15 percent, to return it to a level that is competitive with other western states.

Additionally, I am asking all local school districts to let our school construction program work. Please stop unnecessary school bonds. The fewer bond issues approved by voters, the lower our property taxes.

There are some other priority issues I'd like to address. We must take action on the recommendations of the Brown Cloud Summit. Summit members, under the leadership of former State Senator Ed Phillips, will soon present the results of their work. We can be proud that Arizona has now gone three full years without a violation of the carbon monoxide standard and four years without an ozone standard violation. But we must do better. And the summit has given us much to consider. It looks like they are going to propose new, clean fuels and more efficient vehicles and equipment.

And speaking of cleaner burning fuels... House Majority Leader Allen and I agree we must do something to address this issue, particularly diesel. I know many in the transport industry are opposed to new fuel standards. I have a challenge for that industry: join with us to find a cheaper, cleaner and more effective solution. The health of our citizens depends on it.

Nothing is more fundamental to the continued success of this state than a certain and secure supply of water. Without a sustainable supply of water, our booming economy would grind to a halt. With that in mind, I appointed the Groundwater Management Commission to review and update our water laws. Those laws must be effective, fair and, most important, visionary. I am grateful the Legislature has refrained from piecemeal changes to these laws. I urge you to continue on that course. Soon our commission will have completed its work and we will have a comprehensive plan that is fair to all.

More immediately, I am asking you to continue to fund the Rural Water Studies program. These studies provide concrete information about water availability and help our cities and towns better address the issue of sustainability.

Along with our water supply, power is a most important resource. In Arizona, we have taken the time and effort to plan our deregulation correctly. I continue to monitor the electricity problem in California and, make no mistake, I will take whatever action is necessary to protect Arizonans and Arizona power. I will not let some bureaucrat in Washington give away our power because California wasn't smart enough to plan ahead.

For many hard working Arizonans, the dream of owning their own home is getting farther from reality. This shortage of affordable housing could reach the crisis point if we don't act now. We must establish the Arizona State Housing Finance Authority. This authority would link existing state and federal programs to spur the private sector's production of affordable housing. It would assist urban areas as well as focus attention on rural Arizona, where the needs are especially severe. We can do this with no new general fund money by better managing the resources already allocated.

Speaking of neighborhoods, I recently accompanied a team of officers as they shut down a meth lab operating on a quiet street right here in Phoenix. The sight of children growing up in such homes reaffirmed my commitment to our efforts to combat the plague of drug abuse. One tool already at hand is the Action Community program that combines state and federal grants into one comprehensive effort to improve neighborhoods. I'm pleased the first such grants are now working in three Arizona communities, including Yuma, Coolidge and Phoenix.

We also are applying new technology to protect our citizens. Last year, we enacted a bill to obtain DNA samples from persons convicted of murder, burglary and crimes causing serious injury. DNA is our cutting edge tool for solving crimes. That is why I am recommending $1.1 million to collect and analyze blood samples from virtually all state prisoners.

Our neighborhoods also will benefit from the $1.1 million in additional funds I'm recommending for our gang prevention program called Gang Intelligence Team Enforcement Mission (GITEM). I've asked one of our leading neighborhood activists to join us today. You know her from her work with NAIL'EM. Donna Neill. Donna, would you please stand and be recognized.

Our families also face a new threat, the threat of slot machines being moved into their neighborhoods. Other states have made the mistake of failing to update their gaming laws and creative slot machine manufacturers have taken advantage of loopholes in those laws. They have produced machines that they claim are merely raffles or lotteries but which look and perform like slot machines. Without legislation, we could see these machines at race tracks and, worse, in neighborhoods across Arizona. This is not what I want for our state, but I need your help. We must update our laws to prevent the spread of slot machines. We must do this as quickly as possible, before the vendors of these machines invade our state.

I've spent much of my time in office concentrating on children's issues. But I want everyone to know I'm just as concerned about the rest of Arizona. I am especially enthusiastic about programs that encourage home-based care for our senior population. We know the quality of life is far better when individuals can stay in their homes. And the cost of that care is less expensive. That's why I'm recommending $3.4 million in increased funding for community and home-based programs for the elderly. These are programs like Meals-On-Wheels, in-home assisted care and respite services. These essential programs help those who have already contributed so much to live with dignity in their own homes.

I know all of you also have constructive proposals for this session. I have been watching your select committees with interest and i look forward to working together on your ideas.

While we work hard at home, we cannot forget we are in the global economy and we cannot forget our neighbor to the south. We have a long history of cooperation and commerce with Mexico and I am proud that we continue to build on that tradition. In fact, in the last year, we set an all-time record of trade with Mexico. Our exports totaled nearly $3.5 billion, up approximately 50 percent from the prior year.

This is a period of historic change in Mexico. Having attended the inauguration of President Fox, I look to the promise of the coming year. While we differ on some specifics, we share a goal of progress along our border. I also know President-elect Bush will take an enthusiastic approach to U.S.- Mexico relations. Leadership from these new presidents will give Arizona an unprecedented opportunity to work with Mexico.

For my last topic, I want to look to the future. Our greatest challenge is still before us. For many years, Arizona's economy has grown easily and swiftly. Growth has been a mixed blessing. Jobs have been produced in record numbers, but average income levels continue to lag the nation by some 10 to 15 percent. At the same time, Arizonans are increasingly concerned about the impact of growth on our quality of life. The solution is straightforward: all of our policies and priorities should have at their core the expectation that they will produce better jobs, not just more jobs. We must enhance the "quality," not the "quantity" of Arizona's growth. That is why I appointed the Arizona Partnership for the New Economy, whose members have been brain-storming strategies to propel Arizona into a New Economy leadership position. The partnership's report will be delivered this week. It is entitled "A New Economy That Works For Everyone." It offers a framework to help communities plan their strategies. The framework is built upon strengthening four elements necessary for success. The four elements can be best described as learning, leading, linking and living.

First, all citizens must be able to employ the tools of the New Economy to continually increase their knowledge base. That's "learning."

Second, leadership in the New Economy will require investments that stimulate research and development as well as entrepreneurship to assure all these elements interact constructively. That's what we mean by "leading."

Third, the state should support the expansion of a telecommunications infrastructure to link all communities to the Internet and other communications tools. That's "linking."

While on the subject of linking, I would like to thank Secretary of State Betsey Bayless for her leadership in "E-Government" -- using the power of the Internet to bring more government closer to the people.

Finally, to attract, retain and develop the type of talent that fuels success, Arizona must support communities with vibrant economies and a high quality of life. These are the foundation upon which these initiatives will flourish. That's "living." To help with legislative action, the partnership has been working with many of you, including Commerce Chairs Barbara Leff and John Verkamp.

This session I hope to sign two related bills. One will greatly increase the availability of venture capital in Arizona. The other is an extensive re-alignment of our Department of Commerce in support of our New Economy strategy. You'll hear more about this restructuring in the coming weeks. Work on the New Economy must be combined with the results of my Task Force on Higher Education, which examined ways to increase access and ensure the quality of our university and community college system. A dynamic post-secondary education system is crucial to a strong Arizona future.

Arizona is on the move. We have always been a growth leader. Let's resolve to become a quality growth leader --- a New Economy leader. By broadening the state's participation in the New Economy, Arizona will ensure that no one is left behind.

Now it is time to wrap up my remarks. When I took office, I decided to be the Governor who tackled the big problems. I was tired of seeing our beautiful state come in last in terms of children, education and healthcare. Now, in my fourth year as Governor, I can say I'm doing just that. I changed the direction of the state. Every time I launched an initiative, they told me it couldn't be done. And every time, I did it.

Now it is time to follow the lead of those accomplishments. I look forward to more improvements in education, growth management, healthcare and the New Economy. I want to tell state employees we are finally paying them what they are worth. But I don't have to remind you that we work for the people of Arizona. All of the people of Arizona. Our responsibility is to them. Sometimes we can intervene and help them. Most of the time they are better served by our staying out of their way.

In closing, I'd like to share a story from Arizona's past. Harry Truman once visited Arizona. He was especially impressed with a tombstone he saw in, of all places, Tombstone. The gravestone belonged to an early settler who shared a name with a later Arizona governor. Truman called it the finest epitaph he had ever seen in the entire country. It read, "Here lies Jack Williams. He did his damndest."

I'll only make one promise today. I promise to do my damndest. I hope you will join me. Thank you, and God bless Arizona.