LITTLE ROCK, Ark. - Jan. 11 - Following is the prepared text of Gov. Mike Beebe's (D) 2011 state of the state address:

Mr. President, Mr. Speaker, Ladies and Gentlemen of the House and Senate, Constitutional Officers, Mr. Chief Justice, Members of the Court, and Distinguished Guests, Friends, and Fellow Arkansans:

Standing before you today, I recognize my good fortune, as a man and as your governor. A fortunate man because the voters of Arkansas have granted me a second term and allowed me to help continue our advancement as a state. A fortunate governor because I am able to give a speech today that is far different than those my fellow governors are giving throughout the country. In many states, the budget process has become one of triage, where leaders desperately are trying to save whatever services they can in the face of gaping deficits. Governors across this nation, both Democratic and Republican, have been forced to propose budgets that either raise taxes during tough economic times, or set thousands and thousands of children, families, and seniors adrift from programs they have depended upon for years. Education budgets are being slashed. Prisons are closing. Health-care programs are being stripped.

You have before you a list of these challenges facing other states. It's on your desks. It is only a sample of the unenviable dilemmas other state legislatures face this year. That we do not face such bleak crises here is a source of pride. Yet, it should not be a source of complacency or contentment. While our economy is recovering, we remain vigilant, because Arkansas could confront its own financial crisis in only a few short years. We have worked well together before, and that partnership must remain steady if we are to continue building measured and wise fiscal policies. Senator Bookout and I discussed this yesterday. All of us know that standing on solid ground today does not guarantee solid footing tomorrow.

Two of our three largest obligations for general revenue tax dollars are facing unsustainable growth in the next few years unless we take action. Both our Medicaid costs and our prison population are increasing, propelling us toward the unpalatable choice of raising taxes or cutting services. I have ideas to rein in these costs, ideas that I will detail in a minute. But I want you to keep these looming expenses in mind as I discuss our state budget.

My proposed budget for the coming fiscal year is generally flat. Nearly all agencies and services will remain funded at the same levels as this year. With our state economy recovering, we anticipate a small increase in revenue.

This additional revenue will allow us to further bolster public-education funding, keep pace with adequacy requirements, and continue our push toward excellence. Based on the study and recommendations of this legislature, my budget includes a two-percent increase in per-pupil funding. Our education system has come a long way in the past decade. And while we won't realize the full results of our work for many years, stronger standards and increased funding are already producing positive results. We've come from consistently settling among the bottom few states in the nation all the way up to number ten in the nation for K-12 education. And throughout the past year, I've sounded like a broken record at times celebrating that progress. Well, today, I'm done. I'm not talking about tenth in the nation anymore, because the new rankings have been announced for 2011 this morning, and Arkansas is no longer tenth. We're now sixth: the highest ranking our state has ever seen.

While this ranking is unprecedented and certainly praiseworthy, it does not signal an end to our work. Even as we see our education system rise in esteem and create impressive opportunities, we still lag behind much of the country in the results that system produces. We will tackle this issue through more than increased student funding. Money that comes into Arkansas meant to close achievement gaps is often stashed away instead of being spent efficiently on the very purpose for which it was intended. My office is working with the Department of Education on legislation to push more of that funding into active efforts to help our students, while still allowing districts to save some funding in reserve.

We have a much bigger hill to climb, however, when it comes to higher education. Our woefully low rates of degree completion must change if we are to truly claim educational success. With thousands more Arkansans now receiving academic scholarships, we have begun addressing the financial barriers that block some students from obtaining their degree. To counterbalance the sharp influx of new students on campus, I have requested a small one-percent increase in higher-education funding to help our institutions with their rising enrollment. It is likely that this funding alone will not cover growing operational costs for our colleges and universities, so I ask administrators to be measured and modest when looking at raising tuition.

With this increased enrollment and increased opportunity, I am committed to seeing increased responsibility for results. I want to tie funding for higher-education institutions more closely to coursework completion and graduation rates, not simply to enrollment. These tax dollars must produce college graduates, not just fill up seats. We can and must double the number of college graduates in Arkansas by 2025 if we are to stay competitive. This is a lofty goal aimed at the future, but we must begin implementing it today.

My proposed budget sets aside a relatively small amount of money for tax relief to continue attacking the sales tax on groceries. A half-cent cut is not much. I'd like to do more. But it is the most broad-based tax relief we can offer to our citizens at this time, and it shows our continued commitment and dedication to eliminating this regressive tax.

Beyond that, I don't see any room for additional tax cuts or significant increases in program funding. If we are to retain the enviable national position we now hold, we must remain cautious and conservative. If you make a proposal that seeks to cut revenue or increase spending, the only responsible approach is to state precisely where that money is coming from. If the proposal calls for a tax cut, then it is only fair to detail exactly which existing programs you will cut to offset that loss in funding. Abstract claims of hypothetical future growth don't change the immediate impact that a tax cut will have on state revenues and state services.

On the other hand, if the proposal boosts funding for an existing program, detail exactly how to pay for it. What other program will you reduce to find the money? What tax will you to raise to generate the necessary revenue? To choose any other option, to pass changes without regard to consequences, sidesteps our responsibility as leaders, and recklessly endangers the stability we've brought to our economy during these tumultuous times.

Everybody likes tax cuts, and politically, everyone wants tax cuts. But tax cuts are suited for times when economic conditions provide confidence that those cuts can be sustained. Arkansas's present economy, while stronger than most other states', is still in the middle of a tenuous recovery. Added to that are those significant cost increases for major state services that loom in the near future. Any cuts to Medicaid or corrections now will only expand the potential future gap we could soon face.

There is, however, immediate action to be taken in both Medicaid and corrections to bend that curve of unsustainable growth, to rethink how we operate these programs to better serve our people, and to reduce the demand for new revenue. There are no quick solutions and real change will take time. But we can begin to contain costs now and avoid the risk of this tide swamping our state budget in the next few years.

Over the past year, we have been looking at ways to change how we pay for Medicaid services in Arkansas, moving from an unsustainable fee-for-service model toward one that rewards results and not just treatment. This model has shown successes in other states, and we need to develop pilot programs to begin trying that here. We will also ask the Department of Human Services to explore with our Medicaid providers the possibility of a self-imposed tax, both to ensure that more funding will be available and to capture more Medicaid matching funds from the federal government. Similar steps, you will remember, a few decades ago, helped our nursing-home providers fend off a funding crisis. I admire those willing to stand up now and recognize the dangers that lie ahead if we continue down the same untenable track.

We will also continue exploring the savings we could realize through implementation of electronic health records. Our approach is cautious because of ongoing operations costs. But a stronger statewide system will help us improve care while reducing the need for repetitive and costly tests.

We spent our federal stimulus dollars wisely and saved much of our own Medicaid money, and that has bought us some time. Otherwise we would be facing a Medicaid-funding shortage right now. But, it is in Fiscal Year 2013 that we expect to see the heaviest impact of our cost demands for Medicaid services and that is why our actions must begin now, to slow growth and improve care.

In corrections, the costs will rise more gradually, but could be equally devastating to our future budgets. We warehouse too many people in our prisons, and at our current rate of incarceration, we will need a projected additional $1.1 billion just to supply enough beds for the next decade. The choice will be whether to raise taxes to pay for those beds, or release potentially dangerous criminals because we have nowhere else to hold them.

Conversations about our corrections system are too often dominated by fear and anxiety. Many discussions end in new laws with harsher sentences and longer prison terms. We can never fully predict what any person is going to do in the future. But to say that the only solution is to take no chances, to lock up non-violent offenders for longer and longer periods of time whatever the cost; to do this is to give up on trying to reform our corrections system and our society.

The steps we take in corrections reform will be rooted in common sense, informed by input from those who know the criminal-justice system best, and will always be undertaken with public safety foremost in our minds. We must appropriately punish lawbreakers, but, in some instances, non-violent offenders can repay that debt to society while remaining productive for their families and their communities. If they don't correct their ways, incarceration will always be an option.

Our drug statutes must put a stronger emphasis and heavier penalties on those involved with the drug trade, instead of giving equally harsh sentences to those merely arrested for mere possession or use. Previous legislatures have built a grid of sentencing guidelines, a grid that is often manipulated or ignored to put away offenders for even longer stretches of time. Those guidelines must be more closely followed, or perhaps, perhaps those jurisdictions that frequently exceed the grid should share in the cost of incarceration with our state.

Our Departments of Correction and Community Corrections will be instrumental in our reforms, and I will make sure they are functioning to the best of their abilities to provide confidence in their increased responsibilities. My proposed budget adds more than four-million dollars to the Department of Community Corrections, which will help accommodate the agency's anticipated larger role.

North Little Rock Police Chief Danny Bradley said it best at a news conference last week. He said: "We're not talking about being tough on crime, or soft on crime; we're talking about being smart on crime." When it comes to criminal activity, we've got to make sure that the bad guys who will hurt you -- the violent criminals or the career criminals -- are the ones we lock away and save the beds for. We will protect our people and not use up a bed that some kid who, given a second chance, could turn his life around, but still needs to undergo the consequences of criminal behavior in a different way.

When it comes to our infrastructure, Arkansas's highway system faces ever-increasing repair and expansion needs with a declining source of revenue. We all recognize the problem, and that we must re-examine how we fund our roads. I've made clear my position that we cannot move existing general revenue to pay for highways, and that new funding sources must be found elsewhere. It is a tough issue to confront in lean economic times, but Speaker Robert Moore is a tough man, willing to stand and lead that discussion, and I salute his personal initiative to do so.

This will not be a session where good fortune presents us surpluses and opportunity, nor will it be a session where we are forced into terrible decisions over whom to care for and whom to cut from needed services. Compared to most of the country, Arkansas is a stable and productive state for us to oversee. Together, we cannot jeopardize that. The fiscally conservative actions we have taken together, the General Assembly and Executive Branch, have saved us from the worst of the recession, so far. You have provided me with tools, including the Quick-Action Closing Fund, which have brought more than 26,000 jobs to Arkansas, offsetting some of the thousands that the recession took from our workforce. And with your help, we will continue to bring more. Our foresight will help us ward off future financial hazards, instead of facing the dire consequences that confront other states.

Teddy Roosevelt often spoke of what he called the honor of those in the arena, the mettle of those willing to become engaged and involved. To quote Roosevelt: "It is the doer of deeds who actually counts in the battle for life, and not the man who looks on and says how the fight ought to be fought, without himself sharing the stress and the danger." It's you people, who are willing to put your reputation on the line, who willing to put your name on a ballot, who are willing to take slings and arrows, and sometimes accolades, from people across the state. You people in the arena, with your own blood, and your own sweat, and your own tears -- the doers are the real champions. All of us, from time to time, have practiced Monday-Morning-quarterbacking. All of us, from time to time, have critiqued other people's actions. But remember, in the final analysis, the people who are actually in the fray, willing to do the tough tasks, are the ones that deserve our gratitude and our respect.

We saw this past weekend, in Arizona, just how real that danger can be for those who serve our democracy. All of you here are the men and women of that arena Roosevelt spoke of, who have chosen to stand and serve, to guide our Ship of State with wise and measured debate and deliberation.

And in the final analysis, our efforts for Arkansas are actually bigger than the sum of their parts. We will continue building on a foundation of education and economic development. We will balance our budget and serve as a model for fiscal responsibility in difficult times. We will take the steps necessary to make our government more efficient and more cost-effective. In time, the biggest impact will not be one easily measured, but in my opinion, it will be the most rewarding. It will be the change in the way Arkansas is perceived.

Beyond the numbers and budgets and bills is the evolving sense of who we are as a people and where we stand as Arkansans. Ladies and gentlemen, we refuse to be the brunt of jokes, a small, also-ran state mired at the bottom of national rankings. Our surge forward is being recognized today, as we speak, throughout the United States, and we need to acknowledge it ourselves as Arkansans.

As I pointed out earlier, there are still statistical positions that put us at the bottom -- the per capita number of Bachelors Degrees is one example, our health rankings and childhood obesity are another example. There are still many mountains for us to climb. We are still woefully inadequate in so many areas. But I told Boys State two years ago, and I've started using it ever since, I told them that if they hadn't been guilty of it, certainly there parents were guilty of it, I have been guilty of it, and I'll bet almost everybody in this room has been guilty of it -- and that is, that old trite phrase that we used to say all the time, "Thank God for Mississippi."

Have you said that before? Well, it's inappropriate anymore, people. You say you're irritated that Maryland is first in educational rankings, and we're only sixth. You say that you're irritated that we only created 26,000 jobs in the midst of the worst recession, instead of 36,000 jobs. Set your goal higher, understand who you are -- the rest of the country knows. They're taking note of what's going on in Arkansas. Arnold Schwarzenegger, before he left office earlier this week, would have given anything to be in Arkansas's shoes fiscally, and so would 46 other states.

It is up to us to realize our own potential, to continue our momentum, and to carry our state's mantle. Let's position ourselves so that, long after we are all gone, Arkansas will still be advancing, still be rising, and will remain admired throughout the country and throughout the world for our progress and for our people.

I am a product of the General Assembly. We will have our fights and our disagreements and our discussions as we should. But, I am jealously respectful of who you are and what you represent. I spent 20 years in the General Assembly and loved it and still do. You are the first branch of government established by our Founding Fathers for a very good reason. You're in charge of the public policy and the money. All of us must work together. The judicial branch and the executive branch stand ready and willing to work with you, but as the first branch, you are the ones who our founding fathers thought of first, and I have tremendous respect for what you do and what you go through. I've sat were you've sat. I've taken the phone call and the letters. I've been misunderstood and, unfortunately, oftentimes been understood. Together, let's put our head on the pillow when all this is done and say we left it better than we found it. And if that's our charge, that's our responsibility. God bless you and God bless the State of Arkansas.