ATLANTA, Georgia — Jan. 12 — Following is the prepared text of Gov. Nathan Deal's (R) 2011 state of the state address:

Lt. Governor, Mr. Speaker, President Pro Tem Williams, Speaker Pro Tem Jones, Members of the General Assembly, Constitutional Officers, Members of the Judiciary, my fellow Georgians:

The address I deliver today is historically referred to as the State of the State. It is designed to convey my assessment of the condition of our State and its people with special emphasis on the budgets I present for your deliberation. With regard to our State and its citizens, I concur in the description found in the 1885 publication entitled The Commonwealth of Georgia, prepared under the direction of Georgia's second Commissioner of Agriculture, J.T. Henderson, which poses the following question:

"In general productiveness, in salubrity of climate, in the incomparable blessing of good water, in facilities of transportation, in educational advantages, in the moral tone of her people, and the almost unbroken good order of society, what State of our day and generation can justly claim a happier condition or a higher civilization?"

It is comforting to know that the things which truly define who we are as a State and a people have changed very little in 126 years. With regard to our State budget, however, it must be adjusted to reflect the financial realities of today. Those realities, unlike the natural resources of our State and the character of our people, are constantly changing and the budgets I submit to you today reflect those changes.

Today I will present two budgets. The first is an amendment to the Fiscal Year 2011 budget, which was adopted by the General Assembly last year. Since our 2011 fiscal year began on July 1, 2010, we are approximately half way through the budget period. I am reducing the revenue estimate on which the budget is based by over $27.5 million. The primary reason for this reduction is that revenues from fees are lower than projected. Even though there are some signs of economic recovery, I do not believe we should spend additional revenue, if actual collections exceed the estimate. One of the driving principles behind these conservative budgets is a commitment to replenish the Revenue Shortfall Reserve, sometimes referred to as our Rainy Day Fund. I commend you for raising the authorized limits of the Fund last year. It will help protect our future budgets.

Although I am lowering the Revenue Estimate for the remainder of the Fiscal Year, I am also proposing that 1 percent of the Revenue Shortfall Reserve be appropriated for K-12 education. This will cover the Mid-Term Adjustment for QBE (Quality Basic Education) and the shortfall for Non-Certified Personnel health insurance costs.

An important part of these budgets is curbing the growth of the number of State employees. Downsizing is a process that began several years ago. Now we are adjusting the authorized position count downward and eliminating about 14,000 positions which effectively freezes State employment at current levels. That is a reduction of over 10 percent. Many politicians have long talked about reducing the size of the government. My friends, we are doing it.

I also believe we should redirect some of our budgeted spending. I am proposing that State Agencies reduce their spending on an average of 4 percent. The agencies are currently withholding at that level so it should be achievable. Those savings are necessary in order to replace the enhanced Federal Medicaid funds that will not be received, and address other critical needs such as funding for Disproportionate Share Hospitals, almost $20 million for the One Georgia Authority (which is an important tool for economic development in rural Georgia), and other important budget areas such as funding the settlement with the Department of Justice so that mental health patients and developmentally disabled individuals can be transferred from State hospitals into community service settings.

For the Fiscal Year 2012 budget I am setting the Revenue Estimate based on a modest 3.75 percent increase over the amended 2011 recommendations. The greatest challenge for 2012 is replacing almost $1 billion in the Federal Stimulus Funds that will not be available this year. In order to keep our budget in balance, State Agencies must reduce their spending by an average of 7 percent. These reductions are not uniform across agencies, but are designed to give priority funding to core responsibilities of State Government. My budget will have a net increase of $30 million in K-12 formula funding and no reduction in Equalization Grants. Earlier this school year, the Federal Education Jobs Bill directed $322 million to Georgia schools. Local school systems should have been able to set aside local funds to be used in FY 2012.

Both budgets make funding for K-12 education a top priority. Let me be clear: my budget will end teacher furloughs and keep students in school for a full school year. I view education as our number one economic development tool and there is no more forward-looking or strategic place to invest.

Georgia is one of only eight states in the nation with a Triple A bond rating by all three major bond rating agencies. I intend to maintain that rating. My proposed bond package is less than $563 million which is approximately 50% less than bond packages in recent years. I urge you to join me in keeping our borrowingat a lower level than the past. I believe that is the wise course of action.

Let me highlight some of the projects I propose for bond funding: $231 million for K-12 construction, equipment and buses; $15 million for funding for STEM charter schools that focus on Science, Technology, Engineering and Mathematics education, areas that are vital to our competiveness in the global economy; $46 million for reservoir development; $35 million for water and sewer infrastructure; $32 million for deepening of the Savannah harbor; $50 million for repairs and renovations in the University System, and $28 million for upgrades at our technical colleges.

My budgets reflect my commitment to preserving the HOPE Program. Since its creation, it has served over 1.2 million students and provided benefits totaling more than 5 billion dollars. It has also established the first state universal program for Pre-Kindergarten that has served over 1 million children. Over the past several years, HOPE pays out more than the lottery brings in. In FY 2010, over $150 million of reserve funds were spent. In FY 2011, it is estimated that over $300 million of reserves will be needed and for FY 2012, over $400 million of reserve funds will be needed. If this pattern is not preserved by FY 2013 all of the reserves will have been expended and HOPE cannot meet its obligations.

If we are to save HOPE we must make programmatic changes during this legislative session. I am ready and your leadership has indicated they are ready to make those changes. My 2012 budget does not authorize HOPE expenditures beyond what the lottery produces; therefore, we must act now to maintain the Georgia jewel known as HOPE.

Another top priority of this administration will be ensuring that our Medicaid program continues to deliver quality care for Georgians. However, the overreaching federal health care legislation will greatly add to the burden that we face. In fact, it will add approximately 650,000 Georgians to the Medicaid rolls. This mandated expansion of service will cost Georgia Medicaid an additional $2.5 billion in State funds alone over the next ten years. The Obama Administration has placed onerous Maintenance of Effort requirements as well, which have severely tied our hands with respect to managing our state Medicaid program.

Last month, I co-signed a letter with Governors and Governors-elect from across the country highlighting the challenges that those requirements will place on our state. We urged the President and the Congress to provide the flexibility that is needed so Medicaid programs across the country can be managed in the most effective manner. Left unaddressed, we expect to see patient access to care severely limited and an overall erosion of the high-quality care that our state prides itself upon.

Going forward, tough decisions will have to be made, and I look forward to working with you and healthcare providers across our state to find unique and innovative ways to ensure quality patient care and competitive reimbursement rates for physicians. And we must meet these budgetary challenges while maintaining our chief focus on improving Georgia's economic competitiveness.

To that end, we must ensure that Georgia has all of the ingredients necessary to attract, support and grow business. One of the biggest threats to that future is water. We just learned in the 2010 Census that Georgia's population grew 18.3 percent over the last ten years. That growth combined with recent droughts have Georgians focused on water availability more than at any point in our state's history. We are continuing to negotiate with Alabama and Florida and it will be a top priority of my administration to reach an agreement before the Federal Court ruling takes effect in 2012. We are also continuing our appeal efforts to overturn the ruling.

But that is not enough. That's why I am recommending $300 million spread over the next four years for reservoir creation and expansion. We are also making changes that will allow these funds to be used for planning and design. We believe this money can be leveraged best in the form of local-state partnerships as we work together to ensure a sustainable water supply. There is no more important public works project for the competitiveness of our entire region than the Savannah harbor deepening project. When the enlarged Panama Canal comes online in 2014, we will be ready to receive the Post-Panamax ships heading north. These larger ships improve cargo rates for shippers and receiving these ships in Savannah will have a ripple effect throughout the state. Also, as we prepare to deepen the Savannah Harbor, we must work to ensure that we have last mile connectivity with the Port and statewide East-West connectivity to guarantee the efficient movement of people and goods throughout our state.

Infrastructure is key to economic competitiveness and Georgia's transportation network has always been our strength. Georgia is already home to the most capable airport in the world, an extensive network of regional airports, the fastest growing ports in the nation and two Class One rail lines. 99 percent of Georgians live within 20 miles of a four-lane road. But we still have transportation issues that demand resolution...just ask Atlanta commuters. And to confront those issues in these tough times, we must prioritize funding to relieve congestion and improve mobility.

Over this next year, through regional transportation roundtables, Georgians will have an opportunity to shape investment in their communities - decisions that will ultimately be made by voters. It is important that all Georgians be involved in this process. But we will not stop there, we must think innovatively to find alternative funding sources. In particular, because Georgia is an attractive destination for investment with a strong balance sheet and good demographics, public-private partnerships hold incredible potential.

Before I close, I want to acknowledge that this period has held unique challenges for Georgians from all walks of life. I also know that this period has been particularly challenging for state employees and teachers and I want to recognize their excellence and professionalism in this difficult time. Everyone from teachers to police officers have been asked to do more with less and they have delivered.

That commitment to go the extra mile deserves our recognition. To all members of our State team: Thank you for putting in the extra effort and the extra hours to meet this challenge! Thank you for refusing to make excuses! These are tough times, but the State of our State is strong. The economy has begun to stabilize and Georgia businesses are seeing the first signs of recovery.

We are now entering a new era of smaller government and greater personal responsibility. Government must pull back, but Georgians and our strong communities, big and small, have what it takes to fill the gap. Our State's fortunes do not rise and fall with the size of government. I saw that last Saturday when Georgians from around the State rallied together for a Day of Service. Today, I am calling on all Georgians to support us in this time of transition.

Some may have lost optimism, but I have not. I believe that the citizens of this great State are ready to rally in this time to achieve great things...and to create a better Georgia. As elected leaders we must sound the call and demonstrate a new form of statesmanship. I call on all Georgians to support their elected officials when they make the tough choices to ensure our future prosperity.

I am confident that through working together we can put our people back to work, and educate our children for the jobs of the future. Then, we can ask as did our State leaders in 1885, "What State of our day and generation can justly claim a happier condition or a higher civilization?" Thank you. God bless you and the great State of Georgia.