Mr. President, Mr. Speaker, Mr. Williams, Members of the General Assembly.

Today I present to you my proposed budget for the state of Connecticut for the next two years.

It is a voluminous document whose pages are filled with few words and a great many numbers, yet it is so much more.

It reveals who we are as the people of Connecticut.

It speaks to our expectations, to our needs and to our dreams.

It speaks to how we wish to help those among us, most in need of the caring hand of government.

It speaks to how we yearn for a better tomorrow for our children by providing them with an educational system today.

It speaks to our desire to keep our neighborhoods safe and to be responsible stewards of the incredible natural resources that bless our state.

It speaks to our basic need for well-paying, satisfying jobs that allow us to support and nurture our families.

It speaks so much for a document with so few words - and in so doing, it defines our vision and sets forth our determination.

And while it unmasks our limitless potential, it also reflects our limited ability to meet every need and to pay for every program.

As I have said before, our economy is still too fragile, too many of our citizens are still without jobs and too many of our businesses are still closing their doors.

What we cannot do - what we must not do - is to jeopardize our slow yet steady recovery by unduly burdening our already overburdened taxpayers.

We must not embark on a spending spree of new programs and policies, despite our desire to do more for our citizens.

It's about balance and it's about common sense. It's also about making difficult decisions.

You will see that I have made a number of difficult decisions when you review the budget. Some you will agree with, some you will not. I understand that.

Believe me when I say that there were many decisions that I wish I did not have to make.

And there were decisions I could have left to others -- but that would have been the easy way out.

And the easy way out is what has led, in large part, to our current budget problems.

The easy way out is to approve an early retirement plan one year but not pay out sick and vacation time to deserving employees until three years later. Unfortunately, later is now.

The easy way out is to use 415 million dollars in one-time revenue to pay for ongoing expenses. That worked fine for one year, but it left us with a gaping budget hole that we have to dig out of - now.

The easy way out is to give approval to an enhanced tax cut in a future year knowing there will not be money to pay for it. Well, the future is now - and there isn't the money to pay for it.

The families of Connecticut literally cannot afford for us to take the easy way out anymore.

They are looking to us to pass a real budget, an affordable budget. They are looking to us for political courage, for leadership and for honesty.

Last month I told you that I was focused on doing what was right and what was necessary.

Well, it is right - and it is necessary to level with you and with the people of Connecticut about our state budget.

That is what people want and that is what they are going to get from this governor.

And the truth is we cannot afford to pay for every program and every service we should provide.

We should do more for our citizens on Medicaid, for those without adequate health insurance, for our schools and for the elderly.

We should do more in so many areas - but the simple truth is we cannot. So we do the best that we can - and it is still quite a lot.

And I say "we" because while it is the government that runs up the bill for all these programs and all these services, it is the people of Connecticut who must pay the necessary taxes.

They are willing to pay their fair share - but they also need to support their families. I say again, it's about balance and it's about common sense.

Earlier this week President Bush released his budget. Today I unveil my budget. Next month, mayors and first selectmen will offer their budgets.

Three levels of government. Three budgets. Three tax bills. One taxpayer.  Yes, one taxpayer who knows it's a false cry to advocate for property tax relief when the way to pay for it is to raise their state taxes. One taxpayer who knows that it's a false cry to say Washington should pick up the tab so the state doesn't have to. False cries because in the end it is the same
beleaguered taxpayer footing the bill - and finding no relief whatsoever.

This is what I kept in mind, as I put this state budget together. I tried to seek a balance. A balance between spending cuts and tax increases.

A balance between needs and wants. A balance between what we would like to do and what we can do. In short, I did what every family does when it comes to paying bills and making spending decisions. I set priorities.

And our first priority must always be our children, and special attention must be paid to those children who face challenges no child should have to face. The children who grow up in situations of abuse or neglect or who are unwanted or unloved. These children pierce our conscience.

They are our special responsibility and for that reason I am proposing more than $58 million in new initiatives to strengthen and improve the Department of Children and Families.

In particular, I am dedicated to eliminating roadblocks to adoption. I want every child to have the advantages of a loving and permanent home. We must make real and lasting improvements in both the number and the timeliness of adoptions in Connecticut.

So I am proposing that we pay for the post-secondary education for children adopted after January 1, 2005. I am also proposing that we increase subsidies for adoptions, develop a central point of contact for all families interested in foster care and adoption, and provide management and services for families experiencing difficulty in an adoption.

These changes will reverberate for generations.

Another priority I have set is early childhood education.

It is at the core of our efforts to address the achievement gap. And the correlation between the achievement gap and the preparation gap is profound.

The truth is that among Connecticut's bounty, there is wanting, and in the midst of our state's wealth, there is poverty. We have greatness, but Connecticut will not reach its full potential until all its citizens have reached theirs.

For that reason, my budget sets aside 5.5 million dollars for an innovative early childhood pilot program for new public/private partnerships. It funds 1,000 new early childhood slots and provides for training to implement nationally recognized preschool curricula. It also starts a new Great Beginnings program to help parents better help their children.

We also face challenges in terms of helping towns pay the rising costs of public education. Public education is an investment - a very expensive investment. And in this difficult financial year for the state, it would have been the easy way out to send municipalities the same amount in education funding next year as they are receiving this year. But that would be unfair and it would speak poorly of our priorities.

So I am proposing a 31.5 million dollar increase in ECS funding next fiscal year. I am also proposing an additional 25.5 million dollars or an unprecedented 38 percent increase in special education funding. I know that local budgets are sagging under the crushing weight of these costs. We need to do more to help fund special education - and this budget does that.

We also need to do more to help those communities near our two Indian casinos. These so-called host communities are paying for extra services, out of their own pocket, just because of their location. They too need our help - and they will get it under my budget. These 5 towns will each receive an extra 250,000 dollars each year to meet their costs.

I wish all state aid to municipalities on all levels could have been higher. I agree with those who will say that they should be higher.

I also agree with those who believe that our ECS formula is flawed and frankly unfair. I am proposing that we conduct an extensive study of the current formula and revamp it in time for next session.

Education aid makes up 14 percent of our total state budget.

It would be a breach of our public trust to spend that money unwisely. Unfortunately, this is not the first of such studies, but let us commit to making it the last.

I am also proposing a new initiative of which I am very proud: 15.5 million dollars over the next 2 years to provide laptop computers for every 9th- and 10th-grade English classroom in Connecticut. That's 18,900 laptops for 300 classrooms.

18,900 new opportunities to assist students in critical thinking and open new avenues to learning, as well as young minds to the joy and rewards that are found in literature and in reading.

Another proposal in my budget calls for a tuition freeze at all state colleges and universities. The freeze will apply across the board - at UConn, the four state universities and our 12 community-technical colleges.  It is time to give our families a break from constant tuition increases. The cost of attending our public colleges and universities must remain affordable for students and their parents.

Education success is inextricably linked to our economic success. Since I was sworn in as governor, job creation has been a top priority. Our economic recovery has been painfully slow and largely "jobless."

My budget provides an additional 1 and three-quarter million dollars in loan forgiveness and financial assistance to encourage work force growth in shortage areas such as nursing and teaching.

It provides 3 million dollars for a new 21st Century Skills Fund to help retrain workers who have lost their jobs and who wish to retool their careers.

It provides an additional 2.5 million dollars for job creation and job training programs and it calls for a new "Next Generation Manufacturing" initiative.

It calls for us to finally, finally begin the process of bringing e-business to state government. More than 27 agencies administer about 900 licensing, registration and permitting activities for businesses in the state. It's time we caught up to the rest of the world in e-business.

It's also time government got its act together in terms of providing services, training, and real guidance to businesses.

We have a multitude of agencies, commissions and boards focusing on similar missions - a veritable alphabet soup of organizations: DECD, CDA, CI, OWC, CERC to just name a few.

Are they duplicating services? Are they meeting real needs? I am proposing we review this entire structure and streamline where necessary so that we better use our resources to really help businesses who wish to grow and provide jobs.

I am also proposing that we invest 20 million dollars to provide grants to qualified companies in the promising and exciting field of stem cell research. We should be leading the effort to discover new cures for life-threatening illnesses, and at the same time, to promote jobs in the bioscience industry.

I thank Speaker Jim Amann, Rep. Larry Miller and Senator Joe Crisco for their leadership on this issue and I look forward to working with them and you as we craft stem cell research legislation this session.

Another priority is our security! Preventing the issuance of fraudulent motor vehicle licenses is an important part of homeland security. Unfortunately, our present system has significant flaws. I have included funding to upgrade DMV's computer system to improve the accuracy of registration data and to make it immediately available to law enforcement agencies.

I am submitting legislation as well that institutes a comprehensive license fraud prevention plan and cracks down on those who would seek a license, identity card or registration through unlawful means.

My budget also funds a new state trooper class so that we may meet the statutory sworn trooper count of 1,248 for the first time in four years.

I am so very proud of the men and women who serve so ably and so well in our state police, and I thank them for their service to our state.

I also thank those who serve in our military. They are doing a courageous job, in the face of extremely adverse conditions, and they are representing our country and our state with dignity and honor, both here and abroad.

We owe these soldiers and their families more than we will ever be able to repay.

But we must find a way to say 'Thank You' and so I am proposing that we exempt one half of veterans' military pensions from the state income tax.

I am also proposing that we provide a $50 per month bonus to activated National Guard troops serving in Afghanistan and Iraq. Third, I am proposing that we dramatically increase the death benefit for the families of fallen soldiers. I thank all our men and women in uniform for their service to our state.

And let me thank our state employees who work hard day in and day out to serve their fellow citizens. We have been through a difficult time in the past year, and the shameful, corrupt actions of a relative few have overshadowed the honest, hard work provided by the many. I thank our state employees for all they do in the name of service.

And speaking of thank you's - I thank you for the opportunity you afforded me last week to testify on my comprehensive ethics and election reform package.

Let me renew my call for swift action on these reforms. Let us reshape the state Ethics Commission and ban lobbyist contributions, contractor contributions and PAC contributions. Let us find common ground. And let us finally take the action that the people of Connecticut expect and deserve.

And let us make this the year that we enact medical malpractice reform. I know you have worked hard in the past few years to address this issue. Indeed, it is a difficult issue. But we're still losing too many doctors because of unaffordable malpractice rates.

I am submitting a proposal that seeks to take into consideration the concerns of physicians, insurers, attorneys and most importantly of all - patients. Please consider my proposal and add to it, if that is your will, but please take action before adjournment.

Let us also refocus our efforts to provide necessary services and care to those suffering with mental illness. I thank Lt. Governor Kevin Sullivan for convening, at my request, the Connecticut Mental Health Cabinet. He spent four months and countless hours holding meetings and hearings all across the state. He put his heart and soul into this work and he submitted his final report to me in December. I have included an additional $5 million in my budget to begin implementation of his recommendations. Thank you again, Lt. Governor Sullivan.

I have also included funds in my budget to continue our work in reducing the DMR waiting list. I propose that another 300 people on the waiting list be served, and if our commitment in this area continues at that pace, the waiting list will be eliminated within five years.

It is also time to confront, once and for all, our transportation problem in this state. We've held summits and meetings and forums. We've formed a strategy board and countless advocacy groups. We've undertaken study after study and poll after poll. Enough.

We all know what we need to do. We just need to do it.

We need to buy new rail cars. We need to build a new maintenance facility to keep our rail cars repaired and running. We need to buy more buses and open new bus routes. We need to break up the congestion on I-95, I-91 and I-84.

It is time we faced up to our problems and it is high time we acted.

I am proposing today the largest capital investment in Connecticut's transportation system in two decades.

I am proposing 667 million dollars for 342 new self-propelled rail cars for the New Haven to New York line; 300 million dollars for a new rail maintenance facility; 187 million dollars for congestion mitigation measures for I-95 between Greenwich and North Stonington; 150 million dollars for improvements and congestion mitigation on I-91 and I-84; and 7.5 million dollars for new transit buses. These expenditures are above and beyond what we are already scheduled to spend.

I am also working to bring new air carriers to Bradley and Tweed and I am directing OPM and DOT to develop a plan for additional parking along the New Haven Line.

These are much needed improvements, and we will have to pay for them.

I am willing to show leadership by proposing reallocation of existing resources, a new user fee and additional tax revenue. I ask you to show leadership in turn by passing them into law.

I am calling for a total gas tax increase of six cents - over the next 8 eight years. And this money will be used exclusively for these transportation projects. You'll see your pennies at work on the rails, at the airport and on our highways.

In the late 1990s we cut the gas tax by 14 cents. As I said, I am proposing to increase it by six cents - over a several year period. Even at its peak in 2013 at 31 cents a gallon, the gas tax will still be far lower than it was in 1997 at 39 cents.

I am also proposing a $1 surcharge, beginning in 2008, on all tickets for trips on the New Haven Line. The surcharge revenue will only be spent for the New Haven Line revitalization program. Let me repeat that - it will ONLY be spent for the rail car program and it will not go into effect until the new rail cars are put into service.

Our commuters have suffered long enough with unreliable, outdated train cars that should have been replaced long ago. They deserve quality service, clean stations, and adequate parking. And they should not be asked to pay for improvements until they actually see them, sit in them or park in them.

As I said before, we have talked about transportation long enough. It is time to deliver for the passengers and drivers of Connecticut.

And let me talk about one other program change I am proposing - a change that responds directly to concerns expressed in recent years.

One is the concern that we are leaving federal money on the table - that we are not maximizing federal matching funds. To some degree that is true. But as I have said many times - and firmly believe - we cannot always afford to pay our share of the match. Because sometimes we simply do not have the one dollar needed to get the 50 cents in federal funds.

The other concern is the aging of our state's population. As this population increases, so too will a number of needs, including the need for affordable, quality health care, such as home care services and nursing home care.

Currently, nursing homes and private providers are feeling the fiscal pinch. Some nursing homes have closed their doors; others are on the financial brink. And those who care for our parents and our grandparents, whether aides or nurses or therapists, are not paid wealthy sums for all their hard work.

We need to address this situation and we need to do so this session. Therefore, I will support a concept first proposed by some of you last year, called the Provider Initiative.

Under this plan, every nursing home in the state and the more than 350 nonprofit community providers would receive a four percent increase in their state funding.

Yes, we would impose a tax on private payers in the system now, and yes we would have to make a limited, narrow exception to the state spending cap. But doing so will allow us to receive matching federal funds and to stave off a potential health care crisis.

But let me be clear about this: if the federal government does not support this initiative with matching funds, I will not support it either.

Because we are already asking much of our taxpayers. I said earlier that this governor was going to tell like it is - and I will. My budget contains some tax increases. Not revenue enhancements or technical adjustment devices. I'm telling you the truth, straight on.

I did my best to cut spending. I really did. And I did cut deep. And there will be some who will predict the worst about my cuts almost as soon as I finish my remarks. But when all was said and done I still needed to raise some taxes.

I did my best to keep them to a minimum and I did my best to keep them as limited as possible.

Here is what I am proposing - the straight talk:

- a 74 cent per pack increase in the cigarette tax;

- an increase in the tax on other tobacco products from 20 percent to 90
percent of the wholesale price;

- a 15 percent increase in alcohol taxes;

- an extension, yet a reduction, in the corporation tax surcharge;

- a deferral of the phase downs in the gift and succession taxes; and

- a few other changes.

That's it. That's the bad news. Those are my tax increases. I won't run away from them.

I had a $1.2 billion budget hole to close and I closed it with a lot of spending cuts and these few tax increases. No broad-based income tax increase or sales tax increase. I'm proud of that.

And let me be very clear about one more thing: I have had to make cuts where I did not want to cut and I have had to raise taxes I did not wish to raise, in large part because we have a constitutional cap on state spending. I respect that cap and strongly believe it acts to restrain runaway spending and taxing.

81 percent of the voters supported the cap when it was put into place 14 years ago. They still support it today. The cap must always be the foundation of our fiscal policies, and I will fiercely protect its integrity and strongly oppose efforts to open up its definitions in order to turn the spigot on to well-intentioned but unaffordable spending increases.

The state spending cap is like the state's charge card. When we hit the limit, we max out. And we're maxed out. That means we should control spending and cut back. Not raise the limits so we can spend more.

Our trust with the taxpayers requires no less.

As I said at the beginning of my remarks, I was going to do what is necessary and what is right. I was going to level with you and with the people of Connecticut. And I was going to tell it like it is.

Well here it is: this budget has some painful, but necessary cuts.

It has some painful, but necessary tax increases. It rightly keeps spending to about the level of inflation. It rightly addresses problems that have been debated but not acted upon for too long. But it does so in a balanced way, reflecting respect for our taxpayers.

In the coming weeks I know that we will work well together, as we find common ground and use common sense, to implement this budget.