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Madam Speaker, Madam Senate President, Mr. Chief Justice, honorable members of the House, Senate, and Executive Council, and my fellow citizens of the great state of New Hampshire:

I am pleased to present to you today a balanced, honest and fiscally responsible budget - one that addresses our state's priorities without new taxes. This is a budget that uses taxpayer dollars wisely to meet state government's most fundamental responsibilities: caring for our most vulnerable citizens; educating our children; strengthening our economy; protecting our environment and natural resources; and ensuring the safety of our citizens.

In balancing this budget, we faced significant challenges. Non-discretionary costs - costs we are obligated to fund - increased by $300 million. Benefit costs alone, including retirement costs, for state employees increased by $95 million. The state contribution toward retirement costs for local teachers, firefighters, and police officers increased by $38 million over the biennium. Costs for our retirees' health insurance increased by $19 million.

To balance this budget, we made tough choices. We cut agency budget requests by $291 million. We asked agencies to justify every dollar, to be more efficient, and to direct more of their resources to areas that directly serve our citizens. Traditionally agencies have kept vacant positions on their books as a way of returning money to the general fund at the end of the year. Funding long-term vacant positions makes no sense, which is why we eliminated 321 vacant positions - most vacant more than six months, some as long as six years.

We estimated revenues carefully, assuming modest economic growth. They are sound estimates, consistent with historic trends. We invested in increased advertising dollars for the Liquor Commission, Lottery and tourism promotion to increase expected revenues. And we funded auditor positions at the Department of Revenue Administration.

As a state, we receive monthly revenue reports and we continually debate revenue projections. But we need to do a better job of tracking expenses on a statewide basis. That is why I have asked Commissioner Hill to develop expense reports, similar to the revenue reports, which will be available for our review monthly.

I have enormous respect for the jobs that our state employees do, and I want them to have high-quality health care. But the current growth in benefit costs is not sustainable. As we begin negotiations on a new two-year collective bargaining agreement, we must work in partnership with our employees to control the growth in these costs.

To cushion against future emergencies and to protect our state's bond rating, this budget sends the entire expected surplus for this biennium, about $15 million, into the Rainy Day Fund. That will increase our Rainy Day Fund to $80 million, up from just $17 million in 2005.

A strong economy is essential to the vitality of our state and the lives of our citizens, and this budget helps foster continued economic growth in New Hampshire.

It maintains our investment in the small business development centers, the Industrial Research Center, and increases travel and tourism advertising by $500,000 over the biennium.

To encourage innovative companies to create jobs here in New Hampshire, this budget allows us to institute a research-and-development tax credit.

A strong infrastructure, including quality roads and bridges and alternative transportation such as buses and rail, is critical to our economic growth, to public safety, and to the quality of life of our residents.

Financial management problems at the Department of Transportation have delayed completion of the state audit for fiscal year 2006. As I prepared my budget, I still had only an estimate of the deficit in the highway fund. I have nominated Chuck O'Leary, a former commissioner of DOT, to provide interim leadership to the Department, and my first charge to him is to finish the audit so that the legislature will have better information as it does its work.

But one thing is clear. State agencies must stop using the Highway Fund like an ATM. We need to revisit which agencies receive highway funds, and for what purposes. We need to restore financial accountability and oversight of the highway fund. And I look forward to working with you on that effort.

We have fallen behind on some road projects, and the longer we delay fixing our roads and bridges the more expensive the repairs will be to our taxpayers.

This budget allows us to move forward on critical road projects, including the expansion of Interstate 93.

It also proposes bonding $60 million over the biennium. This will balance the Highway Fund's budget and let us make long-term changes in the financial management of the highway fund. It will also allow us to accelerate important projects. With this budget, we will be able to nearly double - up to 57 - the number of critical and red-listed bridges to be repaired.

Expanding highways is not the only solution to reducing congestion in New Hampshire. That is why this budget helps fund bus services across New Hampshire. And the capital budget includes $1 million to support and spur the return of rail service to Southern New Hampshire.

The rising cost of energy is one of the major challenges facing our economy. Developing alternative energy sources is an economic opportunity for our state.

I have set a goal of ensuring that 25 percent of our energy comes from renewable sources by 2025. This budget strengthens our Office of Energy and Planning to help us meet that goal. It will allow the Office to better work with the legislature to improve our state's energy policies; to attract renewable energy companies to New Hampshire; and to help our businesses become more energy efficient.

Every family in New Hampshire deserves a safe and healthy home, but we know many families are increasingly finding themselves priced out of the New Hampshire market. A 2005 study estimated that New Hampshire lost 2,800 potential jobs a year because of a shortage of workforce housing.

State government can help by assisting local communities in developing zoning ordinances that preserve local character while promoting workforce housing. That is why this budget dedicates a state planner to helping local communities on workforce housing issues, and provides $400,000 over the biennium for a pilot grant program to help communities expand workforce housing.

An estimated 20,000 New Hampshire citizens are homeless during the course of a year. With this budget, we will begin work to remove one of the major barriers to homeless families finding permanent housing. This budget provides $400,000 over the biennium to establish a Revolving Loan Fund to provide security deposits for homeless families. Let's help more New Hampshire families find homes to call their own.

Education is perhaps the most important investment we make in our state's economic future. A strong workforce is one of the best recruiting tools we have for attracting new businesses to New Hampshire. And the quality of education we offer our children will determine the quality of the opportunities they will have later in their lives.

We must meet our responsibility for public education in New Hampshire, and that begins with defining an adequate education.

On Monday, I joined with a bipartisan coalition of lawmakers to propose a definition based on the curriculum frameworks and our existing school approval standards. I believe this definition is a good starting point, and I look forward to working on it with the legislature and with the people of New Hampshire.

Once we have completed a definition of an adequate education, we must ensure that every community has the resources it needs to provide that education for its children. To do that, we need the flexibility to target aid - lifting up the communities that are struggling to provide a quality education.

That is why I will soon present to you a constitutional amendment that allows us to target aid, affirms the state's responsibility for education, and ensures that the state cannot walk away from that responsibility.

I do not believe we should put in place a new school funding formula until we have defined an adequate education and passed this constitutional amendment. Nor do I believe we should simply go forward with the current law.

Under the current law, some communities would see dramatic swings in the amount of aid they receive, undercutting our goals of sustainability and predictability, which should be an integral part of any education funding solution. We should not subject our communities to these major changes when we know we will put a new funding law in place by the end of the biennium.

That is why this budget guarantees that for the next two years every community will receive the same amount of education aid they received this year, plus an increase of five percent. This interim measure will allow our communities to plan and will give the legislature the time necessary to develop a better and more permanent education funding solution.

Adequacy grants are only one part of what we spend on education as a state. This budget fully funds state building aid, fully funds catastrophic aid, and fully funds tuition and transportation aid. In addition to adequacy aid, we will spend more than $191 million on education grants to our schools.

A high school diploma is the minimum price of admission for most jobs in New Hampshire. Without high school diplomas our young people will not have the opportunities they deserve for better lives, and our state will not have the educated workforce it needs to compete in the global economy.

Right now, nearly 20 percent of our students are dropping out before they graduate from high school. This budget invests the resources necessary to help turn these young lives around by providing real alternatives for students who don't do well in traditional classrooms.

This budget provides $4 million to increase tutoring and one-on-one assistance to help at-risk students stay in school; it expands access to our career and technical educational centers; it expands our investment in night school and in apprenticeship programs. And the capital budget provides more than $13 million for renovations at the regional vocational schools in both Manchester and Exeter. In all, we will spend more than $54 million in state and federal funds this biennium on alternative programs to help keep our kids in school.

This budget provides the resources to help our young people stay in school. Now we must show we have the will to help make it happen. We must increase New Hampshire's compulsory attendance age from 16 to 18 this year.

We know students who receive quality early learning opportunities are more likely to finish school and to succeed later in life. The legislature recognized that last year by creating the Quality Early Learning Initiative. This budget continues and expands that effort with $1 million of funding each year. And, this budget provides the first increase in state funding for Head Start since 2000.

We must continue to work to strengthen our public colleges and universities and to make sure that the door to higher education in New Hampshire is open to every student who works hard.

Two years ago, we created a new financial aid program to allow New Hampshire students who receive the maximum Pell grant to attend the University of New Hampshire, Plymouth or Keene State for no additional tuition cost in their first year. This budget maintains that commitment and expands it to sophomores and juniors. In addition, this budget provides $196 million over the biennium, or a $16 million increase, to keep the University System strong and to hold tuition increases to a minimum.

Project Running Start, run by New Hampshire's Community Technical College System, opens the door to college for many students. It allows high school students to take college-level classes right at their own local schools. They can earn credits that are transferable to colleges across the nation. That is why this budget provides the funding necessary to double the number of students enrolled in Project Running Start.

Our community technical college system plays a critical role in the training of our workforce and in expanding opportunities for our citizens. This budget invests in strengthening our community technical colleges and in keeping them affordable with an additional $10 million over the biennium.

To keep our public colleges and universities vibrant, we must also make sure they have up-to-date facilities. That is why the capital budget keeps the promise we made to the University System and provides $39.5 million to continue to upgrade its academic buildings. And it provides $17 million in general funds, and $32 million overall, to the community technical college system, including money to build a health education technology center in Nashua; to build a health education center in Concord; and to renovate the Pease campus.

As a state we have a responsibility to care for our most vulnerable citizens. This budget preserves and strengthens our commitment to those with the greatest needs.

I want to make sure all New Hampshire seniors have the chance to live their lives with the dignity and respect they deserve. That is why this budget funds Meals on Wheels, wheelchair van transportation and increases by $5.4 million funding to help more of our seniors stay in their own homes and communities.

We need to increase our capacity to help care for people with developmental disabilities, to give them the opportunity to live their lives to the fullest. That is what this budget allows us to do, by providing the funding necessary to eliminate the expected developmental disabilities waitlist over four years.

Last year, a tragic fire in Tilton killed three people with developmental disabilities and their caregiver. After that fire, I asked the Fire Marshal and the Department of Health and Human Services to develop recommendations for improving the safety of these group homes. This budget provides funding to begin implementing these recommendations, making group homes for the developmentally disabled safer.

With access to the right medication and assistance, people diagnosed with HIV and AIDS can live long and productive lives. The federal government recently cut funding that helped New Hampshire citizens living with AIDS receive transportation, food and most importantly medication assistance. This budget replaces those funds by providing $1 million each year.

Every child in New Hampshire should have access to health insurance. Health insurance for children is relatively inexpensive, and it will save us money in the long term. We all pay when families are forced to seek more-expensive emergency room care; when preventable illnesses turn into chronic diseases; and when children aren't healthy enough to learn in school.

This budget expands outreach so that more families know about our Healthy Kids Children's Health Insurance Program and can get the help they need to enroll. Children's Health Insurance is a smart investment for our state, and the right thing to do for our kids.
And with this budget, over the next three years, we will be able to provide health insurance to an additional 10,000 children.

Lead paint poisoning remains one the most dangerous - yet preventable - public health hazards for our children. It is time we take action to reduce the incidence of lead paint poisoning in children, and this budget provides the funding to do just that.

This fall I established a Lead Poisoning Task Force to make recommendations on how to strengthen our laws. Now, I ask this legislature to adopt the recommendations of the Task Force. When one child is found with lead poisoning, the Department of Health and Human Services should be allowed to inspect all units in that building. And inspections should be triggered when the damage to children's health begins, at 10 micrograms per deciliter - just as the Centers for Disease Control recommends.

We want more of our families to move from welfare into sustainable employment. We should help them, by removing some of the barriers they face. Families need transportation to get back and forth to work. They need safe child care for their children. That's why this budget increases transportation assistance and child care co-pays for people working to leave welfare. Let's come together to give our families the helping hand they need to build better lives for themselves.

We owe our veterans a huge debt, and this budget meets our commitment to provide them with the care and respect they deserve. It increases funding for the Veterans Home by $10 million over the biennium to hire new direct care staff, to pay for medication, and to care for an additional 50 veterans. Our veterans sacrificed to protect us, let's show them our gratitude.

And to fund these critical health and human service programs and other services, this budget also includes a 28-cent increase in the tobacco tax. This proposal keeps the rate of our tobacco tax well below those of our neighboring states. And it also allows us to accomplish an important public health goal - deterring young people from smoking.

One of the fundamental duties of state government is to protect the safety of our citizens.

I recently created the New Hampshire Crime Commission to make comprehensive recommendations on how we can improve public safety in New Hampshire.

But there are steps we must take now to protect our citizens. Despite our growing population, New Hampshire has too few state troopers patrolling our roads and assisting our local police departments. That is why this budget funds the seven new trooper positions we created last year and will add six additional state troopers over the biennium.

I believe we must crack down on the crimes of the 21st century. I am working with the Attorney General on legislation to toughen penalties on people who use the Internet to prey on our children. We must recognize these crimes present new challenges to prosecutors and law enforcement. To help our police departments and local prosecutors do everything possible to protect children, this budget funds a new Internet Crimes Prosecutor.

We must strengthen New Hampshire's Department of Corrections. New Hampshire recently lost a lawsuit because the state failed to meet commitments it made in 1993 to better care for mentally ill prisoners. This budget provides the funding necessary to better meet our legal obligations.

We must also develop a secure psychiatric center to house people who are civilly committed and present an ongoing danger to the community. A study committee recommended using the Tobey School on the grounds of the New Hampshire Hospital for this purpose. I have questions about whether this is the right location, whether it will meet our state's long-term needs, and whether the high cost of its conversion is the best value for taxpayers.

We need a strategic plan for our Corrections System. The women's correctional facility in Goffstown is inadequate. The Lakes Region Facility needs major capital repairs. The men's prisons in Berlin and Concord are overcrowded. That is why this budget funds a study of all our corrections facilities to develop a master plan and to recommend the best option for a secure psychiatric facility.

But we must begin work now. We built the Northern Correctional Facility to allow it to be easily expanded. This budget includes $10 million to begin work this biennium expanding the prison in Berlin.

In the aftermath of the October and Mother's Day floods, I was impressed by the work of our Dam Bureau at the Department of Environmental Services - their knowledge and dedication helped save lives. We need to do more, however, to make sure our dams are safe. This budget will allow us to increase inspections and maintenance of dams. And the capital budget funds repairs to nine state-owned dams.

This budget also moves responsibility for Fish and Game dams to the Department of Environmental Services, both to make management of state-owned dams more efficient and to help address the Fish and Game Department's budget.

Hunting and fishing are important recreational activities for our families and attract visitors to New Hampshire. It's important to me, and to our economy, that we protect the long-term interests of hunting, fishing and wildlife habitat conservation in our state.

New Hampshire's Fish and Game Department faces financial challenges. We balanced its budget by eliminating long-term vacant staff positions - as we did at many other agencies; reducing the agency's expenses; and by instituting an auction for moose hunting permits, as our neighboring states of Maine and Vermont already do.

This budget does not lay off any Fish and Game employees. It preserves conservation officer positions, even those that are currently vacant, and protects the core functions of Fish and Game. It keeps the Fish and Game fund in the black through this biennium, while we continue working on how to best serve the interests of New Hampshire's hunters and fishermen for the long-term, and on the right model to achieve that goal.

As Governor, I have the opportunity to visit every part of New Hampshire. I continue to be awed by our state's natural beauty - its mountains, forests, lakes, rivers and Seacoast. Our environment is part of what makes New Hampshire so special, and it is a vital economic asset to our state.

This budget commits to protecting our environment and natural resources for the future. It funds more than $32 million in environmental grants to communities to help them maintain their clean water and protect water supplies.

As our state's population continues to grow, some of our most beautiful places are in danger of being lost to us forever. That is why this budget recommits to the Land and Community Heritage Investment Program with a $12 million investment over the biennium. We must act now to protect what is special about New Hampshire.

We must care properly for those historic treasures already entrusted to the custody of the state. From the Robert Frost Home in Derry to the Wentworth Coolidge Mansion, some of our most historic places are falling into disrepair. This budget funds a new Bureau of Historic Resources to help maintain and preserve New Hampshire's history.

I believe that our state parks are treasures; treasures that provide countless hours of enjoyment for our citizens and our visitors. We must continue to work to make sure our state park system is vibrant, and meets the demands of our population - as we did last year when we created a new ATV park in Berlin.

This budget provides the funding necessary to help purchase Temple Mountain and to add it to the state park system, providing an important new recreational opportunity for people in southern New Hampshire.

Last year, this legislature created a study commission to address how we meet our responsibility to protect our parks for future generations. We must look at making a long-term commitment to upgrading our state parks. And this budget begins that investment and implementing the commission's recommendations, with $6 million in capital funds to begin repairs and renovations at state parks across our state - the first system-wide capital investments in our parks since 1963.

I want to take a moment to thank my budget director, Linda Hodgdon - who I don't think has slept in three months - for the great work she did in helping me develop this budget.

Our work on this budget is one of the most important things we will do together in this two-year session. It is through the budget that we establish our priorities for the next two years. And I look forward to working closely with all of you as we set the course for a stronger, better New Hampshire.

I am confident that under the able leadership of the Speaker and Senate President and your finance chairs, you will give this budget a fair hearing and work with me and each other to make smart, fiscally responsible choices for New Hampshire's future.

Working together, Democrats and Republicans, we will enact an honest and balanced budget - a budget that invests in our future and puts the needs of our people first.

Thank you.