Gov. Nathan Deal said Wednesday he wants to cut vacant positions and slash state agencies' budgets but provide more money for education.

In his first State of the State address, Deal presented two budgets - the 2011 budget amendment and the 2012 budget. He lowered the revenue estimate for the remainder of the 2011 fiscal year while proposing 1 percent of the "rainy day" revenue shortfall reserve be given to K-12 education.

"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," Deal said.

"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.'"

He reduced the revenue estimate by $27.5 million and gave 1 percent of the "rainy day" dollars to cover the mid-term adjustment of education funding and some personnel and health insurance costs.

Deal also recommended elimination of 14,000 state positions and freezing state employment at current levels, and proposed state agencies reduce spending by about 4 percent, which is the current withholding level for most agencies.

"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 (economic development program) 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," he said.

For 2012, he set the revenue estimate on a 3.75 percent increase, facing the challenge of replacing almost $1 billion in federal stimulus money that won't be available this year.

"In order to keep our budget in balance, state agencies must reduce their spending by an average of 7 percent," he said. "These reductions are not uniform across agencies, but are designed to give priority funding to core responsibilities of state government. "

Deal's budget will show a net increase of $30 million in K-12 funding and no reduction in equalization grants. The Federal Education Jobs Bill sent $322 million to schools, and Deal hopes local school systems set aside money to use in fiscal year 2012.

"Let me be clear. My budget will end teacher furloughs and keep students in school for a full school year," he said. "I view education as our No. 1 economic development tool, and there is no more forward-looking or strategic place to invest."

Deal proposed a bond package of $563 million, with $231 million for K-12 construction, equipment and buses; $15 million for STEM (science, technology, engineering and mathematics) charter schools; $46 million for reservoir development; $35 million for water and sewer infrastructure; $32 million for the dredging of Savannah's port, $50 million for repairs at the state's colleges and universities; and $28 million for renovations at the state's technical colleges.

Deal also froze 2012 HOPE scholarship expenditure levels, not allowing them to extend beyond what the lottery produces. In fiscal year 2010, more than $150 million of reserve funds were spent. In fiscal year 2011, about $300 million will be needed, and by fiscal year 2012, $400 million 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," Deal said. "We must act now to maintain the Georgia jewel known as HOPE."

Federal health care legislation, the tri-state water warsand east-west transportation connectivity will also be top priorities, Deal said.

On the water issue, he said, "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," he said. "I'm recommending $300 million spread over the next four years for reservoir creation and expansion - and working to allow these funds to be used for planning and design in local-state partnerships."

In tough budget times, the government will look to alternative funding sources, including public-private partnerships. Echoing remarks from his Inaugural address, Deal suggested that residents look to self-reliance.

"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," he said. "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."

House and Senate leadership will begin to tackle the budget next week in joint budget hearings. Decided before the State of the State speech, House and Senate chambers will go into recess until Jan. 24.

After tough weather conditions, the speech was moved from 11 a.m. to 2 p.m., and lawmakers weren't required to be at the Capitol until 1 p.m. Before the start of the address, seven representatives escorted Deal into the House chamber, including Hall County delegates Rep. Doug Collins, Rep. Carl Rogers and Rep. James Mills.

The chambers adjourned shortly after the speech, and many delegates were pleased with what they heard.

"It struck the right tone. The message was an honest assessment of where we are," Collins said. "It goes back to what I've talked about before, that we should fund our priorities. I'm pleased by the bond package and that he wants to fund what matters, such as education and transportation."