Scott Walker State of the State 2/1/11

Gov. Scott Walker acknowledges members of the Wisconsin National Guard before his first State of the State speech to a joint session of the Legislature in the Assembly chambers at the Capitol. Behind is Senate President Michael Ellis, R-Neenah, left, Assembly Speaker Jeff Fitzgerald, R-Horicon, and Assembly Speaker Pro Tempore Bill Kramer, R-Waukesha, right.

ANDY MANIS/Associated Press

Gov. Scott Walker on Tuesday delivered a sobering State of the State that, while light on details, warned residents of the hard sacrifices coming as lawmakers deal with Wisconsin's budget troubles.

"The decisions we face are not easy," Walker said, standing for the first time before a joint session of the state Legislature. "But, the benefit of finally making these tough decisions and being honest with the citizens of this state will help us to balance the budget in a way that creates a permanent, structurally sound state budget."

Delivered as the state braced for a blizzard, Walker vowed to use the current budget problems as an opportunity to shrink government and increase flexibility. He said the state could either raise taxes and burden people further or "do the heavy lifting now and transform the way government works."

But during a short 30-minute speech in which he briefly discussed the need for Medicaid reform and changes in state employee benefits and pensions, the governor offered few hints into what that "heavy lifting" would entail, instead promising those details in his budget, which is due in late February.

"It is in those budgets where rhetoric meets reality, where we will show that we will make the tough decisions now to lay the foundation for future economic growth," he said.

Democratic lawmakers were not immediately impressed. Rep. Tamara Grigsby, D-Milwaukee, said she doubts Walker's budget will answer the important questions, like how to fix the deficit.

"There is no plan, and the reality is that we don't have the money to pay for the services that we have to provide to our citizens," she said. "So clearly something has to give. "

Republican lawmakers were more complimentary of the speech, saying the details will come.

"Tonight was about being honest with people about where we stand," said Sen. Glenn Grothman, R-West Bend. "He didn't sugarcoat things. That's what we needed."

The state faces a $258 million deficit this fiscal year, and a $3.2 billion shortfall by 2013.

Walker campaigned on the promise of cutting state spending and jump-starting the state's sluggish economy. On his first day in office, he called the state Legislature into special session and proposed eight bills meant to spark an economic rebirth in the state.

So far lawmakers have approved five of the bills. Walker has signed four of them into law and is expected to sign a fifth on Friday.

The new laws make it harder to sue companies and medical providers, provide tax breaks for businesses that relocate to Wisconsin, set aside more money for economic development and remove the state income tax on health savings accounts.

Some have criticized the measures as doing little to create jobs while adding about $140 million to the budget deficit. Assembly Minority Leader Peter Barca, D-Kenosha, called the special session a "lost opportunity" more focused on rebranding the state than creating the jobs people need now.

Walker called his upcoming budget plans more important than the special session bills, and suggested three key areas where cuts can be expected: entitlement programs, public employee pensions and benefits and state aid to local governments - presumably in exchange for greater flexibility in collective bargaining.

Most of Wisconsin's unionized employees pay little toward pensions and have some of the lowest health premiums in the country. Walker has argued that increasing their payments could save the state millions.

Medicaid is another area of focus, Walker said. A state-federal program, Medicaid programs, which cover about 1.1 million in Wisconsin, faces a deficit of more than $150 million this fiscal year, and about $1.8 billion by 2013.

Walker declined to outline a plan for tackling those deficits, but options include tightening eligiblity requirements to rationing care.

"Without swift corrective action, entitlement programs and legacy costs will eat up more and more of the operating budget," Walker said. "Failure to act only makes the problems worse in the future."

Senate Majority Leader Scott Fitzgerald, R-Juneau, said it seemed Walker was trying to "brace the Legislature" for upcoming budget cuts.

"I think there's a lot of people in here right now that still don't know exactly where the governor is headed," Fitzgerald said, standing in the Assembly parlor after Walker's speech. "He's trying to make the case that if you look at the numbers, there aren't many options."