State of the State: Governor urges fiscal reform

SACRAMENTO — Gov. Arnold Schwarzenegger on Wednesday proposed an aggressive agenda of job creation and reforms to the budgeting and pension systems while promising to protect California schools from further spending cuts.

Left unanswered was how the state will pay for his plans in the midst of another gaping budget hole, with the latest shortfall pegged at $20 billion.

In his final State of the State address, the Republican governor said the federal government should be among the chief sources to help ease California's budget woes. He lamented that the state sees only 78 cents for every dollar it sends to Washington, D.C.

The ever-optimistic Schwarzenegger acknowledged that more pain lies ahead for California but indicated he will push hard for some of his long-sought financial reforms during his final year.

"To strengthen the economy, which is the foundation of all jobs, we here in this chamber must reform California's budget and we must reform our tax system. That would be a huge stimulus," he said.

He said pension costs for retired state employees have risen 2,000 percent over the last 10 years, while tax revenue to the state has increased 24 percent, a situation he said was not sustainable.

Calling job creation his top priority for 2010, Schwarzenegger outlined a $500 million plan to train 140,000 workers and create 100,000 jobs in a state that is facing an unemployment rate of greater than 12 percent. He said the state could pay for the program through a loan from an unemployment fund that currently has a surplus.

Schwarzenegger outlined several additional proposals he will introduce this year in hopes of promoting economic growth.

He wants to streamline the permitting for construction projects to get them on track sooner, renew and extend last year's $10,000 tax credit for first-time homebuyers and exempt manufacturing items bought by green technology companies from the sales tax.

The tax exemption for green technology companies was first proposed by Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo, who praised the governor's focus on boosting the state's economy.

"We can't tax or cut our way to prosperity," he said after the speech. "The answer is jobs, jobs, jobs."

But Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he hopes the governor's "jobs, jobs, jobs" message isn't the first volley in another ideological battle with the Legislature over rolling back environmental and consumer protection laws.

"Let's stimulate the economy with the money that we have, getting it out faster, having the state do its job and put people back to work," Steinberg said, pointing to an audit by Inspector General Laura Chick that found more than $20 billion in federal stimulus funding and approved bond money languishing in state agencies.

Schwarzenegger also hinted at what's ahead when he releases his budget for the 2010-11 fiscal year on Friday. He targeted the federal government, saying California shoulders an unfair burden in paying the costs of illegal immigrants, including those who end up in state prison.

While California receives just 78 cents for every dollar it sends, Schwarzenegger said Texas gets 94 cents for every dollar, Alaska gets $1.84 and New Mexico gets $2.03.

"We are not looking for a federal bailout, just for federal fairness," he said.

He also blasted the health care overhaul under way in Congress, saying the legislation in its current form would end up costing California more money while giving special benefits to certain states.

Schwarzenegger's criticism of the federal government drew a rare rebuke from U.S. Sen. Dianne Feinstein, a Democrat who has been an ally of the governor on many issues. She said California's budget crisis was created by the state and not Washington, and said the fiscal problems would not be eliminated without wholesale budget reform.

"I am open to working with state leaders to find ways to help California in these tough times, but pointing fingers is not constructive," Feinstein said in a statement.