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State Of The State: Schwarzenegger Urges Fiscal Reform In Final Year

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SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger acknowledges that more pain lies ahead for California as it confronts another massive budget deficit.

But he is pledging deep reforms he says are vital to the state's economic future.

The Republican governor, in his final State of the State address to state lawmakers, says California faces a $20 billion deficit, but he remains optimistic about the state's prospects.

He says pulling the nation's most populous state out of a deep fiscal mess will require teamwork that will involve tough choices on tax changes, pension reform and strengthening the economy.

The top priority is to create jobs, and Schwarzenegger is proposing a plan to create 100,000 of them.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

SACRAMENTO, Calif. (AP) – Gov. Arnold Schwarzenegger on Wednesday will seek to put a fresh spin on a host of familiar money problems facing California as he delivers his final State of the State address.

After six full years in office and numerous failed efforts at budgetary reform, the Republican governor is confronting the reality that he has largely failed to achieve the fiscal reforms he promised when he took office in 2003. His chances of securing them are waning.

His final year in office is likely to be overshadowed by the economic misfortune that has plagued the state in recent years and sent tax revenue plunging.

"There is something very wrong with our budget, with our tax system. There is also something very wrong with our budget system, since we don't have a rainy day fund to cover some of these downturns and so on," he told reporters during an education event in Sacramento. "So I've been talking about that since I came into office and I will continue talking and fighting for those kind of issues."

Still, he lamented entering his final year, asking reporters to let him "live in denial" about his shrinking window of opportunity to achieve long-lasting fiscal reforms.

But the ever-optimistic governor indicated Tuesday that he will continue pushing an aggressive agenda in 2010 that will include plans for tax, political and pension reforms.

In his State of the State address, scheduled for Wednesday morning in the Assembly chambers, the governor is expected to spell out how he believes California is faring and how he plans to guide the state through another tough year.

The governor's spokesman, Aaron McLear, said California also will seek more money from the federal government because it receives only about 78 cents for every dollar it sends to Washington.

Being a "donor state" is a position California can no longer afford after nearly $60 billion in budget adjustments over two fiscal years through massive cuts to education and social service programs, temporary tax hikes, and federal stimulus funding, McLear said.

California is pleading with federal officials to waive rules requiring matching state money for federal programs, to share more of the prospective cost of health care reform and help pay for imprisoning illegal immigrants.

After making deep cuts to K-12 education, colleges, health care services and other programs to close budget deficits over the last two years, Schwarzenegger has few options when he presents his budget plan for the 2010-11 fiscal year and few opportunities to paint a rosy picture about the state.

The state faces a $6 billion budget in the fiscal year that ends June 30. A projected $14 billion deficit looms in the following fiscal year.

He will offer a glimmer of hope by introducing a job-creation plan and seek to capitalize on any remaining political clout he might have by promoting two 2010 ballot measures: an $11.1 billion water bond and a measure that would establish an open primary system.

Voter approval of those would give Schwarzenegger a boost as he heads for the exit. His stature has diminished as the state's fortunes have declined, leading to a job-approval rating of just 27 percent.

"He's trying to put the best face on things," said Jack Pitney, a political science professor at Claremont McKenna College in Southern California. "All lame-duck executives deny that they're lame ducks, but that doesn't make them any less lame."

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