In this morning’s State of the State address, Gov. Arnold Schwarzenegger drew upon pigs, ponies, prisons and priorities to push a slate of economic proposals for his final year in office.

Given California’s combined $20 billion budget deficit and 12-percent unemployment rate, it came as no surprise that Schwarzenegger designated “jobs, jobs, jobs” and the economy as the highest priorities for 2010.

“While we still have a long way to go, the worst is over for California’s economy,” he said.
Schwarzenegger called the state’s ongoing budget crisis “our Katrina. We knew it was coming. We’ve known it for years.”

His slate of economic solutions includes a $500 million jobs package, which the governor said could train up to 140,000 workers and help create 100,000 jobs. Other proposals will create a homebuyer tax credit for up to $10,000 and waive sales tax for companies purchasing green technology manufacturing equipment. Additionally, a proposal to streamline the permit process for construction projects with approved environmental reports will help stimulate construction jobs, he said.

Schwarzenegger also discussed broader plans to fix the state’s considerable ills. He reiterated his ongoing mantra that California can create its own stimulus by reforming the state’s budget and tax system.

He said the state must finally overhaul its tax codes to reflect an enviable economic diversity that includes both high and green technology, agriculture and the epicenter of the entertainment industry.

“The basic problem is that our tax system does not reflect our economy,” Schwarzenegger said. According to the governor, California’s economic growth declined by 2.8 percent in 2009, but state tax revenues were down more than eight times that much.

He urged legislators to approve the recommendations of a bi-partisan panel that spent much of 2009 developing “radical reforms” to the state tax system.

He also asked lawmakers to take action on an existing proposal for overhauling the state budget system, known as The Best Practices Budget Accountability Act.

Nearly 11 percent of the state’s general fund goes to prisons, while higher education gets 7.5 percent, he said. He proposed an amendment to the state’s Constitution that would prohibit California from spending more on incarceration than higher education.

Schwarzenegger also said he wants to privatize California’s prisons, which spend on average $50,000 per inmate annually. He said the measure would free up billions of dollars for education.

Meanwhile, California faces a year filled with additional cuts to reconcile a $6.6 billion deficit for the current budget year and a $13.3 billion gap for the next one.

While Schwarzenegger said the cuts will be painful, he promised to protect education funding.

His 20-minute speech also addressed the need for pension reform and more money from the federal government to address border issues and increased cost from national health care reform.

Bill Whalen, a research fellow at the Stanford University’s Hoover Institute who has also advised Schwarzenegger, called the speech a balancing act.

“He would put forth an idea that’s Democratic and come back with an idea that pleases Republicans,” he said.

While Schwarzenegger “pretty much nailed” the state’s priorities, he said, finding a way to work within Sacramento’s “medieval” limitations will be a challenge.

“He’s wanting to build a California of the 21st century but he has to rely on a political system that’s stuck in the 12th century,” he said.

Terry Christensen, a professor of political science at San Jose State University, said the promise to protect education spending from further cuts is a relief. “We have to consider that good news these days,” he said.

Previous years’ speeches contained loftier goals, but Christensen said Schwarzenegger’s proposals “are much more modest, taking into account his lame duck status.”

However, in his last year of office with a desire to create his legacy and no plans to run for higher office, Schwarzenegger might be more willing to take political risks in hopes of accomplishing his goals, he said.

“I thought it was actually his best State of the State,” Christensen said. “It was an engaging speech and he tried to be inclusive and emphasize cooperation and teamwork – good luck with that.”

The inner workings of the governor’s proposals will become clearer on Friday, when he presents his budget plan.

Stephen Levy, head of the Palo Alto-based Center for Continuing Study of the California Economy, said Schwarzenegger struck “a realistic and conciliatory tone.”

He specifically praised the attempt to tackle pension reform and the governor’s job training proposal. Some state money for training can offset funds cut from community colleges and other programs, Levy said.

However, he said Schwarzenegger’s proposals are “very unlikely to produce any quick impacts.”

The governor entreated legislators to channel the teamwork skills that produced a water package and education reform in recent months, despite major geographical and ideological differences.

He offered up some inspiration in the form of his family’s pet potbellied pig and miniature pony. The duo has become adept at getting into the family dog’s canister of food, he said, using the pony’s height to knock it on the floor, and the pig’s snout to push at the screw-on lid until it finally yields.

“It is the greatest example of teamwork,” Schwarzenegger said.

Making any, or all, of these proposals reality will be difficult, Schwarzenegger allowed.

“If I had hesitated to attempt something because it was too hard, I’d still be yodeling in Austria,” he said.

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