In State of the State address, Arnold Schwarzenegger unveils an ambitious wish list

Reporting from Sacramento —  Gov. Arnold Schwarzenegger on Wednesday exhorted lawmakers to overhaul the funding system for state prisons and higher education, approve a jobs creation package and seek more money from Washington, even as he attacked the national healthcare plan.

But his ideas received a mixed reaction, and it was unclear how much traction they might achieve in the face of the state’s ongoing financial crisis.

In his seventh and final State of the State address, the governor effectively offered a personal wish list for what he would hope to accomplish before leaving Sacramento at the end of the year. His agenda would have appeared ambitious even if the state were not staring at a $20-billion deficit.

“If I had to summarize in one word our focus for the coming year, it would be the word ‘priorities,’ ” Schwarzenegger said, speaking for nearly 27 minutes in a packed Assembly chamber. “We have to get them straight and we have to keep them straight.”

Legislative leaders praised his tone and some of his ideas but immediately dismissed several of his strongest pleas, either for ideological or practical reasons.

State Senate leader Darrell Steinberg (D-Sacramento) criticized the “rollback of environmental and consumer protection laws” in Schwarzenegger’s jobs package, a linchpin of his agenda. Schwarzenegger would shield some big construction projects from lawsuits over environmental regulations, but Steinberg said he should first use $3 billion in voter-approved borrowing and additional federal stimulus funds that are “stuck collecting dust in the bureaucracy.”

Fellow Republicans lauded his economic plans, which included allocating $500 million to train workers, but were skeptical about Schwarzenegger’s proposals for a constitutional change that would require more spending on higher education than on prisons. The plan would further privatize prisons, and the likely opposition from employee unions would probably be too much to surmount in a tough year, they said.

“Clearly that is going to be a hill to climb, but this is a very difficult budget cycle,” said Assembly GOP leader Sam Blakeslee of San Luis Obispo.

The $20-billion deficit now projected through mid-2011 is similar to the one that took months to close last year and forced officials to issue IOUs. The governor and lawmakers have even fewer options now because many programs have already been cut drastically.

Schwarzenegger unveils his budget plan Friday, and told lawmakers that “as bitter as the words are in my mouth, we face additional cuts.” He promised to “protect” education, which has lost billions over the last two years, but did not say whether that meant that he wouldn’t propose any additional cuts.

The governor appealed to lawmakers to help him push the federal government for more money, to correct an “unfair” system in which California has received 78 cents back from each dollar it pays in federal taxes, while Texas received 94 cents, Pennsylvania $1.07 and Alaska $1.84.

Now, he said, the federal healthcare bill would “pile billions more on to California.” Schwarzenegger urged members of Congress from California to vote against the legislation, which he called “a trough of bribes, deals and loopholes,” or improve it.

“It is not reform to push more costs on to states that are struggling while other states are getting sweetheart deals,” the governor said, alluding to a deal Democrats cut with Sen. Ben Nelson (D-Neb.) to get more money for his state in exchange for his vote.

In a critical statement afterward, Sen. Dianne Feinstein (D-California) said that she had already worked to win more money for California in the healthcare plan, and that comparing her state to small, rural Nebraska is a “red herring.”

“It sounds like the governor is looking for someone else to blame for California’s budget,” said Feinstein, normally an ally of Schwarzenegger’s. “I am open to working with state leaders to find ways to help California in these tough times, but pointing fingers is not constructive.”

Anthony Wright, executive director of Health Access California, a nonprofit advocacy group, said Schwarzenegger had shown “stunning” hypocrisy because the governor’s own healthcare plan two years ago had less federal reimbursement.

The governor’s proposed constitutional amendment -- the third ballot measure he would be pushing in a single year -- would reverse the ratio under which California now spends 11% of its budget on prisons and 7.5% on higher education.

In addition to angering unions, the plan is certain to draw fire from the federal courts that have taken over prison medical care and increased spending.

“If you have two states and one spends more on educating and the other one spends more on incarcerating, in which state’s economy would you invest?” Schwarzenegger asked.

The governor, who has criticized lawmakers for inaction in his annual address in years past, praised them Wednesday for working together last year to close tens of billions of dollars in budget deficits.

“Together, as a team . . . . we got California through the front end of the worst financial crisis since the Great Depression,” Schwarzenegger said.

The governor also applauded legislators for reaching a deal to fix the state’s water system and for twin bills approved Tuesday night in the Assembly that give parents more power to move their children out of poor-performing schools and to petition for changes that could include removing the principal. Later Wednesday, the Senate approved the measures and the governor said he would sign them.

In other initiatives, Schwarzenegger said state pension costs had increased 2,000% in a decade and needed to be limited for new employees. He said the budget system should be aligned with actual expenses.

And he called on lawmakers to revive a seemingly dead plan to revamp California’s tax system and make it more stable by basing it largely on a broad, untested business levy. Assembly Speaker Karen Bass (D-Los Angeles) said it would be unwise to “experiment” with such an unproven system, however.

Business leaders endorsed the governor’s plans for the economy, which would expand on last year’s $10,000 tax credit for first-time home buyers.

Likewise, Bill Magavern, president of Sierra Club California, an environmental group, said Schwarzenegger took a step forward with his proposal to exempt green technology companies from sales taxes on manufacturing equipment.

But Magavern said the governor had gone backward in trying to protect selected construction projects from environmental lawsuits.

“This bill would completely undermine -- for the projects it covers -- the ability of local residents to have a real say in what happens to their community,” Magavern said.

michael.rothfeld@latimes.com

Times staff writers Patrick McGreevy and Shane Goldmacher contributed to this report.