SACRAMENTO, Calif. -- Gov. Arnold Schwarzenegger on Wednesday acknowledged that more pain lies ahead for California as it confronts yet another massive budget deficit, but pledged deep reforms he said are vital to the state's economic future.
The Republican governor, in his final State of the State address to state lawmakers, said California faces a $20 billion deficit, but he remained optimistic about the state's prospects.
Pulling the nation's most populous state out of a deep fiscal mess will require teamwork to enact tough choices on tax changes, pension reform and strengthening the economy.
"We here in this chamber must reform California's budget system and we must reform our tax system," Schwarzenegger said. "That would be a huge stimulus."
The top priority is to create jobs, he said. Schwarzenegger outlined a 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 will try to persuade lawmakers to dedicate $500 million to his stimulus plan even as they face difficult choices about further program cuts. California lawmakers already have slashed $60 billion from state programs over the past two years.
Schwarzenegger acknowledged the decisions in the months ahead will not be easy.
"First, as bitter as the words are in my mouth, we face additional cuts. We know what that means. We know the pain it entails," he told lawmakers packed into the Assembly chamber as his wife, Maria Shriver, looked on. "What can we say at this point except the truth? That we have no choice."
He conceded that some areas of state government had been cut too far, pointing to K-12 and higher education. Severe budget cuts have led to unprecedented teacher layoffs and school closings over the past year, as well as skyrocketing student fees and professor furloughs in California's higher education system, the largest in the nation. Several campuses have been rocked by student protests that have at times turned violent.
Schwarzenegger said he would seek to protect education funding. He noted that it was an embarrassment for California that the state spends far more on its prison system than on its universities.
Prisons account for roughly 11 percent of general fund spending, compared to 7.5 percent for higher education.
"Spending 45 percent more on prisons than universities is no way to proceed into the future," he said.
While embroiled in a current fiscal crisis, Schwarzenegger used the speech to look beyond his often rocky tenure. He told lawmakers they must act boldly to reform the state's tax and budgeting systems so future leaders do not find themselves in similar dire circumstances.
He noted sweeping changes to the tax system recommended by a bipartisan commission last year, a report that has seemingly disappeared inside the Capitol.
He also advocated a two-year budgeting process that would force lawmakers to plan for the future and an overhaul of the state's public pension system, which he said is unsustainable.
"The budget crisis is our Katrina," he said. "We knew it was coming. We've known it for years. And yet Sacramento would not reinforce the economic levees."
KCRA.com contributed to this report.