In past State of the State speeches, Schwarzenegger outlined an optimistic and bold plan, full of lofty goals. But this year is different. It's his final year in office, and he's facing the reality that he has largely failed to achieve major fiscal reform, which he promised when he took office in 2003.
The governor gave no hint of his new lame-duck status. He laid out an ambitious road map for his last year in office, with economic stimulus at the centerpiece of his plan.
High on the list: job creation by borrowing money from the Unemployment Disability Fund. The goal is to get people back to work and paying taxes.
With the state's unemployment at about 12 percent and the budget deficit around $20 billion, Schwarzenegger faces many challenges.
Schwarzenegger thinks one way out of the mess is to stimulate the economy. The top priority is to create jobs, he said. Schwarzenegger outlined a plan to train 140,000 workers and create 100,000 jobs.
To help companies hire, the governor wants to make it more difficult to block construction projects and limit lawsuits against businesses -- non-starters in the eyes of the Democratic majority.
"His job package calls for the rollback of environmental and consumer protection laws," said state Senate President Pro-Tem Darrell Steinberg (D-Sacramento).
"We have tens of thousands of highly skilled, highly trained workers that need to go back to work in their field," said state Assembly Speaker Karen Bass (D-Los Angeles).
Tax revenue has plunged in the recession as income and sales taxes have plummeted. It has forced state leaders to cut billions from the state budget last year. But California is not out of the woods yet.
To help ease future budget strains, Schwarzenegger renewed his call for sweeping changes to the state's pension and tax systems.
"The budget crisis is our 'Katrina.' We knew it was coming," said Schwarzenegger Wednesday. "We've known it for years and yet Sacramento would not reinforce the economic levees."
But until the fixes are in place, the governor warns more pain is ahead because the state faces a new $21-billion deficit.
"We face a $19.9 billion deficit; $6.6 billion for the rest of this budget year; and $13.3 billion for the upcoming budget year," Schwarzenegger said. "As bitter as the words are in my mouth, we face additional cuts."
However, the governor pledged to save education from cuts, and even went a step further.
"Because our future economic well-being is so dependent upon education, I will protect education funding in this budget," Schwarzenegger said.
"I will submit to you a constitutional amendment so that never again do we spend a greater percentage of our money on prisons than on higher education," said Schwarzenegger.
Currently 11 percent of California's budget goes to prisons, while 7.5 percent goes to higher education.
The governor proposes to bring down incarceration costs by privatizing prisons.
The governor also wants to extend the tax credit for first-time home buyers, reduce the sales tax on the green technology sector, limit lawsuits against businesses and make it harder to block construction projects.
Senate President Darrell Steinberg said Senate Democrats agree with the governor's call for jobs. However, he said they disagreed with how Schwarzenegger planned to push jobs.
"Rather than roll back important environmental laws, rather than roll back important consumer laws, he ought to look in his own back yard here. There are millions and millions of federal dollars and state-approved bond dollars that are languishing within the offices of state government," Steinberg said. "Focus on what we have, getting that money out quick and create highway jobs now, not another ideological fight over other things."
"It's very clear, to quote from Dylan Thomas, [Schwarzenegger] has no intention of 'going gently into that good night,'" said Dan Schnur, director of the Jesse Unruh Institute of Politics at University of Southern California. "If there is such a thing as a lame-duck governor, Arnold Schwarzenegger clearly does not recognize that."
Schnur has been a senior political advisor to presidential candidates and governors.
Richard Riordan is the former mayor of Los Angeles, a former Schwarzenegger cabinet member and a successful businessman.
Schnur and Riordan both watched Schwarzenegger's final State of the State address Wednesday with experienced and skeptical eyes.
"I have some serious questions about whether he can fulfill some of the promises he made," said Riordan. "Like to put $500 million into creating 100,000 jobs for Californians. I mean, he's had that money for years to use and has not used it well."
"The biggest challenge that Schwarzenegger has with this program is that in order to implement it, it's going to involve slaying an awful lot of the legislature's sacred cows, particularly when it comes to environmental and other governmental program matters," said Schnur.
Another major proposal is to pass a constitutional amendment to equalize spending between prisons and higher education. The governor suggested privatizing prisons to save billions of dollars.
Riordan says: Do a better job with each issue.
"It's not realistic," said Riordan. "What do you mean by equal? What are you going to do when it's equal in both cases? You've got to cut down on the prison spending."
"These have been two of his biggest annoyances, his public policy matters, for the last couple years," said Schnur. "And what Schwarzengger's essentially tried to do, now, is to pit them against each other. He's telling the legislature, 'I'm willing to cut prison spending, as long as you do it on my terms. And by the way, I'll spend that money on higher education.'"
The governor did not give many, if any, specifics on how he's going to cut that $20-billion deficit. The real battle begins on Friday, when the governor will reveal the details of his new and final budget.
The governor had some tough talk aimed at the federal government, which continues to short-change California. The governor urged the state's congressional delegation to vote against the healthcare reform bill, which he once supported. There is speculation that he's using his support to leverage more federal aid to California.