Brown said California is "on the mend," but more work has to be done. State leaders have already tackled part of the budget deficit, more cuts to the budget are necessary.
"I propose cuts and temporary taxes. Neither is popular but both must be done," Brown said. "In this time of uncertainty, prudence and paying down debt is the best policy."
The governor said he needs taxpayers' help approving temporary tax hikes to help schools and public safety. It's a tricky balance, with huge cuts to social services and schools, more taxes for Californians, yet a big investment in public works like the high-speed rail project.
Jobs are why Brown continues to support high-speed rail despite the new $100 billion dollar price tag.
"Even though there are many difficult questions left to answer with respect to the project, the governor recognized the enormous job creation potential of that project," said Speaker John Perez.
The 73-year-old Democrat said his proposal for temporary tax increases to the wealthy and the state sales tax are the best options to end the state's cycle of budget deficits and cutbacks to teachers, social services programs and health care services for the poor.
"Putting our fiscal house in order is good stewardship and helps us regain the trust of the people. It also builds confidence in California as a place to invest and realize one's dreams," Brown said.
Brown also laid out some unusual proposals to education. He wants to give local schools more power and authority on how they spend their money, and he's calling for less testing. Brown said he believes California spends too much time testing students, and he'd rather give that testing time to more instructional time.
But Brown said he can't do that without more new taxes, and he made the case for sacrifice.
"Given the cutbacks to education in recent years, it's imperative that California devote more tax dollars to this most basic of public services," Brown said. "If we're successful in passing the temporary taxes that I have proposed, and the economy continues to expand, schools will be in a much stronger position."
The governor also called out Republicans, who put out a reaction to the State of the State address on Tuesday night before Brown even finished writing the speech. Assembly GOP leader Connie Conway and Senate GOP leader Bob Huff slammed the governor, saying his plan to balance the budget is based on raising taxes.
Republican leaders say this is not the time to raise taxes because the economy is improving.
"Gov. Brown says the sky will fall if Californians don't agree to a $35 billion tax increase. You and I know this simply isn't so," Conway said.
Republicans also said that the state has actually brought in more revenue this past year by cutting taxes, but the governor wants to use those funds to grow government instead of protecting education.
Brown joked that with the GOP's ability to predict the future, he's going to check on them later for some stock tips.