GOV. ARNOLD Schwarzenegger's final State of the State address Wednesday recognized California's deep fiscal and economic problems, and offered some old and new bold proposals designed to lead to a brighter future.

The governor repeated his strong support for the Tax Reform Commission's plans, which would broaden the tax base with something akin to a value added tax and extend sales taxes to services. It also would sharply reduce income tax rates for wealthy Californians.

He also promoted the extensive water legislation approved by the Legislature, which relies on voters passing an $11 billion bond for dams and other projects.

Schwarzenegger promised not to cut education funding again in the coming fiscal year. He expressed dismay that California spends more on prisons than it does on higher education. Thirty years ago, the state spent 10 percent of its general fund on higher education and 3 percent on prisons. Today, the state spends 11 percent on prisons and 7.5 percent on higher education.

To reverse that trend, Schwarzenegger says he will offer a constitutional amendment to guarantee the state will not spend more on prisons than it does on higher education. Part of the proposal would allow private prisons to compete with public prisons.

To boost employment, the governor called for a $500 million jobs program, homebuyer tax credits up to $10,000, streamlining construction permits and a sales tax exemption on green technology equipment.


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Once again, Schwarzenegger reminded Californians that the federal government takes far more money from them than it returns. He noted that in the 1990s, the state got 94 cents back for every dollar that California sent to Washington, D.C., but that now the state gets only 78 cents for every dollar it sends to the federal government.

To rectify that situation, the governor believes the federal government should fork over billions of dollars to California.

Schwarzenegger's broad proposals for economic and fiscal recovery have some merit. Certainly tax and prison reforms are needed, and the state cannot continue to procrastinate on water projects. It is also true California is shortchanged by the federal government despite having the largest congressional delegation, including the House speaker.

Unfortunately, the governor's proposals are overly optimistic and most have little chance of success. The tax reforms scare both businesses and labor unions, and slashing income taxes for the wealthy has little popular appeal.

The water legislation is on the right track, but the public does not seem to be in the mood to pass another huge bond measure anytime soon.

Private prisons in California would be a major step forward in reducing costs, but we doubt enough legislators have the courage to oppose certain and strong opposition from the prison guards' union.

Nor should the state count on billions of dollars of federal money, above what already is headed here in the stimulus package.

While we believe the governor generally is on the right path, we are far less sanguine about our lawmakers' willingness to oppose special interests and take the necessary bold action to cure California's fiscal and economic ills.