By Peter Henderson and Jim Christie
SACRAMENTO, California (Reuters) - California Governor Arnold Schwarzenegger on Wednesday vowed to pry more dollars from the federal government, which he said took more than it gave, but left details on how to close a $19.9 billion state budget gap until later this week.
In a state of the state speech, the governor said creating jobs was the top priority for his last year in office and proposed spending $500 million in worker training funded by part of the budget which is in surplus.
He also laid out ambitious reforms for the final year of his term -- almost certain to include months of budget battle.
Schwarzenegger on Friday will present his plan to close a budget hole that reflects the problems of the boom and bust California economy. The U.S. economic engine faces deteriorating finances as it tries to balance its budget and preserve social safety nets in tough times.
The outgoing Republican governor, stopped by term limits from seeking reelection in November, called for tax reform, protection for higher education spending -- and more money from the federal government.
"We no longer can ignore what is owed to us, or what we are forced to spend on federal mandates," Schwarzenegger told the combined state Assembly and Senate, which must support any budget plan by a two-thirds majority -- a bar that has forced months of acrimonious debate in previous years.
Democratic State Controller John Chiang said lawmakers have little time to lose if California's government is to avoid the same kind of cash shortages that last year forced it to hand out IOUs to pay its bills.
"They're certainly a year older and I hope a year wiser," Chiang told Reuters.
State Treasurer Bill Lockyer, also a Democrat, described Schwarzenegger's speech as "essentially the same" as other set pieces by the governor -- middle of the road and long on optimism, such as the promise to safeguard education.
"It's a little hard to square with the fiscal realities," he said, adding that others had tried for years to claw back money from the federal government and the governor might rely too much on such help in the budget plan he releases this week.
Meanwhile, the state needs to sell bonds in coming months to avoid shutting down infrastructure projects, Lockyer said.
Schwarzenegger put the budget hole at $19.9 billion over 18 months, about a billion less than a recent report from the state's budget watchdog. He blamed the federal government for possible increases because of new healthcare costs.
A new national healthcare policy would be a 'disaster' for California, he said.
Schwarzenegger called for overhauls including changing the state's tax and pension systems and allowing for private prisons, red flags to powerful unions and their allies.
Schwarzenegger's jobs plan is part of a five-point package that also includes tax credits for first-time home buyers and lower sales taxes for green technology, and measures to limit lawsuits against businesses and make it harder for environmental regulations to block big construction projects.
The unemployment rate in California, which ranks as the world's eighth-largest economy, currently hovers above 12 percent, significantly above the national average.
BATTLE LINES BEFORE BUDGET
Republicans and Democrats began establishing battle lines immediately after the speech.
Republican lawmakers cheered Schwarzenegger's call for pension reform and private prisons to cut the state costs. "We don't have a choice ... The budgetary problems are so severe," said Republican Assemblyman Roger Niello.
"Taxes are not option this time," Niello added, noting that he agrees with Schwarzenegger that California's tax system must be changed so it has a broader base for revenues from personal income taxes, the state's main source of revenue.
Alberto Torrico, the Assembly's Democrat majority leader, said overhauling California pensions with a two benefit tiers for existing employees and retirees and future ones as Schwarzenegger proposes was not viable.
"A two-tier system where you have haves and have-nots is not going to work," said Torrico, who also was bracing for a fight over the spending plan.
"It's going to be an ugly budget," he said.
(Editing by Mary Milliken, Chizu Nomiyama, Andrew Hay)