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.