California Gov. Arnold Schwarzenegger says it's time the state privatized its vast prison system, which is larger than that of many nations.

"Spending 45 percent more on prisons than universities is no way to proceed into the future," the governor says in his State of the State address Monday. "What does it say about a state that focuses more on prison uniforms than caps and gowns?"

He says he will ask the Legislature to approve a constitutional amendment so the state never spends a greater percentage of its money on prisons than on higher education.

Under the governor's plan, no less than 10 percent of taxpayer money would be allocated to fund public institutions of higher education; and no more than 7 percent of Californians money would be allocated to support of the state prison system.

Noting that California spends $50,000 per prisoner per year, the governor says if California's prisons were privately run, "it would save us billions of dollars a year."

Mr. Schwarzenegger also urges the lawmakers to reform the state pension system for future hires.

"The cost for state employee pensions is up 2,000 percent in the last ten years, while revenues have only increased by 24 percent," he says. "The pension fund will not have enough money to cover this amount, so the state -- that means the taxpayer -- has to come up with the money."

Mr. Schwarzenegger says he will send the lawmakers a package of reforms including a plan to spend $500 million to retrain as many as 140,000 Californians for new jobs.

"The first priority for the coming year is the economy and jobs," he says.

He also wants to "streamline the permitting of construction projects that already have a completed environmental report."

The state tax credit for homebuyers needs to be revived and expanded, the governor says. The previous credit was quickly exhausted last year.

"To stimulate other construction jobs, you will receive a proposal for homebuyer tax credits of up to $10,000 for the purchase of new or existing homes," he says in his remarks to a joint session of the Legislature.

"And ... since we want California to be the dynamo of green technology, I ask you to pass our proposal exempting the purchase of green tech manufacturing equipment from the sales tax," the governor says.

Unlike previous State of the State addresses that were held in the early evening to maximize exposure, this final such address for Mr. Schwarzenegger is at 10 a.m.

He also exhorted the lawmakers to try to convince Californians to vote in favor of some $11 billion in water bonds to be on the November ballot.

"Our economy cannot grow without water. Our population cannot live without water. It is our state's lifeblood," he says in his remarks.