Gov. Arnold Schwarzenegger stayed upbeat, as usual, but the Terminator lurked between the lines of his State of the State address Wednesday morning.

Foremost among his targets was the California Correctional Peace Officers Association. The union representing state prison guards is a force in state politics, pumping millions into the campaigns of favored officials. You might recall that the CCPOA briefly pursued a recall targeting Schwarzenegger and it recently won a court challenge to his policy of furloughing state workers to help balance the budget.

Schwarzenegger’s response: A proposal certain to be popular with parents, students and Democrats to amend the constitution to prohibit the state from spending more on prisons than it does on higher education. “What does it say about any state that spends more on prison uniforms than caps and gowns,” he asked.

To pay for it, he proposed turning more of the prison system over to private enterprise. “Competition and choice are always good,” he said. Of course, a private system is certain to be less labor-friendly than California politician who benefit from the guard’s largesse.

Schwarzenegger also renewed his call for a two-tier pension system for state employees. State pension obligations have soared over the past 10 years, leaving a huge unfunded liability and cutting into revenue for other public programs. The same problem has extended to local government as cities and counties fattened pension benefits to match the state’s offerings. “We are going to be run over by a locomotive,” he said. He’s right, but that doesn’t sit well with state employees or the board of the California Public Employee Retirement System, which is dominated by public employee unions.

The governor saved a lot of the bad news for Friday, when the state budget proposal for 2010-11 is due. His promise to keep education whole will be welcomed (and save him a fight he’s lost in the past) but it will mean deep cuts in social service programs and practically everything else the state does. He’s also going to have to find a way to pay for big job programs that he unveiled on Wednesday.

He also foreshadowed a fight with Congress over the health care reform bill, which would require the state to spend more on Medi-Cal, and laid down a challenge for California’s congressional delegation. Schwarzenegger, who wants more federal dollars or the flexibility to reduce Medi-Cal costs, said the state’s senators and House members should vote against the bill “or get in there and fight for the same sweetheart deal that Sen. (Ben) Nelson got for the Cornhusker state … They got the corn, we got the husk.”

Those are ambitious goals for a governor entering his hasta la vista year. I doubt he’ll achieve any of them, but it will be an interesting fight.

— Jim Sweeney