As Gov. Schwarznegger prepares for his final year in office, he has begun a major reshuffling of his senior staff. Meanwhile, the administration is trying to cobble together a pro-active agenda that will not be overwhelmed by a $20 billion deficit.

The deficit and near-record unemployment are among the major obstacles Schwarzenegger must navigate in his final year in office. But Schwarzenegger is working on what his team promises will be an ambitious policy agenda, to be laid out in his final State of the State address in January.

Among the issues on the governor’s list is renewable energy. Though he vetoed Democratic measures on increasing the state’s renewable portfolio standard this year, Schwarzenegger is committed to trying to navigate another compromise measure through the Legislature.

He will also seek to institutionalize the role of inspector general, which he created earlier this year. Up until now, IG Laura Chick has been focused on overseeing the implementation of federal stimulus funds. But Schwarzenegger spokesman Aaron McLear said the administration will seek legislation next year to expand the scope of the job and make it permanent.

While the governor mulls his plans for 2010, some new players have come aboard. This week, Scott Reid was tapped as the governor’s sixth Cabinet Secretary, replacing Victoria Bradshaw, who held the job for 14 months. Bradshaw will return to her old job as secretary of the Labor and Workforce Development agency.

Former Cabinet Secretary Fred Aguiar will return as a deputy chief of staff.

Though Bradshaw will now report to the person who is replacing her, the administration made clear Bradshaw was not being demoted. Despite reports that she had clashed with Schwarzenegger’s chief of staff, Susan Kennedy, McLear said Schwarzenegger implored Bradshaw to stay inside the Horseshoe.

“One of the biggest priorities for the governor is going to continue to be job creation, particularly green tech jobs,” McLear said.

“Nobody knows labor as well as she does. At this stage of the administration, you don’t want someone learning on the fly. We want one of our best players in a key spot.”

Reid will be the sixth person to hold the cabinet secretary position. Marybel Batjer, Terry Tamminen, Aguiar, Dan Dunmoyer and Bradshaw have all held the post since Schwarzenegger took office in 2003. Of those five, Dunmoyer served in the position the longest, lasting for 15 months.

Reid will run point on a government that Schwarzenegger sources say has not seen the end of its reshuffling.

Last month, Department of Finance head Mike Genest announced he was leaving the administration. Genest’s top deputy, Ana Matosantos, is among the candidates to replace Genest, but no announcement on that position has been made.

Whoever does step in to the finance role will face a daunting $21 billion deficit over the next 18 months, according to a new estimate from the state legislative analyst.

The report found that although the administration assumed the state would have a $500 million reserve at the end of the budget year, the state now faces a $6.3 billion shortfall in this calendar.

“Spending is drifting well above the levels assumed in the July budget package,” the report states. “Our  forecast indicates that General Fund spending obligations will be $4.9 billion higher than budgeted as of the July budget package.” The report went on to list major spending-related budget problems in 2009-10.”

Meanwhile, the state’s unemployment rate has jumped from 7.8 to 12.2 percent over the last year and remains a couple of percentage points higher than the national rate.

Bradshaw will return to the labor department with an expanded portfolio. Plans for the state’s economic development plan are being moved out of the department of Business, Transportation and Housing, and will be part of Bradshaw’s charge at Labor.

In returning to her old job as labor secretary, Bradshaw will replace acting secretary Doug Hoffner. McLear said the move was not a reflection on Hoffner, who was never confirmed by the Senate.

Other Schwarzenegger staffers leaving the administration include Patrick Henning, who is stepping down as director of the state’s Employment Development Department. Henning’s resignation comes as his department was under fire for delays in processing unemployment claims, and complaints from unemployed Californians who could not get through the department’s broken phone system.

In his farewell e-mail to his staff, Henning acknowledged some of the challenges the department has faced in recent months.
“Management should go further in encouraging more incumbent worker training, testing, and implementing alternative approaches to work, upgrading classifications, refreshing career ladders, advocating diversity in our ranks, and recruiting more persons with disabilities into our EDD family,” he wrote. “ We must change, and change must be NOW!”