Gov. Arnold Schwarzenegger is turning to some familiar and controversial territory to try to shave the costs of running government: inviting private firms to do it better and cheaper.

In his State of the State address, Schwarzenegger offered his first concrete plan to turn to the private sector to help extract the state from its budget hole, urging lawmakers to reverse a state law restricting school districts' ability to farm out tasks such as bus driving and groundskeeping to private companies.

Schwarzenegger's budget plan released Friday says he will ask voters to approve a constitutional amendment expanding the state's ability to call on private companies to help pare the state's costs.

The Republican governor's budget chief, Donna Arduin, is a known proponent of privatizing to help balance budgets, and has employed such measures to cut costs in her previous jobs in Florida and New York.

"I've seen it work when done carefully," Arduin said. "The main purpose is to provide some competition in what we do, to allow new ideas to come in from the outside."

The strategy, often called privatization, is popular among those who advocate shrinking government and boosting business, and is hated by unions that represent government employees who stand to lose their jobs to private sector workers.

State Sen. Tom McClintock, who ran unsuccessfully against Schwarzenegger in the gubernatorial recall election, repeatedly has prescribed privatizing government. He said private firms competing for state contracts will lower costs and improve efficiency.

"It's a Yellow Pages principle of government. If you can find it in the Yellow Pages, the government shouldn't be doing it," said McClintock, R-Simi Valley.

He said contracting succeeds "by restoring to state government the freedom that every family exercises every day, which is to shop around for the best service at the lowest price."

In his new budget plan, Schwarzenegger is calling for some moves toward privatization, including exploring contracts for health care, food services and maintenance.

Schwarzenegger also will push for an expansion of the California Constitution to allow state agencies more power to contract with private firms to cut costs and improve efficiency and services. The constitution prohibits state contracts unless the services sought are temporary, unavailable within civil service or highly specialized.

Voters in 2000 approved Proposition 35, a constitutional amendment that allowed state and local governments to expand the number of architectural and engineering contracts they give to private companies.

McClintock frequently quotes the Reason Foundation, a think tank that focuses extensively on privatization. The foundation estimates that the state could save $1 billion over time by privatizing an array of functions ranging from maintaining state parks to building roads.

Lawmakers who support privatization said they are optimistic about Schwarzenegger's willingness to turn to private industry to help fix the state's budget.

"Don't underestimate the California populace and our entrepreneurs out there," said Sen. Bill Morrow, R-Oceanside. "In virtually any area in which services are provided to the public, I'll wager a good entity in the private sector could come up with a better, more efficient way to provide those services."

Numerous studies can be found supporting or opposing the case for privatization. Proponents acknowledge it does not work in every instance, but they point to states and local governments that have saved money.

The nonpartisan Legislative Analyst's Office recommended in 1996 that California examine more opportunities to privatize.

In its own analysis of the benefits and pitfalls of contracting out services, the analyst's office found that "carefully managed privatization can, under the right circumstance, provide specialized expertise, save money and result in improved service delivery."

However, the study also found that privatization that is poorly managed or done under the wrong circumstances can "lose money and result in poor service delivery."

Even privatization's most ardent supporters agree that it must be done right to produce benefits.

"Privatization and competition are a way of improving services and cutting costs in places where you've got problems or in places where there's opportunities for new ways to do things," said Adrian Moore, the Reason Foundation's vice president.

The California School Employees Association supports efforts to limit privatization. Dave Low, assistant director of governmental relations, called Schwarzenegger's plans an effort to "beat up on the public employees" in a time when budget cuts already are taking a toll.

The union points to San Diego Unified School District's 1994 decision to abandon private school bus operations because of problems with the carriers and a study that showed the district could save money by running the program.

The union representing correctional officers also is among those opposing efforts to privatize.

"We view it as a lessening of the profession, and we don't think public safety is served by having it go out to the lowest bidder," said Lance Corcoran, executive vice president of the California Correctional Peace Officers Association.

Former Republican Gov. Pete Wilson, who advised Schwarzenegger throughout his campaign for governor, had little success with his plans for sweeping privatization to help cut government costs.

Efforts to increase the number of prisons in California run by private companies have failed -- and, in fact, three of the state's nine privately run, minimum-security prisons closed last month.