This week marks the start of the second phase of Gov. Arnold Schwarzenegger's young administration.

The first phase -- from his Nov. 17 inauguration through the start of the holiday season -- was a success for the new governor. He rolled back the increase in the car tax, made good on his promise to hold local governments harmless for revenue lost when he cut the tax, persuaded the Legislature to repeal an unpopular bill that gave drivers licenses to illegal immigrants and won approval of a fiscal package he said was the first step toward getting the state's finances back on track.

The record is not blemish-free, however. Schwarzenegger was forced to pull back his controversial proposal to cut services to the developmentally disabled after admitting that he didn't realize what he was doing when he proposed the reductions. He failed to get the Legislature to even consider other spending cuts he says are necessary to bring the budget back into balance. And his relentless political fund-raising, putting him on a pace to exceed the record-smashing money-grubbing of his predecessor, Gray Davis, has tarnished Schwarzenegger's image as an outsider who doesn't practice politics as usual.

Now, with his State of the State speech scheduled for Tuesday and his first full budget proposal for Friday, Schwarzenegger must begin the heavy lifting that will lay the groundwork for the remainder of his administration. He is facing a $14 billion gap between projected spending and revenues that he must close, and he has made many contradictory promises that will be difficult to keep, or explain away.

Still, Schwarzenegger has the opportunity to be a truly different kind of governor, one who attacks problems and makes fundamental change rather than being a mere steward of the operation handed to him on his first day in office. To build on his early success, here are some things the new governor should do as he hits his stride in the coming year:

* Question everything the state does, and how it does it. Schwarzenegger should approach his job like a chief executive taking over a troubled company. Demand an examination of every agency, division and program in state government and ask: Is this something the state still needs to do? If the answer is yes, ask whether the way the function is being performed still makes sense or if it can be re-engineered to be more effective and efficient.

* Don't shy away from the sacred cows. Schwarzenegger already has seen how he can get burned by recklessly proposing reductions in popular programs, but the fastest growing state programs are some of those that have the most vocal defenders: mental health, in-home care for seniors and the disabled, services to the developmentally disabled. The rapid growth in some of these units suggests they can be trimmed humanely, without hurting basic services. Schwarzenegger should lead the fight to make that happen.

* Blow up the school finance system. A series of stories last year by The Bee's Deb Kollars documented how overly complex, convoluted and unfair the state's school finance system has become. Schwarzenegger already has pledged to smash the practice that divides school funding into narrow pots of "categorical" money controlled by Sacramento. He should do this and more, pressing for fundamental change that finally realizes the vision of giving local schools the freedom they need to meet state standards.

* Fix the state and local finance mess. Schwarzenegger pledged during the campaign to give local governments more control over its own affairs. He should pursue this agenda by pressing for the repeal of as many state mandates as possible and pushing to give the locals a financial stake in the consequences of the programs they run for the state.

* Overhaul the state's job training programs. The state spends hundreds of millions of dollars on this task each year, with little accountability for how well the money is spent. Davis consolidated this alphabet soup of programs into one agency.

Now someone needs to find out what the taxpayers are getting for their money.

* Confront the public pension system. Davis and the Legislature dug a deep hole for state and local government by unnecessarily granting huge pension hikes to public safety workers and healthy increases to other government employees. Some of these raises threaten the financial solvency of local government. Schwarzenegger should press for fundamental reforms that begin to undo the damage done.

Above all, Schwarzenegger should avoid taking ownership of state government. Schwarzenegger ran as a reformer but is now the man in charge. It will be tempting, when the first scandal or bit of bad news breaks, for him to go on the defensive, to deny or dodge. He should resist this urge and continue to examine the government he now runs with the attitude he held before taking office.