* Brown turning his attention to education funding reforms
* Wants special legislative session on healthcare overhaul (Adds plans for a trade mission to China in 17th paragraph; changes headline)
By Greg Lucas
SACRAMENTO, Calif., Jan 24 (Reuters) - Governor Jerry Brown, hailing what he described as a hard-fought rebound in California's fortunes, used his annual State of the State address on Thursday to urge fiscal discipline to avoid a return to budget deficits and cycles of "boom and bust."
He called on the legislature of the most populous U.S. state to help him keep a promise to voters to "jealously guard" the billions of dollars in additional revenue made available through passage last year of a ballot measure temporarily extending tax increases.
"This means living within our means and not spending what we don't have," the 74-year-old Democratic governor said from the rostrum of the state Assembly chamber. "Fiscal discipline is not the enemy of our good intentions but the basis for realizing them."
Newly empowered to raise taxes and appropriate money after Democrats won a super majority in both houses of the legislature in November, some liberal lawmakers have expressed an eagerness to restore billions of dollars cut from health and welfare programs in recent years.
But rather than spend freely, California should make a concerted effort to pay down its large, accumulated debt and build up a fiscal reserve as a hedge against lean times in the future, Brown said.
"It's cruel to lead people on by expanding good programs, only to cut them back when the funding disappears," he said. "This isn't progress. It's not even progressive. It's an illusion. The stop and go, the boom and bust serves no one. We're not going back there."
Lawmakers from both parties praised the call for restraint.
"I'm pleased to see he's channeling his inner-Republican," state Assembly Republican leader Connie Conway said after the speech.
The governor said, however, that he remained committed to two costly long-term enterprises - construction of a high-speed rail system and two massive tunnels to move water from northern to southern California while restoring wildlife and fish habitat in the Sacramento-San Joaquin River Delta.
"CALIFORNIA IS BACK"
Brown last week formally delivered a budget plan that projected the first surplus in a decade, and the first surplus since a nationwide housing market collapse and ensuing recession that hit California especially hard.
The state's job growth now tops the national average and the unemployment rate has fallen to single-digit levels for the first time in nearly four years, helping boost tax revenues.
"Two years ago, they were writing our obituary. Well, it didn't happen. California is back, its budget is balanced and we are on the move," Brown said.
Freed up to pursue a broader agenda midway through his four-year term now that the budget crisis has passed, Brown said he would press ahead for approval of his plan to alter the formula for funding public schools.
The governor has proposed channeling more education money to schools in districts with a higher proportion of low-income families and children who speak English as a second language.
"Equal treatment for children living in unequal situations is not justice," he said, noting that half of the state's 6 million school children speak a language at home other than English and more than a third live in poverty.
Brown also pledged to keep a lid on tuition increases that have driven up the cost of higher education in the state, declaring, "I will not let the students become the default financiers of our colleges and universities."
The governor said he intends to devote more time as well this year to boosting economic relations with China, citing his plans to lead a trade and investment mission to that country in April.
While Brown touted California as leading the way in efforts to reduce emissions of heat-trapping greenhouse gases blamed for global climate change, he also vowed to streamline environmental regulations for the benefit of business growth.
Citing unknown costs and other uncertainties posed by expanding health insurance to 1 million Californians under the U.S. Affordable Care Act, Brown called for a special legislative session to prepare for implementing the changes by next January.
Conway said after the speech that she saw "a lot of common ground between Republicans and the governor" in his call for the state to exercise fiscal restraint, focus on education funding and streamline regulations to help business growth.
But the chairman of the state Republican Party, Tom Del Beccaro, criticized the governor for not outlining more proposals to stimulate job creation. (Reporting by Greg Lucas; Additional reporting and writing by by Steve Gorman; Editing by Cynthia Johnston, Steve Orlofsky and Leslie Adler)