Given that the mission of the National Guard in a state includes disaster relief and given that California is prone to earthquakes, mudslides, and wildfires, not having NG troops available due to so many being deployed for overseas missions seriously impacts the safety and welfare of the residents of California. Creating a state militia for the sole purpose of supporting state missions may help California to reserve trained troops who would not be subject to activation and deployment for Federal missions.
If you want more information on state militias, their history, and current events, the SGAUS seems to be a good starting point. Here's their mission statement:
The State Guard Association of the United States, Inc. (SGAUS) is a nonprofit membership corporation. The SGAUS is also known as the State Defense Force Association. It is composed of individual members and chapters who support a viable state militia system. The SGAUS supports the "well regulated" militia, not independent groups who may style themselves as "militia."
http://www.sgaus.org/aboutSG.htmThis organization also has a good essay specifically on the term militia, and on how that has become problematic over the years:
http://www.sgaus.org/mtobe.htmThe regular state militias are concerned about those red flags, too. Unfortunately, private paramilitary organizations seems to have adoped the word for themselves, which may be what is ringing the warning bells for you.
You may also wish to look up H.R. 2797 (State Defense Force Improvement Act). I don't know what's happened with it lately, but it seems probable that Gov. Schwarzenegger's proposal is linked this bill or at least shares some ideas in common.