SACRAMENTO, CA - Last Friday, when Governor Schwarzenegger released his revisions for the 2006-07 budget, he proudly announced that the state had collected billions more in tax revenues than expected, giving him the opportunity to make prepayments on several of the state's debts. While such fiscal prudence is a welcome change, the budget itself increases spending by 9.3 percent, despite the presence of yet another operating deficit.

So far in fiscal year 2005-06, California has collected more than $92.5 billion in revenues, $4.8 billion of which was unexpected in the January budget proposal. In addition to this year's collection, $9.5 billion was carried over from the previous fiscal year, bringing the total resources available to nearly $102 billion.

This sum permitted the state to cover $92.6 billion in total general fund expenditures for the year and leave close to $9.4 billion for use in fiscal year 2006-07. Note that while the numbers look good, without the unexpected revenue and the prior year's balance, there would be a $4.9 billion deficit.

The same goes for fiscal year 2006-07. Although California's estimated $94.3 billion in tax revenues are $2.7 billion higher than expected in January, the governor's plan puts general fund spending at $101 billion, leaving an operating deficit of $6.7 billion. The deficit disappears only when the balance of $9.4 billion from this year is added to the equation. Of course, such budget tricks are nothing new in Sacramento.

California has spent more than it brings in every year since 2000. For the first few years, the blame was placed on the downturn in the economy, which slowed the influx of dollars into the state's coffers. But former governor Gray Davis and the legislature ratcheted up spending as well, culminating in a budget morass that ultimately sent Davis packing.

Since then, California's economy has been booming and tax revenues have reached all-time highs. But though tax revenues have increased 14 percent since 2004, state expenditures rose 25 percent. With this rate of expenditure growth, trying to close the deficit is like a dog chasing its tail. Once again a governor is partly responsible.

In 2005, Gov. Schwarzenegger emphasized the need for spending control. In his State of the State address that year, he told all Californians, "We don't have a revenue problem, we have a spending problem.'' The governor made it clear that rapid spending increases were hurting the state and even pushed for the passage of a spending cap.

But this year Gov. Schwarzenegger doesn't seem to be bothered by the rate of growth. Though some of the increase in spending is from the sensible debt prepayments, most of it will go towards general program increases. With the exception of the Resources, Environment Protection, and State and Consumer Services Departments (each with budgets under $2 billion) every state department will see increases that outpace the estimated 6.2 percent growth in California personal income.

According to a study by Harvard economist Robert J. Barro, "the ratio of real government consumption expenditure to real GDP had a negative association with growth and investment.'' This means that a jump in government expenditures relative to personal income will eat into California's economic growth. And a dip in California's economy will mean a decrease in the rate of tax revenues, and potentially even bigger deficits.

The governor should be applauded for making sure the state pays its "credit card'' bills ahead of schedule -- but he needs to reaffirm his commitment to reducing the overall growth in government. Only by slowing the rate of expenditures will California continue to see a healthy economy and balanced budgets.

Anthony P. Archie is a public policy fellow in Business and Economic Studies at the Pacific Research Institute. He can be reached via email at aarchie@pacificresearch.org.