HERE is the link to the full LAO fiscal projections and report.

Below is the summary of the Budget Outlook:

The Budget Outlook

Summary

At the time the 2006-07 budget was passed last June, our longer-term revenue and expenditure projections indicated that California continued to face a significant budget problem. Although we estimated that California would conclude 2006-07 with a General Fund reserve of over $2 billion, we projected that the state would face operating shortfalls (that is, annual differences between revenues and expenditures) in the range of $4.5 billion to $5 billion during the subsequent two fiscal years. Our updated projections suggest a larger reserve in 2006-07 than we previously forecast, but also larger projected operating shortfalls in the out years. Specifically:

• The current year (2006-07) is projected to end with a reserve of about $3.1 billion, up about $1 billion from the $2.1 billion estimate contained in the 2006-07 Budget Act.

• However, expenditures will exceed revenues by $5.5 billion in 2007-08 and $5 billion in 2008-09, absent corrective actions. The 2006-07 carryover reserve could be used on a one-time basis to address over one-half of the projected 2007-08 shortfall, but would be exhausted thereafter. Thus, other actions will be needed to keep the budget in balance.

• In subsequent years, the operating shortfalls decline-particularly after repayments associated with the deficit-financing bonds (which were approved by the voters in March 2004) cease at the conclusion of 2009-10. Nevertheless, they remain over $1.2 billion through the end of the forecast period.