In a political environment where everything these days seems to be portrayed as either black or white, Legislative Analyst Elizabeth Hill's new report on the governor's budget implies there are actually shades of gray.

Her annual analysis of the budget proposal is hot off the presses (read it online here), and it finds both good and bad items in the Schwarzenegger proposal, while also suggesting some actions sure to set tongues wagging at the Capitol.

A few notable findings:

* K-12 education: Hill says the governor's plan covers growth in student population and cost of living, but then saddles local school officials with new costs that don't have an identified way to pay for them (one example: having local officials pay the state's portion of teacher retirement contributions).

* Scrapping Schwarzenegger's after-school program? The LAO report suggests that lawmakers repeal Proposition 49, the after-school program initiative that marked the governor's first political endeavor in 2002. Budget deficits have meant the program has actually never been funded, and Hill says it's an example of bad "autopilot" budgeting (ever heard that phrase before?)

* Social Services cuts are real: True to her non-partisan roots, Hill does not debate the merits of the governor's proposed $1.1 billion in cuts to these programs. She simply says they would result in real savings in future years, which would mean possibly smaller deficits.

* Shared costs for the Bay Bridge: The LAO agrees that there are hard decisions to be made about how to pay for cost increases in replacing a portion of the Bay Bridge, and says in the end the cost should be shared by local and state governments. Expect Bay Area Democrats to jump on that idea ASAP.