Some will call her a dose of reality, others will call her overly cautious. Either way, the Legislature’s nonpartisan budget analyst has taken a quick glance at Governor Schwarzenegger’s budget and finds it lacking in realistic solutions to the state’s fiscal problems.

Legislative Analyst Elizabeth Hill’s bottom line is nicely summed up in one sentence: “While any budget is subject to risks and uncertainties, we believe that the number and magnitude of these risks is unusually high in the current plan.”

And that’s coming from someone who’s read a lot of optimistic budget proposals from governors in the past.

Hill’s analysis takes issue with the governor’s assertion in his Wednesday news conference that his team has erased the state’s multi-billon dollar deficit. On the contrary, she argues that the budget plan could be derailed by everything from court challenges, to revenues that never materialize, to an economy that may be slowing down more than Schwarzenegger’s team thinks.

“Adverse outcomes in just a few of these areas could easily eliminate most or all of the budget’s proposed reserve [cash],” she writes.

Hill and her analysts question the governor’s plan to divert surplus public transportation funds (because it might leave public transit programs short of cash if gas prices drop, and might also raise legal challenges if the money shuffle ends up lowering the constitutional guarantee for K-12 education).

Also dinged are the budget’s reliance on revenues from new Indian gaming compacts and the successful outcome of pending lawsuits. And on top of those policy issues, the LAO analysis takes issue with the governor’s assumptions about the economy and tax revenues– arguing that his Department of Finance may be overstating revenues by a total of more than $700 million in the current and pending fiscal years.

“It will be important that the Legislature develop a more realistic budget,” says the LAO report.

You can find the full report here.

[UPDATE: You can now hear this story online, by clicking here.]

There has been a lot of discussion in recent months about the ever-growing crisis inside California’s prisons, where state officials concede that overcrowded conditions are about to reach the breaking point.

But there’s also a brewing crisis outside of those prisons, one that is quietly trickling down into some unsuspecting– and unhappy– communities across the state.

On tomorrow morning’s edition of The California Report, my Sacramento bureau colleague Tamara Keith takes a look at reports of wastewater contamination coming from prisons that are stacked to the rafters with inmates.

Tamara headed out to one particular hot spot, the Amador County foothills town of Ione, where there are a lot of unhappy folks with untreated wastewater that’s being discharged by Mule Creek State Prison. The prison, originally designed for 1700 inmates, now houses some 4000 behind its walls. A cease and desist order, issued last month by the regional water board, documents numerous persistent problems– including the failure to report problems. Prison officials, in a letter to the local regional water board, admitted to some violations of wastewater discharge policies.

And it’s not just happening in Ione. At least 17 prisons across the state have been cited for violations of wastewater treatment regulations. We all think of the prison crisis in terms of crime, punishment, and prisoner treatment… you might now want to add environmental dangers to that list.

Click here for more on how to hear the story.

This afternoon’s news conference with Governor Schwarzenegger was supposed to be about the budget. But considering he has only made three public appearances since breaking his leg on a Christmas skiing trip, he knew he was going to get the question…

How did it happen? And how are you feeling?

The governor said it was pretty simple; actually, he said it was all about physics… given that it all happened at a “very slow speed.” There was a lot of laughter when he said that, given that news reports have said it happened while he was standing still on the ski slope.

As for how he’s feeling? He said there was “ongoing pain” and that the obstacle of limping around is very “frustrating” for him.

Click here for the full answer Governor Schwarzenegger gave about his injury.

By the way, this is the second straight year his budget announcement has been overshadowed by his health. You may remember that last year, he had a swollen lip for the event… and stitches he received after a motorcycle accident.

Governor Schwarzenegger’s State of the State speech tonight laid out yet another ambitious agenda, highlighted by plans for more borrowing for infrastructure needs over the next decade… and an aggressive agenda on everything from the environment to health care.

More specifics on the speech’s details tomorrow morning on The California Report. In the meantime, a few “SOS” tidbits from the event:

* A Little Early?: It appeared the official proceedings in the Assembly chambers took a little less time than had been expected, and when the legislators were ready for the governor, well he wasn’t quite ready for them. Assembly Speaker Fabian Nunez looked around, thought for a moment, and then said, “We’re gonna turn it over to Senator [Don] Perata for a quick joke.” Everyone laughed. Another pause. Another look around. Then Nunez said, “We’ll be right back. Like they say on TV.” He didn’t have to wait too long, as the governor arrived moments later.

* Adlib #1– What A Difference 2 Years Make: No one will soon forget the 2005 State of the State where the governor threw down the gauntlet of ‘follow my lead or I’ll take everything to the ballot.’ Fast forward to tonight, where just before he began the section of the speech on another shot at political districting, Schwarzenegger threw in this adlib: “I don’t want to be a pest about that.” My, how times– and rhetoric– have changed.

* Adlib #2– Don’t Forget The Republicans! When the speech was handed out this afternoon, I noticed something, well, interesting in the section on health care. “You can feel that the time is right” for action, he would say. And then the script said: “Both leaders have said to me, ‘We will get this done.’” Ummm… I think that must be both Democratic leaders, and not his party’s two legislative leaders– Senate GOP Leader Dick Ackerman and Assembly GOP Leader Mike Villines. But when the governor got to that part of the speech, he quickly added: “My Republican friends said we will get it done.” Good catch, guv.

* On Those Bonds: The governor is calling for an additional $43.3 billion in bond offerings to finance his new infrastructure proposals, what his administration is calling part two of 2006’s Strategic Growth Plan. $29.4 billion of that would have to be approved by voters over the course of two elections, in 2008 and 2010. Most of that money would be for education needs. But as the focus groups conducted for this past fall’s Proposition 1D revealed, the voters are getting grumpy about constantly being asked for more money for schools.

* Sayonara High Speed Rail? In a pre-speech briefing with reporters, the Schwarzenegger administration said that Schwarzenegger’s bond proposal would essentially max out the state’s borrowing capacity for the next decade. So what about the idea of a ballot measure asking voters to approve bonds to build a high speed rail system through the Central Valley? After all, it was supposed to have been on the ballot already, but kept getting postponed. Administration officials said today that the high-speed rail project should be derailed… again, and perhaps indefinitely.

Just 72 hours after calling for a new era in politics of post partisanship, Governor Schwarzenegger’s health care reform plan ran smack into the old era of pure partisanship– not necessarily political as much as ideological.

In fact, the only completely positive reactions coming in so far seem to be from legislative Democrats (and that support shouldn’t be dismissed).

The proposal outlined today by the governor– via satellite from Santa Monica, where he stayed to rest his broken leg– is, in a word, huge. In fact, the total price tag is estimated at $12 billion. In case you need some perspective, that’s more than the entire gross domestic product of countries like Jamaica and Iceland.

And while there is much debate about whether it will, or won’t, provide coverage for everyone in California, it is indeed designed to do so. As Peter Harbage of the New America Foundation said today, “this plan ‘one ups’ Massachusetts”– in reference to that state’s recent universal health care initiative.

The headlines of the governor’s plan: mandates on individuals to have some level of health insurance… mandates on employers (with 10+ employees) to either provide health coverage or pay 4% of payroll into a state “pool” system… requirements for insurance companies to earmark 85% of premiums for patient care costs, as well as change eligibility rules that often exclude many people… and new “dividends” (what some are calling “taxes”) to be paid by doctors and hospitals into the state-sponsored insurance coverage pool.

The governor’s team refers to the proposal as “universal” coverage, but lest you be confused, Schwarzenegger was quick to point out that it’s not a government-run program.

A few audio snippets from today’s health care discussion:

* Gov. Schwarzenegger on why the plan is a good deal, not a bad one, for everyone.

* Gov. Schwarzenegger on his own “health care crisis”… why he didn’t come to Sacramento for the big event.

* Assembly GOP Leader Mike Villines (R-Clovis), on why an employer “mandate”– what he calls a “jobs tax”– is a bad idea.

* California Labor Federation leader Art Pulaski, on why the governor’s proposed 4% payroll requirement on businesses is too low.

Governor Schwarzenegger’s proposed state budget requires more work hours for adults receiving state welfare assistance, cancels a cost of living increase for the program scheduled for later this year… and proposes a new cap on the length of time that some families are eligible to receive cash payments designed to help their children.

The proposals were outlined this afternoon in an administration conference call with reporters.

Bottom line, the changes to the state’s welfare-to-work program known as CalWORKs would reportedly save the state a total of $464.7 million. The state could face a budget deficit of some $5.5 billion in the 2007-08 fiscal year.

The largest savings, almost $176 million, would come from forcing more adult recipients to work at least 30 hours a week to keep receiving assistance. That’s a federally mandated standard, and one that the Schwarzenegger administration estimates is currently met by only 25% of CalWORKs recipients.

The governor’s budget advisers say their proposal to raise that percentage will help avoid penalties that the federal government will soon impose on California for having such a low percentage of recipients working those hours. The federal penalties, which would kick in next year, could total some $149 million. A recent report from the nonpartisan Legislative Analyst’s Office concludes that 46% of California adults on state assistance will have to work more hours, in order for the state to avoid the federal penalties.

Another significant part of the governor’s welfare savings ($160 million) come in a proposed five-year cap on cash aid to children. Not only does that time limit not currently exist, but existing policies have allowed CalWORKs cases that began as help for adults to transfer to help for their children, once the adults’ eligibility expired.

“As more adults reach the time limit,” says the recent LAO report, “the adult caseload is decreasing, while the child only caseload is increasing.” Governor Schwarzenegger’s plan would certainly seem to scale back that growth in child assistance.

As such, it may be one of the more politically controversial proposals in the Legislature. The reaction from Senate President Don Perata (D-Oakland) in a written statement: “It’s ironic that the governor is proposing health care for poor kids, while taking away their breakfasts. Even Republican Governor Wilson– at the time he negotiated welfare reform– agreed that children should not suffer for the behavior of their parents.”

And a pointed reaction, too, from Assembly Speaker Fabian Nunez (D-LA): “At a time when our state is enjoying unprecedented prosperity, we will not balance the budget on the backs of our most vulnerable citizens. This is a punitive and unproven approach that will hit struggling families hard, particularly single mothers.”

We’ll get a look at the governor’s full budget proposal on Wednesday.

You’ll get plenty of news about the inauguration of Governor Arnold Schwarzenegger elsewhere (including on the air in today’s newsmagazine edition of The California Report). With that in mind, here’s a little of what else happened today during the big celebration…

Best Supporting Actor: He couldn’t win the Best Actor award today because, well, he wasn’t the star of the show. But hands down, the best other show was put on by none other than legendary political kingpin Willie Brown. The former Assembly Speaker/SF Mayor was the master of ceremonies, and he was in rare form with a number of quips and one-liners…

On his legislative career: “God knows, in the 31 years of my being here in Sacramento… I contributed substantially to the ‘ungovernability’ of this state.”

In his introduction of the clergy members who delivered the invocation: “Governor Schwarzenegger spends a lot of time trying to get next to God.”

In his introduction of First Lady Maria Shriver: “She’s absolutely gorgeous. And only because the governor can’t catch me, will I dare say this: she’s foxy and sexy!”

The always dapper Brown shook a lot of hands afterward, and then was seen walking alone on the street wearing a black felt fedora, quietly making his way back toward his old stomping grounds at the Capitol.

Best Mathematical Reference: Yeah, it’s an odd category, but it was an odd comment. The winner is the Rev. J. Alfred Smith, who said in his prayer for the governor: “May his joys geometrically outnumber his sorrows.”

Best Award Show Moments: The ceremony was staged by Hollywood producer and FOA (Friend of Arnold) Carl Bendix, and it had a few award show moments… some good, some kind of schmaltzy. You be the judge. The runner up was the reading by the first lady. Not what she read, mind you… but what was happening while she read. The reading was a Native American passage, and was accompanied by music and a slideshow of Yosemite vistas. The consensus of those around me: the reading would have been enough on its own.

Okay, maybe that wasn’t the best award show moment. So here was the best: the governor’s entrance on stage… yes, on crutches… but an entrance to the familiar, and politically symbolic, “Fanfare for the Common Man,” by Aaron Copeland. The crowd went wild.

Best Bad Media Questions: The governor’s press team was besieged with goofy media questions, the kind that always pop up at these kinds of events. A sampling from today: who designed the first couple’s clothes? Was the Schwarzenegger family Bible used in the ceremony written in German? What are the governor’s crutches made out of? The last one prompted a great (but joking) reply from Schwarzenegger aide H.D. Palmer: “Austrian oak.” (That’s also the governor’s nickname.)

Best Celebrity Reason For Showing Up: That goes to actor (and FOA) Rob Lowe: “In my new (show), I’m playing a senator for California. So I’m here studying, and stealing from anybody that I see!”

Most Unusual Celebrity Moment: That was, no surprise, when I caught up with actor (and FOA) Tom Arnold. Arnold had a lot to say… about everything. But my favorite moment was his feeling about the governor’s second term: “When you’re a lame duck, or whatever you call it, you can do whatever you want.”

So what does he think the governor should work on? “Gay marriage,” he said. “I want [it], and I know he feels the same way.” Hmmm… that might make news.

Best Performance: Jennifer Holliday’s two songs at the end of the event were really good. But for my money, the best performance was the unbelievable rendition of the National Anthem by Jose Feliciano. Listen for yourself by clicking here.

For weeks, Governor Schwarzenegger and his advisers have hinted that his soon-to-be-announced health care reforms will center on what he calls “shared responsibility” by everyone. And that certainly seems to be true in some of the first details to emerge about his proposal.

According to new information from the governor’s administration, the Schwarzenegger health care plan will require that employers offer pre-tax savings accounts to help pay for health insurance. These accounts, which are authorized under federal tax code, are currently optional for employers. The governor would require all California businesses to offer them. The money is deducted from an employee’s pre-tax paycheck– if they want to participate– and placed into a separate account to help defray medical costs.

What’s unusual about these so-called “Section 125″ plans (named for IRS tax code) is that they are not contingent on actual health coverage. In other words, they will be available to a worker even if his or her employer doesn’t offer health insurance.

Meanwhile, the governor will also propose the creation of “Healthy Action Programs.” These programs would be offered through both state-run and private insurance plans, and would reward people who take advantage of preventative health programs, like smoking cessation classes and weight reduction. The incentives, according to the administration, could range from health club memberships to possible lower insurance premiums.

This afternoon, Assembly Speaker Fabian Nunez said the governor’s proposals not only “make sense,” but are similar to ones he made in his own health care reform package last month.

Expect to hear much more about health care both in the governor’s inaugural address tomorrow, and next week when the governor unveils his complete proposal.

“I hope when all of you go skiing, you don’t break your femur. Because it isn’t pleasant.”

That’s what First Lady Maria Shriver told the crowd gathered this afternoon on the Capitol’s south lawn, a crowd that originally had expected to see her husband, Governor Schwarzenegger.

The governor had to cancel his appearance at the first day of inaugural festivities, after his doctors reportedly told him to rest his newly-repaired leg, which he broke in a skiing accident in Idaho just before Christmas.

Shriver, two of her kids, and her mother, Eunice Kennedy Shriver, all showed up for today’s big event, celebrating environmentally friendly technology… and the environmental record of the governor.

Schwarzenegger’s extended recuperation schedule prompted an awful lot of tongue wagging around the Capitol today, about whether tomorrow’s inauguration plans might change. But the governor’s aides say he will indeed take the oath of office for his second term tomorrow morning at Sacramento’s Memorial Auditorium.

You can hear Shriver’s comments from this afternoon by clicking here.

Governor Schwarzenegger, on advice of his doctors, has decided to skip attending the pre-inaugural celebration that kicks off tomorrow outside the state Capitol.

The governor continues to recuperate from surgery to repair his right femur, which he fractured in a skiing mishap over the Christmas holidays.

In a written statement this afternoon, Schwarzenegger said: “After meeting with my doctor he has advised me to rest, elevate my leg and stay off of my feet for as long as possible.”

The Thursday event is an environmental celebration of sorts, featuring items and booths touting the governor’s greener side.

The statement appears to say, however, that First Lady Maria Shriver will still attend tomorrow’s festivities. But the big guy won’t take to the crutches until Friday, when he takes the oath of office at Sacramento’s Memorial Auditorium.