1. LAO Californias Economic and Budget Outlook Legislative Analysts Office www.lao.ca.gov

2. LAO California Employment Expanding Year-Over-Year Percent Change in California Employment, By Quarter

3. LAO Leading SectorConstruction Percent Change in Jobs by Industry Sector, December 2004 Through December 2005

4. LAO OutlookContinued Growth Housing to Downshift Consumer Spending To Hold Its Own Business Hiring and Spending To Continue

5. LAO Risks To Economic Outlook Energy Costs More price increases may spark inflation California Real Estate Market is cooling off Orderly decline projected in sector that is prone to booms and busts

6. LAO General Fund Revenue Strengthening Total General Fund Revenues (In Billions)

7. LAO Income Tax Estimated Payments Soaring Annual Percent Change

8. LAO Budget Plan Fails to Get States Fiscal House in Order Despite Booming Revenues, Leaves State With: Large structural shortfalls Enormous outstanding obligations

9. LAO Operating Shortfalls Persist Despite Booming Revenues General Fund (In Billions)

10. LAO Budgetary Borrowing Outstanding After 2006-07

11. LAO Amnesty-Related Income Tax Effects Budgetary Basis (In Billions)

12. LAO Risks and Pressures Economy Higher Energy Costs/ Steeper Real Estate Decline Lawsuits Potential Exposure of Nearly $1.5 Billion Federal Deficit Reduction Act Hundreds of Millions of Dollars Annually Unfunded Liabilities Multibillion Dollar Exposure Over Time

13. LAO LAO Advice Slow Spending Increases Use Resources to Increase Reserves or Prepay Debt