EDITORIAL BUDGET BOOM CALIFORNIA CAN GET FISCALLY HEALTHY WITH PRUDENT SPENDING PLAN.

THERE'S been a lot of bad news for Gov. Arnold Schwarzenegger lately, so he must be overjoyed to find out something is going right: The state won't start next year with a deficit - as it has for the past four years.

Indeed, Legislative Analyst Elizabeth Hill's projections for the state through 2011 are markedly improved over past years. She notes that a jump in state revenues from taxes, coupled with ongoing budget cuts, has put the state back on the path of fiscal health.

The Governor's Office is taking credit for the good news, saying that Schwarzenegger's promise to put California on a workout paid off. No doubt Schwarzenegger's efforts were a big factor. But the state's revenues were already picking up on their own, thanks to the strong housing market and the boom in home equity that allowed people to cash in and spend more.

While this prediction is a relief after years of multibillion-dollar deficits and critical services being cut, it's surely not a time to stop being frugal. As Hill pointed out, the structural deficit built into the state's financial system still hasn't been solved, and it won't unless lawmakers take action to cut spending even deeper.

Since with the current Legislature that seems as likely as Los Angeles suddenly getting rid of smog and gridlock at the same time, it's going to take public pressure on lawmakers to keep spending under control.

It already appears that the once red-hot housing market is cooling down as interest rates rise. Locally, homes were selling slower this month than in the same time period in the past five years.

As the dot-com implosion taught us a few years ago, the good times can end at any moment.

This means the state's lawmakers - the governor and the Legislature - must not grow complacent. The hard work is ahead of us, not behind. The state needs some sort of spending controls, which were proposed in Proposition 76, but which voters rejected.

That measure failed more in part due to a bigger fight between Schwarzenegger and the teachers union. But without some comprehensive plan - to steal a line from Schwarzenegger himself - to live within our means, the state is doomed to an endless cycle of boom and bust.