EDITORIAL GOING ARNOLD'S WAY ALL SIGNS POINT TO GOVERNOR'S BUDGET PLAN.

THE annual Sacramento budget battle is only just under way, but, already, it seems to be heading decidedly in Gov. Arnold Schwarzenegger's direction.

He's got a lot going in his favor:

--Revenues are up: Due primarily to a one-time state tax amnesty, Sacramento has received about $1.7 billion more in tax monies than previously expected, thus relieving some pressure on the deficit.

--The economy is recovering: Positive news on all financial fronts points to solid economic expansion next year, and that means an estimated $1 billion in higher tax receipts.

--Cuts aren't as steep as once feared: With more money coming into the state treasury, Schwarzenegger's newest budget revision contains smaller reductions than expected for such politically sensitive areas as health and transportation. So, by comparison, the pain of cuts no longer seems quite so severe.

--The governor's trifecta: By securing advance deals with the state's municipalities, K-12 education, community and public colleges, Schwarzenegger has blunted what could have made for his toughest opposition. Now, all three of these powerful constituencies have agreed to accept cutbacks in exchange for long-range promises - thereby freeing up $4.3 billion more for the treasury.

Reducing waste and taking on special interests: Although there's still a long way to go, Schwarzenegger managed to save $500 million by renegotiating some public-employee contracts, and stands to save nearly a half billion more through changes in California's bloated corrections system.

Through it all, Schwarzenegger has come up with a workable plan to erase a $15 billion hole in the state budget, while also shoring up the books for future years - without violating his campaign pledge not to raise taxes.

Yet it's the tax question, more than any other, that threatens to divide Sacramento and bring California to its usual budget gridlock. Some legislative Democrats insist that the state cannot compassionately balance its books without bringing in more cash.

But that argument now carries less weight, with cuts being less drastic than what everyone was preparing for just a few months earlier. And because schools and municipalities have signed on to Schwarzenegger's plan, Democrats won't be able to rely on them to apply pressure at the grass-roots level.

Ultimately, it's a question of credibility. Voters are more likely to trust the man crafting solutions than the legislators who made the problems. If Schwarzenegger says tax hikes aren't needed right now, most voters will take him at his word.

Where legislators can rally support is in their defense of various social-welfare programs. But unless they can establish some fiscal credibility of their own, their quest for tax hikes is unlikely to gain much traction with the public.

And the best way legislators can establish credibility is to work with the governor in passing a compromise budget before the historically oft-ignored June 15 constitutional deadline. If the state's leaders can pull it off, there will be plenty of credit to go around for everyone.