INCOME TAX WINDFALL ARRIVES AT BUDGET TIME.

Byline: MIKE ZAPLER

Sacramento Bureau

SACRAMENTO -- Just as Gov. Arnold Schwarzenegger's run of financial good fortune seemed to be on the wane, billions of extra dollars unexpectedly flowed into state coffers last month.

The surge likely will spare Schwarzenegger from a protracted budget battle with Democrats that had threatened to sidetrack his sweeping agenda this year.

That's not to say that the budget debate will be easy. As annual deliberations get under way today with the release of Schwarzenegger's revised budget, Democrats are protesting his plan to freeze welfare payments, Republicans are clamoring to hold the line on spending, and a slack housing market is dampening the outlook for next year.

Heading into April, personal income taxes -- which account for more than half the state's $100 billion-plus general fund -- were running $1.3 billion below expectations. Budget experts feared the shortfall would grow.

Instead, tax season was more boom than bust. During a three-day span in late April, personal income tax receipts surged and the state ended up with about $200 million more in personal income taxes than the governor had estimated in January.