On December 31, 2008, Governor Arnold Schwarzenegger released the summary of his proposed budget for fiscal year 2009-10, including proposed changes to the current year (2008-09) budget. The complete budget was released on January 9, 2009. The budget plans assume current-year General Fund revenues of $91 billion--down from September's $102 billion estimate. Budget year revenues are projected at $98 billion. The 2009-10 budget will begin with a $13.7 billion deficit carryover from 2008-09 if no actions are taken. The Governor proposes a mix of spending reductions, tax and fee increases internal fund borrowing, securitizing the California State Lottery, and selling Reimbursement Warrants to close the budget gap. The budget also includes proposals to relax environmental and labor regulations to accelerate public works projects. Herein, the impact of budget proposals on higher education and K-12 education is highlighted. The Legislative Analyst's review of the proposed budget is also presented. (Lists 3 online resources.)