On January 10, 2008, Governor Arnold Schwarzenegger released his proposed budget for the 2008-09 fiscal year. State revenues for the 18 months covering the last half of 2007-08 and 2008-09 are projected to be nearly $16 billion below planned expenditures. The budget seeks to close this shortfall by cutting 2008-09 funding for most programs by 10% below initial allocations based on workload growth and cost factors. Current-year spending will be cut by $217 million. Proposed General Fund spending is $2.4 billion (2.3%) below 2007-08. The total budget, including the public transportation account and other special funds, will be $141 billion, $4.2 billion (2.9%) lower than estimated 2007-08 spending. This paper provides an overview of Governor Schwarzenegger's proposed 2008-09 state budget.