After a string of legislative victories, including overhauling the workers' compensation system, Gov. Arnold Schwarzenegger now confronts his biggest challenge – balancing the 2004-'05 budget by the June 30 constitutional deadline.

Between now and then, the governor and lawmakers must craft a spending plan that closes a $17 billion shortfall without gutting vital public services or resorting to fiscal gimmickry.

The pressure is particularly intense on Schwarzenegger, who promised to break with the duplicitous practices of the past of hiding deficit spending. Repeating that promise during his State of the State Address, he vowed aggressive action to put California's fiscal house in order. Doing so will require him to impose fiscal discipline that is foreign to Sacramento.

It must begin with a meaningful balanced-budget mechanism. Although the California Constitution requires that the governor submit a balanced budget each year, it does not expressly require that revenues equal expenditures. Combine this loophole with revenue projections that are routinely inflated and it's easy to see why a nagging structural deficit – the yearly differential between income and outgo – exists.

The economic recovery act approved by the voters in March lacks the tight spending cap that fiscal hawks were demanding. Consequently, Schwarzenegger may be tempted to take the easy way out when the budget gets tougher to balance.

As long as California keeps resorting to bookkeeping gimmicks and other subterfuges to delay the day of fiscal reckoning, it will continue careening from one fiscal crisis to another. The state's bonded indebtedness, combined with its chronic inability to enact fundamental fiscal reforms, already has caused considerable skittishness among investors. The longer this saga continues, the greater the likelihood of California's creditworthiness being downgraded even more. Which is why the governor must capitalize on his mounting political momentum and push for the structural reforms required to help stabilize the state's fiscal situation.

The $99.1 billion spending plan that Schwarzenegger unveiled four months ago cuts health care, siphons money from local governments, raises college fees and borrows billions to help balance the books. Still, California's structural deficit persists.

Schwarzenegger, who has opposed tax increases, is correctly focused on corraling the overspending that has driven the state deeper and deeper in debt. The governor and legislators must seize this opportunity to resolve the fiscal crisis through substantive reforms instead of simply deferring it.