Gov. Arnold Schwarzenegger will return this week from his first trip abroad as governor with another important first quickly approaching.

The Republican leader is less than two weeks away from delivering his first "May revise," an updated state budget proposal that will launch a period of intense negotiations leading up to the July 1 start of the new fiscal year.

It will be his first comprehensive budget negotiation since wresting the job from former Gov. Gray Davis, who was widely criticized for his handling of the state's finances.

Schwarzenegger's finance team is drafting the budget revisions with a benefit Davis didn't have in his final years in office: More than $1.5 billion in higher-than-expected revenues that flowed into the state in April, largely as the result of a one-time amnesty program for taxpayers using tax shelters. This is the first year since 2000 that April's rush of tax receipts has yielded good news for the May budget revisions.

Some of Schwarzenegger's original key budget proposals have unraveled since January, however, and he has backed away from others, leaving his budget writers with new holes to fill.

"On its face, having more than a billion more in personal income than had been forecast is awfully good news," said H.D. Palmer, a spokesman for the Department of Finance. "But there are a number of other factors that go into what the bottom line is going to look like."

Among the gaps Schwarzenegger must fill are his plans for the prisons budget, which the governor said in January he would slash by $400 million. But he did not say specifically where he would make the cuts, and California Department of Corrections officials have since said overcrowded prisons and overruns will drive costs higher than expected.

He also must decide whether to keep some solutions in his budget that some analysts have called risky, including a plan to cut reimbursement rates for Medi-Cal providers that is in the midst of a legal challenge.

Additionally, Schwarzenegger has reconsidered some of the major cuts in the January budget proposal, including some he had proposed in services for the disabled. Officials have said they will try to make up some of the difference with federal matching funds.

Schwarzenegger and his staff have been attempting to seal deals with cities and counties, in which the local jurisdictions would agree to take $1.3 billion in cuts in each of the next two years, in exchange for Schwarzenegger's support for a constitutional amendment to protect their budgets in the future.

Democratic leaders said they are pleased with the boost in revenues in April, but said they still plan to fight some of the governor's proposed cuts to health and social services and to higher education.

"We'll take any good news," said Assembly Budget Committee Chairman Darrell Steinberg, D-Sacramento. "I don't think, though, that it changes fundamentally the nature of the problem or the outline of the debate."

Republican leaders, meanwhile, said they hope Schwarzenegger includes deeper cuts in some areas, but retreats from some of his planned reductions to transportation projects.

"We realize we've got a tight budget situation, but some of the transportation projects sometimes cost you more money when you shut them down," said Sen. Dick Ackerman, R-Fullerton, who likely will lead Senate Republicans in budget negotiations.

Legislative Analyst Elizabeth Hill has said the Schwarzenegger budget proposal nearly balances next year. But she said the state will have an additional $7 billion budget hole in the 2005-06 fiscal year and "large operating shortfalls" for the next half-decade unless lawmakers enact permanent program cuts or tax hikes.

Once Schwarzenegger delivers his revised budget plan, the Legislature faces a June 15 deadline to send a budget to the governor. That deadline is rarely met, and more importance is placed on approving a budget before the first day of the fiscal year, July 1.

But the budget has been signed into law later than July 1 in 14 of the past 20 years. Davis' second-to-last budget was the latest in history, signed Sept. 5.

The negotiations come on the heels of a pair of significant victories for the governor, which have some observers predicting he will help usher in an on-time budget for the first time in years.

Schwarzenegger scored a huge victory at the polls in March when he persuaded voters to approve an unpopular bond measure to help the state pay off built-up deficits over time. He then landed another key win when he signed a workers' compensation reform package into law.

"That's what gives him the great advantage," said John Ellwood, a professor of public policy at the University of California, Berkeley. "Success gives you more power, and Gray Davis was not successful, was not loved and lacked all those interpersonal skills."