California will end 2001-02 with a deficit of $4.5 billion, while the 2002-03 budget year faces a shortfall of $12.4 billion and potentially even more if the recovery we are assuming for next spring is delayed. Annual budget shortfalls will persist well beyond 2002-03 absent corrective actions. Thus substantial ongoing expenditure cuts and/or revenue augmentations are required to bring the budget back into balance.