Gov. Arnold Schwarzenegger's proposed budget relies on rosy revenue projections and could expose California to serious financial risk, the state's nonpartisan legislative analyst's office said Friday.

"The budget contains a significant number of downside risks and is based on a number of optimistic assumptions," said Legislative Analyst Elizabeth Hill, in her first review of the $143.4 billion spending plan the governor released Wednesday.

"Its key proposals also raise serious policy and legal issues. Adverse outcomes in just a few of these areas could easily eliminate most or all of the proposed reserve."