A Physical Initialization (PI) procedure is being implemented in the Scripps Experimental Climate Prediction Center (ECPC) Regional Spectral Model (RSM), which was originally developed at the National Centers for Environmental Prediction (NCEP). The PI scheme includes precipitation estimate assimilation and surface flux updating. Dynamic nudging is also included by means of Newtonian relaxation towards the analysis fields. In this particular study, we seek to understand how changes in the soil moisture at the initial time can affect the surface fluxes, the precipitation assimilation and, ultimately, the rainfall prediction. The U.S. Southwest region is the domain for this study, since previous evaluations of the RSM have indicated that the RSM forecasts are particularly sensitive to soil moisture in this region. We note in particular that the current RSM forecasts have too low precipitation during the summertime over this region and that the PI not only provides more realistic surface fluxes and soil moisture but also somewhat better forecasts. The increased forecast skill will be described at the meeting.