SACRAMENTO – As he struggles with a huge shortfall, Gov. Arnold Schwarzenegger is expected to propose a new state budget this week that does not provide a $4 billion increase in school funding required by Proposition 98.

School groups remain optimistic that Schwarzenegger may call for an increase of about half that amount – enough to allow current programs to continue without cuts – with a promise to repay the rest of the money when state finances recover.

Schools get a large share of the state general fund, about 40 percent, and they also have the most political clout. Legislators from both political parties support schools, and polls show that education ranks at or near the top of voters' priorities.

Schwarzenegger alarmed school groups last month when he seemed to suggest in a nationally televised interview that he would propose suspending Proposition 98, something rarely done since the school-funding guarantee was approved by voters in 1988.

"We maybe have a suspension or have some relief there so that we can pull out of these next two years, and then pay it back maybe," he told interviewer Judy Woodruff on CNN.

Before leaving with his family for a nearly two-week holiday vacation in Sun Valley, Idaho, Schwarzenegger met with the Education Coalition, which includes groups representing teachers, school boards, administrators and parents.

"He wanted to personally have us in to assure us that he wasn't after dismantling Proposition 98, which was a very welcome message," said Kevin Gordon, executive director of the California Association of School Business Officials.

In a State of the State address at 5 p.m. today, the governor is expected to outline his vision for the state and to begin laying the groundwork for a detailed budget that he will unveil Friday for the new fiscal year beginning July 1.

The address today will be carried live on television and radio stations across the state and receive national coverage.

There were 255 requests for the 49 media slots available in the legislative chambers where the governor will address the Assembly and the Senate. The California Broadcasters Association has erected a heated tent, equipped with video and audio feeds, on the north side of the Capitol for the media overflow.

Schwarzenegger – who was voted into office in October in a historic election that recalled Gov. Gray Davis – inherited a huge budget gap. An estimated $10 billion shortfall increased to about $17 billion over the next 18 months when Schwarzenegger, keeping a campaign promise, immediately repealed a tripling of the vehicle license fee after taking office in November.

The general fund in the current budget is $71 billion. Democratic legislators are skeptical about whether the Republican governor can close the huge gap while keeping his promises to protect school funding and avoid devastating cuts while not raising taxes.

One of the problems inherited by Schwarzenegger is the big increase in the Proposition 98 guarantee next year, driven in part by the requirement to repay schools for funding delayed during the past two years to help close budget gaps.

According to the nonpartisan Legislative Analyst's Office, the portion of the Proposition 98 guarantee covering kindergarten through community colleges paid by the general fund increases from $30 billion in the current budget to $34.1 billion next year.

"That dollar amount is so big it actually presents a problem for us in the education community," Gordon said. "Insisting that we get every penny of that while the non-Proposition 98 side of the budget gets decimated is a problem."

The next largest part of general fund spending, health and welfare, is about one-third of the current total, or $23.4 billion. Then comes higher education, $8.7 billion, and prisons, $5.6 billion.

In the past two years, the Education Coalition has agreed to lower the Proposition 98 guarantee by delaying funding. For example, $1 billion or more owed schools in late June was delayed until shortly after the new fiscal year began July 1.

As a result of the funding shifts, schools are owed about $3.5 billion and the required repayment is part of the reason for the big increase in the Proposition 98 guarantee next year.

At a minimum, Gordon said, school groups in the past have pushed for increases to cover enrollment growth and inflation – roughly estimated to be $1.6 billion next year, said Rob Manwaring of the Legislative Analyst's Office.

"I am optimistic," said Brett McFadden, a lobbyist for the Association of California School Administrators. "I have been pleasantly surprised working with this administration, not to say I expected anything less."

The Schwarzenegger administration has made few public comments about school funding beyond the remarks made last month by the governor in the television interview.

"The governor made a commitment that he was not going to cut funding for K-12 education," said H.D. Palmer, Department of Finance spokesman. "And the budget he will submit on Friday will reflect that commitment."