SACRAMENTO - Gov. Arnold Schwarzenegger on Tuesday advocated an education agenda that would streamline school finance, cap university fee increases and boost per-pupil funding, although not to the level that schools are owed.

In his first State of the State speech, the Republican governor proposed more local control of education and supported consolidating $2 billion worth of earmarked funding -- or targeted programs that address everything from transportation to the purchasing of library materials -- into general-use money.

Making targeted funds available for day-to-day use -- a proposal that has previously failed in the Capitol -- ``will give schools the freedom to spend money as they -- not Sacramento -- best see fit to serve the children,'' he said.

Details of his proposals won't be available until Schwarzenegger unveils his budget blueprint Friday. However, sources close to budget talks say Schwarzenegger and educators have reached an understanding.

More per pupil

Although schools are currently owed about $3.5 billion under Proposition 98 -- the state's school funding guarantee -- educators will not howl if they receive enough funding to cover higher enrollment and the cost of living.

That amount is said to be between $1.5 billion and $2 billion.

In a rebuttal after the speech, Senate President Pro Tem John Burton, D-San Francisco, called some of the proposals unrealistic without new revenue or higher taxes.

``We cannot, as Gov. Schwarzenegger said, on one hand have no taxes, on the other hand cap fees for the students at the university and state university system, but at the same time let more people in.''

Last month, Schwarzenegger panicked many educators by suggesting he might suspend Proposition 98.

Since that interview, the governor met with representatives from a state teachers union, and groups representing administrators, finance officials and trustees. The resulting compromise, which some educators view as a cut, can also be characterized as higher school funding, which is how the governor's office paints it.

``If we eliminate all of the bureaucratic language and use simple English words, the governor is giving $200 more per pupil next year than this year,'' Education Secretary Richard Riordan said.

Riordan influence

Helen Kerrian, an official with the California Association of School Business Officials, said she was heartened that Schwarzenegger would live up to promises not to cut education and pleased by his support for flexibility.

The speech bore the influence of Riordan, who has been pushing to simplify the state's categorical programs in favor of an approach that would give extra money to schools for students who are poor, disabled or still learning English.

Schwarzenegger wants to consolidate 22 of the state's 50-plus earmarked or ``categorial'' funding programs.

Also in his speech, the new governor said he wanted to limit fee increases for university students to 10 percent a year, fund the University of California's 10th campus, at Merced, and repeal a law that prevents schools from contracting out some services.

The state has spent about $350 million in developing UC-Merced since 1997, in the hopes of opening in fall 2005. But that start date is contingent on the governor granting the campus' $20 million funding request for 2004-05.