SACRAMENTO Two days before he's to release his revised budget plan, Gov. Arnold Schwarzenegger Tuesday announced a spending deal with state university officials that trades spending cuts and fee increases now for future financial support.

It's the third such deal Schwarzenegger has reached with key interest groups before the release of his revised budget plan and is part of what the administration hopes will be a wave of support that will help pass this year's budget on time.

While the agreement with universities saves the state only about $660 million next year out of an estimated budget shortfall of $17 billion it may help Schwarzenegger pass the first budget on time since 2000.

Some Democrats, whose party controls both houses of the Legislature, denounced the deal, saying it limits university enrollments and breaks a 40-year promise to students of a state-supported higher education to qualified students.

They also criticized the governor's budget agreements with interest groups before delivery of the proposal to the Legislature. Already the governor has agreements with the state's powerful teacher's union as well as with trial judges. On Wednesday he is expected to announce an agreement that locks in $2.6 billion in cuts to local government over the next two years.

"It could have been worse," pretty much sums up the reaction at Chico State University to the financial "compact" between the governor and the heads of the California State University system and the University of California.

"It's great news," said Scott McNall, Chico State vice president for academic affairs/provost.

"We are not going to have to give up more flesh, because there's none left to cut," he continued.

Kathy Kaiser, the faculty member of the State University board of trustees and a sociology professor at Chico State, said an alert sent out by the governor in March told all state agencies including the CSU to prepare for another 3 percent budget cut in the May revision.

She said her understanding is the agreement cancels any added cuts.

"As many of you are well aware, it is extremely difficult to do budgeting before knowing what our state funding will be. This agreement means we will know our baseline state allocation, and can do a much better job of providing resources and planning for enrollment," said Chico State President Paul J. Zingg in an e-mail distributed to the campus Tuesday afternoon.

"Unfortunately, the agreement does not eliminate the need to cut our budget next year. The state remains in a financial crisis, and we must move forward with plans to cut our 2004-05 budget. At the same time, we will need to continue our efforts to raise funds from sources other than the state, which is mandated in the proposed new compact," continued Zingg's statement.

Adam Dondro, Chico State Associated Students president-elect, said the 14 percent undergraduate fee increase for the coming academic year was not a particular surprise.

Enrollment at Chico State slipped this past year and in April, the student body voted a $28 per semester fee increase to cover the lost revenue due to smaller enrollment.

Dondro said the additional 14 percent state fee increase "will have an impact on enrollment, not only this year but next year."

He said it will cause some parents decide, "I can't afford to send my kid to college."

On another front, Treasurer Phil Angelides a likely Democratic challenger of Schwarzenegger in 2006 also warned Tuesday that the administration's budget plan may do nothing to solve California's fiscal problems. He said unless the governor proposes tax increases along with deep spending cuts, the state will face a $10 billion deficit in 2005-2006.

Despite the criticism, Schwarzenegger said he looked forward to working with legislators after he releases his budget plan Thursday afternoon.

"The legislators are my partners," Schwarzenegger said. "We have had great success up until now working together and we will have great success in the future. ... No one is excluded in the process."

The governor's $99 billion budget draft released in January called for about $9 billion in cuts and savings, and another $5 billion in borrowing and fund shifts along with a variety of other moves and savings. But the governor proposed no new taxes.

Although the administration has not revealed many details about the revised spending plan, lawmakers in both parties have said they do not expect to see any major changes from Schwarzenegger's original proposal.

But if the January isn't changed dramatically, Angelides said, the state will face up to a $10 billion deficit that will begin building in 2005. Also, he said the deals Schwarzenegger has made with interest groups to restore money in the future only add to the problem.

"I'm mystified at the governor's approach," Angelides said.

The deal with the universities would impose a 14 percent increase on student fees next year and another 8 percent increase each of the next two following years.

Currently, the average annual fees paid by resident undergraduate students in the University of California system is $5,437, and $6,546 for graduate students. In the state system, average fees are $2,046 for undergraduates and $2,782 for graduates. The higher fees would begin in the fall.

The governor promised to begin restoring university funding beginning with a 3 percent increase in 2005-2006.

If lawmakers approve the deal as part of the budget, it will mean the lifting of the cap on enrollments in CSU schools next year, said CSU Chancellor Charles Reed.

Some Assembly Democrats called the agreement an "outrage."

"We reject it," said Assemblyman Marco Firebaugh, D-South Gate, adding that UC and CSU systems need to "think through and analyze the implications of this policy."

In other budget action, a study released Tuesday said cuts during the past three years have eroded health and welfare services for California's needy and more reductions proposed for next year will put the system at risk.

The pattern of "squeezing" social service budgets rather than eliminating programs or services has put the entire network at risk, said Jean Ross, executive director of the California Budget Project, a nonprofit group that evaluates the impact of state spending on low- and middle-income families.

Expectations are that the primary budget battle will be fought over health and welfare spending.

Schwarzenegger has called for cutting about $900 million from the state's $11 billion share of Medi-Cal, the medical services program for the poor jointly funded with the federal government. The administration has also proposed another $800 million cut to state support of a welfare assistance program, CalWorks.