Considering that California's public universities have been in a fiscal chokehold for three years, it was curious that the state treasurer should suggest their managers must have been "squeezed by the neck" to accept a new financing format unveiled this week.

That was how Phil Angelides, the governor's most persistent Democrat critic, characterised an agreement, brokered by Arnold Schwarzenegger, under which the University of California and California State University systems would swallow yet another round of cuts in the fiscal year starting in July.

But Robert Dynes, the UC president, showed no signs of distress when congratulating the governor on his "exceptionally strong commitment to higher education". And Charles Reed, chancellor of CSU, remarked: "After years of deep budget cuts with no end in sight, this compact brings the promise of renewed fiscal stability for public universities."

As with similar agreements already reached with elementary and secondary education authorities, and with the criminal courts system, it was compromise - rather than brute force - that led to this week's "compact", which will extend until the end of the decade.

Universities will be guaranteed a steady, modest increase in funding, allowing them to step up enrolment, restore teachers' salaries to more competitive levels and cap undergraduates' fee increases at 10 per cent. In return, college administrators will accept greater accountability, and goals including a commitment to step up output of mathematics and science teachers, and to shorten the average graduation time for students.

"It's all about managing," said Mr Schwarzenegger, describing himself as the state's "CEO" and marking up another success in his efforts to present a balanced 2004-05 budget proposal to legislators later this week.

As Mr Reed suggested, the prospect of stability and a clear blueprint allowing them to plan ahead comes as a relief to higher education executives, jolted by sharp budget cuts in each of the past three years. And while fees will continue rising, that has to be seen against the seven-year period ending in 2001, when contributions from students fell.

According to Mr Angelides, the strategy of persuading schools, colleges, courts, and - in a deal expected to be announced today - regional and local authorities, to accept cuts this year in return for promises of compensation and more in future is simply deferring the day of reckoning.

But with stable elementary school enrolment, demographers confident of a sharp, 10-year decline in demand for high school places, and moderate economic growth under way, the fiscal risks may not be as great as the governor's critics suggest. In political terms, the gains could be substantial. By negotiating directly with the main beneficiaries of state financing - education accounts for 50 per cent of all general fund outgoings - Mr Schwarzenegger may have defused one of the main weapons the mainly Democrat legislature could have deployed against his first budget.

Since January, when he published his first draft budget, lawmakers had warned they would not agree to the cuts in education spending that the educators themselves have now accepted.

Having effectively disarmed the opposition, Mr Schwarzenegger may hope to expedite the budget-making process, and start his first full fiscal year in office without increasing taxes. He may claim to have done the right thing by the state's troubled education system and the business community that depends on it. At the same time he sent an unmistakeable signal to the state's other dependents that, with California's finances in a mess, all must play their part.

He has already received a report from a prominent bipartisan committee that says California's health and human services departments - which account for 30 per cent of the budget - are in an "unsustainable" tangle. A new management policy, the study says, could cut 10 per cent from the $60bn (€50bn, £34bn) they absorb yearly in state and federal funds.

The complexity of the system is likely to rule out a resolution as rapid or transparent as that reached with the universities.

But there is nothing in the governor's sights quite so intractable as the California Department of Corrections. With 70 facilities and 300,000 prisoners and parolees, it is reputed to be the world's largest prison system after China and the US as a whole. And with a budget of almost $7bn a year - 11 per cent of the entire general fund - it cannot expect to avoid the governor's attention for much longer.