* Schwarzenegger sees possible compromise

* Says budget talks moving fast (Refiles to insert dropped word "deficit" in 3rd paragraph)

By Jim Christie

SAN FRANCISCO, July 4 (Reuters) - Governor Arnold Schwarzenegger, optimistic California can finish its budget negotiations in a few days, is willing to reconsider his proposed cuts to education in hopes of averting a cash crisis, the San Francisco Chronicle said on Saturday.

A compromise between the Republican governor and Democratic lawmakers may help clear the way for an agreement on an overdue state budget and avert a cash crisis for the government of the most populous U.S. state. California already is issuing billions of dollars in "IOUs" and, without a deal, is on track to run out of cash this month.

The San Francisco Chronicle reported that Schwarzenegger, in a Friday meeting with its editorial board, said he would be willing to reconsider his proposal to help reduce California's $26.3 billion budget deficit with cuts to school spending that would require suspension of constitutional rules on education expenditures.

"We are not stuck ... about the suspension," Schwarzenegger said during the meeting. "We've got to analyze all this."

He said budget negotiations are moving fast. "I think if we continue this way we can get this done in the next few days," he said.

Backing off on education spending cuts would go a long way with Democrats who control the state legislature.