ALBANY – The plaintiffs in a lawsuit over funding for New York City schools were negotiating a settlement with the Pataki administration yesterday in a last-minute effort to avoid having a solution imposed on state lawmakers by the courts.

One proposal from Governor Pataki would have increased the city schools budget by $5 billion, or about one-third, over the next five years, with about $2 billion of that to be supplied by city tax revenues, according to Assemblyman Steven Sanders of Manhattan, who was briefed on the talks. The remaining $3 billion would have come from additional state and federal aid, he said.

The plaintiffs in the 11-year-old constitutional lawsuit, known as the Campaign for Fiscal Equity, and Mayor Bloomberg both rejected that proposal as inadequate, in part because it counted routine increases in funding for transportation, special education, and other purposes as new state aid, said Mr. Sanders, the chairman of the Assembly Education Committee. It also failed to provide additional money for expanding or renovating school facilities, he said.

“When the plaintiffs began to peel back the onion skin, they realized what the governor was talking about today was basically a repackaged proposal similar to what he was talking about all year long,” he said. “The governor’s talking about a relatively little amount of new money for operating aid.”

Officials at CFE and the mayor’s office had no comment on the talks, which began in earnest over the Thanksgiving weekend. An official in the Pataki administration, speaking on condition of anonymity, said negotiations were continuing late yesterday and that the governor’s proposal was more generous to the city than Mr. Sanders had described.

“I can’t get into the details, but the governor put a very attractive offer on the table,” the aide said.

The discussions were aimed at heading off a potentially costly court order by the judge supervising the case, Leland DeGrasse of the state Supreme Court at Manhattan. Today, Judge DeGrasse is due to receive the report of a panel he appointed to study the issue, which is expected to recommend increasing education funding by several billion dollars.

Once that figure becomes public and Mr. DeGrasse converts it into a court order binding on state lawmakers, it will complicate the task of reaching a settlement, officials said.

“The findings of this panel become the floor, and I think the governor knows that,” Mr. Sanders said. “That’s what the governor was desperately trying to avoid.”

If approved by the Legislature, the settlement also would have prevented the state from appealing Judge De-Grasse’s order, which could increase by months or years the delay in the new money for city schools.

Officials following the panel’s deliberations expect its recommendation will fall somewhere between Mr. Pataki’s earlier $2.5 billion proposal and the $7.2 billion requested by the Campaign for Fiscal Equity. For his part, Mr. Bloomberg has requested an additional $5.3 billion in operating aid and $6.5 billion in capital funding.

These officials said the panel signaled during their hearings that they preferred the method the state Board of Regents used to calculate the cost of improving public schools, which was somewhat less costly than the one used by CFE.

“It’s still going to be an eye-popping amount of money, but it’s not going to be as eye-popping as the teachers unions, in their more delusional moments, were wishing for,” said the president of the Foundation for Education Reform and Accountability, Thomas Carroll.

Mr. Carroll said he was disappointed that the panel seemed to be focusing entirely on providing more money rather than forcing public schools to do a better job with the money they have or giving parents new alternatives, such as tuition vouchers and charter schools.

“They made clear their focus was on figuring out how much money should be handed over, not on accountability for results,” he said. “They also throughout the process have given very short shrift to any notion of school choice as a remedy.”

Almost four years ago, Judge De-Grasse determined that the city schools were failing to provide the basic education mandated by the state constitution and blamed the problem on a shortage of funding. Despite appeals by Mr. Pataki, that ruling was largely upheld by the state’s highest court, the Court of Appeals, last summer. The governor and the Legislature failed to come up with a solution by the court-imposed deadline of July 30,throwing the decision back to Judge DeGrasse.

According to the Court of Appeals’ ruling, the state ultimately must determine what it will cost to provide a “meaningful high school education” to all of New York City’s schoolchildren, find a way to deliver that money, and develop a plan to make school officials accountable for how they use the money.

The court left it up to lawmakers to decide whether the new money should come from the state treasury or local taxes, and allowed them to phase in the solution over a period of years. The court did not require that lawmakers address funding shortfalls outside New York City, but the governor and legislative leaders have said they intend to find a solution that applies to public schools throughout the state.

The court mandate comes at a time when both the city and state are struggling with projected deficits in the billions of dollars, making it harder for them to spare extra money for education. New York already spends more than $35 billion on its public schools, or about $13,000 a student – more than any other state.

Yesterday, a report from the Citizens Budget Commission, a nonprofit group, recommended that state officials supply all the additional money mandated by the courts rather than requiring the city to cover part of the cost.

The CBC calculates the state could generate $2 billion through expansion of state-sponsored gambling and another $1.2 billion by spending existing education aid more efficiently. If the court demands more than $3.2 billion, the state should broaden existing taxes, such as sales and corporate taxes, and raise income taxes only as a last resort, the commission said.

It said the city could greatly reduce the need for building new schools if it were to adopt a year-round schedule and redistribute students among the existing buildings.