NEW YORK — The highlight of Arena Stage’s next season is a new Frank Loesser musical.

Yes, that Frank Loesser.

Shortly before his death in 1969, the creator of “Guys and Dolls,” “The Most Happy Fella,” “How to Success in Business Without Really Trying” and a few other classics of the American musical theater, finished his second draft of a new show, “Senor Discretion Himself.”

Loesser based his story, about three priests who fake a miracle in order to promote tourism in their small Mexican village, on a Budd Schulberg short story published in Esquire magazine.

In the 1980s, Schulberg himself took a stab at reworking Loesser’s draft — a sprawling, 300-page script — for a reading at Musical Theater Workshop. Over the years, criticism arose that the show was not PC.

“Frank had his characters speak with a Mexican accent,” says his widow, Jo Loesser. “I think that’s why people thought it would be politically incorrect. No one has said a word about that recently.”

Washington’s Arena Stage and Loesser may have taken out PC insurance by getting Culture Clash (aka, Richard Montoya, Rick Salinas and Herb Siguenza) to rework the original book. The Latino comedy team came highly recommended by the project’s director, Charles Randolph-Wright, who had helmed their play “Anthems” at Arena Stage. (Randolph-Wright won the rights because Loesser loved his direction of “Guys and Dolls” at Arena.)

The book now is billed as by “Frank Loesser with Culture Clash.”

Randolph-Wright laughs. “That alone ought to be the price of admission!” he says of the eclectic credit. As for any political incorrectness, he is not concerned. “This could be any small town,” he says. “The characters are iconoclastic, not stereotypical.” The concept of depicting unscrupulous clergymen also might have lost some of its shock value in the ensuing years.

Culture Clash has a lock on playing the three priests, but the other major roles of a local baker and his two marriageable daughters are up for grabs.

Randolph-Wright has already directed two workshops of the “new” Loesser musical, with a couple more to come before the April 2004 world preem.

“Senor Discretion Himself” contains 17 Loesser tunes written especially for the musical.

“I remembered the songs as soon as I heard them again,” says Molly Smith, Arena’s artistic director.

Randolph-Wright agrees. “After the first two bars, you know it is a real song.”

Broadway’s Bad Rap

Last Wednesday’s matinee of “Russell Simmons’ Def Poetry Jam” provided a microcosm of why overall Broadway B.O. is way down.

The group known as StudentsLive had nearly sold out the Longacre for the April 9 perf. After three months of planning, up to 1,000 high school students from the Tristate area were scheduled to attend when, of course, the war in Iraq happened. Only 400 students showed up.

“The suburbs are very concerned about coming to the city,” says Amy Weinstein, president of StudentsLive. “For some schools, it is just a matter of policy to cancel due to the orange alert.”

The same thing happened with scheduled perfs post-9/11. It took about three months for StudentsLive attendance to return to normal at shows like “Rent” and “Chicago.”

Not waiting this time around, Weinstein immediately fired off letters to the Tristate governors as well as Gotham Mayor Michael Bloomberg.

“He rides the subway,” she says of the mayor. Weinstein wants a photo op with Bloomberg coming to Broadway on a school bus from the ‘burbs. She believes it will happen. “It’s just a matter of paperwork and getting through to him.” No response yet from the mayor or the governors.

Students at “Def Poetry Jam” prepped for the perf with three months of study, including a seminar with the performers and producer Russell Simmons.

It’s typical of the way StudentsLive prepares its audiences for Broadway. Schools that canceled “Def Poetry Jam” will have makeup perfs later in the season.

Other shows on the org’s spring agenda are “Rent,” “Movin’ Out,” “Man of La Mancha,” “Urban Cowboy” and “Chicago.”

Weinstein reveals that students as young as the fourth grade have taken to the sexy Kander & Ebb revival of “Chicago.” Classes leading up to those perfs include discussions about the media’s manipulation of the public.

“We used to teach it as a satire,” Weinstein says. “Now it is seen as a documentary.”