ALBANY - Gov. George Pataki and legislative leaders have agreed to increased health funding and Medicaid cost controls that will add about $1 billion to the state budget.

Senate Majority Leader Joseph Bruno also said there is full agreement to provide property tax rebate checks of $200 to $800 this fall to kick off a two-year, $1.4 billion program. New York City residents would get about $120 each in an income tax credit because many pay property taxes only indirectly through their rent.

But the Assembly refused to accept a separate package that linked the expansion of charter schools to $96 million in welfare-to-work programs and an early retirement incentive for state workers.

The Legislature wanted the welfare funding and early retirement incentive sought by state worker unions, but there was little support for lifting the cap on charter schools, which will remain at the current 100 statewide. Pataki has long sought to remove the cap on charter schools that have been a hallmark of his three terms ending this year.

“We have a number of members that are absolutely opposed to any charters,” Assembly Speaker Sheldon Silver said. “We have a number of members who believe there should be union representation mandated. We have a number of members who think local school districts should make determinations as to locations of charters. That is not what the governor has in mind.”

“It's the right thing to do,” Pataki insisted.

Bruno had no immediate comment on the charter school measure, which became a point of conflict during private negotiations in recent days.

The budget deal also provides for $50 million to help cities level old, abandoned buildings to allow for new development, Pataki said. Another $250 million would be allocated over the next two years, he said. Bruno said the program is targeted to revive upstate cities.

Pataki said the deal would restore and add funding for nursing homes and health facilities by $490 million. But he said that will be “more than offset” by an agreement on Medicaid cost-containment measures that will save $1 billion a year.

The deal will increase the state budget to $113.4 billion from what state Comptroller Alan Hevesi said was $112.5 billion when adopted March 31 by the Legislature and $112.3 million after Pataki's 200 vetoes. Even after overrides, Pataki said he wouldn't release much of the funding he cut because the Legislature overstepped its constitutional bounds.

The 2005-06 budget was about $106 billion and critics said this year's budget talks, fueled by a more than $4 billion surplus and an election year for the Legislature, were allowed to spin out of control to benefit health care interests, teachers and public employee unions.

Pataki said the deal will reduce future years' budget gaps from $6 billion to $3 billion, mostly through Medicaid cost controls. Those measures include creating a Medicaid inspector general's office with broad powers to investigate fraud and waste in the health care program for the poor.

“I think we're going to be in a stronger financial position,” Pataki said.

AP-ES-06-23-06 1933EDT