ALBANY – A dramatic increase in auto leases is expected in New York State as a result of the transportation bill Congress passed last week.

The bill, which is awaiting President Bush’s signature, eliminates a state law that for years has frustrated auto dealers in New York because it makes them liable for damages to the vehicles they lease.

The rise in leases could deliver a spark to the state’s economy.

“This will increase business, no question about it,” the general manager of Nemet Motors in Jamaica, Queens, Scott Pearlstein, said. “It’s a lower monthly payment on a lease than a buy. Everybody will be leasing cars again.”

Due to the major increases in highway and mass transit funds for the state, New York’s congressional delegation hailed the $287 billion transportation bill. A provision to lift the state’s so-called vicarious liability law, which dates to 1929 and is the only of its kind in the nation, was largely overlooked until yesterday, when advocates and opponents of the law began issuing statements about it being superseded.

The law, which prompted Chrysler, Ford, and General Motors to withdraw their leasing programs in New York three years ago, has caused a dramatic reduction in the state’s leasing business over the past several years. Efforts by the business community to overturn the law have been blocked in the state Assembly.

Momentum for a change increased this year after a head count by members of the Assembly’s Transportation Committee indicated the lower chamber had the votes to overturn the law. When the legislation to do so suddenly vanished from the voting schedule despite the apparent support, lobbyists familiar with the issue said, lawmakers in Washington agreed to take up the issue at the federal level. Some leasing companies announced they plan to re-enter the New York market after hearing that the vicarious liability law will be eliminated. Many companies had developed financing instruments that resemble leases to get around the New York law. Volkswagen and Audi said yesterday they are lifting the $595 acquisition fee they have charged through such an instrument. Others were expected to follow suit.

“I think you are now going to see industry leaders announce that they are re-entering the leasing market,” the owner of Yale Leasing Corporation in Bayside, Queens, Elaine Litwer, a leading lobbyist against the vicarious liability law, said. “I believe this legislation will have a major impact on the economy of New York State.”

Governor Pataki hailed the elimination of the law, calling it “an outdated statute “that drives up the cost of leasing cars in New York and “has forced many companies to abandon the New York market altogether.” The majority leader of the Senate, Joseph Bruno, a Republican of Rensselaer, issued a similar statement. The state’s Trial Lawyers Association responded by posting an alert to members on its Web site indicating that time may be running out to file claims under the old law. “This could be the last day you can file a case against an automobile lessor or rental agency for liability based on ownership,” the alert read, all in capital letters.

The Business Council of New York, which has fought the law for years, registered its pleasure at the change by taking a swipe at the group that headed efforts to keep it on the books. “Vicarious liability in New York State is a uniquely dumb law that we have been battling for many, many years,” a spokesman for the trade association, Matthew Maguire, said. “It is loved only by trial lawyers, and its demise would be warmly received by just about everybody else in the state.”

According to Ms. Litwer, 20 independent leasing companies exited New York three years ago. She said leases accounted for roughly 40% of all new car transactions around that time, but now account for less than 10% of all new car transactions. She predicted that increased transactions following the repeal of the vicarious liability law will have a dramatic, positive effect on the state’s economy in the months ahead.

“It’s going to create more income as people buy more cars, and it’s going to create more tax dollars as the volume of cars sold increases,” she said. “Vehicle sales are way down since the withdrawal of leasing in the state. I think you’re going to see a dramatic turnaround in that over the next year.”