George Pataki will finish out his long tenure as governor doing what he did when he first came into office: aggressively scaling back taxes to boost business in a New York economy that lags behind the nation.

Unveiling a budget yesterday that tops $110 billion, the governor will complete his third term following a troubling pattern that has endured over the years: He is calling for an increase in spending that is much higher than the rate of inflation.

“Let’s remain committed to creating jobs and improving our economic climate,” Mr. Pataki said, “building up our state fiscal reserves, cutting taxes, restraining both spending and debt, and enacting the major programmatic reforms that have made our state a better place.” He said his budget “exemplifies the indomitable spirit of New York.”

While slashing billions of dollars in business and personal taxes and proposing reductions in workers’ compensation costs, the governor’s final budget largely shied away from trimming existing programs. Fiscal observers also noted that many of the tax cuts proposed by the governor, such as the elimination of the state estate tax, would kick in long after Mr. Pataki steps down from office and could be overturned after his successor takes over in less than a year.

Some of tax cuts fell short of the recommendations made by the seven member commission that Mr. Pataki appointed last year to overhaul the state’s tax code. Mr. Pataki wants to cut the top personal income tax rate to 6.75% from 6.85% and reduce to the top corporate tax rate to 6.75%. Led by a CNBC television show host and economist, Lawrence Kudlow, the commission called for cutting both taxes to 5%, according to a draft of its executive summary.

The budget largely sidesteps the hot button issue of how the state intends to comply with a court order calling on Albany to spend billions more on city public schools.

Mr. Pataki, however, entered into the debate over school choice, proposing lifting the cap on charter schools and calling for education tax credits that low-income parents could use to help pay for private school tuition. Previewing what may shape up to be the biggest sticking point in this year’s budget battle, the speaker of the Assembly, Sheldon Silver, suggested that the measures would undermine public education in the state.

Responding to Mr. Pataki’s budget, Mr. Silver criticized the governor for favoring tax cuts that he said would benefit primarily wealthy New Yorkers. He assailed the governor’s proposal to eliminate the state’s estate tax, which is becoming more prominent as the federal estate tax is being phased out, while calling on Mr. Pataki to make permanent a tax exemption for clothing priced at less than $250.

The governor in his budget reduced the exemption to a two-week time period, a move that would generate $605 million in tax revenue in fiscal year 2008-09.The other additional stream of revenue proposed by the governor is an increase in the cigarette tax to $2.50 from $1.50 a pack that he expects to bring in more than $300 million in revenue for the upcoming fiscal year. “If you tax more you get less smoking, and that’s a positive,” Mr. Pataki said

The other budget flashpoint is sure to be the governor’s proposal to authorize the largest tuition increases at SUNY and CUNY in three years. The governor’s proposal, which calls for the systems to increase their revenues, would result in a $300 annual tuition hike at CUNY and a $500 hike at SUNY, a source said. CUNY’s tuition stands at $4,000 a year at senior colleges and SUNY’s tuition is $4,350.

Mr. Pataki is once again pushing for cuts to the state’s Tuition Assistance Program, both by increasing the number of credits students must be earning to qualify for the grants and by forcing schools accepting students with high school degrees to “pre-finance” the costs of the grants to deter the schools, particularly commercial colleges, from accepting unqualified students.

Ignoring the Campaign for Fiscal Equity lawsuit, which calls for billions of more funding for city public schools, Mr. Pataki suggested in his budget that New York City could use its savings on Medicaid, stemming from the state’s absorption of more of the entitlement’s costs, on the school system. He also said he is proposing $329 million in new school aid for the city, which includes $104 million in regular aid and $225 million of the “Sound Basic Education” pot that the governor created with revenue from gambling parlors.

A spokesman for Mayor Bloomberg said the mayor’s office was reviewing the budget and that Mr. Bloomberg would comment on it when he comes to Albany next week and addresses lawmakers.

The president of the United Federation of Teachers, Randi Weingarten, said in a statement: “It is disappointing that the governor squandered his final opportunity to honor the CFE ruling and fulfill the state’s obligation to stop short-changing our city’s public school students.”

To a large extent, Mr. Pataki’s budget strategy appears to be enlarging the scope of his most successful policies: It further eases local property taxes by funneling more state money to school districts; calls for putting an Empire Zone – a designated tax-free business area – in every county in the state, and proposes lifting the cap on charter schools in the state to 250 from 100.

Mr. Pataki calls for increasing state spending by 4.1%, while proposing a series of business and personal tax cuts that would create a budget gap in 2008-09 of almost $4 billion, taking into account the $2 billion surplus that is expected this year. Budget officials stressed that the spending increase would fall to 2.9% if it excluded the money that the state is spending on beefing up its School Tax Relief program, by giving homeowners $400 rebate checks if they reside in school districts that control school spending, and excluded the cost of the cap in local Medicaid costs that the state approved last year.

The overall growth in spending tempered the praise from fiscal conservatives, who have pushed for many of the tax cuts that Mr. Pataki is proposing. “Find me a program in this budget that is being review, revisited, or cut in any significant way,” a senior fellow at the Center for Civic Innovation at the Manhattan Institute, E.J. McMahon, said. “No ox has been gored.”

Taking into account the added measures to counter Medicaid fraud, the budget calls for minor increases to Medicaid funding, with estimated spending at almost $46 billion, which is $17 billion more than what was proposed eight years ago.

Mr. McMahon also said that he feared that the governor’s proposed solution to dealing with pension costs – establishing a task force to “examine alternative benefit designs and funding methodologies” – would produce little in the way of changes.

The governor is proposing cuts to business taxes as New York continues to lag behind the nation in private sector employment growth. The governor’s office predicted a slight slowdown in job growth this year, with an 0.8% projected rise in total state nonagricultural employment in 2006, half the job growth rate of the nation as a whole.

“This is all the more reason the Legislature should act quickly on Governor Pataki’s proposals to cut taxes and reform workers’ comp,” the director of research at the Public Policy Institute of the Business Council of New York State, Robert Ward, said. “High costs are hurting our ability to create jobs for working New Yorkers.”