ALBANY – The Legislature avoided being slapped with a stack of vetoes late yesterday by passing two final budget bills that were negotiated privately with Governor Pataki and his staff over the past several days.

The $106.6 billion budget approved by lawmakers settled the question of how to spend $1.1 billion in welfare spending that had been left out of the budget legislators passed last week.

Mr. Pataki had refused to resubmit language on the welfare spending according to the wishes of the legislators as a negotiating tool win more concessions on Medicaid spending, among other things. State-funded Medicaid costs have risen about 40% since 2001.

Mr. Pataki made Medicaid cost-containment the centerpiece of the budget he proposed in January and warned in recent weeks that the legislative budget jeopardized key elements of his plan.

The governor ended up with half, or $550 million, of the Medicaid savings he originally proposed.

The final compromise establishes a 16-member commission to study excess capacity at hospitals and nursing homes. The commission will recommend closures by December 2006 and includes several regional representatives, which was a sticking point in negotiations.

The compromise also included benefit reductions in the Family Health Plus insurance program for the poor, though fewer and less substantial cuts than the ones than the governor had originally proposed.

Legislators agreed to a 1% tax increase on nursing home receipts for two years, but half that amount will be reimbursed by the federal government. Private payers, or patients not on Medicaid, will get a tax credit for the increased cost.

Mr. Pataki, who had repeatedly called the legislative budget too pricey, hailed the budget that was completed yesterday as including major Medicaid reform and spending controls that would decrease next year’s projected deficit to $3 billion from $4 billion.

A proposed increase in tuition at public colleges in the state that the Legislature rejected, but which was said to be back on the bargaining table was rejected in the final plan.

Mr. Pataki cited $1 billion in unexpected new revenue since January as the reasons a tuition hike was avoided.

As a compromise on the sales tax on clothing, Mr. Pataki agreed to keep the tax in place on clothing purchases of $110 or less – with the exception of two annual tax-free weeks – through April 2007, unless the governor proposes any new tax cuts next year. In that case, the Legislature would allow the tax to expire next April.

Mr. Pataki vetoed three small money items in the legislative budget, two of which dealt with funding increases to crime prevention programs and one of which would have decentralized control of an energy-saving initiative.