ALBANY, N.Y. (AP) – Gov. George Pataki proposed a $110.7 billion state budget plan Tuesday that would reduce property, income and business taxes by $3.2 billion even while pumping up spending on education and energy independence.

The New York Republican, proposing his last state budget while eyeing a run for the White House in 2008, would increase spending by 4.1 percent, a rate above inflation, while closing what he called a modest $700 million budget gap. That hike includes taking over of a portion of local government’s Medicaid costs. Excluding that takeover, all-funds spending would increase by 2.9 percent, Pataki spokesman Kevin Quinn said.

The budget also calls for several tax incentives to lure and enhance business in New York, and provides for a potential $500 increase in State University of New York tuition.

“Let’s remain committed to creating jobs and improving our economic climate, building up our fiscal reserves, cutting taxes, restraining spending and debt, and enacting major reforms like those that have made our state a better place,” Pataki said. “Clearly our state’s turnaround has been dramatic … Let’s finish what we started.”

The current budget for the fiscal year ending March 31 is projected to total about $106.4 billion.

Pataki’s budget proposal for typical New Yorkers would reduce local tax bills, help with some home heating bills, and provide substantial increases in funding for schools and public colleges.

Those measures include:

_Direct property tax rebates of $400 to home owners as part of an enhanced STAR program that uses state funds to pay part of local school taxes. Senior citizens would also get automatic cost of living increases in their state payment.

_A “pro-family tax cut package” that reduces income taxes, eliminates the so-called marriage penalty tax, and eliminates the estate tax.

_A $500 heating tax credit for lower income senior citizens.

_A $634 million increase in school aid to $17 billion _ both of which would mark records in spending.

_A $500 per child tax credit for parents with children living in districts with underperforming schools for tutoring, after-school programs or for private school tuition. Pataki would also add 150 charter schools to the 100 now approved.

_$1.1 billion in business tax cuts to spur job growth.

_Increased operating aid for the State University of New York by $34.4 million; and $27.2 million more for the City University of New York. Community Colleges would get $100 per student more state funding.

SUNY and CUNY, under the governor’s budget, would be allowed to plan modest, annual tuition increases. Pataki’s proposal assumes a $500 increase in SUNY tuition now at $4,350, although the SUNY chancellor has said he didn’t plan any hike.

Spokesmen for Pataki and SUNY didn’t immediately respond to requests for comment.

Pataki would also require students to take 15 credit hours — instead of 12 — for full financial aid under the Tuition Assistance Program serving public and private college students.

“It’s the same old Gov. Pataki doing the same as when he cam into office,” said Miriam Kramer of the New York Public Interest Research Group. “The governor shows he is no friend to higher education.”

As Pataki considers his New York legacy and a run for president in 2008, he has struck a more-optimistic note for the fiscal year beginning April 1 and beyond. His State of the State speech earlier this month called on the Legislature to join him in aiming high and not simply stave off New York’s stubborn economic stagnation outside New York City.

Now Pataki, to some degree a lame duck, will fight for his proposals with a Legislature facing an election year. The bar is higher this year, too, after the Legislature in 2005 passed a state budget by the April 1 deadline for the first time in 20 years following intensified public criticism over Albany’s political gridlock.

“It’s a great beginning,” said Republican Senate Majority Leader Joseph Bruno. “When you cut taxes — personal, property and business taxes — you help the economy, you help us be more competitive you create jobs and you put people to work.”

Assembly Speaker Sheldon Silver, a Democrat, disagreed.

“This is clearly irresponsible in terms of leaving tremendous out-year debts,” he said.

Silver predicts Pataki is leaving a $12 billion gap for the next governor, while Pataki projects it to be $1.9 billion his first year out of office an amount smaller than the one he inherited in 1995 from Democratic Gov. Mario Cuomo

Pataki proposed increasing the state’s total reserves to $4 billion and using the $2 billion surplus from the current state budget to reduce gaps projected for coming years.

“I like the tax cutting ideas” and budget reforms that would limit taxing and borrowing and protect the state’s credit rating, said E.J. McMahon, director of the fiscally conservative Empire Center for New York State Policy. “Unfortunately, they are very backloaded and the total state spending increase is eye-opening.”

For example, he said the end of the so-called marriage-penalty and estate taxes would be phased in over several years, after a new governor takes over. He added state spending alone — excluding federal funds — would increase 6.6 percent under Pataki’s proposal.

“It’s a spending plan on a par with the budgets during the boom years of the late 1990s and pre-Sept. 11,” McMahon said. He noted state spending would increase 2.5 times the inflation rate. “The problem is, again, it’s setting the floor fairly high because the Legislature will only add to this.”