Governor Pataki proposed sweeping changes in releasing his 12th and final budget yesterday, paving the way for an unlimited number of charter schools in New York City and calling for tax credits to be provided to families with students in public and private schools.

The $110.7 billion proposal also includes plans to increase the statewide cap on charter schools, to 250 from 100.

Tucked into the record $16.9 billion education budget is a provision that would allow the city’s schools chancellor, Joel Klein, to open as many charter schools as he pleases. Charter schools are publicly financed but operate outside the traditional public school system.

If approved by the Legislature, the plan would be a major boost to Mayor Bloomberg, who pledged during his campaign to open at least 75 more charter schools – which he has said is essential to overhauling the city’s education system – by the end of his second term.

In New York City, about 12,000 students attend 47 charter schools, and thousands more are on waiting lists. Operated as independent public schools with their own boards of directors, the schools are given five-year charters that can be revoked by the state if academic goals are not met.

Mr. Pataki’s budget includes language that would allow charter schools operating in districts in cities with a population of more than 1 million to be counted as “conversions.” Under the state charter law, existing schools that have converted to charter schools do not count toward the cap.

Last week the Board of Regents granted the last four charters allowed under state law.

The cap has created fierce debate in Albany, with opponents claiming that charter schools are draining much needed dollars from the traditional public school system and proponents arguing that they are innovative way to improve schools by spurring competition.

Mr. Pataki’s budget is expected to face tremendous scrutiny in both houses. The majority leader of the Senate, Joseph Bruno, and the Assembly speaker, Sheldon Silver, said yesterday they were still reviewing the budget.

The chairman of the Senate Education Committee, Stephen Saland, a Republican of Poughkeepsie, said he has “reservations” about the governor’s charter school plan. Three years ago, he introduced legislation that would have created a moratorium on charter schools.

Mr. Bloomberg declined to comment on specifics of the budget.

“We are reviewing the governor’s budget presentation and the mayor looks forward to testifying in Albany on its impact on New York City,” a spokesman for the mayor, Jordan Barowitz, said. Mr. Bloomberg is expected to testify in Albany next week.

The budget also frees up state building aid for charter schools and authorizes nonprofit organization

In what could be another sweeping change to the system, Mr. Pataki’s budget includes a $400 million education tax credit plan. Viewed as a version of school vouchers, the $500 a child tax credits would be granted to families with incomes of less than $90,000 that reside in low-performing school districts. The credits are to be used for tutoring, after-school programs, or for private school tuition.

Many religious organizations welcomed the proposed credits.

“Until now, needy parents in the state seeking to ensure that their children are educated in their religious tradition have struggled mightily under a double burden: They pay high taxes to support public schools that their children cannot attend, and they pay high tuition for their children to attend nonpublic schools,” an Orthodox Jewish organization, Agudath Israel of America, said in a statement issued yesterday.

Education tax credit programs exist in about a half-dozen other states, according to the Foundation for Education Reform & Accountability.

Opponents of the credits, including the United Federation of Teachers, say they would funnel money away from public schools.

“This is really an opportunistic, anti-education budget that panders in the worst way, trying to create controversy by making the charter school cap and educational tax credits his centerpiece, instead of investing in the reforms that work and that the courts have ordered,” the president of the UFT, Randi Weingarten, said. Ms. Weingarten has said that she would support raising the cap on charter schools in exchange for rule changes that make it easier to organize teachers.

City Council Speaker Christine Quinn and Council Member Robert Jackson issued a joint statement last night criticizing the governor for not putting the budget’s $2 billion surplus toward complying with a court order mandating billions of dollars in state aide to city schools.

Responding to a lawsuit filed more than a decade ago by a nonprofit group, the Campaign for Fiscal Equity, the court ruled that Albany must spend an additional $5.6 billion a year on the city’s schools and $9.2 billion over five years for capital projects to provide city students with the sound basic education guaranteed under the state constitution.

Mr. Pataki is appealing the ruling and has not yet complied with the order. On average, New York State spends $12,879 a student, the second highest of any state.

The proposed budget increases school aid by $634 million, including a $259 million increase in traditional school aid and another $375 million increase in funding for high-need schools as part of the state’s five-year Sound Basic Education plan.

The president of the New York Foundation for Education Reform & Accountability, Tom Caroll, praised the budget and called for a swift vote.

“Hopefully, this year’s state budget negotiating process won’t be derailed by special interest groups and those in the state Legislature who believe that the only solution to New York’s education woes is to increase school spending yet again,” Mr. Caroll said. “More money is not the answer – it never has been, and never will be. Changing the way the public education system works, in ways proposed here by the governor, is what drives improvement.”