Governor Spitzer is emerging from his first bruising budget battle with many of his most important policy priorities wounded by difficult compromise but intact.

After days of round-the-clock, closed-door negotiation sessions with legislative leaders and up against a looming deadline, Mr. Spitzer announced late last night that he had reached a tentative budget deal with lawmakers that adds more than $1 billion of new spending, including $500 million in new school aid, to his original spending plan and restores a major chunk of cuts to hospitals and nursing homes.

Mr. Spitzer, who a week ago accused his main adversary in negotiations, the Republican Senate majority leader, Joseph Bruno, of proposing reckless and unrealistic new spending, settled for a compromise that puts the brakes on but does not completely stop Mr. Spitzer’s plans to redistribute more education funding to less wealthy, urban school districts such as New York City, deliver more property tax relief to middle-class homeowners, and slow the growth of Medicaid spending.

“We have come very far in the context of what is clearly going to be a multi-year effort to turn the ship of state,” Mr. Spitzer said. “Nobody should expect that this will occur in the course of one budget cycle. The principles that underlie the shift that we want to effectuate are in this budget.”

While Mr. Spitzer and lawmakers have yet to announce a final budget agreement or put forward specific numbers, the governor has broken a deadlock with Senate Republicans that had threatened to spill over past the April 1 deadline. Lawmakers are expected to sort out a variety of smaller budget issues — including the fate of Mr. Spitzer’s plan to expand charter schools in the state — in two-house conference meetings today.

For Mr. Spitzer, whose hard-charging governing style has at times aggravated and offended a Legislature jealously guarding its powers, the budget battle was the first major test of his ability to convert an ambitious “change everything” agenda into state law. Unlike his crusading days as attorney general, Mr. Spitzer was negotiating without the trump cards of subpoena power and criminal indictment.
He came into the talks insistent on goring a number of sacred cows, but ended up sparing most of the beasts.

Mr. Spitzer has agreed to restore more than $350 million in Medicaid cuts, putting back into his budget more than half of the money taken away from the hospital and nursing home industry, which had responded furiously to Mr. Spitzer’s original spending plan with a multimillion-dollar attack ad campaign.

The total Medicaid spending, including the federal share, should rise to around $47.8 billion, about $1 billion less than the figure would have been if Mr. Spitzer had done nothing to curb costs.

“We’re finally taming the growth of Medicaid,” Mr. Spitzer said. Still, if the governor is to get Medicaid spending in line with other states, he has a long way to go. New York is spending $10 billion more than California on the entitlement program, despite its smaller population.

Mr. Spitzer said he and lawmakers agreed to add $500 million to his proposed $1.4 billion in new education spending, clearing the way for by far the largest increase in education money in the state’s history. The new money will significantly reduce the number of school districts in the state that were to receive a minimum increase of 3%, bringing in more money to wealthier Long Island districts, addressing a key demand made by Senate Republicans.

While Mr. Spitzer said the agreement keeps in place his high-profile new education formula that steers a greater share of money to New York City, the added money goes a long way toward restoring the old funding formula beloved by Senate Republicans that automatically gives Long Island 13% of the education pie. The fight over education funding overshadowed the final days of negotiations, as Senate Republicans fought to deliver more money to Long Island to protect a base of support in an area under siege by rising Democratic power.

In another compromise with Republicans, Mr. Spitzer agreed to deliver his property tax plan as a rebate instead of as a property tax exemption filtered through school districts, and agreed to include a greater share of wealthier homeowners. Under Mr. Spitzer’s original $1.5 billion plan, homeowners with household incomes of more than $235,000 were excluded from receiving extra tax relief. The cut-off income figure is now larger. Mr. Spitzer also chopped off about $300 million from his plan to pay for other increases in the final budget.

The final all-funds budget should stand at around $121.7 billion, up from $113.5 billion the previous year, a 7.1% increase. The state fund budget — which includes all money raised by state revenue — should increase to $84.4 billion, a 9% rise. Both increases are slightly smaller than those in last year’s budget approved by Governor Pataki, but they are still around three times the rate of inflation.

Mr. Spitzer also indicated that lawmakers had agreed to preserve the governor’s proposed changes to tax law that he said would close hundreds of millions of dollars’ worth of loopholes. As a concession, he has agreed to several business tax reductions.