(AP) - The Senate's Democratic majority has announced a tentative agreement involving all 32 members needed to approve a bailout of the city's transit system and avoid double-digit fare increases and service cuts.

Senate Majority Leader Malcolm Smith of Queens said the deal reached late Monday would include special funding to school districts to exempt them for a payroll tax. Suburban senators had sought a break for school districts in the bailout.

Democratic Gov. David Paterson proposed the so-called bullet aid for schools last week as a way to get enough votes for a bailout before fare increases begin at the end of the month.

The Metropolitan Transportation Authority board approved increases ranging from 23 percent to 30 percent, but agreed to shelve its plan if the bailout is approved. Under the bailout, the fares would still rise about 8 percent on average, but layoffs and service cuts would be avoided.

A $1 fee per taxi ride has been cut to 50 cents. That would fund what Smith called a "modest" capital improvement at the MTA. A proposal for another 50 cents per trip to leverage about $1 billion in aid for bridge and highway work upstate and on Long Island was dropped, but Smith said it will be reconsidered in October when a full MTA capital plan is devised.

Smith said the deal will include a "graduated" payroll tax that will decline in the outer rings of the 12-county MTA service region. Under the proposal, employers in Dutchess, Orange and Putnam counties north of the city would pay a tax of 25 cents per $100 of payroll. The remaining counties in the 12-county MTA district, including the city and those on Long Island, would pay 34 cents per $100 of payroll.

The measures are to address a $1.2 billion budget deficit that the MTA blames largely on the recession. MTA officials said the deficit has worsened by another $600 million, which would require deeper cuts or a bigger bailout.

The proposal now goes to the Democrat-led Assembly, where it is likely to be approved.