Gov. David Paterson on Tuesday proposed a $121.1 billion state budget for the 2009-2010 fiscal year that includes layoffs, cuts to school aid and a host of new fees.

Paterson said his proposal would close the $15.4 billion budget deficit facing the state by inflicting as little pain as possible to as many areas as possible.

The deficits are the result of decades of overspending and the Wall Street meltdown, Paterson said.

The plan includes cutting school aid by 3.3 percent, or $698 million; increasing public college tuition by 14 percent; increasing some motor vehicle and fishing fees; allowing wine to be sold in grocery stores; increasing the sales tax on luxuries; and new state and local sales taxes on music, movie and game downloads through services like iTunes.

Even after reductions, Paterson said school aid would still total $20.7 billion.

School districts fear the reduced state funding and even flat funding could force higher local property taxes.

Besides potential increases in local property taxes, Paterson wants to boost income-tax revenue by closing what he considers to be loopholes. In addition, Paterson has proposed eliminating STAR rebate checks to save more than $1.7 billion.

Paterson would continue at previous years' levels the STAR tax exemption - a savings off tax bills rather than through a rebate check, often delivered at election time - and the New York City rebate.

The budget also proposes a $620 increase in State University of New York tuition and a $600 increase in tuition at colleges in the City University of New York system. Those represent 14 percent increases.

Paterson is also calling on state leaders to streamline government in order to cut costs. His spending plan calls for merging seven state agencies with other departments and closing underutilized state facilities.

The plan also anticipates a decrease of 3,108 state jobs, mostly through attrition in a process he says will minimize layoffs. The proposed budget calls for 521 layoffs.

Paterson presented the budget a month early to try to deal with what he calls a historic fiscal crisis in the state.

The budget is not final. The Legislature would have to agree to the spending plan due April 1. However, Paterson hopes to seal a budget deal earlier to enact the cuts and attack the deficits. For Gov. Paterson's complete budget speech, go to your digital cable box and select iO Extra, Channel 612.

The Associated Press contributed to this story.

Executive budget briefingClick here for more on budget cuts' impact on education