(AP) - State Senate Majority Leader Joseph Bruno said Thursday that the state will approve a plan to reduce traffic and air pollution in Manhattan under a deal reached with legislative leaders and Mayor Michael Bloomberg.

A spokesman for Gov. Eliot Spitzer confirmed the deal, which is being written into draft legislation and a letter of agreement, Bruno said. The agreement on Bloomberg's congestion pricing proposal will allow the city to qualify as a federal pilot program and receive as much as $500 million in federal funds to improve mass transit, Bruno said.

A commission will decide how to implement the plan, which at this point doesn't include tolls, a contentious issue in negotiations over the plan. The state Legislature will ultimately have to approve the commission's recommendations, Bruno said.

Spitzer continued negotiating with the mayor's office and state legislative leaders after midnight Monday, which Bloomberg said was the federal deadline to act.

"We have agreed on what is to be drafted," Bruno told reporters just before a Spitzer news conference Thursday afternoon.Bruno said the U.S. Department of Transportation agreed that as long as the letter and draft legislation is sent to Washington Thursday, New York will be among the finalists for a federal pilot program to reduce congestion and eligible for the federal funds.Bruno said Bloomberg "should be applauded for his leadership, his courage and his vision" in getting approval for the major initiative.The agreement is part of a larger deal that includes reform of the state's campaign finance laws sought by Spitzer, but with compromises pushed by Bruno.