Smith, a Queens Democrat, selected the King of Kings Foundation - run by ex-cons Lance and Todd Feurtado - to receive one of a handful of grants under his $4 million anti-gang program called Operation SNUG.
The funding is on top of a $25,000 grant Smith sought for the duo in 2008 and the $290,000 in federal funds Queens Rep. Gregory Meeks is steering to them - proposed payouts first revealed by the Daily News in February.
All of the grants are pending.
Meeks and Smith are protégés of Queens pastor the Rev. Floyd Flake, who has previously praised the King of Kings' anti-violence and community work in a video.
Smith's move to provide the money comes as the state is grappling with a $9.2 billion budget gap and considering drastic cuts to education and health care spending.
"It is astounding," said state Sen. Martin Golden (R-Brooklyn), who said such funding should be directed toward the police and prosecutors.
Smith spokesman Austin Shafran defended the planned payout, saying the two ex-cons can deliver a powerful message to youths.
"Ex-offenders who have been given a second chance and have now made good on that second chance are really the appropriate people to teach others about the horrors of gang and gun violence," Shafran said.
Shafran stressed that King of Kings has received only preliminary approval for the money and its application must still be vetted by three other state agencies: the Division of Criminal Justice, the state controller and Attorney General Andrew Cuomo's office.
The foundation was incorporated in 2006 and has virtually no assets. It operates out of Lance Feurtado's 161st St., South Jamaica, apartment.
On its application for SNUG funding, the nonprofit claimed an operating budget of $350,000.
Lance Feurtado told The News the budget figure was incorrect - and conceded that the foundation operates with just the two brothers and a handful of volunteers.
"My organization has never had that much money," Feurtado said. "We do good work. There is nobody who can reach these kids like we are reaching them."
Feurtado and his brother were busted in 1995 and convicted on federal drug charges.
After their release from prison, they created a for-profit entertainment company and then later formed King of Kings to preach against street violence in Queens.
Feurtado said they host lectures and workshops at schools, libraries and other community centers.
Shafran said 40 groups applied for funding under SNUG and 10 were chosen. The program is modeled after Cease Fire in Chicago, which enlists community groups in anti-gang efforts.