CONCORD, N.H. (AP) -- The New Hampshire Senate passed a $10.7 billion budget package Thursday for the two years beginning July 1 that sets the stage for a fight with the House over expanding Medicaid under the federal health care law.
The Senate voted 13-11 along party lines for the budget package.
The House, which is controlled by Democrats, and the Republican-controlled Senate share many similar spending priorities. Both budgets increase funding for services for the mentally ill, disabled and higher education. But they part ways on expanding Medicaid and raising taxes.
"As the process moves forward, legislators will need to take a bipartisan approach, set ideology aside, and listen to the people of New Hampshire in order to reach a final balanced budget that reinvests in the priorities needed to build a more innovative economic future," said Gov. Maggie Hassan, a Democrat, who criticized the Senate for not authorizing Medicaid expansion.
The Senate also rejected a 20 cent increase in the cigarette tax in the House budget that raises $40 million. It also rejected a House proposal to phase in a tax on gas and diesel to pay for road improvements after the House killed a Senate casino bill to pay for highway and other improvements.
The Senate elected to let tax breaks for business take effect that will cost the state an estimated $13 million rather than suspend the breaks for the budget cycle as Hassan and the House proposed. The tax breaks passed last session but lawmakers delayed implementing them.
Republicans rejected Senate Democratic efforts Thursday to restore funding for services that help poor, elderly or disabled residents stay in their homes. The Senate also voted down money to fund testing for sexually transmitted diseases.
But by far the biggest hurdle to negotiating a compromise with the House will be the Senate's refusal to authorize expanding Medicaid to 58,000 low-income adults under President Barack Obama's signature health care overhaul law.
Hassan and the House included funding to implement the expansion so New Hampshire health care providers would share an estimated $2.5 billion over seven years at an estimated $85 million state cost.
Currently, New Hampshire's Medicaid program covers low-income children, parents with children, pregnant women, elders and people with disabilities. The expansion would add anyone under age 65 who earns up to 138 percent of federal poverty guidelines, which is about $15,000 for a single adult.
New Hampshire could refuse or postpone a decision, but there are benefits for states that choose to expand Medicaid now. The federal government will pick up the entire cost in the first three years and 90 percent over the long haul.
Senate President Peter Bragdon, a Milford Republican, led the effort to block immediate implementation as too financially risky. He said the federal government can't be trusted to keep its funding promise and pointed to the government's failed promise to pay 40 percent of special education costs as proof.
Senate Republican Leader Jeb Bradley of Wolfeboro said that if Medicaid was expanded, it would be nearly impossible to end the entitlement program despite government assurances that New Hampshire could drop the program later.
But Senate Democratic Leader Sylvia Larsen of Concord said people need health coverage now.
"If I could give just four years of health insurance to my neighbor, shouldn't I?" she said.
Sen. Nancy Stiles, a swing vote on the issue, sought assurances from Bragdon that the issue would be discussed in negotiations with the House.
Bragdon said he would not rule out a New Hampshire solution being negotiated if one could be found in the next few weeks. Stiles, R-Hampton, voted to reject the Democrats' amendment to authorize expansion.
Democrats also don't like a GOP budget provision requiring the governor to cut $50 million in personnel and benefit costs. Hassan spokesman Marc Goldberg said between 400 and 700 people could be laid off.
The current state budget required former Gov. John Lynch to save $50 million in labor costs. He negotiated contracts with the state's three labor unions to avoid laying off 500 workers. The contracts contained no raises and increased workers' share of health care costs.
In 2009, lawmakers approved a budget that also required Lynch to cut labor costs by $25 million. Lynch proposed a furlough plan to minimize layoffs, but the union rejected it and roughly 200 people lost their jobs.