Gov. Dave Heineman's two-year budget proposal got a bit lost in all the talk about tax reform Tuesday.

But the governor presented what many senators said was a good starting point for budget talks over the next several months in the Legislature.

Heineman focused his $7.8 billion general fund spending recommendations for 2013-15 on education and rebuilding the cash reserve.

The average growth in spending over the two years would be 4.9 percent. He called for no tax increases.

The governor and the Legislature built the state's rainy day fund to $550 million in recent years and then dipped into the fund when the state needed it in harder times.

"And the day will come again. I don't know whether it's two years from now, four years from now, eight years from now. … I certainly believe you've got to rebuild that cash reserve," he said.

The fund would be at $395 million next year if $47 million is borrowed to finance the state's share of construction of a new $121 million Central Nebraska Veterans Home. That would be paid back in 2016-17.

Appropriations Chairman Heath Mello said: "There's a lot of opportunity for some common ground between where the Legislature's priorities have been and what he's proposing in his budget."

The committee will start meeting next week on the spending requests.

Committee member Jeremy Nordquist of Omaha said the increases for K-12 and higher education and Medicaid provider rates were positive steps.

He disagreed with Heineman's proposal to repeal a bill (LB599) that provides coverage through the Children's Health Insurance Program for otherwise ineligible women for prenatal care, including for unborn children of low-income undocumented mothers. Repeal would save about $1.6 million.

There are more votes to support that bill today than when it was passed over the governor's veto last session, he said.

"So that's not going to happen," he said.

He also disagreed with the governor's recommendation to spend a little more than $2 million on a state plane this year.

"If we have $2 million to spend, I would prefer to spend it on early childhood education or children's mental health care," he said.

There were no proposals for early childhood education, which the Legislature's planning committee focused on during the interim. Education and  business leaders say the best investment that can be made in education is for children under 5.

State budget administrator Gerry Oligmueller said the plane is owned by the University of Nebraska Foundation and used for higher education and state government employees.

The foundation has decided to sell the plane and the state would pick it up and continue its use for state government. An older plane owned by the state would be sold, he said.

The governor also proposed a 5 percent increase in aid both years for K-12 and higher education.

"First of all, I'm glad to see he's staying true to his commitment to education," said Sen. Kate Sullivan, newly elected Education Committee chairwoman. "I think that's a great starting point."

The state aid formula currently calls for a 10 percent increase. But the committee has to be realistic about what the state can afford, she said.

Heineman said the most significant challenge to the budget will be financing the Medicaid program and new federal mandates. The recommendation includes an increase of $176 million for Medicaid, children's health and providers.

The budget also includes increased inmate population costs of $6 million this year. And an additional $3.3 million for AccessNebraska because phone bills were higher than expected due to wait times and more calls than expected to the public assistance customer service center, said Department of Health and Human Services spokeswoman Kathie Osterman.

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