PHOENIX - State Senate leaders of both parties agreed Tuesday on a nearly $10.6 billion spending plan for next year - one that would mean much smaller tax cuts than a House proposal.

The Senate package provides $46 million pay hikes for public school teachers, more than the plan approved Monday by the Hous Appropriations Committee. Lawmakers say they want all teachers paid at least $33,000 a year, though the legislation will leave the question of how to divide up the cash to each school district.

State and university employees also would get 3.25 percent pay hikes, slightly larger than the House plan.

That Senate package also includes nearly $30 million specifically to help the state's three universities retain top faculty and students, more money for child care subsidies, $2.5 million for additional officers for an anti-gang task force, and an $8 million subsidy for Healthcare Group, a state-run insurance program for small business. None of these are in the House plan, which also is billed as a $10.6 billion budget.

But the House plan has nearly $60 million in new tax reductions versus just $7 million in the Senate package, all of that is aimed at business. That sets the stage for a battle with the House Republicans who want more tax relief.

But Senate President Tim Bee, R-Tucson, said that demand ignores the tax cuts approved last year - cuts that will benefit individuals and businesses this year. Key is an additional 5 percent across-the-board reduction in individual income tax rates which provides $178 million in tax relief. That is on top of a 5 percent cut which took effect last year.

And Arizona is in the second year of a three-year suspension of a special state property tax levied to support education, saving an additional $226 million.

"We have limited resources this year, limited resources for spending, limited resources for cutting taxes,'' Bee said.

The package also has the endorsement of Senate Minority Leade Marsha Arzberger, D-Willcox, who was actively involved in the talks from the beginning. She said the plan can include many o the spending increases sought by Gov. Janet Napolitano because of

attention paid to details of how money is now spent.

"We dug into agency budgets more than I think that they have ever been scrutinized before,'' Arzberger said. "In doing so, w discovered places where money was not necessary, we could use it somewhere else in the budget.''

The Senate plan is going to get a fight from not just House GOP leaders but some business groups which specifically want a 2. percent cut in corporate income taxes. That House package also includes increased tax credits for research and development, and another credit for insurance companies that expand their employment in Arizona.

A lobbyist for the Arizona Chamber of Commerce and Industry already has asked the Senate to go along.

But the Senate plan includes only speeding up an already-approved reduction in business property taxes, and a separate property tax break on the value of new business equipment.

The package is getting positive reviews from the governor.

"There's a lot to like in the Senate budget,'' said gubernatorial press aide Jeanine L'Ecuyer.

That is not surprising: Arzberger worked closely with Napolitano staffers in crafting the plan. But L'Ecuyer stopped short of saying that her boss would sign the budget if it comes to the desk in the form negotiated by the senators.