MADISON, Wis. (CBS 58) -- Gov. Tony Evers and top officials in the Legislature have reached a compromise deal on several key sticking points in the next two-year state budget, according to a statement the governor's office released Tuesday morning. 

Evers' office said the Democratic governor settled on a "tentative bipartisan budget agreement" with Assembly Speaker Robin Vos (R-Rochester), Senate Majority Leader Devin LeMahieu (R-Oostburg) and Senate Minority Leader Dianne Hesselbein (D-Middleton). 

Hesselbein's involvement in the talks signals a belief Democratic votes will be necessary in the state Senate, where Republicans have an 18-15 advantage, but have seen multiple GOP senators openly oppose the budget framework that has taken shape in recent weeks. 

Wisconsin has a $4 billion surplus, and the battle over how to shape the next state budget has essentially boiled down to a progressive push to boost social programs and school funding against a conservative push to send that money back out in the form of tax cuts. 

Details of the agreement released by the Evers administration cover several of the key areas that have held up budget negotiations: K-12 funding, support for the UW System, continued aid for child care programs and tax cuts.

“The people of Wisconsin expect their leaders to show up, work hard, and operate in good faith to get good things done," Evers said in a statement. "We’ve shown we’ve been able to get good things done for Wisconsin when people put politics aside and decide to work together to do the right thing."

Tax cuts included

A key win for Republicans is Evers' pledge to sign off on $1.3 billion in tax cuts previously passed by the Joint Finance Committee, which has been rewriting nearly all of the budget Evers originally proposed in February.

The GOP plan puts more people in the second-lowest of four tax brackets, which pays a 4.4% income tax. Currently, married couples pay that rate on up to $38,000; income beyond that amount is taxed at 5.3%.

Republicans voted to instead tax income up to $67,000 at 4.4%. For married couples making that much and more, it would amount to about $600 in annual savings. Single and separate filers would save about half that amount.

Other tax cut provisions included in the deal are an exemption on retirement income and the elimination of the sales tax on residential utility bills, which would save households $178 million over the next two years.

The agreement also includes a new film tax credit, which would come with the creation of a new film office within the Department of Tourism.

"This compromise will provide meaningful tax relief for retirees and the middle class," LeMahieu and Sen. Howard Marklein (R-Spring Green), a co-chair of Joint Finance, said in a statement. "Stabilize the child care system without making pandemic-era subsidies permanent, and strengthen our schools by reimbursing special education services at a higher rate."

School funding revised

One of the most closely watched issues in this budget has been reimbursement for what school districts spend on their students' special education needs. In the previous budget, which ended Monday, the state covered about 33% of a district's special education spending.

The bipartisan agreement calls for the state to increase the reimbursement level to 42% in the budget's first year and 45% in the second. 

The funding increase is still about $625 million short of the $1.13 billion increase Evers proposed in his budget, which would've raised the reimbursement level to 60%. However, it's a $275 million increase from the amount lawmakers passed earlier this month, when the Joint Finance Committee voted along party lines to increase the reimbursement level to 37.5% by 2027.

The plan also doubles the amount of state funding dedicated to student mental health programs from the $15 million adopted by Joint Finance to $30 million. 

A child care compromise

The agreement provides $330 million in child care investments, according to the Evers administration. That includes $110 million that will go out in direct payments to child care providers, a big win for Democrats since GOP leaders, specifically Vos, have previously said they wholly opposed the idea of subsidizing child care businesses.

However, the deal also includes Republican proposals to reduce strain on providers through deregulation. One change would lower the minimum age to 16 for assistant child care teachers.

The plan also would spend $66 million on a new "Get Kids Ready" program, which would specifically help day cares offer programming aimed at four-year-olds with the goal of better preparing them for school. 

UW System boost

Some of the Republican holdouts in the state Senate had specifically mentioned a desire to see cuts to University of Wisconsin System. Evers had responded by saying he'd veto the entire budget if it cut funding for higher education.

The bipartisan budget agreement calls for an increase of $256 million in state support for the UW System. That funding includes more than $100 million to help "stabilize" universities that have recently struggled with campus closures and layoffs. 

The budget also includes more than $840 million for buildings projects across the system, including $189 million for the Health Sciences and Northwest Quadrant complex at UW-Milwaukee.

Under the plan, there would also be a $27 million poll for merit pay, which would be controlled by the Legislature's Joint Committee on Employment Relations. 

In exchange for the funding, Republican won the concessions of mandatory workload standard for faculty, setting minimums for how much time they must spend teaching classes. 

Hospitals get a hand...but will also pay more

Under the agreement, hospitals will pay significantly more in fees that help boost the state's Medicaid fund. 

Currently, hospitals pay 1.8% of their net patient revenue to the state Department of Health Services. The bipartisan framework increases those payments to 6% of hospitals' revenue with 30% of those collected dollars going into the Medical Assistance Trust Fund, which covers the state's Medicaid spending. 

The rest of that money, totaling more than $1.1 billion, would go back to hospitals.

"Provisions included in versions of federal reconciliation legislation could prohibit or limit this type of policy change in the future," the Evers release said in a reference to the current federal budget bill, which Republicans refer to as the "One, Big, Beautiful Bill."

What's Next?

The Joint Finance Commitee is slated to meet Tuesday morning and take up the remaining budget items, including child care, the UW System and transportation funding. 

From there, legislative leaders have scheduled sessions for Wednesday in both the Assembly and Senate with the goal of passing a budget bill that day. 

While the current budget ended Monday, spending can continue at current levels until a new two-year budget is enacted. In order for that to happen, it's become clear Republicans in the Senate need some Democrats to join them. 

"Elections matter," Hesselbein said in a statement. "The fact that Democrats gained four Senate seats and are close to taking the majority means that Senate Democrats were able to make this budget agreement better for the people of Wisconsin."

At least four Republican senators, Rob Hutton, Chris Kapenga, Andre Jacque, Steve Nass, have expressed varying degrees of reservations. If all four vote no, at least three Democratic senators would need to support the bill in order for it to pass.

The governor's office said under the deal, Evers won't use his partial veto powers to strike any of the area covered in the agreement. However, he would still be willing to issue partial vetoes in other parts of the budget, which could include corrections, natural resources and the elections commission, among other state agencies.