HARRISBURG -- The state Legislature is moving toward final approval on two major issues -- the first increase in the minimum wage in nearly 10 years and a budget of about $26 billion for the 2006-07 fiscal year, which begins today.

The House voted 161-37 to concur with a Senate measure that would push the minimum wage, now at the federal level of $5.15 an hour, to $6.25 an hour effective Jan. 1 and $7.15 an hour on July 1, 2007.

Supporters, including Gov. Ed Rendell and many Democratic legislators, said people working for the minimum wage haven't had a raise since the federal government put it at $5.15 an hour in 1997.

The last time the state raised its own minimum wage was in 1988, when it went from $3.35 to $3.65 an hour, said a leading supporter, Rep. Mark Cohen, D-Philadelphia.

"A living wage produces good workers, good workers produce good products, and good products drive the economy,'' said another supporter, Rep. Curtis Thomas, D-Philadelphia.

Some Republicans complained that government shouldn't be setting wage rates for private businesses and feared there could be a backlash as firms lay off workers due to rising labor costs.

Rep. Brian Ellis, R-Butler, said he knows of at least one employer with six minimum-wage workers and two of them will be laid off once the wage rises to $7.15 an hour. "Real people will lose their jobs,'' he said.

Another opponent, Rep. Curt Schroder, R-Chester, said a General Assembly-dictated higher wage is favored only by "people who think the government is the answer to everything. Government should try to create an economic environment where jobs are plentiful.''

Republicans were able to carve out a small exception to the higher wage for firms that employ 10 or fewer workers. Those firms can go to $5.65 an hour on Jan. 1, then $6.65 an hour on July 1, 2007, and to the full $7.15 an hour on July 1, 2008.

Because of a technicality -- the Senate forgot to include the words "or fewer'' in its version of the minimum wage bill -- the bill must go back to the Senate today for final approval.

"We have been assured by [Republican] Senate leaders they will act on the minimum wage bill before the break for the summer,'' which could be tonight, said Mr. Cohen.

Mr. Rendell said he had wanted the $6.25 an hour rate to take effect sooner -- either today or perhaps Sept. 1 -- but he will sign the bill because the thinks workers hired at the minimum wage need to earn more.

Senate and House leaders were getting close to agreement on a budget for the new fiscal year, which begins today. It would increase spending by about 5.8 percent compared with the former budget.

The House and Senate met late into the night and planned to reconvene this morning. They expect to name a conference committee to hammer out budget details, although leaders say they have agreement on major provisions.

The House adjourned at about 9:30 p.m. with leaders saying they wanted to avoid criticism over passing important legislation in the dark of night. Critics assailed them during last budget season for approving pay raises in the middle of the night with no public notice.

The raises were repealed, but public outrage continued through the May primary when voters ousted 17 incumbents.

"Because of recent history and collective enlightenment ... we will be here tomorrow to do the budget," House Majority Leader H. William DeWeese, D-Waynesburg, said shortly before adjournment.

Meanwhile, the Senate continued to meet in caucus and was expected to adjourn before midnight and return this morning, the start of the fiscal year.

The budget is expected to include funding for Pittsburgh Public Schools to help manage the troubled Duquesne City School District, if both school systems agree.

Legislators would not provide details yesterday, but said both districts would be pleased.

"We knew this was something we had to address," said state Rep. Dwight Evans, D-Philadelphia, minority chairman of the House Appropriations Committee.

Pittsburgh school Superintendent Mark Roosevelt said the availability of funding does not guarantee his district will help its struggling neighbor. That would require agreement of the Pittsburgh school board, the Duquesne Board of Control and the state Department of Education, he said.

If the budget passes with the funding intact, those talks can proceed, Mr. Roosevelt said.

Lawmakers from the Duquesne area were confident that would happen.

"I'm doing everything in my power to see that this district remains open and that the children receive a quality education," said Sen. Sean Logan, D-Monroeville.

"The way we envision it," said Mr. Roosevelt, "is we would be functioning as sort of a hired management entity to educate the Duquesne kids in Duquesne and we would be paid for our services. We cannot legally nor ethically use any Pittsburgh dollars to pay for Duquesne."

The draft budget also includes funding for Rendell initiatives like putting new laptop computers in high school classrooms, expanding health insurance coverage for children and new elementary science programs. The budget also includes $2.5 million for a supercomputer center at Carnegie Mellon University, Mr. Evans said.

"The governor got 98 percent of what he wanted on education," Mr. Evans said.

But he won't get the funding he wanted for medical research laboratories and equipment. Mr. Rendell wanted to create a new entity called the Jonas Salk Legacy Foundation, which he would have funded by borrowing against future tobacco settlement payments.

Republicans view the plan as irresponsible borrowing against uncertain funds, but Mr. Rendell said yesterday that isn't so.

"It wouldn't have caused any debt, no new spending and no new debt service because the debt service would have been paid by a stream of tobacco money," he said. "I'm disappointed about [not getting] Salk."

Mr. Rendell said the increased spending for 2006-07 compared with the current budget would be less than the 6.8 percent national average for state budget increases this year.

Mr. Rendell dismissed complaints from some conservative Republican groups that a budget increase of about 6 percent is unacceptable because it's above the inflation rate of about 4 percent.

Noting the spending for schools and health care, Mr. Rendell said "we're making the kind of investments that will move Pennsylvania forward."