Virginia Gov. Terry McAuliffe unveiled a two-year spending plan Thursday that includes a billion dollar increase in education spending, small corporate and individual tax cuts, and a 2 percent raise for state employees.



The Democratic governor is also renewing his long-shot push to convince the GOP-controlled General Assembly to approve an expansion of Medicaid.



McAuliffe, who unveiled his $109 billion two-year budget proposal before lawmakers at the Capitol, said he took a conservative approach to spending that will help improve Virginia's long-term economic outlook.



"Now we must shift into high gear with smart reforms and investments that will spark accelerated growth and guarantee the long-term financial health of the commonwealth,'' McAuliffe said.



Higher-than-predicted tax revenues have given McAuliffe more leeway in crafting his budget, which is the only two-year spending plan he gets to introduce during his four-year term. But McAuliffe's ability to craft a legacy budget is limited, as Republicans control both chambers of the General Assembly.



GOP leaders reacted coolly to the governor's budget. House Speaker William J. Howell said the governor knows Medicaid expansion won't pass, and including it in the budget was irresponsible.



"I'm disappointed,'' Howell said. "He kind of has overpromised and raised expectations.''



Here's a look at some of McAuliffe's key proposals:



EDUCATION AND STATE EMPLOYEE SPENDING:



The centerpiece of McAuliffe's proposed budget is a $1 billion increase in K-12 and higher education spending. The governor is proposing the state spend $139.1 million to help Virginia school districts hire 2,500 new teachers. He also wants the state to spend $50 million more to increase the number of in-state students receiving degrees and roughly $48.2 million for in-state financial aid.



In addition to the education spending increase from the state's General Fund, McAuliffe is proposing the state sell bonds to pay for more than $1 billion in construction at the state's public universities and community colleges.



Republicans said they were concerned the governor's proposals could unfairly increase the financial share of education spending on local governments. House Republicans said they would rather local governments have more control over how to spend any additional funding for education.



McAuliffe is also proposing a 2 percent increase for state employees and also wants the state to substantially increase its funding for education. The Virginia Education Association said it is disappointed McAuliffe isn't proposing a bigger pay raise for teachers than 2 percent, which the group said is needed to attract and keep the best teachers.



TAXES:



McAuliffe is asking lawmakers to approve reducing the state's corporate income tax rate from 6 percent to 5.75 percent. The governor said the move, which would cost the state $64 million over two years, would help him entice more companies to come to Virginia. Luring businesses to relocate or expand in Virginia has been a top priority for the governor, who has noted that North Carolina's corporate tax rate is slated to be 4 percent starting next year.



Del. S. Chris Jones, chairman of the House's budget committee, said he's skeptical that the governor's proposal would have much effect on recruiting companies to Virginia.



"No one's come to me and said, if you reduce your corporate income tax, we will locate or we will expand,'' Jones said.



He added that he favors a more comprehensive look at changing the state's tax code, rather than a "piecemeal'' approach he said McAuliffe is taking.



The governor is also proposing a slight adjustment to how much the state collects on personal income tax, which would cost the state $42 million over the next two years but amount to a yearly savings for the average taxpayer of only a few dollars.



MEDICAID EXPANSION:



McAuliffe's spending plan assumes that Virginia will expand Medicaid in the next two years, which his administration projects would save the state $156 million in mental health, prisoner health, and indigent care costs.



The governor's budget uses that $157 million to pay for items his administration believes Republicans support, including an incentive program designed to foster greater regional cooperation that's been backed by the state's corporate leaders and increasing funding for Virginia Commonwealth University's Massey Cancer Center.



State Republicans have been steadfastly opposed to Medicaid expansion and GOP leaders said their opposition will continue.