The Assembly and Senate on Monday approved a cost-slashing $32.8 billion state budget and borrowing $3.9 billion for school construction. Meanwhile, the Senate approved cutting taxpayer-paid benefits for government workers and teachers.

The Assembly voted 45-34 and the Senate 23-17 to pass a budget that would cut funding for, among others, hospitals, municipalities, colleges, property tax rebates and nursing homes, deny a funding boost for nonprofits that care for the disabled and extend a utility tax.

It then voted 42-36 to borrow - without voter approval - $3.9 billion for school construction, mainly in poor cities. The Senate followed suit, voting 21-18 to approve the borrowing that would mainly build schools in the state's poorest school districts.

The Senate also voted 31-8 to cut benefits, mainly for new government workers and teachers. The Assembly began debating the measure around 7:15 p.m. Monday.

The votes were intertwined as some lawmakers tied support for the budget to whether the borrowing and benefit cuts passed.

Gov. Jon S. Corzine and his fellow Democrats who control the Legislature conceded budget cuts would be painful but needed.

"New Jersey is facing an economic emergency that if left alone would very likely bankrupt this state," said Assembly Budget Chairman Lou Greenwald, D-Camden.

The state Constitution requires a budget be signed by July 1.

Republicans charged the budget hits residents battling the nation's highest property taxes.

"When every New Jerseyan is under assault from rising taxes and soaring prices for food and fuel, this budget does nothing to make our state more affordable," said Senate Minority Leader Tom Kean Jr., R-Union.

The budget includes $8 million to begin providing health insurance to more low-income parents and require every child have health insurance. It also abolishes the state commerce andpersonnel departments.

It also calls for offering retirement incentives to 2,000 state workers to save $91 million. That would bring salary savings but increase taxpayer-paid retirement benefits.

So legislators also propose increasing the retirement age from 60 to 62, requiring government workers and teachers earn $7,500 per year to receive a pension, eliminating Lincoln's Birthday as a holiday, allowing the state to offer incentives not to take health insurance and requiring a municipal employee work 20 hours per week to get health benefits. The changes would mainly affect new government workers and teachers.

"We know that if we continue along this path, and do nothing to compensate for past mistakes, that we will just further destabilize and ultimately jeopardize the solvency of the pension for current employees," said Senate Budget Chairwoman Barbara Buono, D-Middlesex. Government workers and teachers lined Statehouse hallways and lobbied New Jersey lawmakers to oppose the legislation, noting they agreed to a new contract last year that brought increased pension and health insurance contributions.

Corzine hasn't committed to the bill, and unions called for him to veto it should it also pass the Assembly.

"If the governor believes in collective bargaining, he should honor the good faith agreement he made and veto the legislation," said Carla Katz, president of Communications Workers of America Local 1034, the largest state workers union chapter.

The plan to borrow $3.9 billion for school construction stems from a 1998 Supreme Court order directing the state to build schools in the poorest school districts. The state initially borrowed $8.6 billion, but spent the money without completing the work.

"It is impossible to provide a 21st century education in 19th century facilities," said Assemblyman Albert Coutinho, D-Essex, a bill sponsor.

The bill would allocate $2.9 billion to the poor districts and $1 billion to all other districts, but Republicans want to ask voters to approve the borrowing, noting Corzine has also backed requiring voters approve borrowing. They also emphasized how the state has $32 billion in debt, making New Jersey the nation's fourth-most indebted state.

"Kids are important, but so are the rest of us," said Assemblyman Michael Doherty, R-Warren. "What about retirees? What about taxpayers?"

Corzine, in backing the borrowing without voter approval, cited the court order.

"It's the right decision constitutionally, it's the right decision morally to protect our children and it's most emphatically the right decision in trying to provide real stimulus for the economy," Corzine said Friday.

Still, legislators were expected to consider a proposal to ask voters in November to amend the state Constitution to require public approval for state borrowing.