State House and Senate leaders last night agreed to a $50 million tax-relief package targeted at middle- and lower-income taxpayers that would provide a tax refund and a tax break on food.

Lawmakers also agreed to revive a tax break on ethanol-blended gasoline that expired at the end of last year, which may save consumers about 11 cents a gallon. Restoring the ethanol tax break would cost an estimated $32 million. They also approved a 1-cent increase in the gasoline license tax that would go into the state's highway fund.

Under the tax-relief package, people earning under $60,000 and filing joint income tax returns would get refunds ranging from $90 to $160, with lower income taxpayers getting the larger refunds. Taxpayers filing single returns would get refunds between $70 and $140.

The food tax credit also would be graduated for taxpayers earning under $50,000 and would range from $25 to $85.

The tax relief provisions came after House and Senate negotiators resolved their overall differences on a new two-year state budget and financial plan. The House had wanted to save more money for next year in the event the economy declines, while the Senate had wanted to commit more of the money this session.

"We're being cautiously optimistic about the economy," said state House Majority Leader Kirk Caldwell, D-24th (Manoa). "We want to make sure that if we give out money this year, we're not going to have to take it away next year."

Gov. Linda Lingle had proposed $346 million in tax relief at the start of session, including $100 or $25 refunds per person depending on income. Over the past few weeks, administration officials had been asking lawmakers to agree to annually index the standard income tax deduction, the personal exemption and tax brackets for inflation so they keep their value.

But the Republican governor had also been urging lawmakers to revive the ethanol tax break, and part of her package involved eliminating the general-excise tax on basic foods, so there is some overlap with House and Senate Democrats.

"We could do better," said state Rep. Lynn Finnegan, R-32nd (Lower Pearlridge, 'Aiea, Halawa). "We needed to give back more in tax relief this year especially since the out years are going to be tighter."

Final votes on bills will be taken next week, just before the 60-day session adjourns on Thursday, but lawmakers reached agreement on several of their priorities yesterday.

Health insurance rate regulation, which expired last summer, would be restored after lawmakers agreed to a compromise that would speed up rate reviews — a significant concern for the industry — while still giving the state's insurance commissioner enough time to evaluate rates.

J.P. Schmidt, the state's insurance commissioner, said the new bill was not as strong as the law that expired but said it would give the public some comfort that rate increases are reasonable. The new bill sets no cap on the amount health insurers can hold in reserve. The old law capped reserves at 50 percent of annual net worth.

The Hawai'i Medical Service Association and Kaiser Permanente had fought rate regulation, arguing it was unnecessary and would not lead to lower healthcare costs. Jennifer Diesman, director of government relations for HMSA, said the insurer wanted rates reviewed in a timely manner if regulation was restored.

"It's a good outcome. It's a fair outcome, a fair compromise," Diesman said.

State Rep. Josh Green, D-6th (N. Kona, Keauhou, Kailua, Kona), a Big Island doctor and chairman of the House Health Committee, believed rate regulation was critical as a check on HMSA, the state's largest insurer. The bill also would not set a time limit on regulation, like the old law, which lasted three years.

"Everyone who pays for insurance now has their rights protected," Green said.

To the relief of affordable-housing advocates, lawmakers agreed to spend $25 million as a first step toward the state purchase of Kukui Gardens in Chinatown so it would remain affordable to low-income residents.

Lawmakers also agreed that Hawai'i Health Systems Corp., the state's quasi-public hospital system, would acquire Kahuku Hospital on the North Shore, which had been in danger of closing because of financial problems.

In light of last year's Kaloko dam tragedy on Kaua'i, lawmakers backed a dam safety bill that would strengthen the state Department of Land and Natural Resources' dam safety program.

Under the bill, the state would clearly have authority to enter private property to inspect and repair dams at any time, with or without giving prior notice to the owners.

Affordable housing and homeless solutions got a $35 million boost. The primary focus was increasing the rental housing trust fund to grow the stock of affordable housing units. In addition to a $29 million infusion from the budget, the trust fund also will receive 50 percent of the conveyance tax for one year. The remaining $6 million went to homeless shelters, transitional housing programs and other services to aid the more than 6,000 homeless across the state.

The University of Hawai'i was given almost $5 million over the next two years to develop a center for creative media, as well as a digital media incubator facility at Honolulu Community College. In addition, HCC will receive $150,000 for each of the next two years to start a music and entertainment training center, named MELE, or the Music and Enterprise Learning Education.

In addition, $5 million was earmarked to lease a space in Kaka'ako for a life sciences research complex and to provide funding for high-tech endeavors.

Science, technology, engineering and math (STEM) also will be pushed in the public schools, with the program receiving $2.5 million in funding for each of the next two years.

Lawmakers agreed that the state Department of Education would get $100 million for repair and maintenance at public schools, with $25 million of that earmarked for electrical upgrades. The department had said early in the session that it would need at least $150 million for repair and maintenance to keep a nagging backlog of projects from growing.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com and Treena Shapiro at tshapiro@honoluluadvertiser.com.