Thousands of state employees could be laid off, from Highway Patrol troopers to school workers, and public services might have to be reduced under a Senate-backed spending proposal for next fiscal year, Mississippi House leaders say.

House and Senate negotiators, who are at odds over the proposal, met Thursday at the state Capitol in hopes of reaching a compromise on Mississippi’s nearly $5 billion budget for the fiscal year that begins in two months.

House Appropriations Committee Chairman Johnny Stringer, D-Montrose, and two other House negotiators rejected the Senate’s plan to hold $60 million in stimulus money in reserve for fiscal year 2011. Legislators said the move would force lawmakers to underfund numerous state agencies, including public safety, education and mental health.

“For us to start firing people while we have the money in the bank to pay them is just not good public policy from where we sit,” said Rep. Dirk Dedeaux, D-Gulfport, a House negotiator.

Rep. Cecil Brown, D-Jackson, estimated up to 2,000 employees could lose jobs. He said underfunding the state Department of Health could lead to nursing shortages and that some school districts would have to lay off personnel and cut gifted programs.

Brown said underfunding colleges and universities by $24 million “is a tuition increase.”

Senate Appropriations Committee Chairman Alan Nunnelee, R-Tupelo, said he’s willing to make the cuts to have money in reserve for a time when the state will face even larger budget issues.

Brown countered that the Senate’s strategy for running state government next year will do little to improve the economy.

“If we follow your logic and did what you want us to do, we’ll be laying off state employees and the unemployment rate will go up,” Brown said.

The 2009 session is in recess until May 26, when lawmakers return to finish a budget for the year that starts July 1. The lack of compromise has left state agencies in limbo.

The $60 million comes from the part of the federal American Recovery and Reinvestment Act that was designated for Medicaid. Nunnelee said the $60 million is an arbitrary amount that he’s chosen to hold back.

Gov. Haley Barbour, whose office has discretion over how the stimulus will be spent, has proposed creating a reserve fund for the money to be used in 2011 when the federal government’s stimulus program ends. Nunnelee said at that point, Mississippi will have to pay an extra $33 million a month for its share of Medicaid, a government-funded health care program for the needy.

“It will leave us with a severe problem in 2011,” Nunnelee said.

Said Stringer: “Only the Lord knows what’s going to happen in 2011, and he’s not telling right now.”

Stringer and Brown said federal requirements prohibit reserving the Medicaid stimulus money.

A representative from Barbour’s office told the group that the governor’s staff was trying to get an answer from federal officials about the issue.

Lawmakers plan to meet after they hear from Barbour about whether the state will receive a waiver for the reserve fund.

The House’s spending plan funds public education at $24 million over the Senate. The House and Senate are nearly $7 million apart on public safety and $8.5 million on mental health.

Brown said the Senate also wants to cut $3 million out of medical services for the Department of Corrections. He said the state is under contract to provide those services.

“Legally, a lot of the things you’re doing, you can’t do,” Brown told Nunnelee.