

Senate Majority Leader Harry Reid of Nev., gestures during a news conference on Capitol Hill on Wednesday after the vote. Associated Press

The bill, designed to prevent teacher layoffs and help states with their Medicaid payments, comes after months of foot dragging by Congress. Lawmakers have proven reluctant to spend money on everything from stimulus projects to additional unemployment insurance, amid increasing voter concern about the size of the U.S. budget deficit.

But Wednesday's action, which won the support of two Republicans, suggests members of Congress are sufficiently concerned about the mixed signals from the economy that they're willing to approve narrow spending bills, particularly those with political resonance ahead of this year's midterm elections.

Wednesday's 61-38 vote in the Senate overcame a filibuster and made final passage in the Senate likely as soon as Thursday. House Speaker Nancy Pelosi (D., Calif.) responded by taking the rare move of calling House members back from their summer recess next week to pass the bill and send it to the desk of President Barack Obama.

Congress's action was forced in part by the mixed signals from the economy. Consumer confidence and spending have moderated in recent months and job growth has been anemic, even while corporate profits are growing briskly. Treasury Secretary Timothy Geithner has been talking up the recovery, while Federal Reserve Chairman Ben Bernanke has been more cautious.

Mr. Bernanke believes the recovery remains on track, but he has been highlighting risks in recent speeches. "We have a considerable way to go to achieve a full recovery in our economy," he said Monday.

This split is reflected in Congress's halting approach. Many Democrats continue to believe the best way to speed the recovery is to inject money into the economy, while Republicans and a growing number of centrist Democrats are alarmed by the deficits.

President Obama and other Democratic leaders are seeking ways beyond spending to boost the economy, such as expanding exports and encouraging private investment. That means the fate of spending bills has become perilous.

Democrats pushed through a recent extension of unemployment benefits only after a long fight with Republicans who wanted the measure paid for. A pending $42 billion measure to aid small business, generally a popular cause with lawmakers, faces an uncertain future and may not pass before the Senate's summer break.

Many of these crosscurrents will resurface in September when the Senate plans to debate whether to extend Bush-era tax cuts due to expire at year's end. Democrats want to let the tax cuts expire for couples making more than $250,000, saying the country needs the additional tax revenue. Republicans say all the tax cuts should be renewed: Returning money to the people is by far the best way to accelerate the recovery, they argue. (Please see article on Page A5.)

Democratic leaders portrayed the teacher-and-Medicaid bill as an emergency measure, saying children returning to school this fall would otherwise face larger classrooms and cuts to such programs as all-day kindergarten and classes for gifted kids.

"What I've been desperately worried about for months is after-school programs being eliminated and extracurricular programs being eliminated," Education Secretary Arne Duncan said in an interview. He estimated the spending would prevent 145,000 teachers from being laid off this fall.

In the year ended June 30, 85,700 local-government education employees, mostly teachers, lost their jobs, according to the Labor Department.

Most Republicans opposed the bill. Only Maine's two Republican senators, Olympia Snowe and Susan Collins, joined Democrats in favor.

To win the Maine senators' support, Democrats dropped plans to cut $107 million in funds expected to go largely to Bath Iron Works, a General Dynamics Corp. facility that builds Navy ships in Maine. The Iron Works is one of the biggest private employers in the state with 5,000 workers.

Ms. Snowe said she voted for the bill only because she agreed the potential teacher layoffs constituted an emergency. She also demanded the House return to Washington from its recess to pass the bill.

House members, who often mock the Senate for its slow pace, may feel frustration at being asked to drop their campaigning and return to Washington because of the Senate's action. The Senate is expected to leave the capital at week's end. House leaders, however, concluded the measure was urgent and politically appealing. Congress isn't scheduled to return for a regular session until mid-September, after the school year begins for most students.

The last time the House returned from a recess was 2008, when lawmakers sought to pass an aid package for the auto industry. Before that, the House came back to Washington in 2005 to deal with the case of Terri Schiavo, a brain-damaged woman whose husband was seeking to remove her feeding tube.

Wednesday's bill includes $10 billion to help states avoid layoffs of teachers, police officers and fire fighters and another $16 billion to help states make their Medicaid payments.

Ethan Harris, head of North American economics at Bank of America/Merrill Lynch in New York, said the bill "is worth maybe a tenth of a percentage point in growth over six months." But it is vital for states, he said, which have "cut all the easy stuff, so they're cutting into much more popular programs."

Adds Mark Zandi, chief economist at Moody's Analytics: "If they didn't get this, the job cutting and tax increases states would have to make over the next six months would put a significant weight on the fragile recovery."

Republicans warned that states were becoming too dependent on federal aid. "For the first time in our history, the federal government is the single largest source of revenue for the states," Senate Minority Leader Mitch McConnell (R., Ky.) said on the Senate floor. "When does it end?

Republicans also complained about the bill's revenue source. The legislation is paid for, in part by imposing new limits on foreign tax credits used by U.S. multinationals to lower the taxes they pay in this country. Republicans said this would drive companies, and jobs, overseas.

—Jon Hilsenrath,
Elizabeth Williamson
and Martin Vaughan
contributed to this article.

Write to Naftali Bendavid at naftali.bendavid@wsj.com