Democrats yesterday said they had taken another step toward moving the first fiscal 2008 spending bills to the president, while rhetoric continued to fly on a number of budget issues.

Senate Majority Leader Harry Reid said, “We solved our 302(b) allocation situation” — a critical first step before the House and Senate can negotiate compromises on individual spending bills. Although both chambers were using the same topline number for overall discretionary spending, they differed in spending levels for individual bills (the so-called 302(b) allocations). For instance, the House’s Labor-HHS-Education bill would provide $1.9 billion more than the Senate version, while the Senate’s C-J-S bill would provide $868 million more than the House. Negotiators for individual bills need to know their final allocation in order to determine what program funding trade-offs can be made within the bill. Details on the allocations were not made available, nor was it clear whether allocations had been set for all 12 bills.

Republicans began turning up the heat on Democrats for holding up the Military Construction-VA bill, which includes veterans’ funding. Minority Leader Boehner wrote to Speaker Pelosi noting that conferees hadn’t been appointed for the popular bill, expressing concern it was being held back to carry other spending bills and urging immediate action. “Adequate funding for health care and housing for our veterans and men and women in uniform is a top priority for Congress, and their needs should take precedence over partisan politics.” OMB Director Nussle sounded a similar theme in a letter to appropriators, saying, “Our veterans deserve better. Funding for these critical programs should not be held hostage in an effort to promote a political agenda.”

Look for Republicans to continue highlighting the veterans bill. Democrats in recent years effectively battered Republicans over shortages in veterans’ funding, and Republicans are ready to return the favor. For their part, Democrats yesterday continued to contrast the costs of the war in Iraq with Bush’s opposition to expanding children’s health coverage, and proposed spending for education and infrastructure improvements.

The two parties also traded shots regarding fiscal responsibility, with each side releasing dueling reports on the impact of Democratic paygo rules. Democrats highlighted massive deficits incurred during the Bush presidency when tax cuts and new mandatory spending were enacted without being offset, and they heralded the Democratic paygo rules created this year that strictly require offsets. In their report, released at a press conference by Speaker Pelosi, Democrats said they had “restored fiscal discipline,” noting that every bill passed by the House this year had complied with paygo, including 30 that required offsets of $1 million or more. Said Pelosi, “Fiscal responsibility is a central principle of the House Democrats.”

Republicans countered that most offsets were paid for by “gimmicks, fees or tax increases” — even while admitting the GOP had used budget gimmicks in the past. In a briefing with reporters, top House GOP budgeteer Ryan said, “Republicans have been guilty of gimmicks in the past, Democrats are guilty of gimmicks in the present,” arguing it was different now because of the coming fiscal crisis caused by rapidly growing major entitlements. Ryan said that although each bill technically complied with paygo, Democrats were violating the spirit of the rule and actually “racking up more liabilities for taxpayers” that would cause the nation to go further into debt. Paygo, he said, “is nothing more than a recipe for tax increases.”