With the state facing a projected $450 million deficit over the next two years, Gov. Janet Mills outlined her budget proposal, which includes some tax increases as well as cuts to health-related programs. (Photo by Jim Neuger/ Maine Morning Star)
Facing criticism from Democrats over program cuts and Republicans over tax increases, Gov. Janet Mills defended her budget plan during her State of the Budget address Tuesday evening in Augusta as striking a difficult but necessary balance.
“When I introduced my budget two weeks ago, I could hear the collective groans of both Democrats and Republicans echoing in the chambers upstairs,” Mills said. “That is the same pain and frustration my commissioners and I have felt over the past several months as we put this budget together.”
Maine is facing a projected $450 million deficit over the next two years, as well as a short-term funding gap of $118 million during the current fiscal year that could disrupt Medicaid payments for health care providers.
However, Maine is not alone in facing a sizable budget gap, which Mills emphasized in her remarks. States across the country are considering spending reductions and tax increases as revenues level off following years of growth amid inflation and the end of federal pandemic aid.
Mills has proposed a bit of both in her $11.6 billion biennial budget: some tax increases and some program cuts that have expectedly been criticized by those on the right and left, respectively.
Conservative pushback also manifested Tuesday evening in the form of protesters in “MAGA” gear dressed in black, who heckled the governor from the State House halls as she delivered her remarks from the rostrum of the Maine House of Representatives.
Acknowledging that there is something in the budget for those on both sides of the aisle to dislike, she encouraged lawmakers not to create barriers to compromise as they begin budget negotiations.
“Look, I mean, even Old Orchard Beach isn’t big enough for all the lines in the sand some of you have already drawn,” Mills joked. “But it is harder to do the work of sitting around the table — or the horseshoe — putting forward your own ideas, hearing what folks on all sides have to say, and then coming to consensus to enact balanced public policy.”
While lawmakers continued to voice objections in the halls immediately following Mills’ remarks, House Minority Leader Trey Stewart (R-Aroostook) underscored that the responsibility of crafting the budget now shifts.
“This is now a legislative document,” Stewart said. “This is our document. This is not hers.”
His colleague across the aisle emphasized the same.
“Now it’s the Legislature’s turn,” Senate President Mattie Daughtry (D-Brunswick) said. “Crafting a balanced budget is hard, but we need to step up and meet this moment.”
Tax increases
Legislative Republicans have vowed not to support a budget that includes any tax increases, presenting a steep path to pass a bipartisan budget that could be enacted immediately following the governor’s signature.
“What I see is an absolutely absurd, reckless, out of touch budget,” House Minority Leader Billy Bob Faulkingham (R-Winter Harbor) said during a press conference Tuesday afternoon ahead of the governor’s address.
Faulkingham said he’d hoped the governor would walk back her proposal to increase taxes on cigarettes, cannabis, streaming services, pensions, ambulances and pharmacies. He argued that increasing the cigarette tax by $1 a pack will hurt people with lower incomes, who are more likely to smoke.
Mills did not waver, and offered a direct rebuff.
“I understand your concern about the impact on low-income people and that, really, you would like to make it as cheap as possible for people to smoke,” Mills said during the speech. “If that is the case, I would simply ask in return that you not also try to cut the very health care services these same folks are going to need due to smoking. Because that is what you are doing when you look at cutting Medicaid.”
Mills instead argued that the more than $281 million a year in smoking-related medical costs for the MaineCare program could instead be saved. And she pushed back on the notion that all Republicans oppose taxes of any kind, pointing to Nebraska’s Republican governor who has similarly proposed an increased cigarette tax to help meet the state’s budget gap.
She also defended her other tax increases, arguing the ambulance and pharmacy taxes will pay for themselves in time by drawing down federal dollars and that the cannabis tax change is necessary to course correct the illicit market that has emerged since Maine voters legalized recreational use in 2016.
Legislative Republicans disagreed with her assessment that these taxes are reasonable.
“The governor lied flatley when she said she wasn’t going to raise taxes,” Stewart said following the address, referring to her 2022 campaign pledge.
Mills emphasized in her address that she is not proposing changing income or sales taxes, which comes as progressive organizations are banding together, under the group Mainers for Tax Fairness, to push for added taxes on corporations and the wealthiest Mainers to avoid program cuts.
“Changing our income or sales taxes in order to raise revenue would discourage investments we very much need to keep our economy on track,” Mills said. “Investors are looking for a stable fiscal climate and they in turn will bring good, high-paying jobs, raising the standard of living, and growing the economy. In the long run, that is the best way to expand state and local revenues and to support all our people.”
Cuts to programs
Mills used her address to explain that she does not like the cuts she has proposed, which include reversals of allocations she’d championed just last year.
“Believe me when I say that, despite having invested more than $56 million in child care, I do not like having to reduce the stipends that were doubled just last year,” Mills said. “Despite having invested more than half a billion dollars into improving MaineCare rates, I do not like having to suspend upcoming cost-of-living increases for health care providers.”
While lamenting the cuts, she said her administration settled on what to scale back by focusing on programs that had yet to be implemented in an effort to be less disruptive, or scaling back state dollars where federal dollars are available.
“All of these are worthwhile investments that I wish we could continue at higher levels,” Mills said. “But we simply cannot sustain all of them.”
Another recent investment Mills has proposed rolling back is two of the crisis receiving centers established by the Legislature in the wake of the Lewiston mass shooting, though she emphasized that she would maintain funding for two other centers, in Lewiston and Penobscot County.
At the same time, she’s requesting additional positions in the budget to meet recommendations for improved communications and coordination from the after-action review of the law enforcement response to the mass shooting.
However, the governor also used her address to discuss state law outside the purview of her budget plan. In particular, she spoke out against a citizen group that has collected enough signatures to get a stricter extreme risk protection order, known as a “red flag law,” on the November ballot after the Legislature failed to take up a similar proposal last session.
The state commission tasked to investigate the Lewiston mass shooting concluded that local law enforcement failed to enforce Maine’s existing law, referred to as a “yellow flag” law. Under a “red flag” law, family members can directly petition a judge to temporarily limit someone’s access to firearms when they are in crisis, whereas current Maine statute only permits law enforcement to do so and requires a mental health evaluation before a judge can confiscate someone’s firearms.
“It is the government’s responsibility, not that of a private citizen, to protect the public from gun violence,” Mills said of the citizen initiative.
Maintaining commitments
Some of the largest drivers of the state budget are existing commitments that have become more expensive because associated costs have and will likely continue to rise, Mills said.
The allocations needed to meet the state’s obligation to fund 55% of local education tops this list, behind Medicaid, a program that provides health coverage for low-income people.
“It is a fact of life that these costs keep going up, but we have an obligation to our children to pay them,” Mills said.
For Maine’s Medicaid program, MaineCare, Mills has proposed $122 million a year over the biennium, in addition to roughly $118 million in a change package for the current fiscal year to meet the immediate funding gap.
Mills’ said she is proud that the state has expanded enrollment in Medicaid during her tenure, while legislative Republicans have argued it should not be a point of pride.
Faulkingham called for an audit of the MaineCare rolls during the Tuesday afternoon press conference. “Who’s on the system? Are they working? Are they able-bodied? Are they illegal immigrants?” he asked.
After Mills’ speech, Stewart reiterated his oft-repeated critique that the state doesn’t have a revenue problem but a spending problem and again called for an audit of the state’s baseline spending.
“When you look at what is called ‘the budget’ it’s really not the budget, it’s an increase in whatever the baseline is that already exists,” Stewart said. “That represents a small fraction of what we actually do across state government.”
Responding to the Trump administration
In the hours before Mills’ gave her address, Maine government officials were in a state of disarray over the status of federal funding for various programs and agencies.
A memo issued late Monday from the Office of Management and Budget announced the Trump administration would be temporarily stopping payments on multiple federal programs starting at 5 p.m. However, a federal district judge temporarily blocked the spending freeze Tuesday afternoon, ruling the Trump administration must wait until at least next week before it can move forward with pausing federal funding on trillions in grants and loans.
“Over all of this is the unpredictability of the federal government, whose actions may directly affect our state appropriations and expenditures and the welfare of Maine people,” Mills said during her address.
Historically, roughly one third of Maine’s state budget has relied on federal funds, so the freeze also presents an added complexity to the state’s revenue shortfall. According to the Maine Legislature’s Office of Fiscal and Program Review, the biennial budget for 2024-25 included roughly $5 billion in federal funding out of the total $13 billion operating total, meaning roughly 38% of the budget came from federal funds.
Mills and Maine’s congressional delegation denounced the indiscriminate freeze on federal programs. Echoing these critiques, Speaker of the Maine House Ryan Fecteau (D-Biddeford) called the move an unconstitutional one that will hurt Mainers.
“This is not what people voted for,” Fecteau wrote in a statement Tuesday evening. “It won’t save families money at the grocery store, when filling up their gas tank, or when they pay their electric bill. In fact, families, businesses, and individuals in Maine count on these funds to strengthen our communities.”
Maine Attorney General Aaron Frey, along with other Democratic attorneys general, is filing a lawsuit challenging the legality of the temporary spending pause on grants and loans.
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