Gov. Janet Mills on Friday unveiled a two-year budget plan that includes tobacco and marijuana tax increases alongside cuts to Department of Health and Human Services programs after she continued to warn lawmakers of flattening revenue and an expected budget gap.
The highlight of the roughly $11.6 billion proposal that the Democratic governor outlined before it was published late Friday afternoon is a $1 per pack increase in Maine’s cigarette tax, bringing it to $3 alongside a commensurate increase to the tax on other tobacco products. Those changes would generate about $80 million over two years, the governor’s office said.
It is the last and most difficult budget season of the governor’s six-year tenure. A revised December forecast from a state commission projected a spending gap of $450 million for lawmakers to close through 2027. Lawmakers will also debate closing a $118 million Medicaid shortfall and a $280 million transportation budget gap over the two-year budget cycle.
Alongside the tobacco tax increase and the use of updated revenue projections, Mills said Friday she is proposing “targeted” reductions to various health programs to close the budget gap. The governor’s office said those reductions include tightening eligibility for low-income food assistance programs and suspending the creation of two “crisis receiving centers” planned for Kennebec and Aroostook counties after the Lewiston mass shooting.
Mills said Friday her spending plan was “difficult” to put together amid a rising cost of living and flattening revenue but defended it as balanced — “budgeting 101,” she quipped — amid Republicans noting that it is roughly $1.1 billion higher than the last budget.
“I firmly believe that our most important responsibility is to protect the health and safety of Maine people, especially the children, the sick and the most vulnerable of our population,” Mills told reporters. “And that belief is reflected in this budget.”
Mills is termed out after 2026 and working with a Legislature this session that has narrower Democratic majorities in each chamber after Republicans picked up seats in November.
She has repeatedly clashed with her party over spending and refused to sign dozens of bills on the final day of the last session by arguing they would push the budget to the “breaking point.” Republicans have acknowledged the warnings from Mills while blaming both her and her party passing the last few state budgets without their support.
Top Democratic lawmakers largely complimented the budget proposal’s investments in different programs Friday while not commenting on the tax changes ahead of debates on the plan.
“I look forward to seeing the public weigh in so we can reach a bipartisan, responsible agreement that every Mainer can be proud of,” Senate President Mattie Daughtry, D-Brunswick, said in a statement.
Republicans are unlikely to get behind any tax increase. House Minority Leader Billy Bob Faulkingham, R-Winter Harbor, criticized an addition of 250 state government positions and noted the governor’s budget outline did not mention a proposed phaseout of Maine’s pension deduction for individuals making more than $100,000 and tax hikes on marijuana and streaming services.
The budget plan posted online later Friday afternoon raises the cannabis sales tax from 10 percent to 14 percent and a 5.5 percent tax on streaming services such as Netflix and Spotify after a similar plan fell through last year
“We’re already one of the highest-taxed states in the country, so we don’t really see a need to increase any taxes,” Faulkingham said.
Beyond that, Democrats from more rural districts could be an obstacle to hiking the tobacco tax that brings in more than $150 million per year. A small number of them banded with Republicans to block flavored tobacco bans in recent years.
The tax falls hardest on low-income residents, according to the conservative Tax Foundation. But public health groups have argued for raising the tax because it is the second-lowest in New England despite Maine having a higher-than-average cancer rate among states.
“Raising the tobacco tax reduces youth tobacco use and helps ensure that the next generation grows up free from tobacco addiction and harm,” Matthew Wellington, associate director of the Maine Public Health Association, said in a statement.
Finance Commissioner Kirsten Figueroa also sent legislative leaders and budget committee members a memo Tuesday that informed them of the MaineCare funding gap. Mills proposed Friday a $122 million annual investment to stabilize the state’s Medicaid program.
Figueroa said the MaineCare shortfall results from enrollment growth, an increase in the use of its services after the COVID-19 pandemic and overall cost increases. A majority of states are facing Medicaid funding issues due to increased costs and less money coming into state coffers while federal funding declined from pandemic highs.
Other highlights in Mills’ budget outline include $25 million to make the state’s free community college initiative permanent, $51 million to support Maine’s public colleges and universities and $4 million to meet part of the requirements in Maine’s settlement with the U.S. Department of Justice over its children’s behavioral health system.
Ahead of Friday, Mills and top lawmakers from both parties unveiled a storm resilience package in the wake of destructive winds and flooding in recent years. The proposal does not yet have a cost estimate but would give grants of up to $15,000 for homeowners to mitigate damage from severe weather and direct existing funds to bolster emergency management resources.
Correction: A previous version of this story incorrectly described a proposed tax increase on cannabis sales.