Gov. Mills proposes raising cigarette tax, health program cuts to close budget gap

This story has been updated.

Gov. Janet Mills proposed an approximately $11.6 billion biennial budget on Friday that maintains many of the state’s existing commitments to education and health care, reduces some health programs and raises revenue by increasing the cigarette excise tax.

Along with the 2026-27 spending proposal, Mills proposed a $94 million change package for the general fund on Friday to address the immediate Medicaid funding gap in the current year by using an unanticipated revenue boost the state saw after extended tax filing deadlines and other capital gains. 

Earlier this week, Kirsten Figueroa, the commissioner of the Department of Administrative and Financial Services, warned in a letter to legislative leadership and members of the budget committee that if the Legislature fails to enact the supplemental in “a timely manner” the Department of Health and Human Services will likely have to limit payments to health care providers as early as the spring. 

And, to complement a bipartisan bill already filed on Mills’ behalf, the governor also proposed $5 million for the Maine Emergency Management Agency to use for continued storm clean-up.

“This was a difficult budget to put together,” Mills shared in a statement on Friday. “Our economy is strong, but our revenues are leveling off, and while prior legislatures have made many important and worthwhile investments, we have to consider what we can sustain in this budget cycle.” 

Aside from the Medicaid shortfall this year, in the next biennium the state is facing a gap of $450 million between the revenue it anticipates taking in and how much it’s slated to spend, according to the latest projections from the Legislature’s Revenue Forecasting Committee in December.

Mills is looking to close the gap by raising revenue, making some cuts and using newly recognized revenue in the next biennium, her administration announced midday Friday, though they have yet to fully publish the budget plan. 

Taxes, cuts and what Mills wants to maintain

The governor’s plan proposes raising revenue through a $1 increase in Maine’s cigarette excise tax — from $2 per pack to $3 — and corresponding increases to the excise tax on other tobacco-related products.

In a press conference Friday following the release of her plan, Mills explained her proposal to increase the cigarette excise tax as one to also reduce public health expenses in the long term.

“When cigarettes are a leading cause of cancer, heart disease, stroke and when more than one-third of Maine cancer deaths each year are attributable to smoking, our current policy doesn’t make sense,” Mills said, adding that the state hasn’t raised that tax in about two decades. 

Matthew Wellington, associate director of Maine Public Health Association, applauded the proposed cigarette tax increase in a statement on Friday. 

“Research shows this policy is effective for preventing youth tobacco use and encouraging current tobacco users to quit,” Wellington wrote. 

While highlighting this tax increase, the governor emphasized that her plan does not include broad-based tax changes, such as increases to Maine’s income or sales tax, and doesn’t draw from the state’s maxed out Budget Stabilization Fund.

Mills also wants to reduce some programs within the Department of Health and Human Services, including reducing stipends for childcare workers back to 2022 levels and cutting low-income food assistance programs for some non-citizens, as well as halting the planned expansion of crisis centers in Kennebec and Aroostook counties after the mass shooting in Lewiston.

Throughout Friday’s press conference, Mills repeated the phrase, “I don’t think government can, or should, be all things to all people at all times.” 

The governor said she focused on changes to programs that haven’t taken effect yet to minimize disruptions. Regarding the crisis centers in particular, Mills said, “We want to do these things.” However she noted the bids for Kennebec County came in too high for it to be fiscally feasible, so the state is instead focusing on the centers in Lewiston and Penobscot County. 

Another proposed cut is the 24 law enforcement liaisons included in the 2024 supplemental budget, which would have bridged the gap between behavioral health organizations and law enforcement agencies. Mills wrote in a document outlining her proposed cuts that the Legislature didn’t provide the necessary funding to launch the program. 

In other ways, Mills stuck to her vow to preserve the state’s existing commitments. 

Her budget plan maintains the state’s voter-mandated 55% share of public K-12 education costs and 5% of revenue sharing for municipalities, as well as provides free school meals to all Maine students. It also proposes continuing the state’s free community college program with a $25 million allocation.

During the press conference, Mills explained that fully funding these existing commitments has become more expensive for the state because associated costs have and will likely continue to rise. For example, the Legislature initially funded the free school meals program with $27 million but it now costs $64 million a year, which Mills said comes from increased supply costs and because it’s tied to the federal reimbursement rate.

While the governor’s budget doesn’t create any new programs, it proposes additional funding for MaineCare, the state’s Medicaid program, and investments in child welfare, children’s behavioral health services, nursing facility rate reform, mobile crisis response and public safety. 

Mills said she is holding out hope the Legislature will be able to pass a budget with two-thirds support to be enacted immediately, but did not say whether she’d veto a simple majority budget, which has been the approach of the Democratic majority in recent years. 

“I want all sides to work together and I say that strenuously as possible,” Mills said, noting that legislative leaders on both sides of the aisle have been briefed on her proposal.

Legislative leaders respond 

House Minority Leader Billy Bob Faulkingham (R-Winter Harbor) said Friday that while he supports some items in the budget — specifically fully funding the state’s education commitment and continuing free community college — his caucus has concerns about both the biennial and supplemental plans. 

He is opposed to raising the cigarette tax as a revenue raising solution, as well as other tax increases in the budget that Mills did not highlight in her press conference, including to pension, streaming and cannabis taxes. 

“We’re already one of the highest taxed states in the country so we don’t see a need to increase any taxes,” Faulkingham said. 

The minority leader also is not supportive of the new state positions the budget would fund and instead said the state should try to fill the budget gap by cutting unfilled positions.

When it comes to Mills’ change package to fix the more immediate Medicaid funding gap, Faulkingham said he is concerned about the plan because cuts are not being made to come up with the difference. 

Democratic leadership has praised some aspects of Mills’ budget plan, while describing it as a starting point for more work ahead. 

Faulkingham’s Democratic counterpart in the House did not indicate his stance one way or the other in a statement on Friday. 

“The budget is one of the most important tasks we have before us as a Legislature, and it is a reflection of our values and priorities,” House Speaker Ryan Fecteau (D-Biddeford) wrote. “In the coming weeks, the appropriations committee will work to produce a budget that addresses the issues Maine people are facing, ensures the services they rely on continue without interruption, and — importantly — will provide opportunities for the public to share their perspective on the governor’s budget proposal.” 

Senate President Mattie Daughtry (D-Brunswick) wrote in a statement that the governor’s proposals recommits “to the historic progress we’ve made in recent years to support working Mainers and their families” and that the budget committee, along with other legislators and the public, will be working to find solutions to address the state’s most pressing needs in the coming weeks.

“I look forward to seeing the public weigh in so we can reach a bipartisan, responsible agreement that every Mainer can be proud of,” Daughtry wrote. 

Rep. Drew Gattine (D-Westbrook), who chairs the Legislature’s Appropriations and Financial Affairs Committee, which sets the budget, shared in a statement that he appreciates that the governor proposed a balanced budget plan that maintains what he views as essential services and programs.

“The committee looks forward to reviewing the details of the Governor’s proposal closely and beginning the process of inviting public comment, so that the budget passed by the Legislature reflects Maine values and helps us meet the challenges we face,” Gattine wrote. 

Other leaders indicated particular issues they hope to focus on in forthcoming budget negotiations.

Assistant Majority Leader of the House Lori Gramlich (D-Old Orchard Beach) said she wants to continue to strengthen the state’s behavioral health care system, particularly in children’s mental health and prevention, as well as support Mainers with intellectual disabilities by ensuring more people can access affordable care. 

And Sen. Jill Duson of Portland, who holds that role in the Senate, is eyeing investments in housing. Duson praised the governor’s proposal for continuing to fund programs such as the Mobile Home Preservation Fund. 

“As the budget crafting process plays out in the coming weeks, I hope we can elevate the importance of strong housing programs and so many other initiatives that were built to meet the needs of Mainers,” Duson wrote in a statement.