At a glance:
- The governor’s supplemental budget proposal uses surplus and Budget Stabilization Fund dollars to maintain current services, meet new federal requirements, fund one-time initiatives, and make limited tax changes
- $300 “affordability checks” and housing investments will help some Mainers but are not well-targeted and don’t address ongoing costs
- The proposal includes limited tax conformity and a new pass-through entity tax, while allocating funds to manage federal safety net changes that shift costs to the state
- The budget avoids major missteps and sustains education and MaineCare, but stops short of forward-looking investments — lawmakers could strengthen it by raising more revenue and better addressing long-term affordability
On Wednesday, Governor Janet Mills unveiled her final supplemental budget proposal, covering fiscal years 2025-26 and 2026-27. The proposal makes full use of the $248 million surplus projected by the revenue forecasting commission in December, as well as $325 million from the state’s Budget Stabilization Fund.
The governor’s proposal largely spends money to either maintain current services, comply with changes to federal law, or fund one-time initiatives. It also includes some important tax changes for the legislature to consider. While some parts will help working Mainers and those with low incomes, others do little to help people who are struggling.
One-time initiatives
The largest spending item is $300 “affordability checks” sent to 722,000 Mainers with incomes below $75,000 for a single tax filer and $150,000 for married filers. As with the governor’s previous rounds of checks, this proposal will be most helpful for Mainers with the lowest incomes. However, it is not well-targeted and will send money to Mainers who are relatively well-off. As a one-time proposal, it does not address ongoing affordability needs. The cost would be $218.5 million over the biennium, drawn from the Budget Stabilization Fund (BSF).
The governor also proposes spending $69 million from the BSF for housing initiatives, including $37.5 million to build 300 affordable homes, $10 million to build middle-income housing, and $7.5 million for 500 new mobile homes in existing parks. There’s also $12 million to address homelessness and $2 million to help Mainers age in place. The construction of new homes is critical to help slow or reduce the cost of housing statewide and meet Maine’s goal of 80,000 new homes by 2030. The money to combat homelessness also meets a critical need. The biggest omission is funding to help existing renters avoid eviction. The state’s Eviction Prevention Pilot Program ended last year and was not extended by the legislature.
Budget stabilization funds would also be drawn down to address school bus safety, fund the public defender system, and for some technology upgrades to implement new work-reporting requirements in last year’s federal reconciliation bill.
Maintaining current services
The governor’s proposal includes $46 million in state fiscal year 2027 to maintain the state’s commitment to funding 55% of the cost of K-12 education. Keeping this level of funding prevents greater property tax increases across the state.
The MaineCare program would receive an additional $24 million in fiscal year 2027 to adjust for annual changes in the federal matching share of costs. Over the biennium the program would also receive $117 million to account for trends in program enrollment, usage, and the cost of services. The governor’s office has not laid out which factors contribute the most to the rising total cost but in the past, the level of services needed by older Mainers and those with disabilities have been a key driver of cost increases.
Tax changes
The budget proposal would make some important changes to Maine’s tax code. With the passage of the federal reconciliation bill (HR 1) last July, Maine lawmakers have to choose whether to “conform” with changes to the federal tax code and put them in Maine’s tax code. The governor proposes limited conformity with the federal changes, at a cost of $51 million over the biennium.
The biggest change is increasing the state’s standard deduction to match the new federal standard deduction. This will mean lower taxes for approximately two thirds of Maine tax filers and will be especially helpful to filers with low-to-middle incomes. The governor proposes partially increasing the standard deduction in 2026 and fully from 2027 onward. This will cost $27.5 million over the biennium. The budget would adopt increased deductions for research and development expenses, though phased in more slowly than federal law envisions. The cost to the state in this biennium would be $17.09 million. It does not follow a federal change that would have allowed businesses to deduct certain equipment expenses up front. Both tend to benefit larger corporations over mom-and-pop businesses.
The budget would also adopt a charitable deduction of up to $1,000 for filers who do not itemize their returns. Compared to the federal law, the Maine deduction would phase in more slowly. This change is unlikely to do much to encourage charitable giving and produces a greater benefit to Mainers in the highest tax bracket. Because it takes effect in tax year 2027, it has no projected cost in this biennium but will cost $14.1 million in the 2028-2029 biennium.
The final major tax change is the creation of a new tax on pass-through entities — a business that does not pay corporate income tax but rather counts their business profits as individual income. Since 2017, there has been a $10,000 cap on the amount of state and local taxes (SALT) individuals can deduct from their federal returns. However, corporations can deduct their full state corporate income taxes. Creating a pass-through tax at the state level allows pass-through entities to deduct this tax from their federal returns, which means they lower their overall tax liability. Although many kinds of businesses are pass-through entities, this federal tax break would benefit wealthier individuals most. The new tax would raise $56 million per year in state revenue by recapturing 10% of federal tax savings from the creation of this loophole.
Responding to federal changes
In addition to the tax code, HR 1 makes dramatic changes to the way states administer safety net programs in health care and food assistance. These shift costs to the states, threaten new penalties for “improper payments,” and add new work reporting requirements that could result in tens of thousands of Mainers losing their MaineCare or Supplemental Nutrition Assistance Program benefits.
The governor’s budget allocates just under $40 million to addressing changes wrought by HR 1. This includes investment in technology upgrades and hiring new employees to administer SNAP and MaineCare work-reporting requirements, which will reduce the number of Mainers who lose assistance due to paperwork errors. It will also reduce the state’s payment error rate, which is important to avoid a potential $49 million per year penalty from the federal government in fiscal year 2028.
There are also allocations to offset costs the federal government is shifting to states, including new requirements that the state pay more for its existing administration of SNAP, and reductions in federal matching payments for emergency MaineCare treatment for certain immigrants.
These policy proposals help address the immediate problems created by the federal government, but they only offset part of the harm caused by the bill. There is no provision for the $49 million SNAP payment that could still be required in fiscal year 2028, nor are there any funds allocated for the State to help Mainers who could lose their food or medical assistance.
Other proposals
Other items of note in the governor’s proposal include making the free community college program permanent and ongoing, which will continue an affordable path to higher education for recent high school graduates, and raising the minimum salary for public school teachers to $50,000 by 2029 which will boost incomes particularly in rural districts.
Conclusion
Overall, the governor’s proposal avoids some of the worst ideas on tax conformity and continues critical state services like education and MaineCare. The investments in housing, community college, and teachers’ salaries will make life more affordable for some Mainers. However, $300 checks will offer only limited and temporary relief to Mainers whose higher costs will last beyond this year. Likewise, the wider scope of the budget is generally limited and does not look beyond the current biennium. In addition to the imminent federal threats to health care and food assistance, ongoing needs for additional funding in the child care and direct care system for adults go unmet.
Lawmakers can reshape the best parts of the governor’s proposal to include real forward-looking investments in Mainers and the services they depend on. This will require raising more revenue, which is a popular choice that lawmakers have already given early approval to when they passed proposals that would ask the wealthiest Mainers to pay more.