The Mills Administration warned lawmakers Tuesday that Maine’s looming half-a-billion dollar budget shortfall and a $118 million projected MaineCare deficit may mean the state needs to increase revenues—which is government-speak for raising fees and taxes.

Although the memo mentioned potentially reducing some expenditures already obligated under existing law, the administration was clear that the only revenue-increasing option Gov. Janet Mills (D) isn’t currently considering is a broad increase in Maine’s income tax.

Maine currently has among the highest tax rates of any state in the country, with a WalletHub study pegging our tax burden at the 3rd highest in 2023.

“[L]awmakers should understand that in order to close the gap between projected appropriations requirements for current law and projected revenues, a diversified approach of programmatic changes, expenditure reductions, and targeted revenues — meaning, revenues that are not broad based such as income taxes — are likely the necessary and are under consideration by the governor,” Department of Administrative and Financial Services (DAFS) Commissioner Kirsten Figueroa said in the memo.

Whatever potential additional revenues the state extracts from Maine businesses and workers will come on the heels of the new one-percent paid leave payroll tax, which Maine businesses and workers just began paying on Jan. 1, 2025.

That tax will contribute to a fund intended to support a paid leave program that won’t be available to Mainers until May 2026 and will be run by a yet-to-be-named third-party administrator.

In the meantime, the new one-percent tax on paychecks may catapult Maine into the highest-taxed state in the union before the 132nd Legislature even goes looking for new taxes and fees to increase.

Although previous revenue forecasts had already alerted policymakers to the massive budget gap, Tuesday’s memo was the first public missive from the governor’s office to lawmakers outlining how she planned to deal with the “structural” gap.

The memo revealed a nearly half-billion-dollar structural deficit for fiscal years 2026-2027, slightly less than the $949.2 million shortfall forecasted in October. The memo also indicated that Maine, in the current fiscal year, is facing a $118 million projected shortfall in funding for MaineCare, a medical welfare program that is mostly federally funded but administered by states.

Republican lawmakers reacted with scorn to the convoluted letter from Figueroa, blaming Maine’s dire financial situation on Democratic policies and vowing to resist all new tax increases.

In a statement posted to Facebook, Assistant Senate Republican Leader Matt Harrington (R-York) said any solution must require substantive reform to Maine’s notoriously expansive — and expensive — welfare system.

“This shortfall is so bad that the Mills Administration has warned that Maine may not be able to meet its obligations to our hospitals,” Sen. Harrington said.

“Structural changes need to be made to Maine’s welfare system and I will not support short-term bandaids that do not solve the real problem,” he said. “Governor Mills and her Democratic colleagues rolled back numerous common-sense welfare reforms. We MUST bring those reforms back.”

In the memo, Figueroa positioned Gov. Mills as a fiscal hawk who has, supposedly, consistently warned Democratic lawmakers against overspending, including taking credit for blocking $117 million in last-minute spending proposed by the previous Democrat-controlled legislature.

The memo also raised the prospect of the state halting payments to medical providers under MaineCare.

Those payments represent a massive source of income for health care providers in the state, which are some of the largest employers in Maine.

MaineCare payments will stop in just a few months, Figueroa claimed, unless lawmakers get on board with a forthcoming supplemental budget from Mills.

“If this supplemental is not enacted in a timely manner, the Department of Health and Human Services will likely have to take the extraordinary step of limiting payments to health care providers as early as the spring of 2025,” Figueroa warned.

Like Harrington, House Republicans did not respond well to the threat from the Mills Administration to stop reimbursing Maine’s health care providers for care provided under the medical welfare program.

“Maine already has one of the highest tax burdens in the country. As we confront today’s budget shortfall, Republicans will prioritize true ‘needs’ over ‘wants’ and oppose any efforts to raise taxes on Mainers,” the House Republican caucus said in a statement.

Two senior House Republicans issued an additional statement of their own, placing sharper blame on the governor and her Democratic allies in the legislature for the current budget predicament.

“Disturbingly, Governor Mills is now talking about raising taxes to cover her – and her party’s – irresponsible spending,” Rep. Josh Morris (R-Turner) said in a joint statement with Rep. Laurel Libby (R-Auburn).

“Mainers are already struggling with a higher cost of living, and now have the second-highest tax burden in the country after the new payroll tax on working Mainers took effect last week,” said Rep. Morris. “It’s time to stop the spending and stop the tax hikes.”

While some lawmakers or taxpayers may have been surprised by the stark warning from DAFS, Rep. Libby said the entire fiscal mess was predictable based on decisions made during Gov. Mills’ tenure in the Blaine House.

“For six years, Governor Mills’ administration and legislative Democrats have pursued unsustainable overspending and prioritized new programs over long-term fiscal stability,” Libby said.

“Now, with a deficit looming, they’re setting the stage to demand Maine people shoulder the burden of their failures,” she said. “This crisis didn’t arise overnight – it’s the result of years of mismanagement and a refusal to practice fiscal restraint. Maine taxpayers should not have to bail out the governor and legislative Democrats for their reckless decisions.”

“This administration’s failure to plan for the future and its repeated prioritization of short-term political gains over long-term fiscal responsibility have put Maine in a precarious position,” said Morris. “It’s time to prioritize common-sense reforms, cut unnecessary spending, and protect Maine people from further financial strain.”