AUGUSTA — Gov. Paul LePage proposed Thursday to cut benefits for retired state employees and teachers, increase aid to education, cut taxes and reform the state’s welfare system with his new two-year budget.

In a speech to a joint session of the Legislature, the Republican governor delivered strong warnings about state debt and said he hopes that tough decisions today will put the state on firmer ground moving forward.

“My budget has no mass layoffs, no furlough days, no across-the-board cuts and no gimmicks,” LePage said.

It also includes no state borrowing.

Administration officials are scheduled today to release more details about the budget, which is expected to be in the range of $5.6 billion to $5.8 billion for the two years starting July 1. The budget for the previous biennium was $5.7 billion.

LePage’s first major address to lawmakers was a mix of politics and policy. Republicans, who have majorities in the House and Senate, offered standing ovations or enthusiastic applause at frequent intervals, while Democrats offered more tepid support and did not stand nearly as often.

LePage noted that he was expected to produce a major budget on just his 37th day in office, and indicated that if he’d had more time to evaluate state programs, he might have produced a different document.

As he did in his inaugural address Jan. 5, he deviated from his prepared remarks several times, saying that although he knew state finances were tough during the campaign, he has since learned “it is considerably worse than what I thought it was.”

“If we were a private-sector company we would be in Chapter 11,” he said, referring to federal bankruptcy protection. “We are in worse shape than General Motors was when they went into Chapter 11.”

While Democrats praised LePage for promising more money for schools, they bristled at his characterization that he inherited a state on the brink of financial disaster.

“He threw out a lot of rhetoric,” said Assistant Senate Minority Leader Justin Alfond, D-Portland. “He threw out a lot of campaign messages. He did not unify the state at all. He’s just continuing what he’s doing on the campaign trail, and that’s sad.”

LePage’s budget proposes significant changes to the state’s retirement system that would reduce benefits for retirees to save the state money. The changes are estimated to save $524 million over the next two years, most of which would be put in the state’s general fund for other uses, LePage said.

About 28,000 retired state employees and teachers would be affected, according to the Maine Public Employees Retirement System.

LePage’s proposal calls for no cost-of-living increases in pensions for retired state workers and teachers for two years. After that, their annual cost-of-living increases would be capped at 2 percent, rather than the current maximum of 4 percent.

The budget also would increase to 65 the retirement age for new state employees and those with fewer than five years of service. The current retirement age is 62.

LePage also proposed to extend a “retirement incentive” program for any current state workers who “come to work to fill in time” until they reach retirement age.

Chris Quint, executive director of the Maine State Employees Association, said he’s concerned about the proposal. Retirees haven’t gotten a cost-of-living increase for the past two years because the Consumer Price Index hasn’t gone up, he said.

“Folks who are already retired in the state system count on that COLA every year,” he said. “Now we’re going to freeze it for another two years, and reduce the cap from 4 percent to 2 percent over the long term.”

House Minority Leader Emily Cain, D-Orono, said that although the state can’t take money out of the retirement system, it can change benefits to reduce the state’s liability. She said the proposal needs careful scrutiny.

“That is not a stretch to connect those dots and say the governor is lowering benefits to current retirees in order to fund other parts of state government,” she said.

The budget would increase state aid to public schools by $63 million over the biennium, and make no cuts to higher education.

LePage pounded the lectern for emphasis while talking about the importance of education and the need to better prepare high school students for two- and four-year colleges. He drew a standing ovation when he said Maine would “become the top educator in this country.”

The budget would not set aside any money to pay for state borrowing.

Democrats expressed concern about that. They said they believe that voter-approved bonds help put people to work on road and bridge projects and are a good way to pay for needed improvements. Democratic and Republican lawmakers have already submitted various bond bills to support things such as improved water and sewer facilities.

“I think, as he learns to be governor and he learns to govern, we need to be able to show him that for certain things, we will need to bond,” said Sen. Dawn Hill, D-York, noting in particular some needed repairs to Interstate 95 and bridges in southern Maine.

In his speech, LePage said he doesn’t want to add to state debt. “If the question is cash or credit, the answer is always the same,” he said.

LePage proposes to cut taxes by $203 million over two years. Some of that would come from conforming to federal provisions, including eliminating the marriage penalty, increasing the personal exemption and having a higher standard deduction.

He also wants to lower the state’s top income tax rate from 8.5 percent to 7.95 percent, which he characterized as the lowest top tax rate in Maine since 1975.

Senate President Kevin Raye, R-Perry, praised LePage for his efforts to reduce taxes.

“I particularly appreciate his efforts to bolster education, reduce the tax burden on hard-working Mainers, and preserve vital services to the elderly, disabled and those suffering with mental illness,” he said in a prepared statement.

LePage is proposing to eliminate “instant eligibility” for welfare recipients who are legal non-citizens. He also wants to impose a “true five-year limit” on welfare eligibility and require MaineCare recipients to make co-pays.

He also proposed mandatory drug testing for welfare recipients who are convicted of drug offenses.

LePage said he will protect funding for those who need help.

“People with mental illness, people with disabilities, our veterans and our elderly, I will protect with every ounce of my body,” he said.

House Speaker Robert Nutting, R-Oakland, said LePage’s budget is “founded in core beliefs that we all share.”

“We need to lift the burden from future generations, we need to improve our business climate so jobs can be created, and we need to make sure money spent on education makes it to the classroom as efficiently as possible,” he said in a written statement.

The budget will go to the Legislature’s Appropriations Committee for public hearings that are expected to start later this month or early next month.

LePage ended his speech by repeating his pledge to protect the most vulnerable, but he had a message for others.

“Those who can work, we will simply ask them to get a job,” he said.

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at:

[email protected]