AUGUSTA — A federal decision to stop paying for some mental health services for jail inmates will cost Maine $10.5 million in the next fiscal year, lawmakers learned Wednesday.

A proposal to cover that cost is part of Gov. Paul LePage’s newest plan to balance the state’s two-year, $6 billion budget. In all, the plan includes nearly $38 million in new spending and tax cuts.

It calls for spending more money in some areas, such as security at county courthouses and efforts to solve computer crimes. It also would cut money, from higher education and other areas. And it includes several proposed tax cuts, to benefit retirees and businesses.

It’s one of two contentious budget proposals left to be debated in this legislative session. Lawmakers also must address a $100 million budget shortfall in the Department of Health and Human Services for the fiscal year that starts July 1.

On Wednesday, DHHS Commissioner Mary Mayhew told lawmakers on the Appropriations and Health and Human Services committees that a new interpretation of a federal rule means that Maine can no longer get federal funds for some mental health care for inmates.

Specifically, the state cannot get reimbursed for services to inmates who:

Are transferred from county jails to the state’s Riverview Psychiatric Center in Augusta to be stabilized.

Are ordered to have psychiatric evaluations.

Aren’t competent to stand trial.

Are found not criminally responsible.

That will leave a $10.5 million shortfall in the state budget for 2012-13, Mayhew said.

“We see it as critically important to … provide the necessary general fund support” to pay for the services with state money, she said.

Lawmakers are preparing for a series of public hearings on LePage’s supplemental budget next week. The Appropriations Committee originally intended to start the hearings Monday, but they have been pushed back to Tuesday, Wednesday and Thursday.

On Wednesday, Mayhew also explained proposed changes to General Assistance, the welfare program that is run by cities and towns and partly state-funded. The DHHS is requesting $6.6 million in additional funding for this fiscal year and next, but it cannot afford the full amount that will be needed to provide services, she said.

Because of that, the department is proposing to:

Limit housing assistance to 90 days per calendar year, to save $3.3 million. That change is expected to most dramatically affect Portland, South Portland, Bangor, Lewiston and Waterville, according to the DHHS.

Put all cities and towns at a 50 percent reimbursement rate, to save $1.4 million. Bigger towns now can qualify for 90 percent after they spend a set amount of money. The change is expected to affect Portland, Bangor, Lewiston and Caribou.

Eliminate General Assistance for anyone who receives federal Temporary Assistance to Needy Families funds, to save $978,666.

Lawmakers also got more details Wednesday about the proposed tax cuts. The governor wants to reduce taxes in four areas, two of which wouldn’t cost any money until the next two-year budget cycle. LePage is proposing to:

Increase the exemption amount for pension income from $6,000 to $10,000 starting in 2013-14, and increase it in $5,000 increments until it reaches $35,000 in 2018-19. There would be no cost in this fiscal year or next. The change is projected to cost $36 million in the next two-year budget cycle and continue to increase each year. Estimates show it would cost $105 million in 2018-19.

Exempt from state income tax any active-duty military pay earned outside of Maine, starting in 2013-14. There would be no cost in this two-year budget, but the exemption would cost $2.7 million in the next two-year budget.

Create a sales- and use-tax exemption for medical equipment used in respiratory ventilation, which would cost $373,850 in this fiscal year and next.

Refund the sales tax on machines and equipment used in commercial wood harvesting, and for commercial greenhouses and nursery products. That would cost $368,000 in fiscal year 2012-13 and $1.7 million in the next two-year budget cycle.

Administrative and Financial Services Commissioner Sawin Millett said the governor wants to start a dialogue about the tax cuts now, even though some of them wouldn’t take effect until 2013-14.

“They are designed to make Maine more attractive to people to stay here in their retirement years,” he said. “We’re trying to send a signal that Maine is open for business.”

But Democrats continued to express concern that the tax cuts aren’t paid for in future years, which would create budget deficits.

“I’m struggling to see how we can afford any of this,” said Rep. Seth Berry, D-Bowdoinham, a member of the Taxation Committee.

Others asked for revenue projections for future years, to determine whether economic changes would help offset the revenue lost from cutting taxes.

“What concerns me is, to be open for business we have to have revenues,” said Sen. Dawn Hill, D-York. “I don’t think these are numbers we can take lightly.” 

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

scover@mainetoday.com