AUGUSTA — Gov. Paul LePage this morning outlined the goals for a new two-year budget that makes changes to the state retirement system, increases aid to education, proposes tax cuts and makes major changes to the state’s welfare system.

LePage spoke to a joint session of the Legislature in the House chamber, an address that included warnings about state debt and his hope that tough decisions today will put the state on firmer ground moving foward.

“We have the will, the power and the desire to work with the Legislature to solve this problem,” he said.

LePage is proposing to require retired state workers and teachers give up cost-of-living increases for two years and to reduce the annual cost-of-living increase from a maximum of 4 percent to 2 percent. The budget also increases the retirement age for new state employees and those with fewer than five years of service to 65.

The budget funds no new state borrowing and increases state aid to local education by $63 million over the biennium. Also, there are no cuts to higher education.

In the area of welfare reform, he is proposing to eliminate “instant eligibility” for welfare receipients who are legal non-citizens. He wants to impose a “true five-year limit” welfare eligibility and to require MaineCare recipients to make co-pays. He also proposed mandatory drug testing for welfare recipients who are convicted of drug offenses.

The budget, which is still being finalized, will now head to the Legislature’s Appropriations Committee for public hearings that are expected to start later this month.