Supplemental budgets are often framed as routine housekeeping, minor adjustments to keep state finances on track. The Governor’s 2026 supplemental, however, was anything but routine. It represented a troubling fiscal expansion that risked driving up costs for Maine families and taxpayers. The Governor did not stop there, however, and has since released a Change Package to the supplemental budget.
Within this change package, buried in dense statutory language, is a new series of policy changes that expand taxes, increase long-term spending commitments, and restructure how state funds are allocated. While each provision may appear narrow in isolation, taken together they represent a meaningful shift in Maine’s fiscal policy.
Here are the most important changes Mainers should understand.
Redirecting Maine’s Rainy Day Fund
Perhaps the most egregious change is a structural shift in how Maine manages its Budget Stabilization Fund. Under current practice, the fund’s investment earnings are retained to grow the state’s reserves over time, and if the fund is at its statutory cap, excess earnings have historically been directed toward infrastructure priorities through the Highway and Bridge Capital program. This proposal breaks from that approach by redirecting a substantial portion of those earnings to other purposes.
Under Mills’ new proposal, if the fund is below its statutory cap, only half of its investment income will remain in the fund, while the other half will be split between retiree benefit obligations for Maine state employees and land conservation programs. If the fund has reached its cap, none of the earnings stay in the reserve at all, with 75 percent directed to retiree benefits and the remaining 25 percent to land conservation.
This change represents more than a technical adjustment and is a clear reprioritization of state resources. Dollars that would have otherwise built up the rainy day fund or supported infrastructure investments are now being diverted to cover long-term retirement liabilities and to expand state involvement in land acquisition and conservation. While these may be policy priorities for the administration, the shift comes at the expense of both reserve growth and core infrastructure funding.
Over time, this will slow the growth of Maine’s primary fiscal safeguard while reducing funding available for roads and bridges, two areas with long-term economic importance. It is especially problematic for Governor Mills to be slowing the recovery of the rainy day fund when this same supplemental budget has proposed raiding it for hundreds of millions of dollars to pay for various pet projects.
Tax Growth
Some of the other most crucial changes in the change packet involve taxes. One of the most notable is that the change package quietly expands Maine’s pass-through entity tax. Instead of applying only to Maine source income, the tax would now apply to all income earned by Maine residents through pass-through businesses, even income generated outside the state. This does not raise the tax rate, but it does expand the base, meaning more income is taxed at the top marginal rate and more revenue is collected without lawmakers having to vote for a formal tax increase.
Similarly, the budget includes a change to the hospital tax that will likely increase revenue without formally raising the tax rate. By updating the “base year” used to calculate the tax, from 2022 to 2024 financial data, the state effectively increases the amount hospitals must pay. If hospital revenues have grown, this results in higher tax collections without any change in the statutory rate.
The package also moves Maine further away from federal tax conformity by decoupling from the Opportunity Zone program’s capital gains deferral provisions. This reduces incentives for investment in designated areas and makes Maine’s tax code less aligned with federal policy, adding yet another layer of complexity for taxpayers. MPI has consistently advocated and testified for increased tax conformity with the federal tax code. Deviating from it more than we already have risks further confusion and increased administrative burdens for Maine taxpayers.
Increased Spending
The change package also continues the trend of increased spending. Most notably, it increases state funding to help school administrative units meet a new minimum teacher salary of $45,000. While raising teacher pay may be a policy goal, this change creates an ongoing financial commitment that will need to be sustained in future budgets. By establishing a statewide salary floor backed by state funding, the proposal effectively locks in higher spending levels going forward. It also reduces flexibility for local districts and policymakers, as future adjustments to education funding will now be built on top of this higher baseline. The key question is not just whether the state can afford this increase today, but whether it can sustain it in the years ahead without further tax increases or reallocations.
The package also expands the allowable uses of preschool special education funds to include additional costs such as administrative and professional staff expenses. Combined with a provision allowing unused funds to be carried forward year to year, this change reduces constraints on how funds can be spent and increases the likelihood of program growth over time.
In addition, the change package directs approximately $25 million over two years from the state’s Budget Stabilization Fund, commonly called the rainy day fund, to cover indigent legal services. While it may be necessary for the state to address the real pressures in the public defense system, this approach relies on one-time funds to support ongoing costs, raising concerns about long-term sustainability. Instead of simply raiding the rainy day fund, Maine should consider real changes for the indigent defence system such as adjusting reimbursement structures, improving administration, or explore service-based incentives for attorneys who commit to practicing in underserved areas. These changes could prove more predictable and accountable than simply raiding the rainy day fund.
Conclusion
Taken together, this package goes well beyond a typical supplemental budget. It expands the tax base, increases long-term spending, and perhaps most concerning, it significantly shifts how the state treats its Budget Stabilization Fund.
Instead of allowing reserve funds to grow and maintain flexibility for future downturns, the proposal diverts investment earnings away from savings and infrastructure and into ongoing spending commitments. Dollars that could have strengthened Maine’s fiscal position or supported critical infrastructure are now being redirected to cover long-term liabilities and expand government programs.
This approach weakens one of the state’s most important financial safeguards. At the same time, the package adds complexity to the tax code and commits the state to new spending obligations that will persist well beyond the current budget cycle.
Rather than improving Maine’s long-term fiscal stability, these changes move the state toward a more rigid, less resilient financial structure, one that leaves taxpayers exposed to higher costs and fewer options in the years ahead.
