AUGUSTA – Gov. John Baldacci presented an aggressive budget Friday that would drastically shrink the state’s education system and add a dollar to the tobacco tax, making it the highest in the country.

The $6.4 billion two-year state budget proposal represents about a 4.5 percent increase per year in spending over two years ago and includes an additional $178 million in funding for K-12 education, reaching 55 percent of the total cost.

And with the increase in support for K-12 education comes a promise from the governor that most of that money allocated to communities will go to reduce property taxes. If not, Baldacci said, he would veto the legislation and make the Legislature start over again.

The budget plans also includes the consolidation of Cabinet-level departments, the elimination of two agency heads, deputy commissioners and 57 other state jobs, some of which are already open, over the two years.

The Department of Economic and Community Development would be merged with the Department of Professional and Financial Regulation, creating a new Department of Commerce.

In addition, the state’s Medicaid system, which accounts for 21 percent of the overall budget, would move to a managed-care model, which the Baldacci administration says would improve service delivery and constrain costs.

“There are no fees, fines or any other adjustments that are being done here,” Baldacci said. “We’re reducing the governmental administration, we’re making sure that we’re increasing our aid to education, and we’re making sure the most vulnerable in our society have the safety net to be protected.”

Along with the sour, the budget proposal also includes some sweet, including more funding for higher education, an expansion of the school laptop program, investment in research, development and innovation, and smoking cessation.

On the big-ticket item, Baldacci’s education plan essentially blows up the state’s current system of school administration and proposes replacing it with a more streamlined, centralized approach.

The state’s 152 administrative districts would be replaced with just 26 and local school boards would become advisory boards while governance would shift to regional school committees.

The plan also presents a hyper-aggressive timeline for implementing the consolidation, with action expected to begin by July 1, 2008.

And it would be mandatory. Schools systems that don’t adopt the plan would risk state funding, Education Commissioner Susan Gendron said.

The budget projects that the consolidation would save about $241 million in local and state spending in its first two years.

Legislative reaction to the governor’s budget was optimistic, but cautious. Briefed about the document just hours before it was publicly released, Democratic and Republican lawmakers appeared jointly to give their interpretation.

“This is a bold and decisive-looking budget,” said state Senate President Beth Edmonds of Freeport. “It’s making some difficult decisions, and it’s taking action, and hopefully it does much of what Mainers would expect. The reality is that the governor proposes and the Legislature disposes. So we’re prepared to take this on and make it our own.”

Senate Minority Leader Carol Weston of Montville also called the plan bold, but said the Legislature had to consider the effect on municipalities. “That will be something we work closely with our constituents on to make sure that we find the efficiencies that everyone is expecting without sacrificing quality.

“This is a balanced budget,” Baldacci said. “It makes critical investments. It protects the most vulnerable in our society. It continues to offer the education and health care services. And it provides for the economic development, growth and development of our state.”

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