AUGUSTA -Gov. Angus King unveiled a $5.5 billion two-year spending plan Wednesday that would eliminate a looming $253 million deficit through a series of small program cuts, government growth caps, and a 26-cent tax hike for cigarette smokers.

“I think, frankly, given where we started, I am very proud of this budget because it does maintain the integrity of the tax cuts that we’ve been able to put in place over the last several years, and it also maintains the integrity of the spending programs,” King told reporters gathered at the Blaine House.

King’s plan is designed to offset a projected shortfall caused when state expenditures exceed projected revenues and also by an unexpected surge in state Medicaid expenses.

King proposes hiking the state tax on cigarettes to $1 a pack – an increase of 26 cents over the current rate. The cigarette tax increase would add $36 million to the state’s two-year spending package, which also includes a half-percent increase in the 7 percent meals and lodging tax. The estimated $10 million in additional revenue gained by that would be dedicated to state tourism promotion.

In order to curtail growth of the state Medicaid program, King plans nearly $30.7 million in minimal reductions. Still, Maine’s Medicaid program represents $941.4 million, or 18.5 percent, of the proposed state budget -a $63.7 million increase over the amount in the current budget. The governor plans to fund the increase by cutting the budget of the Fund for a Healthy Maine program that provides children’s health care services. Even as King touted the cuts Wednesday, the state said it was planning a major campaign to spur use of the state’s health care programs for underinsured families.

“We are high relative to the other states in terms of the amount of money that we’re spending under the umbrella of Medicaid,” King said. “But we tend to have higher benefits and cover more people than other states.”

King was able to gain an additional $35 million in savings by reinstating an older, slower amortization schedule for unfunded liability in the Maine State Retirement System. King said a decision last year by the Legislature to reduce the payment schedule from 22 to 19 years was “premature” because its full impact on his proposed budget could not be assessed at the time.

“We’re proposing to return the amortization schedule to what it was at this time last year. That’s one of the items that assists us in closing the $253 million gap,” he said. “We may be able to shorten that amortization schedule again in a year or two depending on the state’s financial resources.”

Despite cutbacks in some areas, the governor’s budget increases aid to education, research and development, public safety, domestic violence programs and the state corrections system.

King would provide an additional $130 million in local educational reimbursement, an amount that was perceived as generous by some lawmakers, considering the projected decline in Maine’s economy over the next two years.

King also has plans, once again, to privatize the state’s last remaining 27 state liquor stores, displacing about 100 state employees to cut state spending by another $5 million.

The budget package would allocate $730,000 for breast and cervical cancer screening and continue the $300,000 in tuition support for members of the Maine National Guard. Rural area policing agencies would receive $900,000 for minimum shift coverage under the plan, which would also eliminate lottery ticket dispensing machines – resulting in the loss of $468,000 to the state’s General Fund.

King said he expected mixed reaction to his spending plan, a combination of tweaks and adjustments he said would result in a budget that had “something for everyone to like and something for everyone to hate.”

“I suspect you’ll get different reactions depending on their point of view,” the governor said. “These are the decisions we made based on the realties we faced coming into this budget. Our basic principles were: We’re not going to mess with the long-term tax cuts, or break the momentum of the investments in health care and research and development.”

Legislative leaders met with King for four hours before his budget announcement and, late Wednesday afternoon, were still digesting much of the information they received. Still, there was a growing unease among Democratic leaders, who hoped to protect some programs, and Republicans, who are never eager to see tax increases.

House Speaker Michael Saxl, D-Portland, said he understood that in a period of budget shortfalls, concessions must be made. But he expressed concern over cuts to the Fund for a Healthy Maine, which provides access to health care for low-income seniors, uninsured children and others.

“The governor’s proposed a pretty serious cut,” Saxl said. “We had thought we had agreed to leave that section of the budget untouched. But we realize the governor had a very difficult job on his hands, and I think that, by and large, it’s a very fair proposal. But we have some more work to do on it, and we’re looking forward to working with the governor.”

The governor’s tax hikes were not entirely unexpected by Republican Senate President Pro Tem Rick Bennett of Norway. Realizing that 77 percent of the state budget is spent on education and health care, he said, little room is left to maneuver for lawmakers whose constituents demanding more.

“I’m not comfortable with any tax hikes at all,” Bennett said. “Maine is already first in the nation in terms of tax burden, when you factor in people’s ability to pay based on personal income. Our problems are on the revenue side. So we need to learn to live within our means and get our expenditures in check.

While she expected many aspects of the budget to be controversial, independent state Sen. Jill Goldthwait of Bar Harbor said King’s budget was a good first effort that would leave many lawmakers “hard-pressed to come up with a good counterproposal.” Goldthwait, the incoming Senate chairwoman of the Legislature’s Appropriations Committee, said there was logic to increasing the state cigarette tax. But she added she was “reluctant” to base so much of the budget on increased taxation. The extra half-percent in food and lodging taxes, she said, would certainly not be well received in her hometown.

“Dedicating it to tourism is probably the only way it will get serious consideration. I don’t expect it to be welcomed with open arms on Mount Desert Island.”