BANGOR – Providers, advocates and consumers of mental health services rallied in Bangor on Tuesday to protest impending cuts in the state’s Medicaid funding. State officials and many lawmakers say the cuts are needed to rein in Maine’s overextended Medicaid budget, but providers argue vulnerable citizens will lose essential services and drive up pressure on jails and homeless shelters.

About 150 people filled The Brick Church on Union Street to denounce the budget changes, which would cut about $100 million of the $375 million in state and federal funds currently spent on delivering outpatient mental health services through community agencies around the state. A similar event took place in Portland.

In Bangor, the Rev. Bob Carlson, who serves on the governing boards of a number of area nonprofit agencies as well as the board of the Penobscot County Jail, moderated the meeting. Carlson told the crowd that the state’s community mental health system is in crisis and in need of a comprehensive public policy overhaul.

In the 1960s, when large residential psychiatric hospitals began discharging patients en masse into the community, Carlson said, federal law required states to develop effective community-based services to help them stay healthy and independent. In Maine, that system has failed, he said, and many people with untreated and mismanaged mental illness are winding up in shelters and county jails.

“Obviously, there is a budget crisis in Augusta and people are looking for ways resolve it,” Carlson said. “But they can’t do it on the backs of people in need of these critical services.”

Dennis Marble, director of the Bangor Area Homeless Shelter, said many of his clients suffer from mental illness. If their disease was properly managed, he said, many would be able to live in homes of their own instead of on the street.

“We create homelessness by a lack of best practices,” he said. “This is an issue of Maine citizens paying for a complete mess resulting from a complete lack of public policy.”

Shawn Yardley, director of the city’s Department of Health and Welfare, said policymakers should “look at the big picture.”

“Public health, child welfare, corrections, … these issues seem to be talked about in isolation instead of together,” he said. “If [lawmakers] take funding from mental health, they’ll need to find additional funding for the jails and prisons.”

Penobscot County Sheriff Glen Ross said that 80 of the 193 inmates currently in his jail are on psychiatric drugs. Mental illness has prompted a number of suicide attempts in recent years, four of which have been successful, he said. Overwhelmed jail employees have found much-needed support and training from area agencies.

“We need the state to do their part to support the mental health service providers,” Ross declared. “If these organizations aren’t here, what will happen to our jails?”

The state Department of Health and Human Services earlier this year proposed saving money in MaineCare, the state’s Medicaid program, by standardizing the rates paid to community agencies for various mental health services. The proposed rates are based on national averages and are generally about 30 percent lower than the highest rates currently paid in Maine, but still more than some agencies are paid in the state.

The proposed changes set off a storm of opposition from providers, who maintained the new rates were unrealistically low. Providers said many agencies would be unable to continue providing some services, and others might go out of business altogether.

On Tuesday, providers said they negotiated with state officials to arrive at less dramatic cuts with the understanding that agencies would have a year to come up with other ways to streamline costs.

“We understood we had an agreement,” Kay Carter, director of adult mental health services at Community Health and Counseling Services in Bangor, said in an interview after the rally. “But now the state’s original proposal is back on the table.”

Reached Tuesday afternoon for comment, DHHS Commissioner Brenda Harvey said that while providers did discuss other options for cutting spending with lawmakers on the Legislature’s Health and Human Services Committee, they were unable to achieve the level of savings needed. Community mental health providers in Maine have for years benefited from among the highest Medicaid reimbursement rates in the country, and at the current rate of growth, she said, the services would cost taxpayers $500 million in 2008.

“That’s a trend we cannot sustain,” Harvey said. Even with the proposed cuts, providers will still be paid at a higher rate than in most other New England states, she said. Some Maine providers are already providing services at the proposed new rates, or even less, Harvey noted, and she believes other agencies will find ways to streamline their costs and continue to meet the needs of their clients.

Harvey said her department is continually assessing and responding to identified needs in Maine’s community mental health system. Should the governor’s office determine the need for the kind of comprehensive reform called for by the participants in Tuesday’s rally in Bangor, “we’ll be happy to go down that road,” she said.

In Bangor, former mayor, city councilor and federal prosecutor Tim Woodcock called the proposed cuts “draconian” and predicted they would be felt profoundly “across all links in the chain” of mental health services.

“But the state doesn’t feel the immediate impact, and seems to be indifferent,” said Woodcock, who serves on the CHCS board. “It’s hard to understand. Aren’t we all in this together?”

Republican and Democratic lawmakers both have incorporated the department’s rate recommendations into their respective budget proposals, which are expected to be reviewed, reconciled and voted on this week by the members of the Appropriations Committee.