AUGUSTA – Gov. John Baldacci got a B on this year’s fiscal report card from the conservative, Washington, D.C.-based Cato Institute, up from the D he got from the group two years ago.

“I was surprised with this report, [considering] the organization that it comes from,” Baldacci said in an interview Monday. “But when you look at what they measure, it makes sense with what we have been trying to do here in Maine.”

The governor got a D from the group two years ago, the same grade Gov. Angus King got in his last year in office. The report looks at taxes, other state revenues and spending in establishing the grades. Only three governors got an A, fourteen got a B, eight got a C, thirteen a D and eight got the lowest grade, an F.

Chris Edwards, director of Tax Policy Studies at Cato, wrote in the report that the states are facing serious economic challenges. He said that many governors – the key policy setters – are failing to hold down spending and too often have resorted to raising revenues instead of cutting to balance budgets.

Explaining that the report uses statistical data to grade the governors on their taxing and spending records, Edwards said the “governors who have cut taxes and spending the most receive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.”

Baldacci ranked high on taxes, with only a doubling of the tax on a pack of cigarettes, which is considered a negative in the taxes ranking of the study. The report also examined sales taxes, individual income taxes and corporate income taxes. The fact that those taxes maintained their rates in Maine was considered a positive for Baldacci.

The governor also scored well when it comes to measuring per capita spending, prompting Baldacci to point out that not many Mainers are aware of how much his administration has cut.

“We are spending $31 million less this year than last year,” he said. “And we will be cutting more spending this year of the budget we are in.”

Baldacci said that with the national economy having an adverse impact on Maine, he believes further cuts in state spending will need to be made over the next two-year budget cycle.

He already ordered all state agencies to submit this month proposed budgets that are 10 percent less than current spending levels.

“We are going to continue to reduce spending, with at least the 10 percent reduction we are working on,” Baldacci said Monday. “Given the economic conditions, we are going to have to find new and novel ways of doing more with less.”

The Cato report said Baldacci’s efforts to cut property taxes for homeowners and to repeal the local property tax on business equipment were part of his ratings. The report said they were “much needed.”

The report also praised the governor for his recent proposal to reduce the personal income tax rate in the next session of the Legislature.

“However, the governor has supported substantial tax increases on health providers and on consumers of tobacco and alcohol,” the report stated. “On spending, Baldacci has a good record, although he supported large spending increases on his Dirigo health care plan, and he opposed a referendum in 2006 to put a legal cap on state budget growth.”

Baldacci said he disagrees with Cato on its criticism of his support for a doubling of the tax on a pack of cigarettes. He said the tax hike was more than a revenue raiser, it was a health measure.

“The damage that cigarettes do to families, to the health of Mainers is in the hundreds of millions of dollars,” he said. “If you want to reduce heath care costs, don’t smoke. If you want to be upset with me for proposing it, be upset with me for supporting it. It’s a health issue. When you raise the tax, people stop smoking.”

He also said that legislation he proposed has set budget spending caps on both state and local governments and that the referendum proposal Cato criticized him for opposing was flawed.