Gov. John Baldacci Tuesday signed an emergency order to cut $38 million out of state spending to help fill a $95 million hole in the budget, and said more cuts and department consolidation will be proposed in a supplemental budget that legislators will have to deal with in January.

The largest departments have been asked to take the biggest hits, including a $20 million cut from the Department of Education and $13 million from the Department of Health and Human Services.

Baldacci said he used the power of his office to issue an executive order curtailing current spending levels because he was constitutionally bound to keep the budget in balance in these tough financial times.

"People and businesses all around Maine are hurting. High heating oil prices and a struggling housing market are forcing people to make tough decisions," Baldacci said. "They have to tighten their belts, and government must do the same."

The state's Revenue Forecasting Committee last month lowered the state's revenue projections by $95 million. The $38 million budget cut Baldacci announced Tuesday addressed the shortage for the current fiscal year, ending on June 30, 2008. Additional cuts will be needed to make up the $57 million shortage projected in fiscal year 2009.

And that does not include any expense overruns or budget requests usually handled in a supplemental budget. Those requests total around $60 million, according to the governor's finance commissioner.

"We're already about half way through the current fiscal year. Every day we wait for action, the task of balancing the budget gets more difficult and the cuts become larger and harder to make," Baldacci said.

Baldacci said he did not want to raises taxes or fees to fill the budget hole, nor did he want to dip into the state's $158 million rainy-day fund.

"It's wise to hold onto those resources at this point," Baldacci said, until it becomes clearer whether the economy is going to improve or get worse.

The curtailment does not include any layoffs and legally those can't be done with an executive order, according to Finance Commissioner Becky Wyke. She said it was too soon to say whether the supplemental budget would propose layoffs.

The supplemental budget will codify many of the cuts included in the governor's executive order, which were effective as of Tuesday.

The largest is in the Department of Education for $20 million. DOE Commissioner Susan Gendron said all efforts would be made to not affect general purpose aid for education to cities and towns. The money instead would be taken out of funds used for everything from professional development to school services given to children who are wards of the state.

"The department will curb spending in those programs within GPA over which it has discretion. However, if the full amount cannot be achieved in discretionary programs, a reduction in payments to school administrative units in June 2008 may be required, in which case those funds would be restored in the first payment for fiscal year 2008-09 that is paid in July of 2008," according to the curtailment proposal.

"School systems should not be panicking," Gendron said, reminding people that it is $20 million out of a $1 billion budget.

State aid to cities and towns already was cut by $36 million in the second year of the budget based on savings the department hopes will be achieved by school district consolidation.

The cuts in the Department of Health and Human Services, totaling $13.4 million, will be made in non-Medicaid accounts because the state does not want to lose its federal match, which is on average two federal dollars for every one state dollar spent.

"We did not want to affect communities or agencies by cutting $3 in services for every $1 saved in the general fund, said DHHS Commissioner Brenda Harvey.

The cuts therefore target non-Medicaid eligible children and adults, affecting mental health and mental retardation services, child welfare and programs for the elderly.

Baldacci said in addition to the cuts, he will continue to push for consolidation of state government functions.

His supplemental budget will include the creation of a new department to oversee the state's natural recourses. While details were not available Tuesday, such a merger likely would affect existing departments like Environmental Protection, Natural Resources, Marine Resources and Inland Fish and Wildlife.

Baldacci already is pushing to merge the county jail system into the state Department of Corrections and has floated the idea of merging the Maine Turnpike Authority into the Department of Transportation.

"The old structures won't work anymore," Baldacci said. "They are too expensive."