AUGUSTA -- Gov. John Baldacci said Wednesday he was proud to sign a new law that will provide a stable source of funding for Dirigo Health, which will now be partly supported by taxes on beer, wine and soda.

In a Statehouse Cabinet Room signing ceremony, Baldacci said Dirigo is essential to helping working families and small businesses that need health insurance.

"This is about people who need help," he said. "It makes a difference in people's lives."

But Baldacci's upbeat assessment of the new law proved a stark contrast to Republican reaction. Other critics include the Maine State Chamber of Commerce and the Maine Oil Dealers Association, which represents several hundred convenience stores across the state.

They say the new law -- which will likely take effect in mid-July -- will increase the price of beer, wine and soda at a time when families can least afford it.

The new law increases the excise tax on large beer and wine manufacturers, and puts a new tax on syrup used to make soft drinks. It also takes $5 million from the state's tobacco settlement money and borrows $3.6 million from the state General Fund. In addition, it puts a 1.8 percent surcharge on paid insurance claims. The law also makes changes that are designed to lower health insurance costs for people under 40. And it is supposed to lower rates for those who have individual health policies in the private market, according to the governor's office.

But the taxes and assessments are by far the most controversial aspect. The law will provide Dirigo with $49.6 million next year, an amount that increases to $58 million in future years.

Kristine Ossenfort of the Maine State Chamber of Commerce said the state should put Dirigo in the General Fund, where it would compete for money against other health care programs.

"Your going to see a lot of small businesses that are impacted," she said. "Any place with a soda fountain will be heavily impacted by the soda tax in particular."

That's because the law creates a new $4 per gallon tax on syrup used to make soda. Also, sodas sold in bottles face a 42-cent-per-gallon excise tax increase that could be passed on to consumers. If the distributor passes along the full amount, it would raise the cost of a liter bottle by 11 cents, a 16-ounce bottle by about 5 cents and a can of soda by 4 cents, according to Maine Revenue Services.

Similar numbers for beer and wine were not immediately available on Wednesday.

Chris Jackson of the Maine Oil Dealers Association said both the policy and the process are flawed. Consumers will see higher prices for soda, beer and wine at the stores after this bill takes effect, he said.

"Raising taxes on hundreds of thousands of Maine consumers, small businesses and families in this economy is a very bad idea," he said.

And, he said the last-minute switch from a bill that proposed a 50-cent tax increase on cigarettes to one that included a mix of other taxes didn't give anyone a chance to weigh-in on the proposal. "A lot of people in Maine are waking up this morning to a real surprise they didn't see coming," he said. "The Legislature will probably get an earful this summer."

Yet Dirigo supporters say the overall goal of providing access to health insurance for small businesses and the self-employed is important.

The program, which began in 2003, currently covers about 14,000 people, and will expand to about 18,000 after the new funding becomes available, said Trish Riley, director of the Governor's Office of Health Policy and Finance.

Richmond business owner Bill Keleher and his employee Rebecca Boulanger say Dirigo has provided them with affordable health insurance since 2005. "We found Dirigo to be a tremendous help to our company," said Keleher, who owns Micro Technologies Inc., which provides aquatic animal health services.

Boulanger said before Dirigo, she paid $7,000 a year to cover herself and her two children. Now she pays about $4,500 a year. Joe Ditre, executive director of Consumers for Affordable Health Care, said the taxes in the law were recommended by insurance companies, large businesses and large health-care providers.

"We're very happy the funding for this program was approved," he said, adding that he will closely monitor the market reforms to see if they are successful. Despite success stories, Republicans argue that the program is expensive, hasn't covered enough people, and hasn't helped to reduce costs for all people who buy health insurance in Maine.

"We are raising a lot of money for a program that serves a few people instead of changing the policy and reducing the cost for everyone," said Senate Minority Leader Carol Weston, R-Montville.

She also criticized Democrats for raising taxes for Dirigo, even though they said they would not raise taxes during the budget debate.

Baldacci said Dirigo not only provides health insurance, but serves as an economic development tool.

"It's not about the state budget," he said. "It's about helping to balance the budget for families and businesses throughout the state of Maine."

Susan Cover -- 623-1056

scover@centralmaine.com