CROMWELL–After being praised Thursday for expanding municipal aid in the new state budget, Gov. Dannel P. Malloy warned local officials that he might take some of that back should labor unions reject a tentative concession package.

Addressing the annual meeting of the Connecticut Conference of Municipalities, the governor told more than 100 mayors, first selectmen and town managers gathered at the Crowne Plaza that he is optimistic that the deal, which his administration believes would save $1.6 billion over two years, will be accepted.

“I know there’s a lot of angst… about what the unions are going to do,” Malloy, a former mayor of Stamford and former CCM president, told the crowd, adding that his goal since he inherited a nearly $3.7 billion projected deficit for 2011-12 was to solve the problem without further burdening municipalities.

“I will keep municipalities in mind when we restack the budget,” if the concession plan fails, the governor said. “But I can’t make you any guarantee at the moment.”

The state’s 34 bargaining units and their 15 parent unions aren’t expected to finish voting on the tentative deal before June 24, according to spokesmen for the State Employees Bargaining Agent Coalition. But Malloy cited Wednesday’s report in The Connecticut Mirror that the first five bargaining units to finish balloting all endorsed the deal, calling it a positive sign.

Without the agreement the governor and the General Assembly face sizeable holes in the coming biennium.

The $20.14 billion budget approved for next fiscal year was designed to run $89 million in surplus. But without the $700 million in labor savings built into that package, it would face a $611 million shortfall.

The $20.4 billion budget set for 2012-13 was designed to run $555 million in the black, but instead would be $346 million in deficit without the $901 million in concession savings built into the plan.

Malloy has insisted that major state employee layoffs would be part of any alternative budget-balancing plan and told municipal officials as many as 7,500 could be ordered across two fiscal years.

But the governor also has said other cuts might be needed to balance the budgets and he has ruled out any tax hikes beyond the $1.5 billion in new state taxes already approved for the coming fiscal year.

Municipal aid not only is a significant part of annual spending, $2.9 billion or 14 percent of the total budget, but it is one of the few areas not yet reduced to help balance the budget,

“I did not attempt to balance the budget on your backs,” Malloy told municipal leaders, adding that he also helped carve out two new revenue streams for cities and towns – granting them a $56 million share of state sales tax revenues and $37 million from the state real estate conveyance tax. “It may not be a gigantic step, but it is a first step” in reducing communities’ reliance on the local property tax.

Simsbury First Selectwoman Mary Glassman, who challenged Malloy for the Democratic gubernatorial nomination last summer and who was elected the new CCM president on Thursday, said no one was surprised that the governor wouldn’t rule out cuts to town aid.

“We’re realistic. We’ve been here before,” she said. In 2003 the General Assembly and then-Gov. John G. Rowland canceled $40 million in previously approved municipal aid to help close a mid-year deficit.

Both Glassman and CCM Executive Director James Finley said Malloy deserves praise for shielding town aid from cuts to date and for diversifying municipal revenue streams.

But they also said that if grants are reduced, all of the options facing cities and towns – layoffs, program cuts and supplemental tax bills – are ugly.

“We know compared to any other state in the nation that Connecticut cities and towns got a lot of good things in this budget,” Finley said. “But if aid is cut, we’re headed into uncharted territory.”

Glassman, who is in her 12th year as Simsbury’s chief executive, said most communities exhausted their available surpluses during the last recession. “There’s no room to find the money there” to replace cuts in state aid, she said.

Glassman added that municipalities also will face a hit if massive numbers of state workers are laid off, predicting increases in foreclosures, demand for municipal social services, and delinquent property tax payments. “The ripple effects will be huge,” she said.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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