Connecticut Gov. M. Jodi Rell yesterday promised to propose painful budget cuts next month as the state grapples with a $356 million current-year deficit.

"The cuts that must be made will be deep and they will affect every agency, every program, and every service provided by state government," she said in her state of the state address, according to a prepared copy. "They will hurt ... Government must shrink because our taxpayers are seeing their personal budgets shrink."

Details of the proposed cuts will come out when she presents her two-year budget proposal on Feb. 4 and will have to close a projected $6 billion budget gap.

Rell delivered the speech to the Legislature on the first day of the state's legislative session. She called on the Legislature to pass a deficit mitigation proposal next week.

The state has a $1.38 billion budget reserve fund that it could tap into, like it did in 2003 when it was dealing with another recession.

"They're in better shape going into this [recession], but it's also a sizeable gap," said Moody's Investors Service analyst Nicole Johnson. "Last time we had a plummeting of income taxes but the sales taxes held up, but now we're seeing sales taxes are not holding up because of the housing market turmoil. You're hitting both revenue streams."

Connecticut, the wealthiest state in the nation on a per-capita basis, has benefited in recent years from a booming financial industry, but not this year.

"We're watching to see what happens with that income tax," Johnson said. "As jobs are lost, it's income taxes that are not flowing to the state."

Several bills dealing with bonds or taxes were introduced yesterday. One bill introduced by Rep. Joseph Serra, D-Middletown, called for an increase of the annual bonding authorization for a program that provides grants to municipalities for local capital improvement projects to increase by $10 million. The currently program provides grants totaling $30 million annually.

Another proposal calls for the state to allow municipalities to impose a tax on hotel and motel stays so that local governments can raise taxes without increasing them on their own residents.

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