Connecticut Gov. Dannel Malloy on Friday revised his executive-order budget, slashing educational aid to 139 school districts while protecting some of the state’s neediest.

Overall, Malloy restored and redirected $40 million to private, nonprofit health and human service providers, “holding harmless” 30 hard-pressed "alliance" school districts, and restored a further $60 million “to ensure adequate resources to meet state obligations.”

Connecticut Governor Dannel Malloy
"This is reality. It's hard," said Connecticut Gov. Dannel Malloy. Bloomberg News

Malloy has operated the state by executive order since July 1, the beginning of the fiscal year. Connecticut operates on a biennial budget.

Speaking to reporters at the State Capitol in Hartford, Malloy said 54 school districts will receive less funding and 85 will be “zeroed out.”

The revised plan, he said, is intended to provide municipalities, providers, and state agencies with some certainty about what funding to expect until a budget is adopted. “I can’t reasonably predict that we’ll have more money in the fiscal year,” he said.

He denied that he is using his latest plan as a sledgehammer to bring lawmakers to the table. “I’m trying to avoid all of this,” he said. “This is reality. It’s hard.”

Connecticut is staring at a deficit of up to $5 billion for its fiscal 2018-19 spending plan. The state has received a series of downgrades over the past year, with bond rating agencies citing budget imbalance.

Moody’s Investors Service rates Connecticut general obligation bonds A1, while S&P Global Ratings and Fitch Ratings assign A-plus ratings. Kroll Bond Rating Agency rates them AA-minus.

S&P last month revised its assessment of Connecticut's institutional framework to strong from very strong, citing “a less predictable environment” regarding forecasts of state revenues.

Malloy, a Democrat, and lawmakers are at a standstill. The Senate is divided 18-18 between Democrats and Republicans, with Democratic Lt. Gov. Nancy Wyman as a potential tie-breaker. Democrats hold a slim 79-72 advantage in the House of Representatives.

Lawmakers rejected his proposed three-month, $318 million mini-budget in late June.

One breakthrough came in July when members of the state employees unions overwhelmingly ratified a $1.6 billion concession package, which the legislature approved.

To restore $100 million, Malloy and his budget adjusted by allocating the special education excess cost-sharing grant at roughly 2017 levels.

He also provided $1.46 billion education cost sharing grants to communities with the most pressing student needs and the greatest reliance on state funding. It holds the 30 so-called alliance districts “harmless” and provides a grant equal to the FY17 level.

The 54 non-alliance towns with a greater reliance on state funding, above the 22.24% statewide average, will receive a portion their FY17 education cost-sharing grants, while the 85 municipalities less reliant on state funding will receive no ECS grant.

Malloy said the state would make 25% of the education cost sharing payments in early October. Municipalities will receive grants of $40.6 million for the tax loss resulting from a 37 mill rate cap on motor vehicle property taxes.

Betsy Gara, executive director of the Connecticut Council of Small Towns, said Wednesday that continued withholding of payments in September and October could hit especially hard.

“It really is very difficult to plan for this,” she told reporters. “We’ve never seen these kinds of cuts in municipal aid to date.”

The budget uncertainty has cast an especially long shadow over capital city Hartford, a candidate for Chapter 9 bankruptcy. Mayor Luke Bronin projects a $50 million deficit for a city reliant upon the state for about half its revenue.

Hartford has hired law firm Greenberg Trauring LLP to study restructuring options, including bankruptcy.

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