Hartford - Municipal leaders Friday expressed dissatisfaction with Gov. Dannel P. Malloy's budget proposal during a news conference with the Connecticut Conference of Municipalities.

"If we are going to take a cut, let's just say you are going to take a cut, and you are going to have to make it up with property taxes," John DeStefano, Democratic mayor of New Haven, said.

Malloy has said repeatedly, and his budget proposal demonstrates, that municipalities are getting the same amount of funding they got last year. But he is proposing cutting some funding that could be used for operating costs, such as the Mashantucket Pequot and Mohegan Fund, and increasing funding in other areas such as the Education Cost Sharing grant, which may only be used for education.

Municipal leaders from CCM said after these types of changes, municipalities would lose $86 million for operating costs. Changes in state funding, not including Malloy's proposed motor vehicle tax relief, would force many municipal leaders to increase property taxes and cut services or personnel, they said.

Larger cities in southeastern Connecticut that would lose revenue from the state for their operating budgets include New London, about $1.8 million; Norwich, about $1.2 million; and Groton, about $1.4 million.

Some municipal leaders said they would be interested in discussing motor vehicle tax relief for residents, but that as proposed, it would be devastating. CCM leaders projected such a move would cost municipalities at least $520 million.

The car tax relief would go into effect by the tax year beginning July 1, 2014, but could be put into place sooner if municipalities choose to do so. It exempts the first $20,000 of a vehicle's assessed value and keeps $560 million in the pockets of car owners, according to Malloy's proposed budget.

Canterbury First Selectman state Rep. Brian Sear, a Democrat, said he was surprised CCM leaders didn't get more into the car tax issue.

"I think if that went into effect, we would lose about $740,000," Sear said. "If we laid off all our Public Works employees, we still wouldn't be able to get back the reduction from this car situation."

The tax rate would have to increase by 2 mills, he said. There hasn't been a tax increase in Canterbury in five years, so a 2-mill tax rate increase would be substantial, he said.

One of the major changes Malloy has proposed is to increase ECS by $152 million over two years. This money includes funds for Alliance Districts, or the 30 lowest-performing school districts. But the increase in this funding also requires local governments to increase their education spending according to state-required minimum levels based on spending formulas.

With regard to new Alliance money, Mark Boughton, Republican mayor of Danbury and treasurer of CCM, said, "I would have to go and create new programming. It is about a $3 local spending for $1 return from the state to be able to access that money, so it just puts us behind the eight ball even further."

Boughton said he understood the point of creating new programs, but that his district was having trouble just keeping the lights on and fully staffing classrooms.

Malloy said his priorities are education, growing jobs and finding tax relief for the middle class.

"It's true that municipal aid comes in different ways, which will necessitate some adjustments," Malloy said.

Although this money has been moved, it can be used any way the municipality would like, Malloy has said, and therefore, the money is not as restricted as some other funds.

Municipal leaders said the governor's proposal to reduce the Mashantucket Pequot and Mohegan Fund, money from casinos, to $5.4 million from $61.8 million a year also hurts municipalities' operating budgets. Municipalities near the casinos - such as Ledyard, Montville, North Stonington, Norwich and Preston - would still receive funding, as would municipalities in the Southeastern Connecticut Regional Council of Governments.

The remaining balance, $56.4 million, would be distributed to towns and cities through the Local Capital Improvement Program. But the program has restrictions on how the funds may be used. Malloy's budget proposal does expand what is considered capital improvement by including technology and capital equipment that is normally purchased using operating budget money, but it still restricts spending, CCM members said.

The governor also proposed reducing public school transportation funding to $5 million from $25 million a year. Cities and towns would have to propose regional school transportation programs to obtain the money.

"We think in the long run, that more regional efforts in school transportation will save far more money than that grant ever provided," secretary of the Office of Policy and Management Benjamin Barnes said last week.

These changes - along with eliminating the Manufacturing Machinery & Equipment Transition grant, about $48 million a year; the Municipal Revenue Sharing Bonus Pool, about $43 million a year; and some other grants - account for the $86 million estimated loss to municipal operating budgets.

Ultimately, state legislators will decide what happens to funding for municipalities.

"If the decision-makers understood where we were at and give us an opportunity to explain to them where we are, I think that the outcomes will be different from the proposed budget," Neil O'Leary, Democratic mayor of Waterbury, said.

j.somers@theday.com