When Gov. Dannel P. Malloy announced Wednesday that his proposed budget calls for no drastic reductions in state aid to cities and towns, municipal leaders in southeastern Connecticut were relieved. Some were even grateful.

But that doesn't mean they're not worried.

That's because the General Assembly still has to approve the plan and state employee unions have yet to agree to concessions proposed by Malloy. If that does not happen, mayors and first selectmen worry that the governor may be forced to cut the state aid to municipalities that they use to help pay for schools, capital improvements and other items.

"I'm concerned when the budget is predicated on concessions from unions, which haven't even begun discussions," said Norwich Mayor Peter Nystrom. "I hope they agree to negotiations, but if they don't, his budget collapses. If that happens, I wonder what Plan B is."

Nystrom, who said he wants to see Malloy's proposal succeed, pointed out that unions do not have to agree to enter into concession talks.

"But you can't expect the public to accept $1.5 billion in new taxes without contributions from public employees of the state of Connecticut," said Nystrom, whose city is projected to receive $37.3 million in aid, just $80,000 less than this year.

In New London, which will receive $32.2 million, about $500,000 less than this year because of a drop in payments in lieu of taxes (PILOT) for colleges and hospitals, Mayor Martin T. Olsen Jr. said any cut will be hard for the city.

"But considering the state of the state, it could be significantly worse," he said.

Olsen pointed out, though, that this is just the start of the budget process and much could happen before it ends. He said he did not know why the PILOT funding was declining.

Border-town woes

In Stonington, which will see a $10,000 increase in its current $2.4 million in aid, First Selectman Ed Haberek said that while he was glad to hear Malloy say there will be no cuts in aid, he is worried because the budget proposal still faces debate in the legislature, where changes could be made.

Haberek said he has been hearing from business owners in town who are upset about the increase in the sales tax and its expansion to more items. For a state border town such as Stonington, Haberek said, the plan was a big problem.

Haberek said he was pleased to see that Malloy's proposal calls for 0.1 percent of the increased hotel tax going back to towns. He and his predecessors in the first selectman's office have urged the state for years to allow towns to implement a local hotel tax/surcharge or collect a portion of what the state receives to offset the cost of tourism. They had been unsuccessful.

"I'm excited to see he's embracing a local option," said Haberek, who said he did not immediately know how much Malloy's plan could bring the town.

In North Stonington, which would lose $8,000 of its current $4 million in state aid, First Selectman Nicholas Mullane said he was very appreciative that Malloy had left state aid alone. But he said the state has to address the issue of unfunded state mandates and regulations on towns, which costs them large sums.

Mullane, whose town has not increased spending in three years and is looking to do the same again in 2011-12, said he is concerned at how business-friendly Malloy's plan makes the state look as it tries to add and retain jobs.

Nystrom said that while state aid may stay the same, that does not account for increasing labor costs and other contractual items.

Waterford First Selectman Daniel Steward said he is taking "a wait and see" approach to the budget proposal, but was pleased that municipal aid stayed "fairly flat." Waterford is slated to receive $2.2 million, a $3,500 decrease.

"There is some optimism here," Steward said. "But all the pieces have to fall into place."

Steward said that although Waterford, which is home to Crystal Mall and other shopping centers, could see revenue from the proposed sales tax on local retail sales, he is unsure if the proposed tax increases would keep shoppers away.

Tech schools transfer

The budget calls for the state to transfer its control, but not costs, of regional vocational-technical schools to towns.

Groton Superintendent Paul Kadri, whose district would assume control of Ella T. Grasso Regional-Vocational Technical High School, said, "There's nothing about it on face value that doesn't appear positive."

Kadri said some inefficiencies in the current system could be improved by such a change, including duplication in programs and coordination of school calendars.

The Norwich public schools would assume control of Norwich Technical High School.

Norwich Superintendent Abby Dolliver had a lot of questions about the proposal. "Do other school districts pay tuition? Are all the administrative functions under our purview, too? If I'm the superintendent of Norwich schools, am I then the superintendent of the technical school as well? Who makes the decisions?

"We had been striving to have a stronger partnership all along, so in that way I think it's good," Dolliver said. "But I would hate to think that we assume all the responsibility. ... We couldn't bear that burden alone."

j.wojtas@theday.com

Day staff writers Stephen Chupaska and Eli Mangold contributed to this report.