The governor wants to give the American Legion total control of a fund that has helped the state's veterans in need for close to a century.

In his budget proposal, Gov. Dannel P. Malloy says the management, investment responsibility and operational costs of the Soldiers', Sailors' and Marines' Fund should be transferred to the veterans' organization.

Veterans who are helped by the fund should notice little, if any, difference, according to John Monahan, the administrator of the fund, and Karen Buffkin, the deputy secretary of the Office of Policy and Management.

The Legion administers the fund, which is currently valued at about $64 million. The state allocates about $3 million annually to provide aid to veterans and run the agency. The interest from the trust's investments is then used to reimburse the general fund.

But the money is invested conservatively and with the economic downturn, the rate of return on the investments is lower than it has been in years past - between 3.4 percent and 5.2 percent from 2003 to 2012, which is down from an average of 6.5 percent in the 1990s and 9 percent in the 1980s.

The fund's expenditures exceeded the revenue each year from 2003 to 2012 and the state paid the difference, a total of nearly $5.5 million over the decade, according to OPM.

"In times such as these, when the demand on the system for assistance is the greatest, the interest rate environment is such that the trust generates the least money," Monahan said.

The fund, which was established in 1919, helps Connecticut veterans in need and their families with their rental or mortgage interest payments, utility and medical bills, funeral expenses, food and clothing.

In a challenging budget environment, the state needs to cut costs and make room under the spending cap, Buffkin said. There is a provision for the state to recoup the money lent to subsidize the fund's past expenditures, but that can only happen if the interest on the trust begins to exceed those expenditures, she added.

The General Assembly's Legislative Program Review and Investigations Committee made a similar recommendation regarding transferring the fund to the Legion in 2006.

"We thought transferring care and control to them was an appropriate way to continue to honor the program established by the fund, which does wonderful work, and it would result in cost savings to the state," Buffkin said.

The Legion has said it is willing to accept responsibility for the fund.

"The mission was offered to us in 1919 as a service to our brother and sister veterans and we took that on willingly," Monahan said. "We have a 94-year history of being careful stewards of that mission and careful stewards of the agency. It is our absolute desire to continue that legacy, although in another form, into the future because clearly the mission to assist needy Connecticut veterans remains."

Monahan said the change would ensure that the trust is not used for other purposes. The Legion plans to create a nonprofit charity to keep the money separate and avoid any potential issues, and to streamline the process for delivering aid.

Donations to the fund currently are not tax deductible but donations to the charity would be, Monahan added.

Nine state employees work in the office. Some are eligible to retire and others could be transferred to vacancies at other agencies if the General Assembly approves the proposal, Buffkin said.

j.mcdermott@theday.com