The lingering state budget deficit put a damper on New Year’s celebrations by many local municipal and school officials after Gov. Dannel P. Malloy announced $50 million in cuts to two key municipal grant programs: $30 million to local capital improvement grants and $20 million to Education Cost Sharing grants.

Municipal leaders and state legislative leaders received letters Thursday from the state Office of Policy and Management announcing the cuts.

The cuts to education grants were not evenly spread throughout the state or the region, and state budget officials targeted wealthier towns for steeper cuts. Locally, Waterford received the highest percentage cut to its ECS grant, 34.2 percent, a loss of $167,020, followed by Lyme’s 27.9 percent cut of $24,426 and Old Lyme’s 23.8 percent cut of $77,105.

But several local towns not so well-off also lost significant ECS money, although at much lower percentages of their total grants.

Groton is facing a midyear cut to its state education aid of almost 1 percent, or $247,481 — the highest dollar amount cut in the region.

“It’s, of course, a problem, because it’s a cut of this year’s budget. But the more hurtful thing is we’re already through half of this year,” Groton Superintendent Michael Graner said Friday. “In schools, of course, you purchase most of your books and supplies and equipment at the beginning of the year.”

Public school budgets are about 80 percent salaries and benefits, he said. “So you’re already down to less than 20 percent for everything else, and we’ve actually already expended a good portion of that,” Graner said. He said he forwarded the information to the Board of Education, town manager and town finance director.

“We’re going to have to really think seriously about how to deal with a cut of this magnitude. It’s really a huge problem,” he said.

Norwich was hit with the second-highest dollar loss in the education grant, $185,415, a 0.5 percent cut in its approved grant of $36.4 million. New London also was cut by 0.5 percent, for a total of $122,432.

Both New London and Norwich are designated Alliance Districts under Malloy’s education improvement program, and both receive additional grants through that program. Two Norwich schools also receive funding as Commissioner’s Network Schools.

According to the letter sent by the Office of Policy and Management to legislative and municipal leaders, ECS grant cuts were capped at 2 percent or $250,000 for state Alliance Districts and the 48 municipalities designated as distressed municipalities.

Norwich Superintendent Abby Dolliver said that any cut is painful to the financially strapped district, especially in the middle of the budget year.

“Any cut is a cut,” Dolliver said. “We haven’t looked at how we’re going to absorb it yet. We have no choice. Cuts anytime are tough. Some of the funding we haven’t expended yet, so it could be that we’ll look at what we were going to do and just not do it.”

Dolliver said she did not anticipate the need to cut staffing with the midyear cut but is worried about possible additional cuts to this year’s grant and to future state education grants in next year’s proposed state budget.

'Death spiral'

East Lyme First Selectman Mark Nickerson said it was irresponsible for the state to cut aid in the middle of the fiscal year, when local officials have already made a commitment to the taxpayers they serve and are now forced to make cuts.

"We're only halfway through the fiscal year, but they're slashing budgets," he said.

Nickerson lamented that the most dramatic cuts to state aid affect the very thing that Connecticut excels at: its school systems. East Lyme is losing $125,644 in Education Cost Sharing.

Ledyard's schools will lose $78,861 in their ECS funding. Superintendent Jay Hartling said they are "working very hard to sharpen the pencil in every way possible both to respond to cuts ... (and) keep any request to the town as reasonable as possible."

In addition to the ECS grant, Hartling said he and administrators are keeping a careful eye on other sources of state funding to the town, including the special education grant, the excess cost grant and the ASTE agriscience grant, to avoid "death by a thousand cuts."

The announced $30 million cut to the Local Capital Improvement Program (LoCIP) grant is more complicated. Office of Policy and Management Secretary Benjamin Barnes informed municipal leaders in the Dec. 29 letter that, even though grant amounts were approved for all cities and towns, the office will not be accepting or approving any new spending requests for LoCIP funds in this year’s state budget as of Dec. 22. If the project was approved by that date, the municipalities would receive their state grant reimbursements. Also, if the municipalities already received state grant reimbursement for projects already completed, they would not have to pay back the money.

Nickerson said East Lyme had completed some projects using LoCIP and was planning some others — including additional security measures in buildings, bridge and dam repairs, and a retaining wall on a town road — and was now left at the 11th hour not knowing whether or not the projects could move forward.

"The bottom line is you start cutting LoCIP, you start cutting infrastructure and capital improvements in small cities and towns," he added. "That is the very definition of a death spiral."

Past years' funds in question

Norwich Public Works Director Ryan Thompson counted his department as fortunate, because Norwich already has used its entire state LoCIP grant of $322,978 for paving projects in the summer and fall.

But Thompson also noted that the OPM letter warns that no new LoCIP grant allocations will be made in March 2017. Normally, Thompson said, Norwich would apply for its new grant in February and would learn in March what to expect for the coming year.

Preston First Selectman Robert Congdon said OPM has approved $125,856 in local capital improvement projects for the town over the past two years. Of that, $102,000 has been spent thus far, so the town anticipates being able to receive the additional $23,000, since the projects were approved already, Congdon said.

But he said OPM is holding Preston’s balance of about $110,000 in past years’ LoCIP grant funds that were not designated for specific projects. The town was saving that money for a potential larger project down the road. Now, Congdon said, he is concerned that it won’t be available in future years.

“People save up their money from LoCIP to be able to do projects," Congdon said. “This doesn’t affect our operating budget, but it affects any projects we were planning on doing.”

Waterford First Selectman Daniel Steward said the town has saved up LoCIP funds over about 10 years for a large building project, the municipal complex, and he was unsure on the Friday before the holiday whether or not the town would still be able to access the funds it had set aside.

"Right now, it appears we may or may not be able to get access to it," Steward said. He said he would be reaching out to state legislators for answers and assistance.

The Connecticut Conference of Municipalities issued a statement Friday morning urging the state to develop "budgets that do not make for these late-December mid-year cuts that harm property taxpayers."

"Cuts in state aid to towns and cities are problematic at any time, but $50 million in cuts in state aid in the middle of the fiscal year for local public education and critical infrastructure-related projects — as called for Thursday by the Governor — is untenable," the statement said in part. "Towns and cities have already included these aid commitments in their budgetary spending plans for this fiscal year."

Day Staff Writers Kimberly Drelich, Nate Lynch and Deborah Straszheim contributed to this report.

c.bessette@theday.com