The American Legion is so upset with the way the state has changed the fund it administers to help Connecticut veterans that the service organization has voted to cut ties with the fund.

After 94 years of disbursing payments to veterans in need, the American Legion Department of Connecticut will stop administering the Soldiers', Sailors' and Marines' Fund on June 30 unless the General Assembly rescinds changes made through the state budget or restores funding.

"We're not going to try to attempt this with insufficient resources and fall on our face. The reputation of the Legion is involved," said John D. Monahan, the administrator of the fund and Legion treasurer. "We're being set up to fail, and we can't have that."

Gov. Dannel P. Malloy initially proposed giving the Legion total control of the fund, and the Legion agreed to accept responsibility for it. But the budget Malloy signed in June keeps the state treasurer in charge of the trust's investments while the American Legion operates the fund. The Legion will receive up to $300,000 annually to do so, which Monahan said is about one-third of the fund's current budget.

The nine state employees who work in the fund office will either retire or be reassigned, and the Legion may not set up the nonprofit charity as it had planned - to accept tax-deductible donations to the fund and to streamline the process for delivering aid - because it does not have full control of the fund.

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

The fund is currently valued at about $64 million. The state allocated about $3 million annually in recent years to provide aid to veterans and run the agency. The interest from the trust's investments is used to reimburse the general fund.

About 3,000 families are helped by the fund each year, Monahan said.

He said he is not convinced that state leaders still consider caring for veterans and their families a core function of state government.

"We view it as something that has been a tremendously enlightened public policy. If attitudes have changed and that is no longer considered to be the case, it is our view that it ought to be a matter for discussion in the legislature and a vote," he said. "The point here is, we shouldn't be tormented by death by a thousand cuts. Where is the part where they say, 'Thank you very much, we're proud of what you did and you're dismissed?'"

Karen E. Buffkin, deputy secretary of the Office of Policy and Management, said she had not been given any indication that the arrangement was not workable. Buffkin said OPM was led to believe that the fund could be administered with fewer staff. She said she did not know about the Legion's decision, but noted it is written in state law that the Legion will administer the fund.

"I suppose the American Legion could contract with another entity to administer it on their behalf if the law remains unchanged, or they can advocate, as anybody can, to have the legislation changed," she said.

Buffkin said she could not speculate as to whether the fund would be dissolved or whether another state agency would take over if the Legion does not change its mind before June.

"That is a long way off," she said. "A lot can happen in nine months, and as always, with any of these groups, we're always happy to talk to anyone who has concerns about an issue or a better way to do things."

House Speaker Brendan Sharkey said he plans to meet with representatives of the American Legion and all of the relevant stakeholders in the coming weeks to talk about the Soldiers', Sailors' and Marines' Fund.

"If we determine that there is an issue with the funding available for the administration of the fund, we will work together to find a solution and ensure that Connecticut's veterans are having their basic needs met," Sharkey, D-Hamden, said in a statement.

Monahan said $300,000 is insufficient and perplexing since the war in Iraq recently concluded, the war in Afghanistan is winding down and thousands of servicemen and women will be returning to Connecticut, many of whom may need help from the fund during their transition to civilian life.

The Malloy administration did not ask the Legion before the budget passed how much should be allocated to cover expenses, Monahan said. Rather than allocating a fixed amount, he said, the state could have specified that no more than 25 percent or 30 percent of the projected revenues of the trust may be spent on administrative costs, with a provision for certain exceptional circumstances.

The money from the trust is invested conservatively, and with the economic downturn, the rate of return on the investments is lower than it has been in years past. 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.

Buffkin said OPM decides what resources are needed based on plans and projections, and the final budget implementing bill in the state budget for fiscal year 2014 to 2015 was a compromise.

"There are ways to find efficiencies and to streamline things and that is what we have been asking," she said. "Right now, that is what we ask agencies to do regularly."

Monahan asked Attorney General George C. Jepsen in July for an opinion as to whether the state's action was lawful, since a Connecticut Supreme Court case, Bissell v. Butterworth, found that the fund's income could be used to pay "reasonable charges and expenses" to prevent the fund from failing.

Jepsen replied to the Legion in a letter dated Aug. 21 to say he could not offer an opinion because "the amount necessary to administer this fund is a fiscal policy judgment for the legislature to decide." Jepsen encouraged Monahan to bring this issue to the attention of legislative leaders.

On Monday, Monahan introduced a motion at a meeting of the Legion's executive committee in Connecticut to cease administering the fund. The group unanimously approved it. The Legion plans to reconsider its action in May if the General Assembly rescinds the provisions related to the fund or alters the language to provide sufficient resources during the February to May session, Monahan said.

The changes to the fund are scheduled to go into effect July 1.

"We have been in conversations with the American Legion and those conversations are continuing," Buffkin said. "We fully support the work that they do and the governor fully supports the work they do. They provide an important benefit to servicemen and women and their families."

j.mcdermott@theday.com