HARTFORD — Gov. Dannel P. Malloy on Wednesday will unveil what's expected to be another tight state budget proposal, considering Connecticut still faces budget deficit problems despite successive years of cuts, tax increases, layoffs and other changes.

The new fiscal year that begins July 1 is projected to be roughly $1.5 billion in the red, or possibly as much as $1.6 billion to $1.7 billion after taking into account unfunded portions of labor contracts. The state's main spending account is typically about $18 billion.

"It should come as no surprise that the next biennium budget offers its own set of challenges and difficult choices," the governor said last week, adding he still remains optimistic "we can make our budget more predictable and our economy more sustainable."

Some highlights of what the Democrat has already unveiled or is expected to address in his new tax and spending plan:

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MUNICIPALITIES

City and town leaders are anxiously waiting to see how much money they'll receive in state aid next year.

During his State of the State address in January, Malloy said he wants to change the complicated education formula and instead distribute financial aid based on a community's local property tax burden, student need and student enrollment. It's a move that will probably benefit cities and poor, rural towns, and not smaller and wealthier communities.

The proposal comes after a state judge declared Connecticut's educational funding system unconstitutional. Malloy said last week he has "no doubt" the state is failing to meet its state constitutional requirement to provide equal access to quality education.

"And since I do agree, and since I think we should resolve that issue as a state rather than turning it over to the courts, you can expect I'll address it in my budget," he said. On Friday, Malloy unveiled a plan to require municipalities to pay into to the teacher retirement system to help reduce the state's contribution.

Malloy said his budget will provide financial relief to cities and towns from unfunded state requirements, which the Connecticut Conference of Municipalities called a "great start."

CCM has called for more taxing options, which Malloy said is not included in his budget proposal.

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TAXES

Malloy is under pressure by some groups to increase taxes to help cover the deficit.

The Working Families Organization wants to close what it calls a "loophole," a measure that allows managers of private investment funds to get a preferential tax rate on income known as "carried interest." Working Families contends the state could gain $535 million by scrapping the practice.

Malloy, however, said it's not in Connecticut's best interest to lead that debate.

"We have employers who have a large number of employees in our state, and I just don't think that that's an area that we should stake out," he said.

Malloy has said he is averse to raising taxes in his new budget but hasn't taken higher taxes off the table. On Thursday, he said there will be some tax-related changes, such as adjustments to tax credits and some rates. Later, on Friday, a Malloy spokeswoman confirmed the budget proposal will scrap a popular $200 property tax credit against the personal income tax.

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STATE EMPLOYEES

Last year, about 1,000 state employees lost their jobs through layoffs. It's unclear whether there will be more job cuts this year.

Malloy has said publicly that labor savings will be needed to help balance the budget. His administration has been meeting privately with state employee union leaders, but it's questionable whether those talks will ultimately result in concessions.

If no deal is reached, Malloy said: "I'll have alternatives, if that's what's required." He did not elaborate, saying he didn't want to negotiate in public.

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INSURANCE INDUSTRY

Amid concerns that one of Connecticut's major insurance companies, Aetna Inc., might be considering a move, Malloy's new budget attempts to give insurers a financial boost.

Forty-nine states and Washington have some form of a premium tax. Connecticut-based insurers pay the rate in the state where they are doing business or Connecticut's rate, whichever is higher.

Under Malloy's proposal, Connecticut's rate would drop from 1.75 percent to 1.5 percent, which he said will significantly reduce the tax liability for Connecticut-based insurers conducting business in states with lower tax rates. The Connecticut Business and Industry Association applauded the proposal, saying it will strengthen the competitiveness of the industry, which collectively employs about 58,000 state residents.