State aid to towns throughout Connecticut might plummet in the next fiscal year, and New Haven is expected to be among the hardest hit.

According to a report issued Monday by the Connecticut Conference of Municipalities, more than half of Connecticut’s 169 cŒities and towns will receive diminished state funding unless the General Assembly and Gov. John G. Rowland institute corrective changes in the second year of the state’s budget. If Rowland and other legislative leaders fail to pass such budget reforms, the bulk of the loss will be shouldered by taxpayers.

New Haven is projected to lose up to $2.5 million in overall state aid and $4.6 million in non-education aid for the 2002-2003 fiscal year, the report said.

These estimates do not account for losses due to the payment-in-lieu-of-taxes program, also known as PILOT.

Because state law makes land for private colleges and hospitals tax-exempt, municipalities need some way of recovering the lost revenue. The role of PILOT, which debuted in the late 1970s, is for the state to reimburse Connecticut towns who lose funds because of the law.

But some people believe PILOT is not providing adequate reimbursement.

If New Haven were fully reimbursed for the tax value of its private colleges and hospitals, it would receive $36.5 million from the state, said Kevin Maloney, public relations director for the Connecticut Conference of Municipalities. It currently receives only $27.3 million.

“In fact, the state has never completely funded towns under PILOT,” said state Rep. William Dyson, of the 94th district. “Towns like New Haven have property that ought to be taxed, so they should be reimbursed fully for that property.”

Under a budget amendment, reimbursement for new business equipment — also covered under PILOT — will be reduced in the coming fiscal year.

Another point of contention regarding the budget is the proposed discontinuation of the revenue sharing grant. The grant currently mandates the state to distribute certain funds at the end of the fiscal year throughout Connecticut’s municipalities. However, the grant has only been in place during years of surplus, so the state has been able to comfortably afford these year-end payments. Making the grant permanent would be a large boon to the towns but a possible drain on the state, should it have to give money during non-surplus years.

Rowland and other legislators have the chance to recommend changes to the budget in February 2002.