Like some other states, Connecticut is facing a budget shortfall. And in part because of its shrinking finance sector and dependence on personal income taxes for revenue, state lawmakers, a majority of whom are Democrats, are finding themselves in a fiscal pickle.  Forced to rely heavily on its highest earners to fill the state’s coffers, and fearful of alienating more of the highest-earning residents after a tax increase last year, legislators are not entertaining additional taxes on the rich.  “We’d price ourselves out of the market,” said Gov. Dannel P. Malloy, a Democrat, if the state tried to make up for its $922 million shortfall with a “millionaire’s tax.” The revised budget Mr. Malloy proposed on Tuesday covers the shortfall, incorporating cuts to expenses and jobs — as many as 2,500 state positions could be eliminated — but no tax increases.  Connecticut faces a new economic reality, Mr. Malloy said in an interview on Saturday. High-paying finance jobs, which helped the state’s budget, are not expected to return to pre-recession levels.  Last Monday, 165 state employees were laid off from social-service agencies, among the total 262 workers last week, with more layoffs expected this week. “We wouldn’t be doing this if we weren’t seeing a shortfall in revenue,” Mr. Malloy said.  One of those laid off was Gail DeMarco of East Lyme, a supervising psychologist who has a college student and a high school freshman.  Ms. DeMarco said she was aware of the state’s fiscal crisis, but because Mr. Malloy had emphasized the importance of mental health services, she did not expect layoffs to include jobs like hers — therapists working with traumatized children and at-risk teens.  But last Monday, after arriving for work at the Connecticut Juvenile Training School, Ms. DeMarco, a union member, was let go from her $91,600-a-year job.  She said she worries “about the kids who have already had significant trauma in their lives, and they are then re-traumatized by this sudden loss of people they have relationships with, who are advocating for them.”  Mr. Malloy said during a budget address in February that Connecticut needed to “align state employee benefits with our present economic reality.” His current budget proposal asks nonunion employees to pay a greater share of their health care costs.  A union representing health care workers launched a television advertising campaign in early February called “One Connecticut.”  It is designed to put a face on state workers, said Jennifer Schneider, a spokeswoman for the health care workers union that represents the largest group of state employees. The third commercial in a series was released last week, and features a mother, a military veteran and a visually impaired client of a social-service agency saying they stand with state workers.  “There are other ways to close these deficit holes instead of coming back to middle-class workers,” Ms. Schneider said. “If we lose 2,500 jobs in the state, that’s only going to harm our economy more.”  With deficits also expected in the coming years, Mr. Malloy and members of the state’s General Assembly increasingly find themselves on a tightrope.  States typically generate just over one-third of their revenues from personal income taxes, and another third from sales taxes, according to the National Conference of State Legislatures. Connecticut, by comparison, relies on personal income taxes for more than half of its revenue.  While the number of jobs in Connecticut has returned to pre-recession levels, lower-wage positions in finance have taken the place of high-paying jobs, according to a report by the Standard & Poor’s credit ratings agency. That shift translates to lower personal income tax revenues, in a state that relies so heavily on income taxes. “That makes or breaks Connecticut,” said Arturo Perez, a fiscal research analyst at the National Conference of State Legislatures.  In the long term, Connecticut faces a grim balance sheet. For decades, the state did not fully finance its pension plans, and Connecticut now carries more than $26 billion in unfunded pension liabilities.  The fiscal challenges in Connecticut have spurred some of its wealthiest residents to leave, said one Republican lawmaker. According to published reports, they include the billionaire entrepreneur Thomas Peterffy and the hedge fund manager Edward Lampert, both of whom moved to Florida. Florida does not have a state income tax. Some studies dispute the claim that higher state taxes cause wealthy residents to leave.  The lawmaker, L. Scott Frantz, a state senator from Greenwich, said, “The legislature can’t balance a budget to save its life, and with other shortfalls going forward it does not look pretty for the state of Connecticut unless we as a General Assembly get our act together.”  Mr. Frantz said he thinks Mr. Malloy has a deeper understanding of the state’s tax base today than when he entered the governor’s office in 2011.  “He knows that he can’t afford to lose one more taxpayer,” Mr. Frantz said. “If he wants a halfway decent legacy, he’s going to have to make sure this fiscal house is dramatically improved.”  An earlier version of this article misidentified the group that started the “One Connecticut” television campaign. It was a union representing health care workers, not a consortium of 16 unions. The article also misidentified the people featured in one of the campaign’s commercials. Only one of the people featured was a client of a social-services agency, not all three.  A version of this article appears in print on April 18, 2016, on page A18 of the New York edition with the headline: Connecticut Cuts Jobs but Avoids Tax Increase in State Budget Crisis. Order Reprints| Today's Paper|Subscribe
Starting with a wave of layoffs last Monday, and despite union advertising, Gov. Dannel P. Malloy has focused on trimming overhead as taxable personal income has declined.