Christine Stuart file photo

As promised Republican Gov. M. Jodi Rell has vetoed the Democrats’ budget proposal saying, “It is neither balanced nor remotely realistic.”

The veto came Wednesday as she met privately at the governor’s residence with legislative leaders in an effort to craft a new two-year budget. According to sources, the two sides met for close to seven hours Tuesday, the same day Rell signed an executive order to continue state services without a budget in place.

Even though Democrats hold a majority in both the House and the Senate, their $35.58 billion budget proposal, which raised taxes $2.5 billion on the wealthy and businesses, didn’t win enough support for lawmakers to override a gubernatorial veto.

Further complicating matters, the fiscal year ended Tuesday with a $911 million deficit—despite efforts to mitigate the shortfall.

While revenue seems to have improved slightly, State Comptroller Nancy Wyman said Wednesday that the biggest drop was a $10 million dip in the payroll-withholding portion of the income tax. She said the state has lost more than 63,000 jobs since May 2008.

“Connecticut’s job picture has been in steady decline for more than a year and the income tax has bottomed out right along with it,” Wyman said in a press release.

According to Wyman, overall collections of the income tax, including capital gains payments, are down 15 percent from last year. The tax was expected to bring in about $7.6 billion, but will likely fall about $1.3 billion short of that estimate.

The sales tax, expected to produce about $3.7 billion, will bring in about $420 million less than projected. Taxes that corporations pay on profits are expected to fall about $200 million under the original estimate of about $790 million.