Standing side-by-side with Democratic lawmakers, Gov. Dannel P. Malloy signed a two-year, $40.11 billion budget while members of his administration met with state agency heads to discuss the possible layoff of more than 4,000 state employees.

Malloy talked about the layoffs with reporters following his signing of the budget, which assumes he will be successful in securing $2 billion in state employee concessions.

Ben Barnes, Malloy’s budget director, said at a meeting of editors and publishers Wednesday morning that the cost of laying off employees is less than paying fringe benefits over the next 12 months.

“I want to be very clear I don’t want to layoff anyone,” Malloy said Wednesday.

However, there are contractual requirements which require notices to be sent to employees eight, six, and two weeks in advance of layoffs. All unionized state employees are protected by a no-layoff provision until July 1 under a 2009 agreement negotiated with former Gov. M. Jodi Rell, so even though they may receive pink slips later this week their employment won’t end for another two months.

Laying off 1,000 employees only equates to $100 million in savings, so laying off 4,000 will likely equate to less than the $1 billion Malloy is looking for in savings.

Negotiations with the State Employees Bargaining Agent Coalition are ongoing, but Malloy refused to set a deadline for those discussions.

“We’ve said time and time again that laying off employees, public or private, will cost Connecticut dearly,” Larry Dorman, SEBAC spokesman, said Wednesday afternoon. “You don’t want to layoff people and you don’t want to cut services at this perilous economic time.”

Dorman said state employees are doing their best to be part of the solution, but they shouldn’t be the entire solution. He said this budget still doesn’t ask the superrich or big corporations to pay their fair share and contribute to Connecticut’s economic recovery.

But Democratic lawmakers, many of whom are allies of labor, said the budget they passed this week is “honest, tough, and responsible.”

“We made it more fair for the middle income. We shifted it more towards the upper income,” House Speaker Chris Donovan said. “We made sure we took care of the vulnerable citizens in our state. The elderly, disabled, and our kids.”

But it may be hard for the public to ignore the reality of a budget which includes the largest tax increase in state history.

“While it is an accomplishment, this is not a time to celebrate in a traditional sense,” Malloy admitted Wednesday at the bill signing. “We’re aware this budget requires sacrifices on just about anyone who lives in the state of Connecticut or for that matter works in the state of Connecticut.”

“Nobody is ever happy about taxes but I think the issue is whether people believe they’re getting a reasonable trade off for the taxes,” Senate Majority Leader Martin Looney said. “The more onerous ones were dropped out of it.”

He said the fact that this budget maintains funding for municipalities and schools means local property taxes, which many view as more burdensome than other taxes, won’t have to be increased as much as they would have if Malloy had passed along the budget burden.

“This budget that we passed helps our cities and towns,“ Sen. President Donald Williams said. “It does not crush them with devastating cuts designed to result in property tax increases like we’ve seen in other states.”

But if labor concessions fail, Malloy told a group of newspaper editors and publishers, that everything is on the table, including municipal aid cuts.

With municipal spending at around $3.6 and $3.7 billion a year it may be difficult to ignore, if $1 billion in spending cuts need to be made.

House Majority Leader Brendan Sharkey said lawmakers expect Malloy to come up with a plan to bridge the gap if he’s unable to reach agreement with the unions. He said the legislature will evaluate, modify or reject the Malloy’s ‘Plan B’ and ultimately take a vote on it, if that’s necessary.

Republican lawmakers have still been sidelined in the budget process and they’re not happy about it.

“Governor Malloy and his Democrat colleagues own this budget and they are solely responsible for its consequences,” Sen. Minority Leader John McKinney, R-Fairfield, said. “Connecticut taxpayers will be left to pay for the bad choices of the governor and Democrat legislators have made.”

McKinney said not only did Malloy ignore them, but taxpayers who begged him to reduce spending at almost every one of his 17 town hall meetings.