Gov. Dannel P. Malloy has said that everything except raising taxes is on the table as the state moves to close its projected budget deficit. That includes programs which reimburse providers who serve the state’s most vulnerable populations.

That’s a problem for some providers who say they’ve spent decades trimming fat and have nowhere else to cut.

The governor heard as much Monday from Pat Johnson, president of Oak Hill, one of the state’s largest private nonprofit service providers for people with disabilities. Johnson serves on Malloy’s Cabinet on Non-profit Health and Human Services and gave a report on the status of the state reimbursements to providers. What his working group found wasn’t encouraging.

“For the past 10 to 20 years there has been a consistent pattern of underfunding with annual increases of less than 1 percent per year in our state contracts. With fixed cost increases every year, this represents a de facto annual cut,” he said.

Johnson said the nonprofit service provider community has gone years without a cost of living adjustment. When the last COLA increase was granted, gasoline costs were around $1.67 per gallon, he said.

As a result, he said they’ve already been grappling with how to balance their budgets. Two years ago, 43 percent of nonprofit providers were running deficits. Many were dealing with chronic cashflow problems, he said. Johnson said around 72 percent were in danger of going out of business if any event adverse event occurred.

“For the past decades, budgets have essentially been balanced on the backs of our employees, with cuts to wages and benefits, with little or no increases during that time period,” he said.

Johnson said his group was recommending the state cover the costs of the care that’s being provided.

“There’s little likelihood that what we’re currently doing is sustainable,” he said.

After the meeting, Malloy didn’t disagree with the information Johnson gave and acknowledged the providers have been long underfunded. He said his administration was trying to shield social and education services from painful cuts as much as possible.

“I think everything is on the table. In saying that everything is on the table, there’s no doubt that social services and education services are a very high priority of this administration. So we’ll see where we end up in the weeks to come. But my heart goes out to these folks and the hard job that they do in providing levels of services to 500,000 of our Connecticut citizens,” he said.

During the meeting, Malloy told Johnson he wished the economic recovery had been stronger. He blamed some of the lagging economy on last year’s “crazy” debate in Washington over raising the debt ceiling.

The governor said the state’s economy will eventually improve, but in the meantime, he pointed to the state’s reduction of its own workforce by 14.5 percent over the last two years.

“I know pain,” Malloy said. “I’m the victim of it and I’ve inflicted it sometimes, I suppose.”

Malloy said the state needs to be willing to terminate programs that are less effective than others. The cabinet’s work collecting data on the effectiveness of its programs will help the state determine which programs aren’t as effective and put more money toward the ones that are, he said.

Following the meeting, Johnson said any cuts made to nonprofit service providers will be “dramatic and significant.” He said providers were still waiting on specific cuts before they know the full extent of the impact.

“Given the amount of money [Malloy’s asking for] and the fragility of the private sector, the impact will be dramatic, there’s no avoiding that,” he said.

Faced with rising expenses and a fixed income, Johnson said providers are already in a position where they’re paying their employees very little. It’s a phenomenon he said his colleagues have referred to as the “Walmart-ization” of the industry. It has gotten to the point where some of their employees now qualify for assistance programs themselves, he said.

“It will be very difficult for the agencies but, at the end of the day it’s about the people we serve,” he said. “Those are the ones whose services are going to suffer.”

Johnson said the industry already was at a tipping point before the cuts. He said he would like to ask state officials where he should cut. Services for the blind? Programs for the disabled or those with chronic mental illness?

“It’s not like we can just cut them and they go away. These people need services,” he said. “Frankly, I have nothing left to cut.”