Connecticut towns are banking on getting millions of dollars in state aid payments when the new fiscal year starts Wednesday, but what happens if the state has no budget by then?

Gov. M. Jodi Rell says she'll use emergency powers to make necessary payments - including state payrolls - to keep Connecticut's government operating, regardless of a budget impasse. Beyond that, though, spending will be at her discretion.

"Anything that, by law, must be paid will be paid," Rell spokesman Rich Harris said Thursday.

Rell's staff declined to say exactly what she'd consider legally necessary, so theoretically payments to local school systems, town governments and nonprofit agencies might not make the cut.

"At this point, the governor doesn't want to discuss theoreticals," Harris said. "If it comes to that, we'll address those issues. But we're still hoping to have a responsible, affordable budget by July 1."

The first state-aid payments to towns are due on July 1 to pay for millions of dollars of road repairs; those grants represent major income for rural towns with small tax bases but plenty of highways to maintain. James Finley Jr., executive director of the Connecticut Conference of Municipalities, said it's essential that towns get paid on time because they're operating on tight cash flows with little room to maneuver.

"In this economy, they're handicapped because they've tapped their reserve funds, their investment income is practically nil and it's tough to go into the bond market," Finley said.

He said Rell's staff has informally assured him that municipal aid will qualify as "essential" if she must issue week-by-week spending orders.

There is no threat of a government shutdown this year, and it appears that Rell has the upper hand - at least in the short term - if the impasse with the Democratic General Assembly goes past Tuesday night, when the current budget expires. Attorney General Richard Blumenthal concluded during a protracted budget stalemate in 2003 that governors have legal authority to temporarily run the state's expenses by executive order, with wide latitude to decide what money must be spent and what expenses may be deferred.

Democratic lawmakers in 2003 balked, publicly complaining that then-Gov. John G. Rowland was deliberately shortchanging nonprofit mental health agencies and social services as he doled out his weekly payments. In late July of that year, he infuriated Democrats by announcing a 48-week executive spending order - effectively giving him one-man control of all state spending for the year until lawmakers adopted a new budget. The next day, lawmakers worked out a deal, and by mid-August the state had a new budget.

Blumenthal's staff said Thursday that the attorney general's legal opinion from 2003 still stands, and Rell's staff has cited it when announcing her preparations for an executive order to take effect Wednesday.