It could have been a lot worse.

Many cities and towns in New Jersey breathed sighs of relief yesterday after learning exactly how much state aid they would receive under the budget proposed by Gov. Corzine on Tuesday.

Overall, the proposal would cut state aid to towns by $32.3 million, or 2 percent, to $1.58 billion.

The vast majority of towns would see cuts of less than 5 percent. A handful could receive larger cuts, and a few are slated for flat funding or increases.

The budget proposal has yet to be approved by the Legislature, which means it could change substantially between now and July 1, the constitutional deadline for a budget.

Municipal leaders were happy the proposed cuts weren't larger.

"We were flirting with rumors of 15 to 20 percent cuts on state aid just a short two weeks ago, so it could have been substantially worse," said William G. Dressel, executive director of the state League of Municipalities.

But, he added, many municipalities are still worried they will have to reduce services and/or increase property taxes as costs for expenses such as health insurance continue to rise.

"The budget that we're in now is $125 million less than the year before," Dressel said. "So the budget to be adopted July 1 is still a reduction that's going to have to be absorbed. It's less of a reduction than we initially thought it was going to be, but it does not mean that's going to offset or mitigate the need for possible property-tax increases or reductions in services."

New Jersey residents pay the highest property taxes in the nation. Corzine said this week that by preserving most of the state aid to schools and municipalities, his budget proposal should help offset the need for property-tax increases.

The average residential property tax bill in New Jersey crept up to $7,045 last year, according to the state Department of Community Affairs, an increase of 3.7 percent over the year before. The DCA said the increase was the smallest in a decade.

Corzine has proposed allowing towns to defer a part of their pension obligations next year. Legislation on the pension deferral stalled in the Senate last year, but lawmakers are slated to vote on another version on Monday. The new bill would allow towns to put off paying half of their pension obligation next year, instead of varying amounts over the next three years. The governor argues that deferring the pensions should help towns keep taxes in check.

In Burlington, Camden and Gloucester Counties, state aid to municipalities would dip by 1.6 percent under the governor's proposed budget. Bass River Township is slated to see the biggest increase, percentage-wise, in the state, from $394,683 to $528,224, or an increase of 33.8 percent, in large part because of an increase in funding from the Garden State Preservation Trust Fund.

Cherry Hill Township saw the biggest dollar decrease in state aid in the tri-county area: $282,868.

"You really can't get angry at anybody, because it's a fact of life what's out there," Mayor Bernie Platt said. "And everybody is suffering - the state is suffering; the township is suffering. Do I wish there could be more that could be done to help us? Yes. We're all pulling our belts tight and trying to do the best we can under the circumstances."

Cherry Hill instituted a range of spending cuts over the last year, including consolidating township publications, merging municipal departments, laying off five employees, charging employees for part of their health-care coverage, and instituting a recycling program that brought in $200,000 in savings.

Additionally, the mayor, business administrator and all but one council member, Frank Falcone, took a 10 percent pay reduction.

Going forward, the governor and Legislature need to change the property tax system, Platt said.

"Somebody is going to have to bite the bullet, [but] I don't think anybody at this point wants to bite the bullet," he said.

Bob Campbell, mayor of South Harrison, a community of about 2,900 people, said the funding cuts will force officials to look more closely at shared service agreements and consolidations.

"We were approached by a neighboring municipality about sharing police services," he said.

South Harrison is among the municipalities with the largest percentage cuts, about 4 percent from last year.

The mayor does not anticipate layoffs but said full-time workers may have to work part-time. He also isn't sure deferring pension payments would help. "I would consider participating in the deferred pension plan, but I'm not sure it's the right thing because all you are doing is deferring the inevitable," he said.

Moorestown Mayor Daniel Roccato said the municipal-aid cuts would result in a tax increase for the town's 20,000 residents. Trenton has a "misguided notion that Moorestown is an affluent community that can make up the difference," he said.

Roccato said the council would look at the pros and cons of the deferring pension payments before making a decision. "What does this mean for us down the road?" he asked. "I don't want to put our taxpayers at greater risk 10 to 20 years from now."

Roccato said layoffs would be at the bottom of the list of ways to make up the shortfall. "We have less employees now than we had 20 years ago when we had far less people in the town," he said. Instead, Roccato said, "we'll cut wherever we can and will try to cut back on services. We've got to go over everything with a fine-tooth comb and make sure every dollar is counted," he said.

Last year, Corzine focused state aid cuts on smaller towns, urging them to share services or consolidate to cut costs.

He and others have argued that New Jersey's multiple levels of bureaucracy - the state has 566 municipalities, for example - contribute to the high cost of living here.

But after an uproar from small towns that argued they were more efficient than their bigger neighbors, Corzine shifted aid back to the small towns.

This year, the budget proposal focuses state aid on lower-income communities. The administration took a similar tack in redistributing school funding, in that case directing aid to districts with lower-income students, rather than focusing on the 31 poor, mostly urban districts designated by the state Supreme Court "Abbott" rulings.

In other words, as far as state aid to municipalities this year, "Alpine will be treated differently than Camden," state Treasurer David Rousseau said.

Contact staff writer Adrienne Lu at 609-989-8990 or alu@phillynews.com.