Lancaster City Council approved a 2009 budget Tuesday that includes a 5 percent tax hike for city property owners.

The increase takes the current 9.18-mill tax to 9.64 mills and means an additional $39 in taxes for the owner of a home valued at $75,000.

Finance chairwoman Kendra Saunders said raising property taxes is the only way to address a projected revenue shortfall brought on by the nation's sluggish economy.

In 2009, the city expects to see a 37 percent, or $300,000, drop in building permit revenues; a 50 percent, or $450,000, decrease in interest earnings; and a 10 percent, or $115,000, drop in real estate transfer tax revenues.

The $46 million spending plan, which was presented to council by Mayor Rick Gray Nov. 25, represents roughly a $1 million, or 2.4 percent, increase from 2008.

Real estate taxes are expected to bring in $18.2 million in 2009, nearly 40 percent of revenue.

Licenses, permits and fees account for about 22 percent, other taxes for 19 percent and other income for about 11 percent.

Gray said he's not pleased with the tax hike but said the budget did not allow for much financial leeway, especially when personnel costs account for 81 percent of the spending plan.

"In no way do I think this budget is extreme, and I certainly do not think our employees are overpaid," Gray said. "We are pretty much bare bones right now."

Gray said he began the budget process intent on not raising taxes but said it "became virtually impossible for us to do that in any kind of responsible manner."

To help balance the budget, the city will dip into its reserves for $3.6 million, about 8 percent of the budget.

Without using those funds, Gray said, the city would have been looking at a 25 percent tax hike and drastic personnel cuts.

Gray said it's important the city works to develop additional sources of revenue so future budgets can be balanced without depleting reserves.

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