A public hearing to increase the city's franchise tax by 1 percent, raising an additional $46,000, will be held at the Centerville City Council meeting Tuesday.

The hearing is set for 7:40 p.m. in the council meeting room at city hall, 521 N. Fourth West.The council is also proposing to roll back part of the water rate increase it just approved, reducing the increase from $2.50 to $1.50 a month, and taking about $30,000 out of the water fund.

The city council has been wrestling with the Centerville budget since May, when the first tentative budget calling for a 3 percent franchise tax increase and higher water rates was submitted by the mayor and city administrator.

The tentative budget also called for imposing the franchise tax on city water use, which caused a public outcry at the city's first hearing in May. Residents said those without secondary irrigation water systems and who rely on city water for their yards and gardens would be doubly penalized.

Mayor Dean Argyle has a list of capital and physical improvements he believes the city needs to make in the next six years, ranging from street and sidewalk improvements to a new city maintenance building and recreation complex.

The council split widely over the proposals, with some members backing the tax increase and others vehemently opposing them.

Councilman Doug Nielsen drew up an alternatve budget which he said allowed for the projects without tax increases. His fellow council members refused to back it, calling it unrealistic.

Some council members are worried that increasing franchise taxes will hurt businesses, which are major users of gas and electricity, and the city's attempt to expand its tax base by luring new businesses to town will suffer.

No increase in the city's property tax rate was considered. In fact, council members pointed out, the city's property tax has fallen, although almost microscopically. The owner of an $80,000 house will pay about $1 less in property taxes this year.

The budget passed in late June, just before the July 1 start of the new fiscal year, was a compromise and apparently pleased neither the mayor nor most of the council members. Minutes after passing it, they began discussing how it could be amended and set the public hearing Tuesday, required by state law, to consider the franchise tax increase.

Under the new proposal, the $46,000 in new franchise tax money will be divided between street and park development projects.

Although reducing the city's water fund by $30,000, the reduction in water rates will not preclude the city from making some needed improvements to the water system, according to administrator David Hales.

The funds for two planned proj-ects will be taken from the city's water fund rather than the capital improvements fund, he said.

Although the city's water fund continues to run a deficit, Hales said part of it is attributable to the depreciation fund, which is a non-cash expense.