Salt Lake City should annex Emigration Canyon to protect the city's drinking water and encourage development of a sewer line extending up the entire length of Big Cottonwood Canyon.

Those two recommendations are expected to be among the most controversial aspects of the city's new Watershed Management Plan. The City Council will hold a public hearing on the plan during its regular council meeting, beginning at 6 p.m., April 5, on the third floor of temporary City Hall, 324 S. State.At the Tuesday meeting, the council will also consider amending the legal description of a $14.9 million bond issue to build housing for the elderly. The housing project has a massive construction deficit, with 41 units of the proposed 330 apartments constructed. The city, which lent its own credit rating to the Housing Authori-ty's Housing Development Corp. for the bond issue, is morally responsible for the $2.4 million shortfall.

Rather than taking the hit immediately, the city's financial advisers have recommended amending the original bond issue. If the council agrees, bondholders would be asked to approve a change in the project that would allow the city to take advantage of changes in the housing market or interest rates while liqui-dating the project. Amending the bonds would cost $30,000, but would allow the city more flexibility, advisers say.

Also on the council agenda is a proposed ordinance tightening restrictions governing sexually oriented businesses, and a resolution approving the budget for the City-County Landfill.

In other action, the council is considering the following board appointments: Nancy Saxton to the Community Development Advisory Committee; Richard J. Howa to the Planning Commission; Grant M. Bur-bidge to the Public Utilities Advisory Committee; C. Reuel Ware to the Central Business Improvement District; and Kathy Sheaffer and Roger Borgenicht to the Housing Advisory and Appeals Board.

The city contracted with the consulting firm of Bear West to create a protection plan to safeguard the city's water rights, exercising its powers of "extraterritorial jurisdiction" as declared in state statute. Land ownership gives the city authority to share zoning jurisdiction with Salt Lake County.

The city owns nearly all the water rights in City Creek, Red Butte, Emigration, Parleys, Millcreek, Big Cottonwood and Little Cottonwood canyons, with authority dating to the turn of the century to protect the watershed.

The watershed plan also recommends raising the monthly water rates $2 to $5 per year to start a land acquisition fund, to purchase land and water rights for critical watershed protection.