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A proposed increase in the city's franchise tax on utilities came under strong criticism this week at the Centerville City Council's public hearing on its budget for the coming fiscal year.

Most of the 50 residents who attended the hearing appeared to oppose the proposed increase, although several said that if a tax hike is necessary, they would prefer their property tax rates be increased instead because property tax is deductible from federal income tax.The residents were divided about the council's proposal to buy land and develop a softball field and rec-reation complex, estimated to cost up to $300,000 over the next few years.

Although increases in the franchise tax and water and garbage fees would bring in an estimated $205,000 in additional revenue, the city's proposed 1988-89 budget is only some $100,000 more than last year's, according to City Administrator David Hales.

The difference is in the loss of federal revenue-sharing grants, he said, and the fact that the increased garbage fee is a pass-through, with the money going for higher tipping fees at the county burn plant.

Mayor Dean Argyle gave a "state of the city" presentation before the hearing, outlining progress Centerville has made in its street, recreation, fire protection, flood control and other programs.

The city has also drawn up a 6-year plan to deal with its growth, the mayor said, setting out short- and long-term goals to handle the projected population of 22,000 by 2005 (double the current 11,000) and 30,000 by 2010.

Eventual expenditures include $1.6 million for physical facilities, such as a new city municipal complex and public works building; $1.6 million for streets; $1.5 million for an expanded culinary water system; and $1.3 million for parks and recreation.

For the short term, the proposed budget calls for increasing the utility franchise tax from 3 to 6 percent, the maximum allowable under state law, and adding the tax onto culinary water sales. That will raise an additional $175,000 annually, the council estimates.

The budget also calls for a water rate increase of $1 per month, raising $30,000 a year, and a garbage rate increase of 65 cents per month, passed on to pay for higher tipping fees.

The mayor said the philosophy behind the council's proposal is to keep property taxes low, to attract new businesses, and to increase the franchise tax because it is a more equitable tax.

The amount paid is directly tied to the amount of a utility used, the mayor said, meaning large businesses such as grocery stores pay more while individual homeowners pay less.

But several residents said adding the franchise tax onto culinary water sales will hurt them badly. Many, especially in the new, northern section of Centerville, have no secondary water for irrigation and have to use treated culinary water for lawns and gardens.

And numerous residents and at least one councilman - Bruce Erickson - oppose increasing the franchise tax at all.

Erickson, at the end of the 2 1/2-hour hearing, said he has drawn up an alternate budget proposal that allows the city to do most of the things included in the first proposal, including pay raises for city workers, but without a tax increase.

The city would delay any major building program, such as a new city hall, for three years in Erickson's proposal, putting city workers in temporary trailers if necessary, he said.

Some revenue sources, such as sales tax receipts, state road money and property taxes, are increasing by themselves because of growth, Erickson said. He said he cannot entirely support the budget proposal drawn up by Hales and Argyle because of the number of people in Centerville living on fixed incomes or who, because of the general economic slump, have seen their incomes cut.