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City employees here shouldn't expect a pay increase in the 1991-92 fiscal year budget because the city may be short $1.7 million.

Assistant City Manager Nate Pierce said Friday that the budget process is just now getting under way, and it appears the city may have to increase taxes or cut jobs in order to offset the shortfall."There's going to be some real tough policy decisions made by the City Council to balance the budget," said Pierce.

According to tentative figures, next year's proposed budget is short in expected revenues by $1.7 million. Pierce said that part of the shortfall was created when the city put an additional $500,000 in the equipment replacement reserve, allocated $325,000 to fund a transition in the form of government and experienced a $500,000 drop in expect franchise tax revenue.

The city last year elected to change the form of city government, replacing a part-time mayor with a full-time position. A full-time mayor will be elected this fall.

Pierce said the tentative figures are "premature" and maybe a "little overstated," and the assistant city manager said the city has options to consider in meeting the deficit.

Instead of raising taxes or cutting 25 jobs, Pierce said, the city could get help making up lost revenues by having its own ambulance service.

"There is good revenue to be made if we had our own ambulance service," he explained."It's a good moneymaker."

City staff has about two months before they present the budget proposal to the council May 2. Public hearings begin on May 30, and the council is expected to adopt the final budget on June 6.