The Ames city manager proposed a program budget Friday that includes a 2.28 percent tax rate increase for next year.

According to a report written by Steve Schainker, city manager, the increase will provide the estimated $137 million required to balance the 2005-06 fiscal year budget. Schainker’s report stated the money would be used for various services and capital improvement projects.

Schainker said the city faced three main challenges when putting together the budget.

• The first, he said, was finding enough money to support CyRide because its operation costs have increased with rising fuel costs. To do this, Schainker said, the city proposed a 10 percent increase in funding, equaling $92,555 in taxes.

• The second issue involves a state-mandated police and fire retirement system. Schainker said an additional $240,000 from property tax revenues will be required to support the policy change. This 3.29 percent increase will go into effect July 1, he said.

• The third challenge was the state-imposed rollback on tax-assessed property. The “assessed value subject to taxation for residential properties” changed from 48.46 percent to 47.96 percent, which means there is more than $8 million less available to the city from these taxes, he said.

According to the report, these increases will cost a residential property owner an estimated $9.19 for each $100,000 of taxable value. Commercial property owners and industrial property owners are expected to owe an additional $30.35 and $22.72, respectively, for each $100,000 of taxable value.

Increases in electric, sanitary sewer and storm sewer utility funds were also discussed at Friday’s special City Council meeting.

The utilities budget is to be discussed at the next City Council meeting at 5:15 p.m. Tuesday at City Hall.