WATERVILLE — City councilors Tuesday night voted 7-0 to approve a proposed $36.4 million municipal and school budget for 2011-12.

Two more votes are required on the proposal, which represents a 4.26 percent increase over the current $35.3 million budget.

City Manager Michael Roy issued a message to councilors that said the budget was the most challenging one he has ever prepared, remarks he also issued last year.

Increases are reflected in insurances, negotiated salaries, fuel and a $3 million bond for the public library, Quarry Road Recreation Area and Campus Drive improvements, public works equipment, fire tower truck repairs and the Opera House renovation/expansion.

Roy recommends $1.5 million of surplus be applied to the proposed budget and capital improvements be delayed. While the proposed budget represents a 75 cent tax rate increase, from $24.15 per $1,000 worth of valuation to $24.90, the budget still falls short $114,000, according to Roy.

He recommends the schools make additional reductions in their proposed $20.1 million budget, which represents a 4.37 percent increase over the current school budget.

Roy also recommends the city look at the budget from a 2-year perspective — what officials can do now to ease the burden next year when the city will have less surplus to spend.

“Unless we reach agreement on significant operational reductions, the best thing we can do for next year is to do what should have been done last year — increase taxes a small amount (3 percent),” Roy said in his budget message.

City Council Chairman Dana Sennett, D-Ward 4, said he will ask the city to reduce the proposed $16.2 million municipal budget by $100,000, and ask school officials to reduce their proposed $20.1 million budget by that same amount.

“I’d like to see them make an effort,” he said.

Sennett, a mayoral candidate who is fulfilling many duties of mayor until the June election, said the reductions could be represented in less spending or revenue increases.

Roy said he spoke with Schools Superintendent Eric Haley and Haley expects information on insurance rates for the school system to be released Friday.

“He’s hoping there’s a big change — downward,” Roy said. “He estimated a 10 percent increase, so he’s thinking that’s high.”

Some department heads reported on their proposed budgets Tuesday. City Assessor Paul Castonguay said his overall proposed $150,890 represents a decrease from his current budget. His operating expenses increased $25.

“Overall, personnel was a little less expensive because my new employee is a little less expensive than the old one,” he said.

He explained that the former employee got health insurance for a spouse also.

City Clerk Arlene Strahan reported her budget has not changed much.

“We’re trying to keep it very minimal,” she said. “We did lose money with passports because we’re not an agent anymore and that’s $25 per passport.”

She explained that municipalities were prohibited last year from issuing passports in the same room where vital records are issued.

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