The Holly Springs City Council is eyeing a millage rate increase for its upcoming budget and may also need to dip into its reserves.

During its retreat Saturday, the council reviewed a draft budget for the upcoming fiscal year, which begins Jan. 1, with Finance Director Robert Porche.

While the budget calls for $4 million in expenditures, revenues are projected at $3.78 million, resulting in a $275,000 shortfall. The current budget is $5.5 million.

The draft budget is based on a millage rate increase to 5.148 mills, up from the current rate of 4.865 mills.

The increase is considered a "revenue neutral rollback," as the majority of property owners saw their assessed valued decrease by the same percentage.

The owner of a $200,000 house with the standard $5,000 exemption paid $364 last year in city property taxes. If their assessed value stayed the same, their bill will increase to $386. If the value declined by 8 percent, the average in Cherokee County, their bill will decrease to $351.

The city also has about $500,000 in reserves, which could be used to cover the $275,000 shortfall if no room for other cuts is found.

Mayor Tim Downing said almost the entire shortfall is because the city matches required for state grants to fund downtown improvements.

He said the city government can turn down the grants, but they first will look for elsewhere to trim the budget to keep the state money.

"We are looking at each individual department so that the city can realize those grants," he said.

He said he doubts the council would look at raising the rate beyond the rollback.

"I don't see how that would be a responsible thing to do," he said.

Downing said the search for a new city manager has been put on hold and the position is "frozen" to bank the salary costs back into the budget.

He said the position will stay frozen through the end of the year, and the council will re-evaluate the position at the beginning of 2011.

Councilwoman Dee Phillips said she wants to see the millage rate stay as low as possible.

"We were trying to hold it as low as it can be while making sure it is not impacting services," she said. "We got all the department heads going through their individual budgets to find any cuts."

Councilman Jeremy Smith said he is hopeful the departments can find spending to trim.

"I would prefer to not dip into the reserves," he said.