A controversial spending plan for fiscal 1986-87 was narrowly approved by the City Council on Monday. In a 3-2 vote, the council agreed on a $36-million budget, contingent on a 1% increase in utility taxes and revenues of $1.9 million to be generated by a citywide assessment district.

A final decision on the assessment district, however, will not be made by the council until after a public hearing on the matter July 22. A number of residents have reacted angrily to plans for the assessment district, an idea which was turned down by voters in a 1984 advisory referendum, although the council was not legally bound by the vote.

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