BEDFORD -- Bedford is facing financial woes as city officials work on a proposed budget for the upcoming fiscal year.

The city's tax base is growing, but it is not keeping up with rising costs associated with the services residents receive, said City Manager Charles Kolakowski.

To balance revenues and expenditures, the Bedford City Council is considering a proposal to decrease the upcoming fiscal year's budget by 4 percent from this year's budget while raising the real estate tax by 3 cents. The real estate tax rate is currently 81 cents per $100 of assessed value.

"A one-penny increase in the real estate tax rate translates to revenue between $33,000 and $34,000," said Mayor Skip Tharp.

A 1 cent increase would not even make up for the $50,000 reduction in state funding the city expects.

City officials also are proposing a 2 percent increase in water and sewer rates and a 6.7 percent rise in solid waste collection fees, which would take effect in January.

The council will hold a public hearing at 7:30 p.m. May 27 in the Municipal Building to consider adopting the proposed budget, raising the real estate tax and increasing water, sewer and solid waste rates.

"Believe it or not, this isn't even close to the worst budget I have ever worked on -- but it isn't the best," Kolakowski told the council Tuesday evening.

The proposed $17 million budget allows for minimal capital improvement projects and level funding to keep the city operating as it has been.

"I would caution that this budget and this level of spending cannot be sustained for a long period of time," Kolakowski said.

Aging infrastructure, rising energy costs and increased expenses related to services contracted with the county, such as social services and schools, hit the city especially hard this year.

And Kolakowski is advising that the trend may continue.

The dam at Stoney Creek Reservoir, the city's main source of water, is in desperate need of an upgrade, he said. The city received a $5 million grant from the state but the project will cost $6 million to $7 million, depending on the cost of concrete, Kolakowski said.

Under the proposed budget, the city's staff will be reduced by five positions -- four from public works and one from the police department -- to accommodate shrinking revenue. City employees, however, will receive a 2 percent cost-of-living raise under the proposed budget.

"Our city is not any different than any business, facing the cost issues we are," Tharp said.

Earlier this year, city officials announced plans to explore the benefits of reverting to town status. The change could be fiscally advantageous because the town could rely on Bedford County for some shared services.