Utilities director Albert L. Perez told commissioners this week that dramatic increases in the cost of fuel, insurance and construction materials has led to a $5.6 million shortfall in his department.

Under the combined surcharge rates, residents who use the typical household average of about 7,000 gallons of water each month will see an additional $8.26 in their monthly bills. The total amount of the surcharge is based by a standard usage fee and the actual water consumption.

On Monday night, about 200 residents showed up to City Hall to protest next year's budget and to urge commissioners to lower the property tax rate.

Officials agreed to lower the rate by a fraction, but many homeowners will still be saddled with higher bills because of rising property values.

Initially, officials were to impose the surcharges for the next four years. But during a special hearing last week, commissioners sensed the public's ire and insisted on scaling the surcharges back to only a year.

To make up the difference, Perez said he plans within six months to come up with a tier payment system that will reward customers who conserve water and penalize heavy users.

Only about half the city's residents are connected to the sewer system. The rest, who use septic tanks, will still be liable for a water surcharge.

In a 5-2 vote, city commissioners agreed last year to raise the water rate 7 percent in 2006, 6.5 percent in 2007 and 6 percent in 2008 and 2009.

But budget constraints have put a halt to some of the much-needed work, such as repairing sewer lines along Taft Street and repairs to the wastewater treatment plant. Some of the pipes and structures 40 years old, said Perez, who called them "a time bomb."

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