On Tuesday afternoon, the Monterey City Council informally reviewed its proposed $71.5 million municipal budget for 2002 to 2003. As with so much else, the September 11 terror attacks lurked in the background.

Within months of the attacks, a $3.6 million budget gap was forecast. The council suspended some projects, eliminated some positions and called for ideas about how else to close the gap.

For the new budget, the city is proposing some $1.8 million in reductions of current costs. There are also proposals to poach from various reserve funds to come up with $1.2 million in cash for the general fund.

On the revenue side, the city is proposing $772,000 worth of increased city fees for everything from the library to the sports center to building permit fees.

One reduction cuts $506,000 by shifting personnel and leaving open some vacant positions. Thousands more are cut by reducing costs on everything from public forums to the annual city employee breakfast.

Some new expenditures are proposed however, including $55,000 to study the economic feasibility of buying and renovating the city''s historic State Theater. (Please see cover story.)

The June 4 meeting was just a discussion and presentation from staff for the city council. A public hearing on city spending is scheduled for June 18, when the city council will adopt its spending priority plan. The current budget expires at the end of June.

The city''s general fund budget for 2002-2003 is $44.3 million, less than last year''s budget by 0.4 percent. The general fund pays for a wide array of city functions. There are also special funds such as the parking and marina funds. Those funds combined with the general fund make up a total proposed city budget of $71.5 million.

Like other tourist towns, Monterey relies heavily on a hotel room tax, called the Transient Occupancy Tax (TOT) for budget revenue. According to city records, the TOT revenue for the 2002-2003 budget is $11 million, a 12 percent drop from last year. The drop is blamed on a sharp post-Sept. 11 decline in nationwide travel and visitors to the Peninsula. With airlines temporarily grounded and the public jittery, hotels reported high vacancy rates almost immediately.

Along with a budget review the city council will also be inspecting its priority list for 2002-2003 this month. Included on the list are completion of the Windows-on-the-Bay project, a plan for the revitalization of the North Fremont business zone as well as beginning planning and construction of a new $16 million city hall.