A 3.4 percent drop in average taxable property values apparently won't translate into a tax cut for Palm Beachers.

The Town Council voted 4-1 Tuesday to adopt a higher property tax rate so revenue during the budget year that begins Oct. 1 will be roughly $42.5 million - the same level as this year's.

Councilman Robert Wildrick dissented, saying the higher rate amounts to a tax increase and that he couldn't support that.

Subject to council approval at public hearings in September, the proposed rate would increase from $3.25 per $1,000 of taxable value to $3.36 per $1,000.

The owner of a $3 million property without a homestead exemption would pay the town $9,754, according to the Finance Department. The town collects roughly 20 percent of the property tax revenue its residents pay; the remainder goes to Palm Beach County and other tax districts.

In a separate 5-0 decision, the council tentatively approved a $65.4 million budget proposal from Town Manager Peter Elwell that is 2.8 percent smaller than this year's. Final approval will be in September.

The budget addresses a declining tax revenue picture, tied to the poor national economy, and takes a first step toward addressing deficits that are projected for fiscal 2012 and beyond.

"This budget only stops the bleeding temporarily," Councilman Robert Wildrick said.

The deficit projections are driven by investment losses in the market, enormous employee pension fund increases, and by the cost of employee wages and benefits, council members have said.

Salaries and wages make up roughly two-thirds of the operating budget, and were a driving factor in the robust growth in town budgets from 2000 to 2007, Elwell said.

The new budget keeps funding for salaries flat so more revenue can be shifted to capital improvements.

The budget eliminates 10.4 vacant employee positions, reducing the total roster to 399 without layoffs.

It also implements an across-the-board freeze in employee pay, and provides a moderate savings through health insurance program changes that rely on employees to pay a greater share for premium coverage.

Overtime costs would be cut, and employee pay for extraordinary longevity would be eliminated.

"All of this is transformational," Elwell said. "We're maintaining levels of service while taking strong steps to reduce the cost of town government."

The budget will raise the amount of property tax revenue set aside for capital improvement projects from $1.8 million to $3.4 million. Another $3.6 million will be transferred into the capital improvement fund from the general fund surplus, for a total of $7 million.

There has been a steady decline in funding for capital improvements since 2005, Elwell said.

The town needs to begin setting aside about $6 million a year to meet capital improvement goals identified for the next 20 years. That includes replacement of the town's sanitary sewerage system, work on the storm drainage system, and upkeep of roads, buildings and other aging infrastructure.