After hearing strong public support and protest, the Madison City Council on Wednesday preserved up to $16 million in public assistance for a proposed $93 million redevelopment of The Edgewater hotel in the 2010 capital budget.

In doing so, the council gave Mayor Dave Cieslewicz his second major capital budget victory. The council on Tuesday agreed to the mayor's financing plan for a $37 million central library at North Henry and West Washington Streets.

The council approved a $193.6 million capital budget on a voice vote.

"I think this really is a historic capital budget that people will remember," Cieslewicz said.

The council made only modest changes to the mayor's proposed operating budget "for hard times" for next year, and on a voice vote early Thursday morning approved a $239.8 million spending plan that increases city taxes 4.1 percent ($76) to $1,936 on the average $245,000 home.

Overall, city tax collections will rise 5 percent to $173.8 million.

The operating budget, which increases spending just under 1 percent, protects basic services and has no sweeping initiatives.

The budget adds an eighth paramedic unit, combines crime prevention and gang units in the Police Department, uses civilians for four police positions now serving the Municipal Court and contracts for security there, and adds 11 more officers if the city gets a federal grant.

Also, the budget moves the Streets Division from weekly to twice-monthly pickup of large items and drops a defined schedule of curbside brush pickup.

Due to the tough economy, the council added $100,000 to boost community services and $25,000 to help the homeless.

The operating budget includes no layoffs, mandatory furloughs or pay cuts.

The mayor said he was "disappointed" that the council added about almost $400,000 to the operating budget but nonetheless promised to sign it.

Unlike most years, the big, controversial initiatives were in the capital budget. The library is the largest city building project since Monona Terrace opened in 1997 and the $16 million in tax incremental financing for the Edgewater would be among the city's largest TIF investments.

The library will move forward but the TIF "placeholder" for the Edgewater doesn't guarantee the council will later approve the Edgewater project or any TIF money for it. The TIF money is for a public terrace, stairway to Lake Mendota and underground parking.

The council, however, was especially interested in keeping the Edgewater proposal alive because of its potential to create hundreds of jobs.

"We do want to get (Hammes) from here to yes," Cieslewicz said, referring to the development company behind the Edgewater proposal.

The council, despite concerns from Alds. Jed Sanborn and Thuy-Pham Remmele that the city is borrowing too much money, approved a capital budget that includes $102.9 million in borrowing and $90.7 million from other sources.

All told, the council added $4 million in borrowing and a total $7.76 million to the mayor's original proposal.

"I'm not setting off the alarm of Armageddon, but this is something we should be very concerned about," Sanborn said.

The council rejected several proposals by Sanborn to cut the capital budget and added $5 million in borrowing to buy lands for future redevelopment, including the long-vacant Union Corners site at the corner of Milwaukee Street and East Washington Avenue

Most items in the mayor's proposed capital budget were approved without debate, including a new ambulance for the Far West Side and $35 million for streets projects, water mains, and bike trails.

"I think Jed raised many legitimate concerns," Cieslewicz said. "But the investments we are making are really important. They're going to help build our economy."

On the Edgewater proposal, public testimony Tuesday night set the stage for a passionate but respectful debate on Wednesday.

Robert Dunn, president of the Hammes Co., who had warned that deleting the TIF money from the capital budget could kill the project, said the redevelopment offers unprecedented opportunities.

"Give me a chance to demonstrate how this can be come one of the greatest assets in our Downtown," Dunn said.

Labor representatives and Downtown business interests strongly backed the project as a source of desperately needed jobs and an economic catalyst. But opponents criticized Hammes for "tawdry tactics" and "outright deceptions" in presentations to the community.

Ald. Michael Schumacher, 18th District, initially offered an amendment to delete the TIF money for The Edgewater because the city has only begun its review of the project. But he offered a compromise on Wednesday that keeps the money in the budget but withholds the assistance until terms of the loan including guarantees on a repayment schedule, public access, jobs and other details are completed.

The compromise, approved 17-3, allows the council to later approve the TIF investment with a simple 11-vote majority. If his initial amendment had passed, a tough-to-get 15-vote super majority would have been needed to add the money to the budget.

"We're not giving away any money now," Schumacher stressed. "There's a lengthy process ahead."

Alds. Bryon Eagon and Shiva Bidar Sielaff criticized Schumacher for initially offering draconian amendments that could have delayed the library and Edgewater, only to follow with compromises that resemble what the city would have done as a matter of course.

The council rejected language by Ald. Satya Rhodes-Conway, 12th District, to require Hammes to allow a union for permanent hotel employees and use union labor for the project.

On the $5 million for buying property, council President Pro Tem Mark Clear said the concept would allow the city to buy lands at favorable prices so the property can be developed in a way that's in the city's interest.

But Pham-Remmele called the program fiscally irresponsible and "a gift to the current owners."

Among 24 proposed capital and operating budget amendments, the council also:

• Preserved $1.88 million in TIF funding for improvements around the Capitol Square.

• Added $1.2 million for improvements at James Madison Park, provided the city can lease properties there for the revenue.

• Preserved $375,000 in borrowing for improvements at Central Park on the Near East Side.

• Added $55,200 to restore positions at Madison City Channel and the Planning Division.

• Refused to add $30,000 for public-access TV station WYOU.