Port Moody's property tax rate will rise 3.5 per cent this year -- down dramatically from the eight-per-cent increase council was considering.

But the reduced rate hike will come at a cost, as council has told staff to cut $700,000 from the city's operating budget.

And Mayor Joe Trasolini would not rule out cuts to police and fire departments.

"We issued a set of requirements to staff so that our tax increase this year would be no more than 3.5 per cent," Trasolini said, referring to a meeting of the city's finance committee on Tuesday evening.

"So, in a sense, it is a savings of over $700,000 from our operating budget, which will allow us to keep our tax increase in the range of 3.5 per cent this year."

Trasolini said he did not have specifics as to what would be cut.

"Each department is going to be asked to shave off something in the neighbourhood of $40,000, and that includes the police department, fire department, that sort of thing," he said, when asked whether cuts would be made to public safety.

City manager Gaetan Royer said Wednesday the direction from council is so new that staff are "basically absorbing the information and making sure that we implement council direction as closely as possible."

Royer said higher-than-expected revenues at the Boathouse Restaurant in Rocky Point Park, which the city gets a cut of, would ease budgetary pressures by $27,000.

As for cuts, $90,000 will come from a change in how the city's finance department calculates benefits paid to both management and CUPE employees -- the benefits themselves will not be cut, but the city will no longer preserve a buffer in this category.

Another $109,000 in savings will come from attrition, as the city digs into a surplus created by retirements and other vacancies among its staff of 300.

The five departments Royer oversees -- library, finance, engineering, community services and fire -- are being asked to cut a combined $200,000 from their budgets, but he said it's too early to tell what form those cuts would take.

"I don't have details that I can provide to you because we're going to be discussing this over the next few days," he said.

"In terms of how tough a year this was, it's quite obvious that it was a tough year. We had a number of items that were approved last year that had their main impact this year.

"Cities are in the construction business and, obviously, construction inflation is much higher than inflation at the grocery store. Everybody knows that it's a lot more expensive to build anything today, and cities, for about half of what we do, we're in the construction business.

"We build roads and sewers and, even when we maintain our facilities, we use construction trades, so it was very tough to come to 3.5 (per cent). I have to commend council for what they've done."

After council's directive Tuesday, Royer said the city's new operating budget is $22 million.

He added that the 3.5-per-cent increase is the lowest in the Tri-Cities, and one of the lowest in Metro Vancouver.

It doesn't include utility tax rates, which have not yet been set.

Staff have been directed to report back to the city's finance committee by April with details on how departmental cuts will be made.