The District's chief financial officer said yesterday that the city's hot economy and real estate market will generate an additional $90 million in tax revenue this year and next, freeing up more money for spending increases or tax cuts.

Natwar M. Gandhi's announcement comes as the D.C. Council enters the final days of negotiations over the fiscal 2006 budget. The council might deliberate over the weekend to meet a Tuesday deadline for adopting a budget.

Gandhi said the estimate is based on higher-than-expected property, income and corporate tax collections. He also cited strong sales tax revenue -- aided by the presidential inauguration, the opening of the National Museum of the American Indian, the much-improved play of the Washington Wizards and the arrival of the Nationals. He projected an additional $49.6 million for the current fiscal year and $40 million for the fiscal year that begins Oct. 1.

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Before Gandhi's announcement, some council members proposed spending an additional $107 million in fiscal 2006 on schools and social services. They said that after years of rebuilding the city's physical infrastructure, it is time to spend more on the poorest residents.

"What about the deferred maintenance on human beings, on our children, on our families?"' asked council member Vincent C. Gray (D-Ward 7). "If we are blessed to have a surplus, it is time to spend it on education and our crumbling school buildings.''

Sponsoring the proposal with Gray are Adrian M. Fenty (D-Ward 4), Kwame R. Brown (D-At Large), Jim Graham (D-Ward 1) and Marion Barry (D-Ward 8). The spending increases would include $50 million for rebuilding schools and eliminating the threat of teacher layoffs, $20 million for child day care and funds for homeless services, substance abuse treatment and low-income housing.

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Other council members have ideas about what to do with surplus funds. Jack Evans (D-Ward 2) has outlined more than $190 million in property and other tax cuts. Chairman Linda W. Cropp (D) wants to earmark $10 million for debt service on general revenue bonds to finance $100 million in school and library renovations. Kathy Patterson (D-Ward 3) is looking for an additional $15 million to forestall teacher reductions.

Mayor Anthony A. Williams (D) cautioned council members to be prudent about spending. Williams -- whose $4.9 billion 2006 budget proposal would increase spending 17.1 percent -- said any additional revenue should go into one-time projects, such as road paving.

"I'm aware that there's an election coming up, and if there's money on the table, people want to spend money," Williams said.

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Gandhi weighed in with warnings of his own, saying the council should avoid increasing spending too much or adding to the city's already high debt load.

As members were scrambling over surplus funds, there were issues outstanding on Williams's underlying budget proposal, submitted to the council March 23. Council members made few changes to Williams's proposal during committee markups, but some of the changes irked the mayor enough that he called a news conference yesterday to highlight the differences.

Williams decried the council's rejection of a proposal to increase telephone fees and dedicate the revenue to the city's 911 system, and he took issue with a reduction in his proposed increase in the Corrections Department budget.

Council member Phil Mendelson (D-At Large) responded that the mayor was trying to sneak through a tax increase in the form of higher telephone fees and that the Corrections Department would still receive a 12.5 percent increase.

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Williams also objected to a cut in funding for Housing Authority police and a reduction in mental health services for foster children.

Still, he said, this year's budget negotiations are the smoothest in his six years as mayor. "This shouldn't be seen as a cataclysmic conflict with the council,"' he said.

Chief Financial Officer Natwar M. Gandhi, shown last year with Chief of Staff Lucille Dickinson, said the council should be careful about more spending.

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