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The Montgomery County Council passed a $4.39 billion budget Thursday, restoring funding for some essential services, but cutting employee positions, eliminating salary increases for county employees and reducing the county's reserve fund to deal with declining revenues caused by the recession.

The approved budget for fiscal 2010, which begins in July, is 1.2 percent larger than the current budget and closed a deficit of more than $550 million.

The budget does not increase property taxes over the county's charter limit on property tax revenue and includes a $690 credit for homeowners, whose tax bills still could increase because of the county's assessment schedule.

"This is a budget held together by spit and determination," said Councilwoman Nancy M. Floreen (D-At large) of Garrett Park.

Councilman George L. Leventhal (D-At large) of Takoma Park echoed those sentiments, calling the budget the most challenging of his seven years on the council.

The budget passed 7-1, with Councilman Michael J. Knapp casting the dissenting vote. Knapp (D-Dist. 2) of Germantown disagreed with the council on its plan to plug an $80 million deficit created when the state school board denied an education waiver request last week. The council voted to close the hole by having the county school system repay $80 million in debt service for school construction bonds. Knapp preferred that the county leave the requirement unfunded and risk a penalty from the state to illustrate the county's declining finances.

"At some point, you have to show the state that we have no more money," Knapp said after the vote. "I don't think state [officials] really understand what we're facing here."

Overall, the budget fully funds the school system's $2.2 billion request. Money also is included to add recruits to police and firefighter classes and purchase additional ambulances. Also, it includes $4.3 million in grants.

About $13 million is included as a down payment on purchasing property for a government consolidation project proposed by County Executive Isiah Leggett (D). It is designed to combine a number of county operations throughout the county into a few buildings.

The council stuck with its priority of maintaining services for needy residents by restoring bus routes that had been recommended for elimination and adding money to the housing fund to purchase affordable housing and for rental assistance.

Missing from the budget is an ambulance fee, recommended by Leggett, as well as an early buyout plan and a proposal granting police further driving privileges outside the county.

Looking ahead to next year, county officials are estimating a $350 million deficit.

"We are not going to wait until next spring to get started [on savings for next year], said Council President Philip M. Andrews (D-Dist. 3) of Gaithersburg.