A $12.5 million Falls Church budget that holds the line on the property tax rate and increases city spending by 6.6 percent has been introduced by City Manager Harry E. Wells.

Although property tax rates would not climb in this election-year budget, the average homeowner's tax bill still is expected to increase 12.2 percent because of a general reassessment last year. The tax rate remains $1 per $100 of assessed value.

Wells made it clear that he expects the "poor economy" to cut into the city's sales tax revenues during the next 18 months. In his budget message to the City Council Monday night, he estimated that local sales tax revenues would drop by about 2 percent in the coming year, reducing the city's income from sales taxes to $1.7 million. He noted, however, that business license taxes are expected to increase in the next year by 7 percent, bringing in about $54,000 and offsetting the loss.

"It has been a frustrating year doing the budget," Wells said. "In the middle of doing the coming year's budget, we had to go back and find $250,000 in the current year's budget because of a shortfall in revenues. We feel this recession is going to continue through fiscal '83, and we had best budget almost year-to-year for a couple of years until the president's federalism settles down."

Wells said that despite the depressed economy he juggled the budget to avoid laying off personnel or curtailing workers' hours to make up the revenue shortage. In fact, the budget calls for a 4.8 percent salary increase for city employes and a 5 percent merit raise for about one-third of the city work force in the coming year.

The budget would boost spending on schools by 5 percent, to $5.2 million. Student transportation costs are expected to climb by 20 percent next year, and city schools will receive about $27,500 less from federal funds, officials estimate.

Falls Church residents can speak out on the budget at public hearings March 22 and April 12. The City Council is to vote on the budget April 26.