The Falls Church City Council last night approved a $16 million budget for fiscal 1986 that calls for no increase in the city's real estate tax rate.

But a 4.5 percent increase in assessments over the last year will raise taxes for the owner of the "average" $120,400 single-family home by about $50, to $1,179. Last year, that same home was assessed at $115,200 and the owner paid a tax of $1,129, city Assessor William De Lanoy said.

Last month, City Manager Anthony Griffin proposed increasing the real estate tax rate of 98 cents per $100 of assessed valuation by 3 cents.

In a statement following last night's vote, Mayor Carol DeLong said the tax increase is not needed because of factors including a reduction in funds requested by the School Board and additional revenues from property taxes and public utilities.

The budget, which represents a $1.5 million increase over current spending, includes a 4 percent cost-of-living raise for the city's approximately 300 municipal employes, according to Barbara Gordon, a spokeswoman for the city government.

The pay raise approximates the increase in the federal Consumer Price Index for the past year, she said.

The council earmarked $5 million for schools, the full amount requested by the School Board, which represents a 9.6 percent increase in school spending over the budget for the previous year.

The city's 85 teachers will also get 4 percent raises. The salary for a new teacher will rise from $15,095 to $15,700, which is the lowest starting teacher salary in Northern Virginia, and the "average" teacher salary will rise to $30,543, according to Harry Shovlin, president of the Falls Church Education Association.

The city's capital improvement program for fiscal 1986 will include $535,000 for land acquisition, $210,000 for major street maintenance projects and $75,000 for storm drainage needs, including the Tripps Run project.