The Rockville City Council has approved a 1-cent reduction in the city's property tax rate and a $1 million increase in the operating budget, boosting it to $29.2 million for the fiscal year that begins next Tuesday.

The city's capital improvements budget was cut from $9.1 million to $4.2 million, largely because a number of road construction projects have been completed.

The council had debated whether to lower or raise the tax rate by 1 cent per $100 of assessed value. The vote Monday night to decrease the rate was 3 to 2.

Spokesman Don Vandrey said homeowners still will pay slightly more in property taxes because assessments have gone up by an average of 3.9 percent.

Council members James Coyle, Douglas Duncan and Peter Hartogensis voted for the property tax decrease, while Mayor Stephen Van Grack and council member Stephen Abrams voted against it.

Nearly $6.6 million of the new $29.2 million operating budget will be used for such services as stormwater management, solid-waste disposal and street maintenance. The budget as a whole is up by about $3 million over fiscal 1986.

About $5.1 million will go to parks and recreation and $4.8 million will be allocated for health and safety services, including police salaries and water treatment.

Three million dollars of the capital improvement budget will be used on construction of Ritchie Parkway between Seven Locks Road and Rockville Pike.