The D.C. Council has identified agencies that are likely to underspend their annual appropriations this year by enough money to eliminate the need for a $17.9 million tax increase proposed by Mayor Marion Barry.

Council Chairman David A. Clarke, in a report prepared for a council budget hearing yesterday, said that Barry has not demonstrated that a tax increase is "fully necessary." Clarke said the council should consider paring the budgets of agencies such as the departments of Public Works, Human Services, and Consumer and Regulatory Affairs.

An additional $4 million, he said, could be raised by eliminating the District's tax exemption on lottery winnings.

Clarke said he hopes to enhance the council's role in the annual budget process by using a "scalpel approach" -- slicing a few million dollars from one agency or another to raise the money needed to cover overspending in other areas, especially public safety.

But Clarke acknowledged that he has no sense yet of how the rest of the 13-member council will react to his budget-cutting suggestions. Only three other members attended yesterday's committee meeting and two of those said later in the day that they had not yet read Clarke's budget report.

One of those members, Jim Nathanson (D-Ward 3), said that sentiment remains among his colleagues to modify the mayor's budget request.

"Mr. Clarke's point is valid," said Nathanson. "There is a lot of fat in the budget."

Clarke singled out several agencies for criticism, including the city's Tenant Assistance Program, which he said had not spent or committed $14.7 million of its $15 million budget as of last month. If the money remains unspent for the purpose for which it was designated, Clarke said, $5 million of the remainder should be reallocated for next year's budget and the rest used for taxpayer relief this year.

City Budget Director Richard C. Siegel disputed Clarke's predictions and said that the amount Barry requested will be needed to balance this year's budget and avoid layoffs and reductions in programs considered important to the mayor as well as to council members.

Siegel also detailed the administration's plan to eliminate $8.7 million the council added to the budget that would have been earmarked for reducing the city's $220 million deficit. Congress recommended an additional $11.3 million appropriation for deficit reduction this year, a payment that Siegel has said the city cannot make this year and still balance its budget.

"We would hope that if the council insists on deficit reduction, it would identify areas where the budget can be reduced," Siegel said.

The budget director added that it will be politically impossible for the council to make some of the cuts Clarke suggested, especially in the budget for the city's public schools.