The Manassas City Council agreed Monday night to freeze hiring for vacant positions and capital expenditures and cut city departments' operating budgets by 5 percent to prepare for possible reductions in state funding to localities.

Gov. L. Douglas Wilder has warned that funding to localities may be reduced to offset a projected state budget deficit of $400 million to $500 million during the fiscal years 1991 and 1992. Wilder is expected to announce proposed cuts to state Senate and House committees on Aug. 17.

The city's freeze and cuts are expected to save about $733,000, which will be placed in a reserve fund. They will not affect critical positions, such as police officers, any capital projects underway, such as the city's new museum, or employees' salaries or benefits.

Manassas's budget for the current fiscal year is $54.2 million. The city already had $220,000 in a reserve fund.

The council also asked the Manassas School Board, which receives about 60 percent of the city's budget, to establish a $1.2 million reserve fund.

Superintendent of Schools James Upperman is expected to propose cuts to the School Board within the next few weeks.

Also at Monday's council meeting, council member John P. Grzejka asked the city attorney to determine whether portions of an anti-loitering ordinance in Alexandria could be used to strengthen Manassas's anti-loitering ordinance.

According to Manassas Police Chief Samuel Ellis, Manassas's ordinance is vague and thus unconstitutional, and not enforced.

Alexandria's ordinance makes it a misdemeanor to loiter "for purposes of engaging in an unlawful drug transaction." Under the ordinance, it is illegal to stand in a public place for 15 minutes, make contact with at least two people and exchange money or other small items with them. That ordinance is being challenged as unconstitutional.

Grzejka said the city needs to strengthen its ordinance to control crowds at shopping center parking lots on Mathis Avenue, between Liberia Avenue and Route 234.