The D.C. Council yesterday resolved an acrimonious battle over growth in city spending, approving a $4.16 billion budget that would increase funding for most agencies but make a portion of the cash available only if agency managers can prove real need.

The spending plan won unanimous approval from a council that had been bitterly divided this week, with seven of 13 members voting previously to slice nearly $60 million from budget requests submitted by Mayor Anthony A. Williams (D).

As approved, the plan would trim about $14 million from Williams's requests, including $1 million for police overtime, $2 million for road repairs and $2.7 million for the Department of Mental Health.

An additional $40 million -- the bulk of it for Medicaid and social service agencies -- would be placed in a special reserve fund and released only with the council's consent, said Chairman Linda W. Cropp (D), who crafted the compromise.

Williams, who was traveling yesterday in Georgia, has threatened to veto the budget to protect priority programs. In a written statement, he said he is "deeply concerned about the way in which today's council actions may affect social services and other services to neighborhoods."

Referring to the money placed in reserve as cuts, Williams said: "We cannot cut $18 million from Child and Family Services and $14 million from the Department of Mental Health and pretend that there will be no consequences."

City Administrator Robert C. Bobb said he will nevertheless urge Williams to sign the budget and "move forward." But Bobb said he, too, is concerned about the council's actions, saying they demonstrate a "level of distrust" between the council and the mayor.

"It speaks to a lack of confidence in the District's ability to manage its operations. And I'm absolutely determined to turn that around," Bobb said.

Cropp welcomed Bobb's commitment. But she said the council is not so much distrustful as frustrated by a longstanding failure to justify spending increases, identify efficiencies and make wise use of federal dollars.

"All of us, I think, agree that we want government to function more efficiently and we don't want people to be hurt," Cropp said. "The [reserve] funding will be [made] available if, in fact, the need is real."

Yesterday's vote marked a breakdown in efforts by Williams and the council to craft a consensus budget. That process began last year, when Williams heeded the council's request to submit a realistic budget that for the first time included accurate estimates for certain programs, such as Medicaid.

Due in part to this so-called "right-sizing," Williams submitted a $4.17 billion budget for the fiscal year that will begin in October, a 7.3 percent increase over current spending and nearly 9 percent more than the budget the council approved last spring.

Nearly half the increase was due to one-time budget adjustments, according to Chief Financial Officer Natwar M. Gandhi. Still, some council members said they were appalled by the pace of growth, particularly because the mayor also proposed to increase motor vehicle fees, add a surcharge to electric bills for streetlights and raise taxes on hospitals and on city residents who hold out-of-state bonds.

Yesterday, the council voted to strip those revenue measures from the budget. They limited the increase in spending to 7 percent over the current fiscal year. And they approved two tax holidays -- one in November and one in August -- to give holiday and back-to-school shoppers a temporary break from the District's 5.75 percent sales tax.

Advocates for the poor said they were relieved that the council abandoned its earlier proposal to cut nearly $40 million from health and human service requests. Historically, such cuts have fallen hardest on homeless shelters, disability assistance income and child care, said Sczerina Perot of the Washington Legal Clinic for the Homeless.

Williams, however, was less pleased. In a letter to council members, he expressed "deep disappointment" in the breakdown of "good-faith consensus building."

The letter predicted that council reductions to agency requests would hurt crime-prevention efforts and "create significant disruptions in the quality of care for patients at St. Elizabeths Hospital."

The reductions would have a "profound" impact on Oak Hill Youth Center, the city's juvenile jail and detention center, Williams wrote. The council cut $1.4 million from the budget request, calling it unjustified. An additional $5 million was placed in reserve to force the administration to improve the center's management, said council member Adrian M. Fenty (D-Ward 4).

City Administrator Robert C. Bobb said he will recommend the mayor approve the $4.16 billion budget.