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Carmel's new city council did a lot of math Tuesday night. They came to unanimous 5-0 decisions on a 1-percent sales tax increase, the annual budget, and a hotel improvement fund.

The city's $13.4 million budget for 2012-13 projects a $500,000 shortfall in revenues, leaving a gap expected to double in 2014 and continuing widening unless additional revenues are generated.

The penny tax increase will go before voters on the November ballot.

"Closing the gap will require services to continue to shrink, employees to be compensated less, and/or new revenue sources to be created, from economic development, annexation, natural growth of the economy (if any), fee increases, and/or voter approved tax increases," City Administrator Jason Stilwell wrote in the budget book.

Still, the city's economic profile doesn't look grim: Carmel's working population has a 2 percent unemployment rate, compared to the county's of 15 percent. Average household income has increased by nearly 50 percent in the past decade, and property tax revenues have risen every year since 2005, even weathering the recession.

City Council made a few minor adjustments to Stilwell's proposed budget, including allocating $40,000 to Rio Park, a parcel the city acquired more than 20 years ago. "It’s a beautiful piece of property right along the Carmel River," Mayor Jason Burnett says. "Basically it's unused. It’s a weed patch." He expects the budget allocation to turn it into an inviting tract of biking and walking paths.

Council also agreed to contribute $10,000 to the Monterey Peninsula Regional Water Authority, the joint powers authority of six Peninsula mayors developed to include local government in water supply solution discussions.

The transient occupancy tax, which used to exceed property taxes as the city's largest revenue source, was down to $3.8 million last year. In an attempt to boost that, City Council also agreed to create a Hospitality Improvement District.

Hotels will contribute $1 per booked bed through the HID to the Chamber of Commerce, which will use the anticipated $220,000 a year to market the city's hotels. They'll hire someone to promote the Carmel hospitality industry by targeting event planners, and also hope to draw travel writers to town.