City Council is continuing to weigh its options for covering the cost of utility upgrades.

The city has to overhaul its water, sewer and solid waste facilities by 2016, at a cost of roughly $40 million. At a meeting Tuesday night, Public Utilities Director Dan Winters explained that rates will have to rise dramatically to cover those costs and recommended that City Council start incremental increases of 10 percent or more as soon as January.

The proposal was met with skepticism by city councilors, who said they don’t have enough information to start making decisions.

Councilor Dennis Robinson pushed for further analysis of how increasing the city’s sales tax could diminish the burden on ratepayers. He suggested that Public Utilities put together cost estimates of how much 1, 1.5 and 2 percent sales tax increases would affect the need to raise utility rates. The city’s current sales tax is 3 percent. Voters would need to approve any adjustment to that rate.

Councilors Tom Enlow and Roger Rowland also called for further analysis of the sales tax option, expressing concern that it would disproportionately affect industry. Enlow asked Public Utilities to break down the relative costs of rate increases or sales tax hikes to residential consumers, small businesses and large businesses.

Under Public Utilities’ incremental increase proposal, residents would see their average monthly bill increase from $250 per month to nearly $300 by June 2014.

Council will discuss the options again at the next meeting on September 25.

At last night’s meeting Council also unanimously passed ordinances changing the length of tidelands leases, reducing minimum residential lot sizes and appropriating funds for a new website. Councilors also approved a $1.4 million blasting contract for the site of the city’s new wastewater treatment plant and a 3 percent cost of living raise for some city employees.

The meeting concluded with approval of mayor and council travel to the Alaska Municipal League Conference and the Southwest Alaska Municipal conference.