The Annapolis city council rejected a proposal last night that would further limit the tax increase paid by homeowners when the value of their homes rises.

In a 6-3 vote, the council turned down the proposal by Alderwomen Sheila M. Tolliver and Louise Hammond that would have kept tax increases to 4 percent a year, down from the 10 percent limit under state law. The council also rejected a compromise amendment by Alderman George O. Kelley that would have set the limit at 7 percent.

The measure - which applies only to owner-occupied homes - had quickly become a political hot-button issue, sparking heated debate between supporters and opponents. Sponsors and their supporters said the measure was needed to protect Annapolis homeowners from rising tax assessments. This year's reassessments by the state will increase the median home value by an estimated 39.7 percent.

Opponents said the measure would disproportionately affect renters and business owners.

Mayor Ellen O. Moyer said it would be "handcuffing" the city at a time when city costs for utilities, infrastructure and insurance are rising, and state grants are threatened.

Several residents - who heavily lobbied council members in support of the bill - said it would make the city's tax collection more transparent. "Have the courage to raise taxes if you need to pay for programs," said Debbie Rosen McKerrow, instead of "hoping property values will rise."

Tolliver pointed out that even if the lower, 4 percent limit were adopted, the city would still collect $1.2 million more because of increased assessments.

The tax measure would have brought the city more in line with Anne Arundel County, which lowered its limit on tax increases last month from 4 percent to 2 percent a year.

At a public hearing last month, about 15 residents testified in favor of the city bill while seven people - including the head of the Annapolis and Anne Arundel County Chamber of Commerce - spoke against it.

Last night, more than a dozen residents turned out in favor of the proposal, clutching bright yellow signs that read, "Vote Yes."

Still, the majority of the council remained unconvinced that the measure was the right way to ease the tax burden for residents.

Several members discussed the possibility of cutting the city's property tax rate in the spring. The city rate is currently 62.4 cents per $100 of assessed value.

The council also voted last night to create a committee to recommend ways to provide tax relief for the city's most needy residents. The vote came after much debate over the composition of the committee.