Mayor Thomas M. Menino announced his budget for the next fiscal year Wednesday, aiming to balance spiking costs with continued services in the city's first ever $2 billion spending plan.

While the city has looked recently for ways to bolster its revenue intake, the Fiscal Year 2006 budget includes a $116 million boost over last year, propped up by state aid and increased property taxes. Expenses also rose sharply, with the school department's $712 million budget exceeding early estimates by nearly $12 million, and demanding $32 million more than last year. Analysts say that much of the six percent increase in spending will be used to offset rising costs rather than for new initiatives.

"I think in the near term the city will continue to be challenged by what are largely unavoidable increases in fixed costs," said Lisa Signori, the city's chief financial officer.

The $2.04 billion budget includes $1 million over the next year for an effort to bring new signage and improved traffic flow to Dorchester Avenue. After announcing "the Avenue Project" last fall, Menino has pushed ahead with plans to smarten up the neighborhood's primary commercial artery, but remained vague until Wednesday about how much the city was willing to spend. An ongoing series of community meetings continues to shape the initiative.

Spread across the city's five-year capital expenditure plan, the project's total allotment is $5 million. That amount "should be able to address any of the roadway issues that come out of the community process," Signori said.

While Signori said services would not suffer, some analysts expressed concern that the city would struggle to keep pace with its building costs. The ballooning expenses incurred by "generous" municipal employee contracts, spiking pension costs, and health insurance premiums increasing at a double-digit rate will restrain the impact fiscal growth would have had on improved services, according to the Boston Municipal Research Bureau watchdog group.

"The problem is the fact that there are just a few accounts that are going to absorb so much of that increase that it isn't going to allow for significant increases in spending by most of the departments," said Samuel Tyler, president of the bureau.

"It's a pretty good increase, but it's going to feel like the last three years" of tight fiscal discipline since the economy's downturn, Tyler said. "The onus is still on the mayor and the council to manage the resources it does have well."

Helping to craft the city's final budget constitutes one of the council's few essential duties. By statute, the council can scrap portions of the budget prior to the start of the city's fiscal year on July 1.

City Council President Michael Flaherty said he and other councillors would use the outsized public school budget as a means to renew the discussion about the student assignment plan. Last year, after a lengthy process, the school committee decided not to change significantly the way students are assigned to schools.

Transportation consumed $59 million of the school budget last year.

"I'm going to zone right in on that transportation cost again," Flaherty said.

"It just begs the question," Flaherty said, "why are we not allowing students to go to school closer to their homes?"

Flaherty said empty office spaces downtown cause property tax burdens to shift onto residents, a trend the administration should try harder to reverse.

"I think the city can and should be doing a better job of attracting businesses to Boston, of talking to existing businesses about expansion," he said.

"I think the real estate market goes through cycles," Signori said. "I'm not sure if the city council president has any specific recommendations of what should be done."

The at-large councillor from South Boston said, "discussions have taken place" about a city role in converting offices into residential space.