Arroyo Grande’s half-cent sales tax increase will stay in place to fund long-term projects, fix streets and eventually improve a clogged interchange area with Highway 101.

The City Council on Tuesday unanimously approved maintaining the sales tax at 7.75 cents on the dollar.

The increase was approved by voters in 2006 with the caveat that city leaders publish an annual report and review it every five years to determine whether it is necessary.

Since it took effect in April 2007, nearly $8.5 million has been spent or is budgeted for street and sidewalk repairs, transportation projects, public safety and public facility improvements.

“If you take a look at the things we’ve done with these dollars, we have been fiscally prudent with these dollars,” Councilman Joe Costello said. “And if you look at (future) plans … the need to maintain the streets, the need for public safety improvements is not going down, and yet the general revenue the city has is going down.”

The revenue from the increase is expected to be about $1.7 million in the current fiscal year.

“To take that money away would cripple us,” Councilwoman Caren Ray said. She added that the sales tax increase is paid by all visitors to Arroyo Grande, not just residents, thereby spreading the burden of paying for street upgrades and other improvements.

City officials plan to use revenue from the tax increase for several projects:

• Spend $500,000 to $600,000 a year toward a city program of applying a resurfacing treatment at least every seven years to each city street. An additional $500,000 is expected to be spent over five years on street reconstruction projects.

• Spend about $3 million toward a portion of the project cost to make improvements to the Brisco Road/Halcyon Road interchange with Highway 101. Environmental work on the project is under way; city officials hope construction can start in 2015.

• Contribute to annual bond payments if voters approve a June ballot measure to help fund a new police station at West Branch Street and Old Ranch Road.

• Contribute more than $100,000 annually toward the Five Cities Fire Authority, the joint department with Grover Beach and Oceano.

• Use $250,000 of the local sales tax money to cover a portion of an anticipated shortfall in the 2012-13 fiscal year budget, which starts July 1.

The council also determined that the sales tax revenues shouldn’t be used to pay some of the costs of a low-interest U.S. Department of Agriculture loan the city received to acquire and upgrade its current city hall building at 300 E. Branch St.

Instead, the council directed that other funds be used, including revenues the city receives from leasing its former city hall building.