The reserve has a $15m deficit - largely due to costs relating to Bella Vista and provisions for leaky home claims.
The council adds $1m to the fund each year, but staff proposed upping that to $4.4m - an extra 2 per cent on the rates - to rebuild the fund faster.
This option was voted down by the majority. Councillor Steve Morris proposed the cap, saying steeper increases were unfair on people on fixed incomes.
Councillor Kelvin Clout went against type and voted for the rates cap, which he committed to during his mayoral campaign.
But he said he would revisit his stance in next year's long-term planning discussions.
Deputy mayor Larry Baldock voted against the cap, saying the increased revenue was needed and many property owners in Tauranga had enjoyed a 40 per cent net value increase on their homes in the last few years.
"They need to work out how to use that wealth to meet their obligations."
Councillors Heidi Hughes and Tina Salisbury also voted against the cap. All other elected members supported it, bar mayor Tenby Powell and councillor Jako Abrie, who were absent.
A refined draft budget will come back to the council in February.