The government has turned off the funding tap for Kaikoura District Council's financial sustainability project.
The council's bid for more than $7 million in the latest Budget round has been declined, it has confirmed.
And it has been told there would be little point in reapplying next year.
The council has already had more than $1m from the government to work out how to become a leaner machine after a report last year found it was financially unviable in the long term.
But it estimates it needs between $7m and $10m dollars to digitise its records and set up shared services with neighbour councils.
Now, instead of the expected millions, it has less than $400,000 to do the job.
The bad news came at Budget time, in an email from Internal Affairs.
“ The need to prioritise Covid-19 responses, and economic and social recovery throughout New Zealand, means there is no specific funding appropriation in Budget 20 for Kaikoura District Council. I know this news will come as a disappointment …”
The government had provided significant financial support for Kaikoura since the devastating 2016 earthquake, and while there was no more money for the sustainability project, support would continue for the recovery work, Internal Affairs said.
The council's transition manager Sue Powell who was appointed recently to manage the project, said that left the council in a challenging position.
“The ..stream of advice is that a new operating model is required, but no new funds are available to assist with transition to any new model.
“Of the total $1.3m (existing government funding) allocated for investigations and development of a new operating model, approximately $364,000 remained at 30 April 2020,” Ms Powell said.
Staff have recommended reducing the scope of the sustainability review and focusing tightly on key areas where savings could be made
Mayor Craig Mackle said it was disappointing funding would not continue, but the decision was understandable given the need to prioritise the national response to Covid-19.
The failed funding bid meant Kaikoura now faced serious financial challenges, according to Kaikoura MP Stuart Smith.
“They've trimmed their rate increase, as many councils have, but that means they can't deliver as much now and it would be difficult to service more borrowing.”
Amalgamating with neighbouring councils was not an easy out either, the MP said.
"No matter what path they choose, the KDC will have to be recapitalised. I can't see why any of their neighbours would agree to amalgamation if it meant taking on debt.”
ECCO, Kaikoura's east coast community organisation which is keen to join Marlborough district, said the loss of the expected government funding would be a blow to the council finances.
“It's understandable, although at government level, $7m would be a pittance,” ECCO secretary Chris Wilson said.
“But that money would not have made the council sustainable. It's too small, the ratepayer base is too low, and it has no reserves.”
The council will discuss the future of the financial sustainability project at its meeting today.