Porirua City Council has to pay back $2.6 million it received from the Covid-19 wage subsidy after recalculations found it did not meet the threshold.
The initial application was accepted when the council reported a revenue loss of 44 percent in April, but this did not include rates revenue.
The Ministry for Social Development later clarified the criteria to include rates, and today told the council it no longer met the threshold.
It said on a cash basis, the council was sitting at a 26 percent revenue loss, just below the 30 percent required for the subsidy.
The council would have to borrow money to make up for the loss, but did not expect it to significantly impact rates.
But Porirua Mayor Anita Baker said it would have to borrow to pay the money back.
"We applied thinking we could legally apply for it and we did it all above board, and it turns out that's not the case now with this accounting. We just have to cover it with borrowing and take that loss on the head.
"It's rather frustrating but legally we have to hand it back."
Baker said it would likely impact budgeting for future projects.
"We will have to take into account how much extra we are borrowing, so future projects going forward, we have to allocate set money.
"I don't know what it will change, but we will have to take that into account when we look at the books for next year."
She said councils were already struggling.
"It's one of those things, we are getting more and more constrained in terms of funding and our costs and this just comes back to the ratepayers bearing the brunt, unfortunately."
Porirua City Council chief executive Wendy Walker said despite having to pay back the money, there would be no staff cuts or rate increases.
"Fortunately, with lockdown ending and no resurgence in this part of New Zealand, the impact for our city has not been as severe as we feared it may have been.
"As our recently released annual report shows, we are in a stronger position than anticipated, which means we can refund the subsidy without jobs being affected.
"Although we will have to borrow to make up the loss of revenue, this will not significantly impact rates."
Walker said the application was made to protect the jobs and livelihoods of Porirua City workers without placing a burden on ratepayers.
"Nobody knew whether we would see a resurgence of the virus, and there was a real risk of job losses.
"Despite being just lower than the threshold, 26 percent was a significant drop in revenue, brought about by the closure of Te Rauparaha Arena, our aquatic centre, fitness centre, libraries, landfill, the application of rent subsidies and reduced fees from licences and sports club subsidies."
Porirua City Council was one of four local authorities which took out the wage subsidy.
The other three were Northland Regional Council, which took out $1.5m; Tauranga City Council, which took out $3.75m; and Waikato District Council which took out $143,155.
All four councils were audited by the Ministry of Social Development, but Porirua City Council is the only one to be ordered to pay their money back.