Hunter councils dodge $200m hit as state scraps regional grants shift

The mayors of the Hunter's two biggest councils have welcomed a state government backflip that would have drained their coffers by $200 million over the next decade.

The Local Government Grants Commission informed the City of Newcastle and Lake Macquarie City Council on Friday that they would not be proceeding with the proposed changes to the 2027 Financial Assistance Grants program.

The proposal was aimed at redirecting grant funding to rural councils, which are less able to increase their rates.

The grant funding is provided by the federal government, but the state decides how its allocated.

Newcastle, Lake Macquarie, Central Coast Council and Mid North Council would have been the biggest losers under the proposed change.

The four councils had been united in their opposition to the proposal, arguing it would cost them collectively $41.6 million a year and almost half a billion dollars over the next decade.

Newcastle lord mayor Gavin Morris and his Lake Macquarie counterpart Adam Shultz had been scheduled to hold a joint news conference on Monday to further condemn the proposal, but it was cancelled after the Local Government Grants Commission's decision.

"I met with Premier Chris Minns earlier this month and told him these cuts were terrible for our city," Cr Morris said.

"He listened and assured me he understood why I had to speak up. The premier has taken action, and I thank him for putting a stop to these funding cuts.

"City of Newcastle is a financially-sustainable council where just one-third of its income comes from rates.

"We run balanced budgets and deliver record infrastructure programs for more than $5 billion in assets."

Cr Morris said Newcastle council receives about $15 million annually from the federal government, which is funnelled into roads and community services.

"Right now we are living in a cost-of-living crisis," he said. "Fuel prices are at record highs. Interest rates have been climbing for several years.

"I could have never asked ratepayers to dip into their pockets to make up the shortfall if the NSW government had stripped Newcastle of almost $10 million annually, just so they could prop up another local council."

Cr Shultz said it was "a big relief" that Lake Macquarie City Council would not be facing a cut of $7.2 million a year from next July.

"LMCC thanks all our local state members of parliament and the United Services Union, who we engaged with as part of this process," Cr Shultz said.

"They heard our concerns loud and clear and have acted to support our communities.

"The key principle of our advocacy was that no council should be worse off.

"We sought transitional arrangements for any reallocation and believe it should align with the Federation Compact with Local Government to provide financial certainty to all councils in NSW.

"Our requests were granted on Friday afternoon, and we are grateful for the outcome."