The Dunedin City Council is facing an unexpected financial shortfall of $4 million as it tries to finalise its already tight budget.
The council has been deliberating over its budget for the next financial year for two weeks and is expected to finish that on Thursday.
But the local authority has discovered it will have less money to spend due to council-owned company Dunedin City Holdings Ltd warning it will not be able to pay the previously expected dividend of $2.4 million.
It says market circumstances, including reduced tourist numbers and falling export prices for logs, have had a negative impact on its financial performance.
This follows the revelation earlier in May that the city's controversial Forsyth Barr Stadium has not met its income target for the last half-year and the cost of building it went $8 million over budget.
The council is also getting $500,000 less from another council fund.
Dunedin mayor Dave Cull says the council will have to find the money elsewhere.
"Staff will be looking for more efficiencies in savings and councillors in consideration of the budget will be looking to either reduce the cost of things that we put in, or put fewer things in or take some things out."
Mr Cull says the council still wants to keep the next rates rise under 5% but that he can not guarantee it.
He says council would consider going above 5% if it meant keeping something in the budget that was important for the city.
The council says any cost-cutting measures are still to be finalised, with councillors considering overturning at least one of the decisions made on Tuesday.