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Funding problems could put the brakes on sorely needed Dunedin transport projects, the city council has warned.

Fears have been flagged that the NZ Transport Agency intends to "postpone" spending on State Highway 1 around the city’s planned new hospital.

The council has also effectively issued a reminder about the importance of improvements to the city’s main shopping street, George St.

But the transport agency disputes it is stepping back from supporting safety improvements and other work near the hospital.

The Dunedin City Council, Otago Regional Council and the agency have been working together to produce a series of projects designed to make it easier for traffic to get around the city while the new hospital is built.

A generally united front has been presented on the proposed package, but signs of strain have emerged.

This week, the city council signalled it would ask the agency why it had apparently decided to postpone investment in SH1 improvements.

Interim measures would be needed in the area to manage disruption associated with the hospital’s construction, Dunedin Mayor Aaron Hawkins pointed out in a draft submission about a 10-year regional transport plan to be considered by city councillors on Tuesday.

The agency said it had worked closely with the two councils and continued to do so.

The combined programme — subject to consultation and funding decisions — would be a focus of investment in the next years.

Improving SH1 safety and design between the Oval and the Dunedin Botanic Garden is listed in the programme.

This will include speed management, walking and safety improvements and improving the amenity of the corridor.

An agency spokeswoman said the scope and cost of that work would be determined through a separate SH1 business case, which the agency would begin once it had its board’s approval to proceed.

There was no definitive word about whether one-way traffic near the planned hospital should be retained, although the one-way system would remain for now.

The spokeswoman said it could "in the future" consider whether any major changes, including two-waying, were required to Dunedin’s network, if there was a compelling case.

"The key factor is whether there is a compelling and justifiable case for a change given the costs major changes would entail versus the benefits to the wider community and road users."

No timeframe for that discussion was supplied.

Two-way traffic was the initial preference given in a hospital masterplan document released by the Ministry of Health in 2019.

Agency regional relationships director Jim Harland said it was working with its partners to "make the most of this moment".

"By integrating the hospital design well with the inner-city transport network, we can improve the way people move about the city and raise the quality of the city’s look and feel."

But Mr Hawkins said the situation was urgent and messages the council was getting from the agency were clear.

"Some of their cupboards are pretty bare for the next three years, thanks to a decline in revenue and projects they’ve already committed to," he said.

In the city council’s draft submission, Mr Hawkins said the council was concerned improvements to George St "may fall outside the funding cut-off".

A business case is being prepared for the project, which is in the advanced stages of planning, but the draft submission mentions the council "would like to see the project prioritised".

Mr Hawkins said work in George St was critical.

"We need to replace the below-ground infrastructure and we need to finish the work before construction ramps up on the new Dunedin Hospital."

The city council is consulting the public on its share of the programme related to the hospital and the Otago Regional Council is set to do the same.

The agency’s share could be approved by its board by the end of August.

ORC chairman Andrew Noone said the regional council supported having an improved central city transport network, including public transport.

grant.miller@odt.co.nz