And infrastructure development in Queenstown - needed to cater for large numbers of visitors - could also be hurt if the changes applied a handbrake to the resort's spending, Queenstown Lakes Mayor Vanessa van Uden has warned.
Their comments came as southern mayors and council chief executives were due in Dunedin this morning to meet Local Government Minister Nick Smith to discuss the proposed changes.
The Otago Daily Times attempted to contact representatives from councils across Otago yesterday, and found a mixture of nervous anticipation and support for the proposed changes.
Mr Lepper worried changes could see his council forced to trim costs to stay within new fiscal constraints, potentially putting funding for non-essential community groups at risk.
The CODC was expected to venture away from its debt-free position over the next decade, to pay for core infrastructure upgrades including a $10 million-plus wastewater plant in Cromwell, he said.
The upgrades would mean annual rates rises would "probably" remain above the level of inflation for the next decade, and Government pressure to trim costs could see cuts in other areas.
The changes unveiled by Dr Smith included a plan to promote fiscal responsibility by linking council income to expenditure, and setting "prudent" debt levels, to be developed in consultation with Local Government New Zealand.
A requirement for councils to consider the "four well-beings" of their communities - covering social, economic, environmental and cultural spheres - would also be removed from the Local Government Act.
Instead, councils would be told to focus on infrastructure, public services and regulatory functions.
Mr Lepper said the change was "significant", as many groups had relied on small-scale council funding since the four well-beings were added to the Act in 2002, and the community had "never said we've got it wrong".
The council was to begin work on a youth strategy, but could now question the cost, Mr Lepper said.
"Is Nick Smith saying now I shouldn't do a youth strategy?
That's the question I've got to ask myself. It's only peanuts - it's $3000 or $4000 the council would contribute - but is that what Nick's saying I shouldn't be in?"
Ms van Uden said the changes were generally positive, but worried a one-size-fits-all approach could restrict spending on infrastructure in Queenstown.
The resort had a small permanent population of ratepayers, meaning the per capita share of the council's $100 million debt seemed high, if the accommodation sector's contribution was ignored.
The council's debt was forecast to rise, but the draft rates increase for 2012-13 was just 2.8%, thanks in part to the council belt-tightening over the last 18 months, she said.
A blanket rule that restricted the council's spending based on the per capita debt levels "could cause problems", and the "devil is in the detail", she said.
However, Waitaki Mayor Alex Familton welcomed the changes, saying councils needed a "change of direction" to ensure they were sustainable for years to come.
"I totally agree with the minister. We cannot have rates marching ahead of other costs ... [or] they become unsustainable."
His own council had almost no external debt - with just $25,000 owed - and no major projects on the horizon likely to drive up debt or rates, he said.
A draft rates increase of 7.4% was forecast for 2012-13, but Mr Familton was confident that would yet be whittled down close to 4%, as in recent years.
He supported any move to clarify what the role of local authorities was, to avoid "overlap" with the government or private sector.
He also criticised the four well-beings as "too vague", and said it was possible cuts to council spending could come as a result of the Government's changes.
Any cuts would be "a matter of degree", rather than wholesale, but parks and reserves was one area that needed "fairly vigorous" scrutiny, with council staff to question whether all parks needed to be maintained, he said.
Clutha Mayor Bryan Cadogan could not be contacted yesterday.
