The council's irrigation grants policy was developed in 2012 when it was looking at ways it could help the development of schemes such as the failed Tarras water proposal.
The council had set aside $1 million for the fund plus a contribution of $200,000. With interest, it now amounted to $1.463 million.
Council corporate services director Wayne Scott said an amendment to the Local Government Act ''fundamentally affected'' the policy.
A legal opinion had been sought, which confirmed the intended use of the funding was ''ultra vires'', or beyond the scope of the council's powers.
So the council had renamed the reserve the ''water management reserve'' and it was appropriate - ''given the neutering of the irrigation grants policy'' - to refocus it, Mr Scott said.
The revised policy for the reserve included stipulations that it not be used for infrastructure or funding, buying back or compensation for the surrender of water rights and that the funding was to be allocated at the discretion of the chief executive.
Previously, the chief executive had an annual allocation of $200,000 set aside to assist community groups with irrigation planning and it had been used to assist the development of the Manuherikia irrigation proposal.
The policy did ''not necessarily preclude'', in the right situation, the council funding investment in infrastructure from sources other than that reserve, Mr Scott said.
There was a ''delegation limit'', which restricted how much the chief executive could approve and common sense would dictate he would seek council approval for any large grants.
Cr Gerry Eckhoff questioned what constituted a community group.
Chief executive Peter Bodeker said he did not foresee the funding assisting groups to drill bore holes or get consents.
He saw it as helping groups get the community together to discuss or develop proposals concerning water access.
''The bigger the community, the more comfort I'd have, but if two or three people came to me we'll consider it.''
Cr Gary Kelliher left the meeting for the discussion because of a conflict of interest.
