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All but one Dunedin city councillor approved the money at Tuesday’s full council meeting for immediate use across a range of social wellbeing and economic development objectives.
Cr Chris Staynes said spending 46% of the $950,000 fund initially would aid community social and economic well-being, which were "linked inextricably".
"When your house is on fire, you don’t stand there watching it burn while you consider how you’ll build a new one.
"We are using this money to help extinguish the fire, then we have to move on and look at rebuilding."
By holding back $515,000, Cr Staynes said the council could consider how best to use the funds further in the future.
"The second lot [of funds] allows us to engage with the community on how we can contribute to recovery."
But Cr Lee Vandervis questioned whether the money would be better used later in the year, when the economic impact of Covid-19 may be clearer.
"We have a limited amount.
"Are we spending it too soon, considering the fallout of Covid-19 has not yet hit?"
Council community development and events manager Joy Gunn said without support, up to one-third of the 1200 not-for-profit groups across the city could close as a result of the pandemic.
Government funding would not reach most community groups, who while providing support, were unable to pay their own salaries, rent or power, she said.
"There are significant hardships many groups are facing."
The $435,000 included a $100,000 boost to the council’s community grants fund, $75,000 to Otepoti events, $60,000 to the Maori innovation and development fund, and $50,000 to the consumer electricity fund.
All councillors except Cr Vandervis voted to support the allocation.
An update on the uptake of the fund will be provided to the council in September.