The Dunedin City Council removed $22.4 million for the Dunedin Tunnel Trails project from its draft nine-year plan.
Mayor Jules Radich said the cut was a a part of a $272m cost-saving exercise over the next nine years to reduce pressure on rates.
The trail had about $1.8m of council funds from the 2024-25 financial year but further development had been mainly hindered by national subsidies being curtailed after the change in government.
Dunedin Tunnels Trail Trust chairman Gerard Hyland said the trust was "extremely disappointed" the council was removing the trail from the nine-year plan and it would look at other options over the next week to plan a way forward.
"We’re still very keen on getting the trail up and running because it’s going to be such a huge asset to the city and the region.
"We haven’t given up on anything."
He said it was too important to let it fall to the wayside because it was Dunedin’s connection to the wider Otago cycleway network.
The trail would use two Victorian-era rail tunnels through Chain Hills and between Caversham and Kaikorai Valley.
The cycleway connected Port Chalmers through to inland Otago and flattened the city in terms of walking and cycling.
"It’s a huge thing for tourism; it’s a huge thing for recreation and it’s a very big thing for commuting as well."
The trust would look to forge a new direction to develop the trail in the coming week, he said.
"This is a setback, but by no means are our efforts stopping."
Mr Hyland said he was hopeful the government would fund the cycleway either through NZ Transport Agency Waka Kotahi (NZTA) or by other means.
He said there was a chance NZTA would consider funding the cycleway again in a future funding cycle, but not if the council dropped it entirely from its agenda.
"Taking it all together is a bit of a concern.
"If it was left in but just with a note of pending government co-funding, it would be fine. But to remove it saying it’s unaffordable to do by itself is only looking at the current, very short term.
"The nine-year plan should be looking long term."
