A financial report to the committee showed the board had been forced to trim its capital expenditure budget from more than $22 million to $6 million this financial year.
The budget cuts had been achieved by deferring spending and only replacing or repairing equipment which had broken down, rather than regularly upgrading equipment.
The situation had become so extreme some equipment would only be replaced if it could not be fixed, the report said.
Mr Thomson said the clinical risks were growing "extremely fast" and the board could not expect any more money from the Government to fix the problem.
Chief operating officer Vivian Blake told the committee she could not express the "huge risk" strongly enough.
Medical staff were raising many concerns about being unable to buy standard equipment the hospital should have.
Recently the hospital had to consider sending patients to Christchurch when equipment in two laboratories broke down at the same time.
When a machine which examined and repaired blood vessels in the body broke down, patients would normally have been sent to the cardiac catheter laboratory instead, but their equipment was not working either, Mrs Blake said.
"These are costly issues and clinical safety issues.
"We have an acute mental health environment, which is completely substandard, and we haven't even touched any of our buildings."
Committee member Susie Johnstone said it was "quite scary" the board spent only 6% of its total budget on clinical equipment.
Mr Thomson said to address the growing problem the board would need to debate what health services could be provided in Otago in the future.
More Government money was simply not available and capital requests from district health boards around the country were outstripping available funds by four to one, he said.
The rapid deterioration of the Otago board's total budgeted deficits in the past 18 months was just beginning to hit. He blamed the total $15 million blowout on large salary increases which had not been matched with increased funding.
