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The decision at yesterday's infrastructure services committee meeting meant funding would be pencilled in for the 2014-15 year as part of the council's draft long-term plan, to be consulted on over the next few months.
The council had earlier proposed a three-year delay to work on the remaining sections of the $35.5 million cycleway, shared path, road-widening and seawall improvement project, with funding to resume in 2015-16.
Yesterday's decision - if it remained unchanged - would mean work resumed one year ahead of schedule.
Councillors yesterday agreed to bring the funding forward after committee chairman Cr Andrew Noone said it was important to "send a signal now" to the community, showing the council remained committed to the project.
The decision also meant the project would remain in the running for a New Zealand Transport Agency subsidy covering 66% of the cost, administered through the agency's regional land transport plan (RLTP).
The peninsula project remained in the draft RLTP, but the next three-year allocation to 2015 was being considered later this month.
NZTA funding was already oversubscribed, and success in obtaining a subsidy for the peninsula work would depend on a council commitment to funding its share, councillors heard yesterday.
Council transportation operations programme engineer Michael Harrison told yesterday's meeting that without council funding being confirmed, it would be easy for the project to drop down NZTA's list of priorities.
"It might be an easy [way] out for them," he said.
Obtaining a 66% subsidy would mean the council paid $1.1 million towards the two stages, while NZTA met the rest of the cost, he told the Otago Daily Times afterwards.
The change won support from most councillors at yesterday's meeting, with Cr Richard Thomson saying it was about keeping the council's options open.
Cr Kate Wilson said it was important to show residents and NZTA that "we're still serious" about the project.
Cr Jinty MacTavish warned councillors they risked prejudging the outcome of community consultation over the draft budgets by including funding in only the 2014-15 financial year.
She worried that would commit the council to carrying out the work only in that year, if the NZTA subsidy was obtained for that period, regardless of submissions received in the next few months.
She urged councillors to reinstate the full three years' funding for consultation, but Cr Noone said that would be a judgement call for each councillor to make.
Cr Syd Brown said future sections of the project could be considered in the next RLTP beyond 2015, as long as the council retained annual funding of $2.5 million - originally scheduled to resume from 2015-16 - in its draft long-term plan.
Deputy mayor Chris Staynes said fiscal constraints meant the council still needed to control its spending, "but this project has been important to the city".
Councillors voted to approve the change, meaning the funding would become part of the draft long-term plan to be released for public consultation on March 10, followed by public hearings on submissions on May 2-4.