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A five-bed mental health supported living home is closing in Balclutha because of a Southern District Health Board funding cut.
Five staff (2.7 full-time equivalent) roles will be disestablished, and a new community support role (0.5 full-time equivalent) will be created.
Owned by Housing New Zealand, the house has been operated by Dunedin-based provider Pact for 21 years.
In its place, Pact would be a "supportive landlord'' in two houses in which the residents would receive less support.
There are four residents at 222 Clyde St, which will close on September 30.
E tu organiser Ann Galloway, of Dunedin, said the decision was "appalling''.
"Our members who actually work with them don't think they'll be able to live quite as independently as Pact would think.
"The public should be aware that this is happening because the Government is refusing to fund mental health adequately.''
Mrs Galloway said her members feared the residents could "deteriorate'' without a high level of support.
"One of the first questions they asked when they were told was: 'What's going to happen to the residents?'
"They knew they were possibly losing jobs, but their first concern was for the people they support,'' Mrs Galloway said.
Pact southern mental health operations manager Thomas Cardy said 222 Clyde St was an "old model'', and most residents no longer needed that type of support.
However, Pact acknowledges the house is closing because of the health board budget cut.
Each resident would have their needs reassessed before decisions were made about their accommodation.
The closure could put more pressure on supported accommodation services in Dunedin.
Some of the money saved from closing Clyde St allowed Pact to fund an extra bed in intensive mental health accommodation in Dunedin.
"Balclutha is Pact's only southern rural centre where a mental health residential accommodation service is provided. The decision to close the service aligns Balclutha with the rest of the region,'' Mr Cardy said.
In another budget cut, Pact is disestablishing a full-time community support position in Invercargill. Because community support workers now had mobile technology, the cut did not have such an impact, Mr Cardy said.
The outcome of the negotiations with the health board were better than he had expected.
Pact chief executive Louise Carr said the health board sought a 5% cut in Pact's annual funding, but she would not disclose exactly what percentage was finally agreed.
"What we've been trying to do with the DHB is get more intensive community support.''
Pact is partway through the formal consultation process with staff, which will be completed next month.