Auckland has been told to meet a claimed $30 million annual funding gap for keeping its trains running before the Government will seriously consider a $2 billion inner-city railtunnel.
That is on top of $24 million Aucklanders now pay towards running the trains, against Government subsidies of about $43 million.
Transport Minister Steven Joyce, who has indicated the Government's position to Auckland Mayor Len Brown, says he understands a draft business case for the 3.5km tunnel from the western end of Britomart to Mt Eden indicates a cost of "towards $2 billion".
Despite describing the tunnel as the one Auckland post-electrification rail project "that is most likely to make sense" - above links to the airport and North Shore - he said the cost of running the existing network had to be sorted out before embarking on any major expansion.
"It's not a sort of gun-to-the-head type of thing, but I just don't think anybody's going to take it seriously if we don't have this part sorted."
The Super City's Transport Auckland agency confirmed yesterday that the tunnel's cost was likely to be "approximately $2 billion" - up from an early estimate of $1 billion to $1.5 billion.
Agency spokeswoman Sharon Hunter said the business case, part of a $5 million investigation commissioned by the former Auckland Regional Transport Authority and KiwiRail, should be ready by next month.
She also said the agency was discussing with Government and city officials the size of the annual rail operating deficit, which threatens to hit Auckland next winter, and how it might be covered.
Mr Brown said the tunnel project - for which three new underground stations are predicted to make downtown Auckland accessible to 370,000 people by train trips of 30 minutes or less - was "an essential piece of infrastructure that has national significance" and should not be halted by "short-term funding issues".
"It is vital for unlocking the Auckland rail network and delivering economic growth for our region."
He said Auckland's growth to two million residents in 20 years would offer a larger funding base, but it was important to act now to provide the infrastructure needed to support that future population.
Mr Joyce said Auckland faced a rail operating shortfall of about $30 million for each of the next three years, as diesel trains tried to cope with rising patronage before the arrival of a $500 million electric fleet in 2013.
That includes an extra $11 million which the Government wants Auckland to pay KiwiRail in track access charges to meet maintenance and replacement costs now subsidised from Wellington.
The rest is the extra cost of running new and more frequent rail services introduced this year to cope with annual patronage growth to more than nine million passenger trips - up from 2.5 million since Britomart opened in 2003.
Auckland receives $3 million from the Government's Transport Agency towards track charges of $5 million which it pays KiwiRail, which will rise to at least $16 million next year.
Although the Government is paying KiwiRail an extra $7 million this year on Auckland's behalf for access to its tracks, Mr Joyce said that arrangement would finish on June 30.
"They can't use KiwiRail as a subsidy outfit any more on this - I'm not going to let KiwiRail, which we are trying to get up off its knees, to hold the baby in the bathwater."
Despite an existing 60 per cent subsidy from the Transport Agency for Auckland's rail operating costs, the rest of which are met by passengers and ratepayers, the minister said funds to cover the shortfall were not in that organisation's budget.
"We can push them in that direction but we need Auckland to sit down and say we agree with these numbers, and we are going to fund them, and we want NZTA [the Transport Agency] to fund those [the balance]."
* Auckland rail operating costs for this year - about $67 million.
* Projected shortfall from 2011 to 2014 - about $90 million.
* CBD rail tunnel - about $2 billion.