Auckland Transport faces a tight funding squeeze as it struggles to cope with unprecedented numbers of commuters switching to buses, trains and ferries.

After overseeing a record seven million public transport passenger trips in March, the organisation fears having to cut service costs by $31.2 million in the next financial year because of savings sought by its two main funders, the Auckland Council and the Government's Transport Agency.

A capital projects wish-list of $674 million of public transport infrastructure and local roading proposals inherited from Auckland's former regional, city and district councils will also have to be hacked back after a gloomy Government subsidy forecast.

Chief infrastructure officer Kevin Doherty has told Auckland Transport's board that although the list assumed Government subsidies of $274 million, there was unlikely to be more than $147 million available, and possibly even less. He said the Transport Agency had indicated a combination of previously strong regional spending and lower than forecast revenue into the national land transport fund had depleted the amount available for subsidy distributions in 2011-12, the final year of a triennial funding cycle.

Transport Minister Steven Joyce, who in 2009 ditched a proposed regional fuel tax for Auckland public transport projects, has in this election year cited continuing tight economic conditions in postponing a planned 1.5 cent-a-litre rise on petrol excise.

Auckland Transport chief financial officer David Foster told the board that a draft operating budget reflected a savings target of $11.2 million sought by its parent council, and an operating subsidy of $190 million from the Transport Agency - $16 million less than hoped for. His organisation, which remains 125 staff short of its intended strength of 1025, also needed to find $4 million from its operations for recruits.

That meant an overall $31.2 million reduction to already under-funded services.

Mr Foster said in a report that although officers intended raising those budget pressures with the Auckland Council, the parent body had "a short-term focus of keeping the rates rise down and may not be aware of the long-run implications of these decisions" in terms of keeping its assets in good repair.

Although the budget was achievable for a single year, it would not lay "a robust foundation" for an organisation facing significant extra spending needs over 10 to 20 years. He told the Herald an efficiency saving of $11.2 million was "not unreasonable" as a share of the council's overall target of $62 million across its full operation, to ensure its first rates rise did not exceed 4.9 per cent.

He said his report was not intended as criticism of the council, which has committed $596 million to Auckland Transport, and the organisation was simply "working out how the hell it is going to be handled".

Mr Foster also acknowledged that the council had agreed to pay for a proposed $12 million increase in annual rail access charges sought by KiwiRail. But council transport committee chairman Mike Lee, who is an Auckland Transport board member, said the council would be very unwise to cut public transport spending after years of patronage growth.

"That doesn't mean throwing money away or open slather for subsidies," he said. "It means ensuring expenditure is in place to meet the rising demand to maintain the momentum of recent years. Because going through my inbox of issues, complaints and questions, transport seems to be the major issue that is concerning Aucklanders."

Even so, Mr Lee acknowledged that the region's former territorial authorities had caused budget difficulties by "front-end loading" their long-term plans with spending on local roads "which they themselves couldn't really afford. Obviously they hoped that if they threw it over to the Super City, they would get those items paid for".

Local Government New Zealand has criticised a continuing emphasis by the Government on "roads of national significance" and other state highways in a draft policy direction to the Transport Agency for funding from the ten years from 2012-13.

"Once again local roads, and therefore many smaller communities, lose out to roads of national significance," said its president, Lawrence Yule.

"If money is coming from local roads [through petrol taxes and road user charges], it should go back into local roads - we need to look at our roading network as a whole."

Mr Lee said the Government's seven roads of national significance, to which the policy statement indicates four more may be added, were becoming "an out of control monster which is distorting other transport expenditure, especially public transport".

* Auckland Council draft transport budget 2011-12 - $704.5 million.
* Council contribution to Auckland Transport - $596m.
* Transport Agency subsidies - $337m.
* Revenue from public transport fares and other services - $139m.