Mr Foster said one of the council's major capital works projects - the Victoria St Arterial, which is a $40 million plus project - could not realistically go ahead for at least 15 years, even though the council had spent millions of dollars in property purchases already.
He said very small rates increases plus a large increase in debt during the past 10 years left the council in an unsustainable financial position.
He said proposed borrowing this year of $11.8 million was a major issue and needed to be managed practically before it added to the problem.
"To reduce that we will need to make some pretty hard calls," he said.
Councillors reluctantly agreed to defer a number of scheduled capital works projects.
The deferred projects have a total value of approximately $5.4 million and were all scheduled for completion in the current 2013/14 financial year.
They include the Blue Baths upgrade, Lakefront redevelopment plan and Blue Lake toilets upgrade.
Most of the programmes would have been funded through borrowing, adding to the council's debt levels.
Rotorua Mayor Steve Chadwick said deferring capital projects was the toughest decision the new council had had to make.
"None of us on council felt particularly comfortable having to take such drastic action.
"There remains some unease over potential risks from not proceeding with some of the programmes at this time and that risk will need to be assessed in more detail in the coming months," she said.
Councillor Karen Hunt said it was the most pragmatic move councillors could make.
"Our whole community will be losers if we don't save this money," she said.
Mrs Searancke said she was not aware of the "really quite dire [financial] circumstances" the council was in, but was concerned the council would have to break promises made to ratepayers to save money.
Mrs Chadwick said the council was facing up to the realities of a debt situation which was worse than previously understood.
"We've had a very timely message from our chief executive and chief financial officer that we must take urgent action to reduce growing debt levels and stimulate growth.
"It would be irresponsible to continue on with the levels of capital and operating expenditure that are in existing council plans.
"We need to pull back hard and we need to do it now," she said.
Meanwhile, ratepayers in Tauranga can look forward to a rates increase from anywhere between two and 13.5 per cent depending on whether the Tauranga City Council decides to introduce a flood levy during Annual Plan deliberations later this year.
