Wagga City Council has denied claims it has diverted state and federal government money meant for North Wagga flood protection.
The claim was made in a letter from the North Wagga Residents' Association, which threatened legal action unless the council modified and strengthened its planned flood protection works for the suburb.
"Council has recently been accused of receiving funding from the NSW government for North Wagga Wagga flood mitigation and that council has diverted this funding to 'other purposes'," council general manager Peter Thompson said.
"This accusation is completely denied by council. It simply is not true in any way. In fact, the truth of the matter is quite the opposite.
"Council has not received any funding from the NSW government for new flood mitigation works in North Wagga. It is hoped such funds will be provided in the future when the works themselves are finalised.
North Wagga Residents' Association treasurer Fiona Ziff said the general manager's statement was a "distraction" as government funding was just one of the group's issues with the council's flood plans.
Ms Ziff said the association's planned legal action, which began last month with a solicitor's letter to the council, would still proceed.
She called on the council to release planning and grant application documents related to flood mitigation.
"They have put up the main city levee but not worried about the impact on North Wagga, which is going to be severe," Ms Ziff said.
"But they used that same argument for not building a North Wagga levee: that it is going to affect upstream properties, of which there are nine."
The association has campaigned for North Wagga to receive the same 1-in-100-year flood protection that Wagga's central areas will have following the main city levee upgrade.
"We're not accepting a 1-in-20 year flood protection, it's not high enough," Ms Ziff said.
"A 1-in-20 year protection is what we originally got in 1990 and it has been downgraded to a 1-in-8 year protection because (the council) haven't done the vegetation management."
Mr Thompson said the council was collecting money from Wagga ratepayers via a special rate variation that was designed to collect $7.8 million over the five years to 2021.
The rate variation was intended to be combined with $4.1 million in state government grants and $10 million from the federal government for what was originally $23 million for a main city levee upgrade and North Wagga flood protection.
"Council has not received NSW government funding for North Wagga flood works and diverted it elsewhere," Mr Thompson said.
"To the contrary, council is collecting a fund from Wagga ratepayers which is accumulating in a reserve for application to North Wagga flood mitigation works."
A budget update to councillors in May allocated just over $24 million for flood protection across the city, including just under $8.4 million for North Wagga following an increase in projected levee costs.