Local Government Bruce Fitch announced unconditional grants would be cut in 2012. (CBC)

Local Government Minister Bruce Fitch is cutting unconditional grants to municipalities and adding an administration fee to local service districts as the Alward government continues to fight the deficit.

The New Brunswick government will hand out $69 million in unconditional grant payments to municipalities, rural communities and local service districts in 2012. That will amount to a two-per-cent cut.

Fitch said the cut was necessary in the current economic times.

"The slight reduction in unconditional grant funding was necessary as our government continues its efforts to reduce the provincial deficit," Fitch said in a statement.

"However, the message from municipalities was clear. They need stable funding to deliver the services required of them for their residents. That is why [we] decided to limit the decrease for the upcoming year."

This isn't the first time that the Progressive Conservative government has cut the unconditional grant fund. It also reduced the grant in 2011.

Premier David Alward’s government has watched its estimated budget deficit hit $545 million, which is nearly $100 million more than was expected in March.

The provincial government has demanded that government departments review their spending. The Alward government’s throne speech on Wednesday continued to talk about changing the culture of government and focusing on the core functions of government.

It is expected that the upcoming budget will include further cuts.

The provincial government may also be looking at additional ways to raise revenue.

New rural administration fee added

Fitch outlined one plan that will be implemented next year.

There will now be an administration cost given to local service districts.

Fitch said this decision will create a "fairer system" between LSDs, rural communities and municipalities.

"We also recognize that the costs for administration in municipalities are paid for through local property taxation, but this was not the case in local service districts until now," Fitch said in a statement.

"The addition of the cost for administration in the local service districts will mean a slight increase in local tax rates, resulting in a fairer system among local service districts, rural communities and municipalities."

The Alward government has also put municipalities and local service districts on notice that it will be implementing a two-year plan to overhaul local governance.

Fitch toured the province earlier this year to listen to the concerns of local governments. The throne speech committed to following through on a series of upcoming reforms.