A Sydney council has been ordered to repay $36 million given for an unbuilt park it was earmarked for, in what has been described as a "brazen pork-barrelling scheme."

Hornsby Shire Council will pay back the funding originally provided by the state government as part of the now-disgraced Stronger Communities Fund.

The program came under fire during a parliamentary inquiry in 2020, after the premier's office admitted to shredding documents used to approve grants. 

Greens MP David Shoebridge, who chaired the inquiry, labelled it a "brazen pork-barrel scheme" in the final report.

It was later revealed that 96 per cent of the grants were allocated to councils in Coalition-held electorates.

Hornsby Shire Council was the largest beneficiary of the fund, receiving $90 million across two rounds of grants. 

Former Premier Gladys Berejiklian conceded that the distribution of funds amounted to pork-barrelling, but maintained the practice was "not illegal".

"It does happen from time to time by every government," Ms Berejiklian said in 2020.

Hornsby Shire Mayor Philip Ruddock said he is "very angry" and accused the state government of taking the money back as a way to cut costs ahead of next week's state budget. 

He said the council moved as quickly as possible within administrative constraints. 

"We can't develop any more than anybody else can a site until those approvals have been gone through the appropriate processes," he said.

Cr Ruddock said the money was granted to address the "inadequacy" of sports grounds in the area, and pointed to an expectation to provide additional accommodation.

"They argue that there should be a 40 per cent increase in [housing] supply by 2026. 

"We're not going to get it and they're taking away the money that was appropriated for that purpose." 

The grant program was established in 2017 to support council amalgamation, but some of the money was awarded to councils who never actually merged, including Hornsby Shire Council.

The auditor-general of NSW later described the fund as "deficient" and "lacking integrity".

In 2018, Hornsby Shire was given $40 million for the Westleigh Park project, which was meant to turn a more than 30 hectare patch of land into a mecca for mountain biking and functional green space. 

But since then, only $4 million of the grant money has been used. 

The state government has knocked back the council's request for an extension of time to spend the money, because they were not able to demonstrate that the project was on track. 

Hornsby is one of 10 councils that asked for an extension to spend the money they were given as part of the Stronger Communities Fund. 

Of the 16 applications made by those councils, 12 have been approved including a second application from Hornsby Council for a different project worth about $50 million. 

"At a time when we are facing a cost-of-living crisis, every dollar counts," Minister for Local Government Ron Hoenig said on Monday.

"Hornsby Council has had years to utilise this funding and the original deadline written into grant guidelines has long passed."