Newcastle-under-Lyme's New Vic Theatre has opened discussions with Stoke-on-Trent City Council about future funding for the theatre.
The council has indicated that it will need to look at the funding it provides as it tries to implement cuts ordered by the government. In the current financial year the authority is trying to reduce spending by £21 million.
New Vic executive director Fiona Wallace has denied reports that the theatre's funding from the council will be cut completely by 2016-2017.
She said, "No decision has yet been taken on the level of funding that might be allocated for next year but the theatre is hopeful that the city council will continue to invest in its programme of theatre, education and community activity."
The city council's annual grant of £67,500 makes up 2% of the theatre's income. Newcastle-under-Lyme borough and Staffordshire county councils also support the New Vic's work as well as Arts Council England.
"We are working with the city council to bring much-needed investment into the area and to continue to provide international-class theatre to local people," Fiona Wallace added.