Sussex Police Authority has voted against a merger with the Surrey force, claiming the government underestimated the costs by £10m.
The authority said the proposal to merge two of the lowest-funded forces in the country without better funding was highly questionable.
Chairman Peter Jones said council tax payers would have to pay 18% more to maintain the same levels of policing.
The Home Office said it would pay all costs and council tax would not rise.
Sussex Police Authority members said it would be prudent to be prepared for an enforced merger.
Larger forces
Mr Jones added: "Although Sussex is prepared to take a forward-thinking role in the development of policing in the South East, the Home Secretary has not provided any constructive answers to our key questions on funding and governance."
On Wednesday Surrey Police Authority also declined plans for a voluntary merger because of similar funding issues.
The Government believes larger police forces will be in a better position to tackle terrorism, organised crime and police the roads more effectively.
Home Secretary Charles Clarke believes forces with fewer than 4,000 officers are too small to meet these challenges alone.
No force in the South East meets this criterion - Sussex has just fewer than 3,200 officers.
In a statement, the Home Office said it "guarantees to finance 100% of reasonable costs associated with police restructuring" and that council tax would not increase.