More than 30 local authorities in England say they are having to make cuts to cover the cost of providing free bus passes to the over-60s.
They say a scheme allowing pensioners to travel anywhere in the country was to blame for budget shortfalls.
A government grant of £212m was made but councils have told BBC Radio 5 Live this was not enough.
The Department for Transport said the funding allocation policy was agreed with town hall officials.
Free off-peak bus travel for over-60s and disabled travellers provided by local authorities in England was extended in April to cover travel anywhere in England using a single pass.
Wales, Scotland and Northern Ireland already offered free travel schemes, but until April bus passes in England were only valid for people who lived in the local area.
A Department for Transport spokesperson said: "We are now spending around £1bn on concessionary travel each year, including an extra £212m to cover the extension introduced in April.
"This new funding is allocated based on a formula that local authorities requested and takes into account people who travel to popular tourist towns and coastal areas."
The scheme was highlighted by Prime Minister Gordon Brown in his keynote speech at the Labour conference in Manchester this week.
The money provided by central government was spread across hundreds of councils to help them reimburse the bus companies for each pensioner who travels with them.
There are 322 local authorities in England.
About 100 were contacted by the BBC on the impact of the bus service scheme.
Of those that responded, 10 stated they had no problems while seven said they were still calculating the cost of the service.
Some 33 councils said they faced budget shortfalls which they directly attribute to the scheme.
Tunbridge Wells Council says it received a government grant of £329,000 for the new scheme, leaving an estimated shortfall of £335,000.
As a result, the council says cuts have been made this year in a number of areas, including grants to voluntary organisations and a local theatre, a reduction in the town's Tourist Information Centre, and planned cuts to public conveniences.
Other councils have said they have no option but to close some public toilets and cut back on street cleaning and road maintenance.
Fylde Borough Council said it has closed a swimming pool to cover its costs while the Isle of Wight has a shortfall of £3.7m.
Last month, Scarborough Council also complained that government grants were not covering its costs.