Port Stephens Council says it will take a "strategic leadership role" in deciding Tomaree Lodge's future but will "not take on a lemon" if the site is a financial burden.
The Newcastle Herald reported last month that the state government was spending $1 million a year on security and maintenance at the disused disability centre.
Tomaree Headland Heritage Group, which represents a host of business and community organisations in Port Stephens, has called on the government to hasten a decision on the nine-hectare site's future.
The council has stayed at arm's length from the issue since the lodge closed more than two years ago, but councillors resolved on Tuesday to "take a strategic leadership role by demonstrating to the NSW government [the council's] interest in the future of the Tomaree Lodge".
The motion, moved by mayor Ryan Palmer, said the council would "explore operational options and future management options that do not negatively affect council's finances, with the community, the Tomaree Headland Heritage Group and any other interested groups".
The council also committed to "playing a role in planning the future of the Tomaree Lodge site being led by the NSW government, including taking the necessary steps to formally establish a master plan".
Cr Palmer told Tuesday's meeting that Tomaree Lodge represented a "huge opportunity for the community".
"There's a lot of interest in that site," he said.
"It's imperative that something happens soon on the site, and I'm sure it will happen at some point.
"We want to ensure it happens sooner rather than later."
Cr Palmer told the Herald on Thursday that the council could not commit to taking over responsibility for the lodge until it knew what was possible on the site.
"We can't afford to take on a lemon," he said.
Minister for Disability Inclusion and Port Stephens MP Kate Washington has said the Department of Communities and Justice is working on identifying the heritage, environmental and other constraints of the site before proposing options for its future use.
The government has ruled out using the land for housing.
Cr Palmer said a cafe or other commercial uses could generate revenue for whoever managed the picturesque waterfront site, but it was unclear what was possible until the government finished its review.
He said the annual $1 million maintenance and security cost would weigh on whoever ran the site and the council would need state funding to take it on.
Tomaree Headland Heritage Group has proposed transforming the former disability care centre into an education and tourism precinct.
It has recently embraced a proposal from retired CSIRO insect scientist Reginald Roberts to open an ecology centre at the site focusing on the Hunter environment from coastline to rainforest.
One of THHG's member organisations, Tomaree Cultural Development Group, wants to see a performance venue and art exhibition space on part of the land.
THHG president Peter Clough said responsibility for the site should not be transferred to another government department and a management trust involving the council, government and community would be a better option.
The former government began removing residents from Tomaree Lodge in 2015 before closing it in 2021.
