Shoalhaven Council has stepped away from plans to upgrade the Ulladulla Harbour Boardwalk due to its difficult financial position.
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But it is calling on Transport for NSW and Crown Lands to take over the project, which is located on Crown Land.
Tenders had been called for the next stage of building the elevated boardwalk, but during a confidential session at the April 8 meeting, councillors decided to not accept any of the tenders.
Instead it is writing to the State Government's Public Spaces Legacy Program asking to withdraw from the project, and offering to return unused grant funds.
It is also asking the Federal Government's Building Better Regions Fund to cancel the project.
While council is walking away from the project, it is calling for Transport for NSW and Crown Lands to draw up a mater plan for the Ulladulla Harbour precinct, including stages three to five of the boardwalk project, upgrading the car park and providing facilities for the Ulladulla Game Fishing Club.
Business Milton Ulladulla president Matt Dell while the decision was disappointing, it was understandable given council's financial situation.
"It's a regrettable outcome of the budget deficit and choice to not move the rates up," Mr Dell said.
"It's an inevitable outcome of the choice that's been made."
Mr Dell acknowledged council had "extraordinary costs" to deal with, particularly in the wake of repeated natural disasters.
"We think it's a shame that it's not been prioritised, but we realise that they've got massive hassles and choices to make, and we hope that it does get prioritised at some stage in the future," he said.
"Something has to break, something has to give, but I'm not sure if this is the right one because I think this is a pretty important project."
Mr Dell said the boardwalk was expected to be a catalyst for change, re-shaping Ulladulla's CBD to put more focus on the harbour.
However it was not the only project mothballed during the meeting, with council voting to put a pause on building skate parks in Ulladulla and the Bay and Basin, until its financial position improved.
Unfunded costs associated with the two shake parks topped $2.6 million.
