Dorset Council Mayor Greg Howard says advice from the National Rail Safety Regulator into the viability of the North-East heritage railway should have been sought at the start of the year rather than in June, resulting in an "unnecessary" delay.
The Legislative Council inquiry has delayed releasing its final report until Parliament reconvenes in August, giving the committee time to analyse advice from the rail safety regulator.
Cr Howard said it demonstrated "poor management" by the committee and the delay would stretch beyond August, confirming the council would lose $1.5 million in federal funding for a cycle path as the funding stream comes to an end next year.
"The rail regulator should've been their first port of call," he said.
"They're fully aware that the cycle project has to be completed, and all invoices lodged, by March 31 next year.
"We have no chance of meeting that deadline."
Cr Howard said the cycle path would now need to be funded by Dorset Council.
Newly-elected chair of Launceston and North East Railway, Wendy McLennan, said she believed the Legislative Council was conducting a "thorough investigation" including visits to heritage railways in New Zealand and Victoria.
"It's not something they've taken lightly," she said.
"We believe that the committee gave the tourism heritage rail proponents a fair hearing."
More on the North-East Rail Trail debate:
The Legislative Council report will be the seventh report into uses of the disused North-East railway line from Launceston to Scottsdale.
The state government and City of Launceston attempted compromises that would incorporate both a heritage railway and a cycle path.