Glamorgan Spring Bay Council mayor Debbie Wisby said while the situation wasn't dire, it was definitely not ideal.

The issues stemmed from the previous council's approval of the construction of a dam and pipeline, with Tassal to be one of the main users.

Cr Wisby said the federal government gave $2.33 million for stage one of the project, but there had later been a cost blowout.

"The amount of money that was originally estimated wasn't sufficient," she said. "We've borrowed all the money that was approved to borrow, and we're $600,000 short in funding the finalisation of stage one."

"We're very close to our 40 per cent borrowing capacity. We're at about 39.5 per cent, so to borrow would put us above a safe borrowing level.

"This is a long term loan. We will not have borrowing capacity for many years as a consequence of borrowing this money. It's not that we don't have it for two years, it's more like we don't have it for closer to 20 years."

IN OTHER NEWS

Cr Wisby said the council had to build its cash reserves "basically up from $0" as of June 30.

"It's certainly not ideal for a council to be in a financial position where we've basically maxed out the capacity to borrow," she said.

"We've had to put in place a budget that would build up our cash reserves, which means we're not spending as much money on our roads and so forth because we need to make sure we've got some cash in the bank."

Cr Wisby said she had verbally asked Tassal to consider paying the $600,000.

"I'll be formally putting that in writing to them later this week," she said.

"We are not in a position, and Tassal has been made aware of this, to fund stage two - construction of a dam."

She said the conversations to date with Tassal had been positive.

Do you support a Tasmanian AFL team? Sign the pledge here

Tassal would not comment on the council's funding request, however said it continued to support the council's project.

Opposition local government and planning spokeswoman Anita Dow said Labor encouraged the state government, Glamorgan Spring Bay Council, and Tassal to work together to find an appropriate resolution.

"The salmon industry is important to our regional economy and regional jobs," she said.

"The community and ratepayers best interests must be prioritised given the current financial pressures on the council."

A state government spokesperson said financial support was given to the council to assist in the completion of the first stage of the project, but stage two was a matter for the council.

Greens environment and water spokeswoman Rosalie Woodruff said the council could never have afforded to build Twamley Dam.

"It was never logical or reasonable for a council in one of Tasmania's smallest municipalities to sign its residents up to a massive debt and potential Treasury liability," she said.