The lord mayor and three council staff will sit on a panel to decide who receives money under a proposed new model for Newcastle's business levy scheme.
Changes outlined in the new model ban two business improvement associations (BIAs), Newcastle Now and Hamilton Chamber of Commerce, from applying for funds for promotional and beautification projects.
City of Newcastle called for expressions of interest in the restructured scheme two weeks ago, even though councillors voted only last week to place the draft policy on public exhibition.
Expressions of interest close on August 9, four days before the end of the exhibition period for the policy that will guide how they are assessed.
The draft guidelines include a $500,000 cap on projects in the CBD precinct and $15,000 limits in Hamilton, Wallsend and New Lambton.
Hamilton Chamber of Commerce president Nathan Errington said events such as Carnivale were in jeopardy under the new policy.
"We won't be able to apply for it. Carnivale will be gone. They're ripping shreds off an event which attracts over 30,000 people," Mr Errington, who ran as an independent in the 2017 council elections, said.
"We used to put in as a chamber $35,000. We can't apply at all. No one's come forward. As far I know no one's come forward to put in an expression of interest."
The council told the Newcastle Herald on Monday that a new Hamilton BIA would run the event.
Council chief executive officer Jeremy Bath cut off Newcastle Now's funding last July, prompting a series of reviews of the BIAs and the BIA model, the sacking of two council staff and the scrapping of Newcastle Now's and Hamilton's funding agreements with the council.
Mr Bath accused Newcastle Now, by far the largest of the BIAs, of failing to submit satisfactory business plans and spending too much on administration.
In response, the Newcastle, Hamilton, Mayfield and New Lambton BIAs asked the Office of Local Government to investigate how the council was managing the million-dollar BIA levy on commercial ratepayers.
The council's new BIA model calls on groups to contest an annual funding round to run projects in each of the BIA precincts. The council panel would choose successful applicants and determine "at its discretion" the amount of SBR funding made available each year.
The new guidelines include a ban on "applicants who have had a previous funding or service agreement with CN terminated due to a breach of the agreement", a clause which excludes Newcastle Now and Hamilton Chamber of Commerce.
Both organisations dispute that they have breached agreements with the council.
Mr Errington criticised the make-up of the assessment panel.
"There should be a commercial property owner on that panel or someone representing BIAs, because it is not Newcastle City Council's money; it is commercial property owners paying above the business rate.
"Why does business not have a say in where this money is going to go?"
Responding to questions at last week's council meeting, Mr Bath said the council had always approved the release of funds for each BIA's proposed projects.
Lord mayor Nuatali Nelmes said the council had acknowledged its administration of BIAs was "not good enough" and funding had to be more transparent.
"I could not tell you, still to this day, exactly how some of those funds, particularly in the largest BIA, have been spent," she said.
Cr John Mackenzie (Greens) said the council should not have called for expressions of interest before deciding how to assess them, and independent Kath Elliott said Labor could use the scheme to "pork-barrel" before next year's election.
Independent John Church said the council had demolished the BIA model and publicly criticised volunteer board members.
"It will be interesting to see whether any person in their right mind would want to engage in this process for fear of also being attacked and maligned," he said.
He said the council should cancel the business levy and use existing rates to pay for improvements.
Labor councillor Carol Duncan said the "murky" BIA scheme had been investigated and found wanting.
"I certainly received many complaints from [inner-city] business owners ... who have been begging for help from their BIA and not receive it. Not just not receive it, been ignored," she said.