The council released details of the proposal on Wednesday with lord mayor Nuatali Nelmes saying a staff analysis had concluded that borrowing from the NSW Treasury Corporation at a fixed interest rate of less than 1 per cent was the best way to bring the project to reality.

"An expansion of the gallery has been discussed for 16 years with more than $10 million raised by the community to support the project," she said.

"I'm pleased to say that City of Newcastle staff have identified a funding pathway to more than double the size of this wonderful community asset and make our shared dream a reality. With the current favourable economic conditions, including historically low interest rates, the time has come ... to make this project happen."

The report prepared for next week's meeting shows a number of funding options for the $35.6 million project, including using cash reserves, external loans or a combination of both. About $13 million will come from bequests to the gallery foundation and fundraising.

Staff have recommended borrowing the remaining $22.6 million required at a fixed interest rate of 0.88 per cent over 10 years.

This amount would mean the council would not dip into its cash reserves and it would not be relying on a state or federal grant.

The council would pay about $1 million interest over the life of the loan.

The council has previously outlined a desire for at least a $10 million contribution from either level of government and has two grant applications outstanding with the Commonwealth.

The NSW government, which has refused to fund the project to date, recently created a $60 million fund that Arts Minister Don Harwin has encouraged the council to seek cash from.

Up until the creation of the Creative Capital infrastructure program in June, Mr Harwin had repeatedly said there was no fund the government could provide a grant from.

Cr Nelmes said the council would continue to seek such funding but it had to plan to proceed without it.

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She said loan borrowings would allow the council to undertake the work and maintain a budget surplus and cash reserves.

"City of Newcastle is committed to the Newcastle Art Gallery continuing to be a symbol of excellence and source of pride as a major cultural asset for our state, which is home to a nationally significant collection that includes more than 7000 works valued at $115 million," Cr Nelmes said.

The project, which includes upgrading and expanding the gallery with the addition of a cafe, shop, educational spaces and secure loading dock, already has development approval.

The expansion will allow for an additional 1600 square metres of exhibition space.

If councillors approve the funding pathway, a tender report will be submitted to council later this year seeking approval to award a construction contract.

The NSW Treasury Corporation is the central borrowing authority for the state's public sector.

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