The project was touted as a permanent home for the city's annual festival of steam, but difficulties finding a suitable location to house a steam-powered machinery museum have caused delays - and led to rumours that the project was shelved and a State Government grant to be refunded.

An announcement for the $1million in funding was made in 2001 and presented to the city in April 2006, when transport minister John Watkins visited Steamfest.

Steamfest chairperson Cr Peter Garnham predicted the project would spur a new generation of enthusiasts to continue the city's love affair with steam "when we're all gone".

His vision was for a shed to house the event's steam collection, including a double expansion steam engine from the original harbour vessel in Newcastle, and provide workshop space for steam buffs to repair and restore the machinery.

But seven years after the funding was announced, and two years after the cheque was presented to Maitland City Council, nothing has happened.

"We've gone through the pain of studies at three sites," he said.

"The original site was the old goods yard at Maitland Railway Station, but the ownership changed hands and Australian Rail Track Corporation (ARTC) required the land.

"Then we looked at the Red Shed at Hunter Valley Training Company (at the East Greta Junction) and we went through all the studies there, but the company required it for their training purposes.

"And there is a third site that is subject to discussions between the council and the government, although I'm not fully aware of the negotiations."

Walka Water Works was also suggested as a possible site, but vetoed by the State Government.

"So the money continues to sit in the bank," Cr Garnham said.

General manager David Evans said the funding was still held by the council.

He and council business strategy and marketing executive manager Roger Stephan met with Maitland MP Frank Terenzini last week and a revised submission - including an alternative location - was expected to be made to the State Government next month.

"The three strands of the plan - to provide a permanent home for Hunter Valley Steamfest, to provide a new tourism experience and continue the city's rail heritage are still the focus of the concept that is being worked on," Mr Stephan said.

Cr Garnham said he was hopeful of a resolution before the September local government election. The earliest possible completion date for the project is 2010.