Parents with children attending Warilla Child Care Centre have expressed their distress over the potential closure of the facility at the end of the year.
Families will have to find new care arrangements for their children should Shellharbour councillors support a recommendation at Tuesday's council meeting that the centre be closed if a new service provider is not found to run it by October.
The council has operated the long daycare centre for nearly 40 years, leasing the premises from Housing NSW for $1.
But in May, Housing NSW told the council they would be seeking market rental of $40,000 a year for the property. This extra cost would have to be met by the council or passed on to families in higher fees.
Marisa Wheatley's children Ethan, 3, and Ella, 18 months, attend the centre. She said she had first heard about the possible closure in a letter the council sent to parents on Thursday, which she received on Friday.
"We felt a bit blind-sided," she said.
"We're really disappointed. I feel really upset - the ladies there have been really great and I've found so much support from them. They become like a member of the family and the kids love them to death."
She said it would be challenging to find another childcare provider that suited her family's needs.
"To me, it's a service to the community. The profitability shouldn't be an issue, especially when there is other money being put aside for new council chambers."
Allana Cuzen's sons Patrick, 3, and Alec, 2, attend the centre three days a week. Ms Cuzen said the centre's potential closure would especially affect her eldest as it would be his last year before starting school.
"It's daunting for me as a parent to think he would have to go to a new centre, and then he will start school the following year in a brand new environment again," she said.
"As working parents, the hours that centre provides suits us and the staff are amazing - they are just part of our family. It's just a bit distressing really."
A council spokeswoman said the centre was dependent on "significant ongoing financial contributions" and because it was a small, stand-alone centre, "economies of scale cannot be realised".
She said there were 32 long daycare centres across the Shellharbour LGA, with vacancies at a number of facilities. The notification to parents related to the timing of the release of the meeting's business papers.
Council has begun discussions with non-profit providers and a formal process will begin if the recommendations are adopted.