Under DEM regulations, the three-acre site can only be sold to a nonprofit organization or a government body, according to Malcolm J. Grant, associate director of DEM's Bureau of Natural Resources.

The Town Council had decided to ask voters to either pay back loans of $3.2 million and keep the property as a town recreation area or put the parcel up for sale. A referendum was scheduled for June 17. If the sale were approved, there would have been a one-day auction to buy the lot at a minimum price of $3.2 million.

Now town officials are questioning whether to go ahead with the referendum.

"I feel there is no practical way somebody would purchase this property from us," said Council President Nicholas Castagna, who noted he was unaware of the extent of the restrictions when the council approved scheduling the referendum.

The council is expected to vote changing the referendum question at tonight's meeting.

Council Vice President Mary Jane DiMaio has supported keeping the property as a town beach.

"My position remains the same. We as a council, must show the town and the state that we stand by our commitments to fund the beach," DiMaio said. "There certainly is a need for recreation and open space."

The town paid $3.1 million in 2001 for the property, after it went into receivership from James Armenakes, a convicted cocaine trafficker.

Last March, the town accepted a $300,000 recreation easement from the DEM for the oceanfront lot to maintain the property as a town beach, according to Grant. Under the easement, the town cannot subdivide the property or construct any buildings, unless they are directly related to outdoor recreational activities, such as a bathhouse. The easement specifically prohibits any commercial operations.

"It was acquired for the stated purpose of operating an outdoor recreational facility, such as a town beach," Grant said. "The only audience for acquisition would be another municipality or a nonprofit [group]."

DEM also awarded Westerly a $400,000 open space grant from the DEM to preserve the Winnipaug Pond side of Atlantic Avenue.

Although the town has agreed to accept the grant, the open space restrictions are not being enforced because the town never signed the contact to make it legally binding, Grant said.

"The ocean side parcel is very heavily restrained for what they can do, but there is not a similar restriction on the pond side," Grant said. "We're negotiating the document now."

If the town accepts the grant, it would be required to remove the buildings there and maintain the land as open space.

Westerly is also soliciting bids for parking attendants and a retail concession stand to serve the current town beach in Misquamicut.

"But the number we hire depends on whether we lease out property for parking on the Armenakes property," Town Manager Pamela Nolan said.

Last year, the town made $58,000 from parking fees at the beach, according to Nolan.