Speaking at the Policy and Finance Committee meeting on Wednesday, Mr Tulloch said town square organisers had been "extremely confident" all the money needed to complete the project would be on hand.
As part of fundraising, they had filled out an application for a lottery grant, but in November received the blunt reply the commission "does not fund landscaping".
The fundraisers had already canvassed the known organisations and businesses who would support the project, with the biggest contributions coming from Trust House ($200,000), WBS Trust ($50,000), Eastern and Central Community Trust ($50,000), Breadcraft ($27,319), Masterton South Rotary ($20,580), Borman Family Trust ($20,000) and Oldfields ($11,500).
Fundraising had been handicapped to some extent by the perception building the town square project was a council project.
Mr Tulloch told councillors nearly half the shortfall could be explained away as add-ons that council had requested once building was underway.
It is understood these alterations included the installation of outer fencing and bollards, a larger pop-up sprinkler system than had been intended and paving the ramps to the town hall instead of tarsealing them.
Last year, council allocated $87,000 plus GST to the project, but that money was for infrastructural work that had to be done regardless of whether the square became a reality, such as replacing sewer lines in Perry St and taking out an underground diesel tank.
Apart from that, council had earmarked $3000 a year for on-going town square maintenance.
The three councillors who voted against the shortfall bail-out were Gary Caffell, Brent Goodwin and Doug Bracewell.
Mr Goodwin had sought to defer payment for two weeks so other possible contributors could be approached.
Councillor Mark Harris sought to have the shortfall paid from the General Capital Purposes Fund.
He was supported by Chris Peterson, David Holmes, Graham McClymont, Pip Hannon, Simon O'Donoghue and the mayor Lyn Patterson.
Councillor Peterson said the town had to realise it had "got a very, very good deal" securing a town square worth nearly $700,000. "We would be absolutely mean-spirited to question this," he said.