"There are some core costs that we simply cannot get away from," Ms Jackson said.
"In February for instance, we had a $10,800 power bill because of the humidity.
"But we can't change that, it is not a cost we can take away.
"If we want to borrow works from Te Papa we have to present a facilities report that tells them about security cameras, staffing, humidity, temperature and, if we do not meet the criteria, then they say no and you exclude a lot of amazing art.
Ms Jackson said if funding cuts continued the gallery would have to look at dropping items such as the art bus, which would save $45,000 a year.
"We could also look at knocking back the amount of exhibitions, to say, five a year.
"I don't see what else we can do to cope with these cuts."
Councillor Catherine Stewart questioned the financial future of the art gallery at a council meeting on Wednesday after documents showed the gallery forecasted a $18,126 deficit in the 2015/16 financial year.
Ms Jackson told the council the gallery could not "keep abreast" of the core costs without becoming a second-rate institution.
"Our plan is for you to reinstate the inflation or perhaps not get rid of it now," she said.