"We recognise that some of our smaller communities need extra facilities to deal with the increase in tourism numbers, and in particular manage freedom campers," Mr Key said.
Mr Donaldson said the council's new economic development organisation, which would be up and running from July 1, would also discuss other ideas it could obtain funding for in the future.
"Right now we are waiting for announcements for mobile blackspot and rural broadband funding to complete the digital strategy for Rotorua.
"That's going to make a significant improvement in terms of digital connectivity to enable business growth.
"We have some significant blackspots in key tourist areas such as Lake Tarawera and the Buried Village, as well as the Whakarewarewa Forest, to name just two.
"With big events like Crankworx, the Enduro World Series, Tarawera Ultra-marathon and Xterra, if we can do live updates and live timing it enhances these events and is critical for grabbing the attention of a world audience."
Mr Donaldson said Rotorua's lakeside boat ramps and carparks, rubbish-collection facilities and toilets were under lots of pressure this summer.
"With increased freedom camping and a lot more people coming here for recreation on the lakes, these are becoming real issues and it's not sustainable."
He said large queues were seen at all major boat ramps in the district over summer, and rubbish and toilet facilities were coming under increased pressure.
"With the growth in tourism, the question is how do we provide the infrastructure to make sure visitors have a great experience.
"Our vision is to grow our tourism industry to $1 billion by 2030, and we are at $600 million now.
"We could use up the whole $12 million ... but we need to wait and see what the funding parameters are, and there will be lots of communities that will be in a worse space than Rotorua," he said.
Destination Rotorua marketing general manager Oscar Nathan said Mr Donaldson hit the nail on the head.
"If it's good for the local community then it's also good for our visitors.
"Tourism is not a myopic sector on its own. If there was more funding I think the conversation would be different," he said.
"What would be cool is if it could be leveraged across the central North Island with other councils, especially with respect to freedom camping.
"If we want to be a a world-class destination we also need to be world class in terms of digital connectivity, so we need to have the capacity."
During his speech at Trenz, Mr Key paid tribute to Rotorua as one of New Zealand's "best-known and best-loved" tourist destinations.
While in the city Mr Key visited Rainbow Springs, getting up close and personal with the organisation's 1500th kiwi hatched at the facility, and visited the Redwoods Tree Walk.
The Trenz closing function at Skyline Rotorua last night was attended by 1100 buyers, tourism operators and media.
Mayor Steve Chadwick said the event had run "like a slick machine".
It was also announced yesterday that Trenz 2017 will be held in Auckland.
