The lake emptied when its rubber dam ruptured in July 2010, and a temporary rented replacement is now in place.
Officials say a steel dam would be better for safety and reliability.
The contract approved Thursday night by the council is not all that is required.
Another contract yet to be considered would cost about $22 million to construct the dam.
Partial sources of funding for the project include money from bonds that voters approved previously as well as future revenue from land sales or leases.