The Newcastle loanee won the hearts of many Baggies fans with 24 goals and a series of impressive performances last season.
Dowling admitted he would love to keep the lethal striker but Gayle's current wages, believed to be around £55,000-a-week, were prohibitive to such a move.
The technical director said the Baggies had to trim their wage bill, and that keeping players on Premier League salaries would put non-playing staff at risk.
When Dowling was asked if there was any prospect of Gayle being signed permanently, he said: "No. No-one would like to keep Dwight more than myself.
"We can all recognise what he gives us on the pitch and the way he conducts himself off the pitch in the local area – he's brought his family down from Newcastle for the year, he's bought into everything we want to do.
"Financially, we were prepared to pay the money for Dwight's contract for this season. It hasn't worked out (because we didn't win promotion).
"Dwight's contract is a Premier League contract and we will pay Premier League contracts, but we'll only do that once we're back in the Premier League.
"I know it won't be the news Albion fans want to hear, but they need to trust us and know we're doing everything right for this club.
"We don't want to keep players on big contracts and have to lay the general staff off and make people redundant.
"We want to keep everyone here because we've got good people behind the scenes. But we will still have a competitive wage bill on the pitch next year."
Dowling's comments also remove the likelihood of a straight swap with Newcastle for Salomon Rondon, because Gayle's wages are the sticking point.
There is also concern that having one or two players on significantly more than anyone else in the squad could affect squad harmony.
Gayle is admired by the board, who fully believe he is a Premier League player, and would have tried to sign him if promotion had been achieved.
But Dowling admitted the Baggies were going to have to cut their cloth accordingly this summer, with several high-profile departures expected.
"We had a really competitive wage bill this year for the Championship," he said. "If you add the loan fees we paid for Dwight Gayle and Harvey Barnes, the fees we paid for Sam Johnstone and Kyle Bartley and the money we paid for loans in January, financially we gave it our best shot this season.
"Next season it will be slightly different. We'll take the right risks in player recruitment that will benefit the club.
"If it means two, three, four, or five players move on, then they move on. We have to back ourselves to replace them.
"We had a group of players who we believe can play in the Premier League. When I joined in September, they as a group were willing to give it this one season.
"A lot of them, with the age that they're at, will be thinking 'if I don't go to the Premier League now then I could spend the rest of my career in the Championship'.
"We were a penalty away from getting to Wembley but we have fallen short.
"I'm not going to sit here and say we'll be kicking off next season with the same squad – we won't be.
"There will be changes but they will be changes made for the right reasons for this football club."