The leader of Anglesey Council says a proposed increase in Welsh Government funding does not keep pace with driving demand.
On Monday, Senedd ministers announced the council would receive a 2.3% rise under its draft local government settlement for next year.
The 22 local auhorities across Wales are set to recieve on average a 2.7% increase for 2026-27.
But the Welsh Local Government Association (WLGA) have warned the provisional settlement does not come close to matching "unprecedented financial pressures" facing local authorities nationwide.
One Anglesey councillor said it presents "serious concerns" and warned council tax may have to be increased "more than necessary".
Across Wales, the total core settlement has been confirmed as £6.4bn with the 2.3% increase as the base funding floor - with Anglesey receiving a total of £141.9m, up by around £3.1 million on last year.
On the mainland, Gwynedd is also in line for a 2.3% increase, receiving £259.4 million - an increase of around £5.8 million.
But reacting to the draft settlement, Anglesey Council leader Gary Pritchard said: "Local government has been warning for some time that the pressure on core services is now structural, not temporary. This increase simply doesn't keep pace with the underlying forces driving demand."
"Many councils are already operating at the limits of what is safe or sustainable. Even with a funding floor, the gap between need and resource continues to widen, and that poses real risks for the resilience of services especially in rural areas. The funding formula really needs to be reformed."
"We need to see a final settlement that genuinely reflects the pressures councils face, alongside clarity on how wider cost increases will be supported. Without that, local authorities across Wales will remain on very uncertain ground."
Cllr Pritchard's calls for the so-called Barnett formula to be reformed were repeated by Cllr Robin Williams, who oversees the financial portfolio.
He said: "The draft 2026/27 financial settlement presents serious concerns. The Welsh Government hasn't allocated all available funding, creating uncertainty for Councils across Wales that must set legally balanced budgets."
"This raises the risk of us having to increase council tax more than necessary or draw further on reserves."
Even when taking in the average increase across Wales into account, Cllr Williams said it "does not match inflation or rising demand".
He said: "While the Standard Spending Assessment (SSA), which is the total estimated sum required to fund council services across Wales, has risen by 6.1%, the Welsh Government's contribution has increased by only 4.95%, leaving a significant gap that councils are expected to bridge through higher than inflation council tax rises."
"Once again, rural authorities like Anglesey are unfairly impacted by the funding formula. Although Wales' population has grown, ours remains fairly constant – yet demand from older residents, who rely most on council services, continues to rise."
"It is not possible to cut services to offset the formula's impact, and a fundamental review of the system is urgently needed.
"While increases in core capital and grant funding are welcome, they remain below inflation and amount to real-terms reductions. This settlement makes sustainable financial planning increasingly difficult for councils across Wales."
WLGA leader, Cllr Andrew Morgan, who also leaders Rhondda Cynon Taf Council, said on Monday: "While we now need to go through the figures in detail, this draft settlement offers a degree of stability at a time when local services are under sustained pressure."
"The average increase shows that Welsh Government recognises the strain councils are facing."
"But stability doesn’t remove the pressures themselves. Social care, homelessness, education and workforce costs continue to rise faster than resources can keep up. Councils will still need to make tough choices, and that remains a concern."
"We will continue to work constructively with Welsh Government over the coming weeks on budget talks, as we have been clear that additional funding to increase the final settlement will be required to help protect and maintain services."
"Our shared goal is to maintain the essential services people rely on every day, and to do so in a way that is fair and sustainable in the long term."
The Welsh Government also announced over £1.3bn in revenue grants and more than £1.08bn in capital investment for local government.
The final budget will be published in January following consultation with both local councils and other stakeholders.
Local Government Secretary Jayne Bryant said: "We have been listening to local government, and we fully recognise the challenges that they face."
"This provisional settlement is the beginning of the budget process. Our priority has been to provide councils with the stability they need to set budgets which protect and deliver core frontline services."
"We will continue to work closely with the Welsh Local Government Association and council leaders to see where we can provide additional flexibility when managing their budgets."
"We are committed to working with all parties to develop a budget which ensures our public services can continue to operate effectively and which can be passed by the Senedd in the final months of this term."
Among opposition parties at the Senedd, Plaid Cymru said the provisional settlement was "hugely concerning for all local authorities in Wales", particularly in the West where Carmarthenshire and Ceredigion will also receive a 2.3% increase, as per Anglesey and Gwynedd.
Heledd Fychan, Plaid's finance spokesperson, said: "It's clear that a review of the funding formula is urgently needed, so that every local authority receives the funding they need to maintain and strengthen public services for the benefit of our communities."
"For so long, we were promised that Wales would be better off under two Labour governments working together. With our councils facing yet another disastrous settlement, we're yet to see any proof of that."
The Welsh Conservatives described the settlement as "proof of the need for fundamental change".
Shadow local government secretary Joel James said: "Successive Labour Welsh Government budgets, which Plaid Cymru allowed to pass, have prioritised wasteful projects, depriving local government of much-needed funding."
"The Welsh Conservatives are clear: cut the waste, review and replace the woefully out-of-date funding formula to address the fact that some councils are sitting on hundreds of millions in reserves, and introduce local referendums to protect the public against inflation-busting council tax rises."
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