Councils across Australia are bracing themselves for a crippling blow to their finances if the Abbott government adopts a key recommendation from the National Commission of Audit that would cut off direct funding from the Commonwealth and divert the money back through the states.

The nation’s mayors and councillors have gone into crisis mode to try and head off a bid to cut off funds from Canberra and trunk the money through the states, a move that’s likely to trigger a major backlash from federal Coalition partners The Nationals.

Core programs including Financial Assistance Grants (FAGs) and Roads to Recovery (R2R) that have for decades provided an essential source of financial help for councils that otherwise struggle to deliver basic services have been identified as at risk in the massive catalogue of proposed cuts in the Commission of Audit.

The move would put councils completely at the monetary mercy of state governments for funding to vital infrastructure projects and other local priorities.

While the Constitutional status of direct federal funding for council projects has been a source of legal debate for many years – culminating in a push for a referendum to help formalise the Commonwealth’s ability to fund local projects last year – the hardline recommendation from the Commission of Audit to cut the lifeline of money now has councils across the nation squarely on the defensive.

Any move to axe programs like Roads to Recovery or Financial Assistance Grants is potential electoral poison for the Abbott government because it would likely result in councils sheeting back the blame for service delivery cuts in areas like childcare, libraries and roadworks back to Canberra rather than the state government.

The Commission of Audit report also recommended that the government ditch the Regional Development Australia Committees and that the Commonwealth leaves regional development issues to the state and local government.

If the government decides to move ahead with these cuts, it would mean a loss of $2.2 billion per annum that is allocated to councils, which is 10 per cent of local government’s yearly revenue.

The Australian Local Government Association (ALGA) is not about to go quietly to the guillotine.

The peak body, which has a seat at the Council of Australian Governments (COAG), has warned that any end to the FAGs program, which have been in place for 40 years, would produce a “catastrophic impact” on the level of local government infrastructure and services in every local community.

As the Report has proposed that FAGs would no longer be necessary as sufficient revenue would be available to state governments which would determine whether any funds are passed on to councils, ALGA fears that councils will face challenges in securing sufficient funds while the states have their own priorities in health, education and public transport.

ALGA has also warned that an end to the R2R program (that both the Coalition and Labor promised to extend to 30th June 2019) would strip $350 million a year in road funding from local communities and have “potentially devastating consequences” for productivity, road safety and general access, particularly in regional communities.

ALGA president Felicity-ann Lewis said the release of the Report should be a call to arms for all councils across Australia to unite in their opposition to the recommendations included in the report regarding funding for local government.

Ms Lewis urged all councils to use the opportunity to send a clear message to the Australian Government that federal funding for councils must be protected by attending next month’s National General Assembly of Local Government to make sure that the Australian Government gets the message.

“We cannot let this happen,” she said.

She said the federal government must be made to understand the full implications of the course being proposed.

She said she has invited the Prime Minster and Leader of the Opposition as well as the Deputy Prime Minister and Shadow Minister for Local Government to the Assembly.

“They need to hear directly from councils how strongly we oppose these recommendations,” she said.

If the Abbott government adopts this recommendation, it would be a complete retraction of the Coalition’s 2010 election promise to commit to direct funding to local government.

At the time, then-Shadow Minister for Trade, Transport, Regional Development and Local Government Warren Truss promised more direct funding to the Australian Local Government Association (ALGA) National General Assembly in Canberra in June 2010.

Mr Truss promised to the Assembly that a Coalition government would contribute $300 million over four years to the promised Bridges Renewal Program, which ALGA said is also at risk under the Report’s recommendations.

Despite the promises, legal problems with the popular direct funding measures have never been far away.

They became a topic of controversy in the run-up to the 2013 federal election when councils collectively pushed for a Constitutional amendment to financially recognise local government and thus allow direct funding programs to carry on without being vulnerable to be found unlawful following two High Court cases.

Councils launched a fervent campaign to bring this issue to a referendum at the 2013 federal election, which was scheduled to happen at the allowance of then-Prime Minister Julia Gillard until she was replaced by Kevin Rudd.

Mr Rudd’s date change of the election resulted in the cancelation of the referendum.

Ms Lewis said less than twelve months later “it appears our worst fears were fully justified with local government facing the loss of up to ten per cent of its funding”.

“Tragically, this may well spell the end for many smaller rural councils which are dependent on federal funding,” Ms Lewis said.