Councils have managed their finances well but significant challenges lie ahead, says the Accounts Commission.
In its financial overview published today, the local government spending watchdog said councils had remained within their overall budgets, increased their reserves slightly and reduced their debt in 2015/16.
Each council has its own particular challenges but all councils face financial shortfalls requiring further savings or using reserves. They need to change the way they work if they are to make the savings needed.
The Scottish Government provides around 60 per cent of councils' total income. Over the past six years, up to and including 2016/17, Scottish Government funding (revenue and capital) for councils fell by 8.4 per cent in real terms.
The report warns that further reductions are expected while demand on key services, particularly social care, continues to rise. Councils also face increased cost pressures in areas such as pension provision.
Ronnie Hinds, deputy chair of the Accounts Commission, said:
"Councils are generally doing a good job with their finances in difficult circumstances. But pressures continue to increase on a number of fronts at the same time as they face the prospect of further reductions in their funding.
"It's vital that councillors and officers set medium and long-term financial plans based on clear priorities for the services they provide to their communities".