Mr Farmer said he would be "surprised" if such increases occurred, but the outcome would be dependent on a national response to the underfunding of local government, and the council's own efforts to cut costs.

A report released yesterday into the financial status of NSW councils listed Wollongong and Kiama councils as financially unsustainable and in need of drastic action to repair a growing backlog of dilapidated infrastructure such as roads and public buildings.

Releasing his statewide study of NSW councils, Professor Percy Allan said the two councils were among 35 that needed to increase their rates, fees and charges by 80 to 200 per cent "or be forced to severely cut their services if they are to restore their finances and infrastructure to prudent and responsible levels".

Prof Allan also delivered a serve to the Federal and State governments for applying a "straitjacket" to councils by cost-shifting while not sharing a greater percentage of tax revenue.

"The most alarming aspect is that neither the State nor Federal government accepts the gravity of the crisis sinking local government," he said.

Prof Allan is no stranger to Wollongong, having advised Mr Farmer over the past year after a major review of the council's operations.

"You can see around the Wollongong area on the roads, in the public parks, if you go to the rock pools, the picnic benches but also the roads and the kerbing, a lot of it is really worn out," he said.

Mr Farmer has pulled no punches over the council's predicament, but said a 200 per cent rate hike was "probably a little bit alarmist".

"Local government itself is in bad shape, but we are worse than most.

"We are, as we speak, significantly reducing our operating costs going forward. How successful we are here will determine what we have to do with our rates going up."

NSW Local Government Association president Genia McCaffery said the only solution was to remove rate pegging and for the upper tiers of government to increase their support.

A spokesman for NSW Minister for Local Government Paul Lynch said the policy of rate pegging had been maintained "to protect families from uncontrolled rate rises", although applications for increases were considered.

Kiama council could not be contacted for a comment.