According to one of the report's authors, amalgamations are an option the Illawarra should "definitely" consider.

But Shellharbour's Labor mayor, Marianne Saliba, said mergers of the region's councils would be a bad deal for ratepayers.

"I don't know how people in Albion Park would feel about their rates going to pay for roads and amenities in Helensburgh," she said.

Cr Saliba instead supported sharing services between councils as a way to save money, but said management should remain local.

Wollongong Lord Mayor Gordon Bradbery also backed greater regional co-operation.

"I prefer collaboration than amalgamation," he said. "The government has also said that they wouldn't be forcing amalgamations, so I would want to achieve the same outcome without forcing any angst or pain."

In a consultation paper released this month, an independent review panel said the state's cash-strapped councils needed to dramatically improve their effectiveness.

Panel chair Graham Sansom said the two main options being debated were amalgamations and boosting the capacity of regional bodies such as the Southern Councils Group to deliver services across existing council areas.

"The Illawarra is no exception to that and ... really this is particularly important in our major urban regions ... because that's where the great majority of the population lives," he said.

Cr Saliba said this week that proposed rate rises in Shellharbour would help the council address its growing $45 million infrastructure backlog, reducing the case for an amalgamation with Wollongong.

She also said the city was set to benefit financially from high-profile developments including the Shell Cove project and marina, the expansion of Stockland Shellharbour and new housing.

"We've got a young population, we've got an opportunity to make a name for ourselves, and I think it would be a loss to the ratepayers of Shellharbour if we were to amalgamate," Cr Saliba said.

The city already shared some waste services with Kiama and animal welfare with Wollongong.

Cr Bradbery said councils were constrained in their service delivery to residents through things such as rate-pegging. Also, Wollongong shared services such as community transport with Shellharbour and was looking at options relating to waste management.

The NSW government created the Independent Local Government Review Panel to suggest options for local government structures in NSW, taking into account its election policy against forced amalgamations.

The panel will deliver its final recommendations next July.