Councils in Wales face budget pressures of £559m next year, equivalent to a 26% council tax rise or the loss of nearly 14,000 jobs, a committee heard.
Mark Pritchard, leader of Wrexham council, welcomed an improved provisional settlement from the Welsh Government, with an average 3.8% increase announced in December.
But he said the extra money is not enough, warning of cuts to services, redundancies and higher council tax. "We've got no other option here," he stressed.
Giving evidence to the Senedd's local government committee on Wednesday, Cllr Pritchard added: "Is it a relief? Yes, it's better, it's an improvement but it's not enough."
"I think I have to say this: is the Welsh Government setting us up to fail because they know what the pressures are...all we want ...is to be funded appropriately."
'Nonsense'
Cllr Pritchard raised the example of adult social care and children's services in Wrexham, with an extra £25 million put in by the independent-led council which he said was struggling.
He warned of compulsory redundancies, saying thousands of jobs could be lost across Wales and the threat of bankruptcy has not gone away.
He said: "The way we're going...we're on the edge and unless the money comes there will be serious consequences."
On the estimated £109 million cost to Welsh councils of rising employer national insurance contributions, Cllr Pritchard called for clarity ahead of the proposed June date.
He told the committee: "If the money's going to come, they should give it us. We're setting out budgets before it – it's a nonsense."
'Cut to the bone'
Mary Ann Brocklesby, the Labour leader of Monmouthshire council, said councils have faced deep structural challenges after 14 years of austerity.
Pointing to pressures on social care and education, she said: "The resources we have available to deal with the increasing pressures are not there."
Cllr Brocklesby warned funding for additional learning needs support and school attendance has already been "cut to the bone".
But she said: "Nevertheless, I breathed a huge sigh of relief when the settlement came."
She told the committee without the proposed 3.8% average increase, councils could have faced catastrophic consequences with large-scale redundancies and services slashed.
'No clarity'
Gary Pritchard, leader of Anglesey Council, added: "After 14 years of austerity, there is nothing left to cut – we have tightened the belt as much as we can."
Asked about the impact of the UK Government's decision to increase NI contributions, he estimated the internal cost to the council at about £4 million - £4.5million.
He raised concerns that councils will not find out details of how much will be reimbursed until after budgets are set, with uncertainty surrounding outsourced services.
Cllr Pritchard said: "There's no clarity in terms of whether every element of the council's work will be paid or just the statutory elements."
Jane Gebbie, deputy leader of Bridgend council, said councils face an extra £44 million cost for commissioned care which will not be directly covered by the UK treasury.
'Bankruptcy'
The Labour councillor told the committee councils were fortunate not to receive a cash-flat settlement for the 12 months from April.
She said: "We're all very grateful for that...I would have imagined that there would have been various councils across Wales issuing section 114 [bankruptcy] notices because they would have no longer been in a position to deliver services."
Cllr Gebbie said local government has lost 40% of its staff since 2010 and Bridgend council will not be looking to make redundancies due to difficulty filling current vacancies.
She contrasted a 4.3% increase with a 5.7% pay offer to workers, saying: "Already that indicates that we won't have the resource to pay our staff appropriately."
Cllr Gebbie stressed: "We need to be realistic about what we are able to provide. We don't deliver gold-standard services in local government any more."
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