The Board of Auditors found local government funding fell by 4.2% in real terms between 2013/14 and 2020/21, once Covid cash was excluded.
Meanwhile, an increasing amount of money is now earmarked to meet Scottish Government priorities.
Tory MP Miles Briggs said the report was a ‘damning criticism of the way the SNP government has undermined Scottish councils through chronic long-term underfunding’.
He said: “It paints a bleak picture of the huge pressures they face to deliver basic services.
“A 4.2% cut in real terms is totally unsustainable – and when growing areas of funding are ring-fenced by the SNP, councils are forced to cut spending in other areas.
“This explains, for example, why one in eight libraries closed permanently under the SNP.
“The SNP-Green coalition has cynically shifted the blame to local authorities to cut services or raise council tax to make ends meet because they don’t want to give them the resources they need.”
In its financial overview of local government in 2020/21, the Board of Auditors said councils would have to deal with the impacts of the pandemic as well as issues that preceded it, such as poverty.
Local government funding is announced annually, which the watchdog says “makes it difficult for councils to plan and budget effectively for the medium to long term and creates uncertainty about future funding”.
Its report states: “Excluding the effect of Covid-19 funding, the councils’ underlying cumulative funding position has declined by 4.2% in real terms since 2013/14.
“It demonstrates that local government funding has been cut proportionately more than the rest of the Scottish Government’s budget over this period.
“The Scottish Government is committed to protecting the health budget, which has a direct impact on all other areas of the Scottish budget, including local government.”
The watchdog said the councils’ long-term funding position “remains uncertain, with significant challenges ahead as councils continue to manage and respond to the impact of Covid-19 on their services, finances and their communities”.
He added: “Longer term, the uncertainty creates challenges for councils as they seek to address the cost and demand pressures that existed prior to the impact of Covid-19, as well as develop long-term plans with their partners to address complex issues such as child poverty and inequality, to improve economic growth and achieve Scotland’s net zero ambitions.
William Moyes, Chairman of the Board of Accounts, said: “Councils face serious challenges, driven by financial constraints, increasing demands for services and resources.
“Alongside these longer-term issues are the financial uncertainties caused by the impacts of Covid-19, including loss of revenue and additional costs.
“Now, as we look ahead and beyond the mayoral elections in May, councilors need to figure out how to restart services, deliver differently, save money and empower communities.
“They must do this while focusing on national priorities, including climate change.
“While councils need to address longer-term financial planning, having funding certainty in place, beyond a one-year settlement from the Scottish Government, remains a critical issue.”
A Scottish Government spokesman said: “Despite the difficult financial situation of recent years, local government has been treated very fairly. The Scottish Government is committed to protecting the health budget which has a direct impact on all other areas of the Scottish budget including local government. Despite this, local government revenue funding increased by 3.6% in cash terms between 2013-14 and 2019-20.
“The overall local government funding package for 2022-23 of nearly £12.7bn represents an increase of more than nearly £1.1bn, or 6.3% in real terms, from to 2021-22. This is part of an overall Scottish Government budget cut of 5.2% in real terms, mainly due to UK Government funding cuts.
“We are developing multi-year spending plans and will publish the findings of the Resource Spending Review in May 2022. This will include a review of all earmarked funding. While earmarked funding is intended to increase investment in services such as our schools and nurseries, local authorities have the autonomy to allocate almost 93% – £11.8billion – of the funding we provide in 2022-23, plus all revenue collected locally.
“Our common vision and outcomes for Covid Recovery have been agreed with local government. Together with businesses and the third sector. Work is coordinated to change the way we think about services so that they focus on meeting the needs of individuals and working differently across borders to achieve our priority outcomes for recovery.