Waltham Forest, in north-east London, is likely to lose all of its education services after troubleshooters PricewaterhouseCoopers concluded it could not improve without external help.
The Labour-run council was one of three castigated by chief inspector Chris Woodhead as having an "ingrained culture of failure and hopelessness".
A draft of the consultants' report, circulated to Waltham Forest heads and governors, concludes that the authority's problems "are more serious and widespread than reported by OFSTED".
Meanwhile, three consortia have been shortlisted to run privatised services in the next-door borough of Haringey.
All schools-related services are likely to be handed to a private company in the light of interim consultants' findings, again from PricewaterhouseCoopers.
The recommendations mean that the four neighbouring boroughs of Islington, Hackney, Waltham Forest and Haringey are all likely to have some or all of their services under private management by next year.
Trevor Edinborough, head of Hodge Hill school, an improving secondary in Birmingham, has been appointed as the pound;70,000-a-year head of Hackney's privatised school improvement service.
He will lead a team, including three other former heads, run by Nord Anglia. Barbara Booth, the current head of school improvement, appointed by the council before Nord Anglia took over, has resigned along with senior advisers Vic Candlish and Pauline Roberts.