To fund the teachers' pay award and maintain school budgets, huge cuts may have to be made in other services.
But most councils are planning to fund the pay rise in full and protect school budgets, according to a straw poll by The TES.
Cambridgeshire was this week leading the revolt against Government policy by setting a budget which exceeds the limits set by Whitehall by some Pounds 5.8 million. But even with the extra money, the non-school education budget and other council services are still facing cuts. And the danger is that it could be forced to send out new bills, at a cost of around Pounds 500,000, if the Government rules the budget illegal.
Oxfordshire is also set to exceed its capping limit.
In Somerset, the only authority to be allowed to exceed its capping limit last year, there is now despair at the prospect of huge Pounds 14m cuts which could mean the loss of 300 jobs including 100 teachers.
And in Devon, there will be more pot-holes next year, libraries will close earlier and there will be fewer social workers. But schools should escape unscathed.
"The Government trumpeted great gains for education in the last budget but the reality is not anything like that," said Brian Greenslade, Devon county council's Liberal Democrat council leader.
The root of this year's problems, according to local authority finance specialists, is that the increase in spending set by the Government fails to take account of such factors as the cost of council restructuring, the community care policy and inflation. That means councils nationwide will be a total of around Pounds 100m short.
After unprecedented protests last year, the Government has this year steered councils towards protecting education budgets.
Happily for all sides, in the run up to local elections and a possible general election, that coincides with the wishes of opposition Labour and Liberal Democrat parties running local authorities.
How much each council will cut depends on factors such as variations in government grant, changes in the make-up of the local population and the degree of financial stringency adopted by the council in previous spending rounds.
North Yorkshire, a hung council, is having to save Pounds 10m in its overall budget. It is protecting its schools budget and cutting other services by 6 per cent.
Labour-controlled Bradford, on the other hand, assumed a 2 per cent teachers' pay rise and is now short of Pounds 1m for education. It is handing over the shortfall to individual schools and estimates it could mean a loss of 90 jobs.
Birmingham City Hall has asked local people how they think Pounds 45m could be chopped from its budget. The result of the Fair Deal for Birmingham consultation is that schools, libraries, swimming pools, leisure facilities and social services will be protected. But the council's arts and culture budget has been severely affected.
Similarly Liverpool city council must find Pounds 38m cuts on a budget of Pounds 450m. Neville Bann, chair of education, said Pounds 14m had already been identified in education, but the council assumed only 2 per cent for the teachers' pay rise, so it must now, somehow, find a further Pounds 1m.