The government's freeze on indexation on Financial Assistance Grants (FAG) for the next three years is expected to slash $10.4 million from Riverina and Murray councils, a move described as "devastating" and a threat to the long-term financial sustainability of councils.

CEO of Riverina and Murray Regional Organisation of Councils, Ray Stubbs, said local councils had already cut spending to the bone and local ratepayers would bear the brunt of the cost-saving.

A delegation of RAMROC councils including Mr Stubbs and Carrathool shire mayor Peter Laird travelled to Canberra to take the fight to Riverina MP Michael McCormack and Farrer MP Sussan Ley but returned with bad news.

"There will be a reduction in service levels across the board or councils will maintain services and increase rates," Mr Stubbs said. "Councils have been making efficiency gains and have cut themselves to the bone, but Michael McCormack and Susan Ley couldn't help because the decision is firmly entrenched in government policy.

"The indexation freeze applied from July 1 this year, after councils had already done their budgets and now they are in the process of rejigging their budgets to account for the shortfall.

"They are deciding whether to reduce services or dip into reserve funds if they have any."

Griffith council revealed to The Area News in June the government's grant freeze would blow a $2.4 million hole in its budget, but thanks to restructuring two years ago it will manage to break even.

Carrathool council was not so fortunate and Mayor Peter Laird said the maintenance of roads would suffer as a result.

"It will mean a cutback in certain areas and we're looking at roads to absorb most of the shortfall," Cr Laird said.

"We just hope we can talk some commonsense to the federal government and they restore the indexation after one year, rather than the full three years."

Heightening the alarm among Riverina and Murray councils is that if after three years of the indexation freeze the base rate isn't fully restored, councils will be $9 million worse off and the shortfall will worsen every year thereafter.

Since 1991 the percentage of Commonwealth revenue to councils has plummeted from about 1.09 per cent to a paltry 0.51 per cent.