Unpublished government records show many local authorities are facing “critical areas of vulnerability” due to funding shortages.
The records state that county and city councils are experiencing major challenges this year in collecting enough income from rates and charges to pay for vital services like roads, water and housing.
Donegal County Council has been described as vulnerable.
Cuts to Government spending over the past year have exacerbated the problem with local authorities increasingly reliant on local revenue such as commercial rates and development levies.
But the slump in construction and the closure of businesses is making it more challenging to collect sufficient levels of revenue from these sources.
The records show that senior department officials have identified at least eight local authorities under acute pressure due to a range of different factors.
Donegal are regarded as vulnerable due to cash shortages, making it particularly exposed to changes in interest rates, levels of overdraft sanctions and the timing of grant payments.
Latest official figures available show that a total of 17 local authorities had significant deficits at the end of 2008.
Donegal tops the list with a deficit of €13 million