Highland Council, geographically the largest local authority in the UK, said the main reason for the overspend was the cost of accommodating looked after children beyond its borders.
Members are now considering a range of measures to defer non-essential spending, accelerate savings and restructure recruitment, but have been told that some impact on services is inevitable.
Budget leader Alister Mackinnon said Highland’s reserves, at £8m, were well below the minimum level recommended by Audit Scotland, and that it was vital that these were not depleted further.
“Services need to work within their budgets and the measures set out are designed to ensure that this happens,” he said.
“Our budget was set to protect jobs and we will continue to aim to continue to use redeployment where possible to avoid job losses.”
Last year more than half of Scottish councils were forced to use cash from their reserves in a sign of what the Accounts Commission called “increasing financial stress”.
Three authorities – Clackmannanshire, Moray and North Ayrshire – were warned that they risked running out of general fund reserves if they continued current patterns of expenditure.
“We are not alone – all Scottish councils are facing financial problems,” said Mr Mackinnon.
“We have been and will continue to be open and upfront about the difficulties we face, and I am inspired by the savings ideas that staff have come forward with.”
Council leader Margaret Davidson said a plan to bring some of the looked after children back to the Highlands and to improve the outcomes for those children had to be accelerated.
“We need to simultaneously be more efficient and make the best decisions for some of our most vulnerable children,” she said.
“We will also continue to press the Scottish Government to give local authorities a fairer share of funding.”
A Scottish Government spokesperson said the local government funding formula took into account a number of factors, including rurality, and that combined with a council tax increase Highland had received £17.1m more to support services than in the previous year.
“Highland Council has had more money this year from the Scottish Government, despite UK Government cuts to our budget,” he said.
“The funding formula for councils is agreed and reviewed with the Convention of Scottish Local Authorities, with local authorities able to raise concerns through them.”
Northamptonshire County Council – the UK authority that has issued two 114 notices, effectively restricting all spending on services apart from those for vulnerable people and meaning it is effectively bankrupt after spending its reserves – voted to accept a proposal to abolish itself this week.
Northamptonshire and Wellingborough voted for the plans, which were recommended in a government-commissioned report done earlier this year.
