Planned schemes like new synthetic pitches may have to be abandoned and opening hours at leisure centres could be reduced, according to Craigavon Borough Council.
The news came after it was revealed that Land and Property Services (LPS) - formerly the Rates Collection Agency - has badly miscalculated Craigavon's rates income.
It means that an extra annual 4.25 per cent will be added to everyone's rates bill over the next two years before the council even considers next year's rates rise.
Councillor Ignatius Fox, chair of the council's rates estimates working group, said, "It's devastating. Services will have to be slashed. We had a target of a 1-2 per cent rise, given the current credit crunch, but even if we achieve zero, that 4.25 per cent will have to be levied.
"And when you consider that inflation is up to around 5 per cent, the cuts will have to be deep. We may have to abandon planned schemes like synthetic sports pitches, opening hours of facilities, whether we can continue to run three leisure centres, everything.
"This is all because of a systematic failure in a central government agency. Without as much as a by-your-leave they are transferring it over to us and are leaving us with an unholy mess to pass onto the ratepayers.
"We'll really have to wield the axe on services. We can't expect business people and householders to bear the brunt under the current economic climate.
"Last year we did a real balancing act and kept the rise in the local rate to 2.3 per cent, but that's out the window for the next two years with this annual rise of 4.25 per cent imposed on us by the ineptitude of a central government agency.
"Every one of Northern Ireland's 26 district councils is affected by this. It has been well publicised by the Public Accounts Committee. Due to the failure of the LPS, this will have a catastrophic affect on public finances.
"In Craigavon we were advised in September of a potential £465,000 deficit per year which we could have absorbed. Now this has increased to an annual £880,000, which translates into £1,760,000 over two years."
"It's totally unacceptable and I've asked for a meeting for our councillors with the LPS to find out what they intend to do to help district councils in Northern Ireland. We are not the only council area affected but that's no comfort to the Craigavon ratepayer.
"Given the economic downturn and the fact that people's finances are really under pressure, we'll be looking at ways to avoid ratepayers having to pay for this stunning faux pas.
"We need to make it clear to ratepayers at this early stage that this is unacceptable for Craigavon."