Local government analyst Larry Mitchell says many councils are hiding the true extent of their debt by internal borrowing.
Mr Mitchell publishes league tables rating the financial performance of councils.
He says councils used to have sinking funds they could not touch which were to be used to to replace infrastructure.
But he says they can now raid those reserves to finance other needs and have done so with a vengeance.
Mr Mitchell says council balance sheets around the country show debt ceilings have been reached and there is no capacity to borrow.
He says the Audit Office should be insisting councils show their internal borrowings in their annual reports and plans.
Bill Harris, a former rates manager at the Whangarei District Council and now retired, spoke at a public meeting held by Mr Mitchell.
Mr Harris says he searched the council's annual report for any mention of the $20 million he knew it borrowed from a reserve fund last year - but it was not there in any recognisable form.
He says when he asked the council about it, he was told the Audit Office does not allow councils to show internal borrowings as debt.
Bill Harris says he queried that with the Auditor-General's office, and was told councils are to clearly disclose their use of reserves and internal debt in their plans in the interests of transparency.
