Birmingham City Council's official auditor has urged the authority to consider outsourcing refuse collection as it faces an uphill battle to manage cuts of £400 million over the next four years.
District auditor Mark Stocks, from Grant Thornton, also warned that escalating costs of children's services and the remaining £638 million cost of equal pay claims presented a serious financial risk to Europe's largest local authority.
His annual audit letter also highlighted a move by the Labour-run council to reduce spending on its £3.1 billion debt by cutting repayments to reduce spending now which would load higher costs on future generations.
The report confirmed that Birmingham City Council faced major financial challenges and suggested outsourcing of services, such as household refuse collection, to reduce spending as it has worked for other local authorities.
Committee member Tristan Chatfield (Lab Oscott) said that Birmingham did not have a good track record with outsourcing.
He said: "Given the legacy of Service Birmingham and the Amey contracts, it is vital we ensure that any outsourcing offers value for money. My concern is that we get panicked into it and end up paying more."
Mr Stocks replied: "I'm not saying outsourcing is always a panacea but, given the circumstances the council finds itself in, you've got to explore that option.
"The reason I mention refuse collection is there are cases where that has been a success. The council has to learn the painful lessons around Service Birmingham and Amey and has got to be looking at these options."
Recently, the council has been forced to take its call centre back from Capita Service Birmingham after a series of problems and high costs were highlighted.
The committee also raised concerns over council leader Sir Albert Bore's decision to defer a slice of debt for 20 years, under a process called Minimum Revenue Provision (MRP), which the audit letter revealed would cut annual repayments on existing debt from £130 million to £78.5 million.
It will save the council £567 million over the first 20 years but then cost an extra £1.7 billion over the following 30 years.
Opposition Tory finance spokesman Coun Randall Brew (Northfield) said: "I am worried we are pushing debt onto our children and grandchildren.
"If taken to the extreme, you could pay £100,000 a year on a £50 million loan for 19 years and then be left to pay £48.1 million in the last year."
The audit letter says that, although it does not challenge the use of MRP, it notes the increased burden on future taxpayers.
And there was serious concern over the rising costs of children's services – in the wake of news that the city council is unlikely to receive the extra £123 million from Government it argues it needs to turn around the failing department.
Mr Stocks said the service had to be paid for as it was a legal obligation and the council's social responsibility.
"There's a real question about how we can finance it," he added.