Current projections show that Midlothian Council will have £201.4 million available to fund services next year.
However continuing cuts in Scottish Government funding, at a time of increased demand for key services means that this is £5.25m short of what is needed.
A report presented to councillors last week estimates that this gap could rise to £23.2m by 2022/23.
The projected funding available already incorporates a three per cent increase in council tax next year, although no increase will be confirmed until the council budget is decided in February.
A programme of savings and service changes approved by the council last year has also been factored in. Although this is expected to deliver £2.65m in savings in 2019/20, this still leaves an additional £5.25m to be found next year.
“Once again, Midlothian faces major financial challenges as a result of the continuing cuts in funding at a time of growing demand for public services,” said council leader Derek Milligan (Lab).
“The council will need to take some tough decisions as it prioritises use of its limited resources and this will inevitably have a severe impact on our ability to deliver services at current levels.”
The council has agreed a period of public engagement on the financial challenges facing it before the budget is decided in early 2019.