The Independent Pricing and Regulatory Tribunal report released on Tuesday concluded that council mergers could save ratepayers $2 billion over the next two decades by reducing waste and red tape. They have until November 18 to decide whether to join or the NSW government will decide for them.

The report, led by Ernst & Young consultants, assessed councils based on financial criteria – which Goulburn, Yass and Cooma councils failed to meet – and scale and capacity – which Queanbeyan and Cooma Councils did not pass.

But Goulburn Council mayor Geoff Kettle said he's known for a while that these councils can't stand alone and he has struggled to keep up with community demand for infrastructure.

"None of the councils in our region are fit," he said.

"This process has taken the state government the best part of five or six years to bring to a head and we need to sit down now and have some robust discussions with our neighbours about where to go from here."

Goulburn has been recommended to either merge with Upper Lachlan Shire Council, with both Upper Lachlan Shire and Yass Valley Councils, with Palerang and Queanbeyan, or with all four councils.

Yass Valley Council mayor Rowena Abbey is disappointed she has been given just 30 days to respond. "It's certainly not to a long term advantage to the Yass community," she said.

"We've put in a potential rate rise as part of an overall plan for improvement with other asset sales and service reviews. They [the NSW government] are designating us unfit because financially we are not meeting the criteria they set in that time frame. We actually get there eventually but not in the time frame they've specified.

"Even if we have plan, if they don't like it, they'll chose what will happen."

The tribunal prefers a model that would see Yass council continuing to stand alone but as part of a tablelands "joint organisation".

Many of the 34 regional councils assessed were found to be declining in population, with the tribunal seeking populations of at least 10,000 in each council region by 2031 to make them viable.

While the Queanbeyan Council's population is projected at 58,850 by 2031, the tribunal nevertheless judged it not fit for the future, pushing for a merger with Palerang, which is based around Braidwood.

The tribunal said while Queanbeyan had proposed playing a co-ordinating role among other councils, limited details were provided, and the model was not supported by Palerang. The tribunal also pointed to the council's water and sewer services failing to operate at a break-even level, with major capital works needed.

Palerang had a projected population of 20,550, not enough to provide services cost effectively to the community, the tribunal said, insisting that a merger with Queanbeyan could bring $51 million in benefits.

While many councils proposed rate increases from merging to help economically, IPART believes merging would provide more financial benefits for both the councils and the community.

"A voluntary merger would facilitate a faster progression towards achieving efficiencies when transitioning to a new council," the report said.

On Tuesday NSW Premier Mike Baird and Minister for Local Government Paul Toole announced the new Stronger Communities Fund of $5 million for each new rural council to invest in community infrastructure, or $10 million if three or more councils merge. These councils will also get $5 million from the state government to cover merging costs.

The government has said it will decide its next steps in the reform by the end of 2015.