South Kesteven council faces “uncertain times”, according to senior councillors, as the authority backed a 3.15% council tax hike.
Councillor Adam Stokes, portfolio holder for finance at the authority, said the council faced “tough challenges” in the coming years over future funding.
But he added that he remained confident that the government will carry out a “root and branch” review of how local councils are funded.
Councillors backed budget plans today which will see council tax rise by £5 on last year.
The increase would see council tax rise for the average Band D property in the district to £163.62.
As part of its budget plans, the authority has proposed to raise around £7.8 million in council tax.
But Councillor Stokes said the one-year funding settlement offered by government means the authority is uncertain on its future finances.
“This is creating great uncertainty and as such the medium term projection is currently unbalanced pending further information on the funding review,” he said.
“We look forward to the government delivering on the promise of a complete roots and branches review of how funding is distributed and recognises the disproportionate costs councils like ours face in delivering services in sparse and rural areas.”
The rise consists of a 1.5% general rise and 2% for adult social care.
It means an average Band D property would see a council tax bill of £1,337.58, a £45 rise on last year.
Council leader Martin Hill said he was optimistic about future funding despite the need to increase the rate.
“We’re looking for some certainty this year about these things will roll out,” he said.
“So hopefully this time next year they’ll be a three or four year settlement so we can actually plan better for the future with some certainty.”
Lincolnshire Police and Crime Commissioner Marc Jones also saw his proposed 4.1% tax rise supported.
The county’s police and crime panel gave the go-ahead to increase Lincolnshire Police’s share of council tax in February.
The hike in the rate equates to £9.99 for a Band D property.
Mr Jones said the force was “in a better position” now than last year.
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