A new report on the Victorian Government's rate capping policy warns that council debts may have to increase to compensate for rates staying in line with inflation.

One of the Andrews Government’s pre-election pledges was to cap council rate increases to match the Consumer Price Index (CPI), with legislation enforcing the change passing in parliament last month.

But many councils say their costs are not in step with the CPI, and so they will be caught short by the cap.

The first parliamentary report into the rate capping policy came out this week, and claims that the new laws have already put critical council services like maternal and child health and school crossings at risk.

It said that without adequate savings, rate capping could diminish the sustainability of some local governments, particularly in rural and regional areas.

The report calls on the Essential Services Commission to monitor and report on local government finances, to stop debt levels getting out of control.

It also suggests councils call on the State Government for an explanation of how the legislation will affect ratepayers.

Finally, the report says a funding program to keep regional roads maintained should be reintroduced.

The Country Roads and Bridges Program ran from 2011 to 2015, providing $160 million to councils in rural areas to repair damaged local roads and bridges.

The committee did acknowledge that other programs to fund regional infrastructure upgrades were still in place, but said the Country Roads and Bridges Program should be re-established specifically because of the rate cap.

The report said the fund should provide $1 million to each of the 40 rural councils that qualify.