Victorian councils have threatened to sue over “unacceptable service” from Fines Victoria.

Eleven councils say they have been experiencing massive cash shortfalls since Fines Victoria replaced Civil Compliance Victoria in 2017.

They claim this is because of huge delays and a drop in the recovery of fines by the new body.

Hobsons Bay City Council (HBCC) says it has experienced an “unacceptable” $668,957 loss of revenue, according to a letter to Fines Victoria obtained through Freedom of Information (FOI) by the Victorian opposition.

“This can only be viewed as a material breach of the contract of services paid for by HBCC, [which] has compelled me to write in a final attempt to achieve a satisfactory outcome prior to the initiation of independent court action against Fines Victoria,” HBCC chief Aaron van Egmond said.

The City of Port Phillip Council claims it is owed $21.7 million in unrecovered debt, and Mayor Dick Gross says it will hamper community services.

“It's having catastrophic levels of impact,” Cr Gross said.

“People think fines are bad, so we don't get much community sympathy, but this money won't line fat cats' pockets, it will go to parks and gardens and important things like flood mitigation.

“We've got the new Fisherman's Bend suburb with 80,000 people to cater for so we're desperate to get our hands on that dough.”

From every dollar councils paid to Fines Victoria in 2018 to recover fines, they only received about 69 cents back, reports say. That figure has dropped from $2.13 in the previous year.

Fines Victoria has allegedly been plagued by system issues and IT problems since January 2018.

After a meeting with the State's Attorney-General and Department of Justice, councils were told the issue would be fixed by mid-2019. They now say there has been no improvement.

Fines Victoria was slammed by the Ombudsman earlier this year after wrongly suspending the licences of hundreds of people.

Councils including City of Melbourne, City of Yarra, Darebin City Council, City of Port Phillip, City of Stonnington, City of Glen Eira, City of Hobsons Bay, City of Hume, City of Greater Geelong and City of Maribyrnong are all demanding action.

“We can't afford to see this money languish while the State Government sits on its hands, we can't cope with the incompetency of Fines Victoria,” Cr Gross said.

“It's the ultimate irony, the agency which isn't supposed to be persuaded by crappy excuses is using a 'dog ate my homework' excuse.”

The Victorian Government says it believes Fines Victoria is now working more directly with individual councils to increase their returns.

“While there has been a significant increase in fine recovery, it is our expectation that Fines Victoria continues to work with councils to improve their fine revenue,” a Government spokesperson said.