The warning comes in a letter to health secretary Stephen Dorrell from Jack Bury, chair of the ACC social services committee.
The government has allocated an increase in social services spending for 1996/97 of £481m. But the ACC has highlighted the fact that the bulk of this new money - £418m - is to meet new community care responsibilities given to councils by the government. In real terms, the increase is less than 1% to only £63m.
Despite efficiency savings made by local authorities, the shortfall will be a huge £1035m says the ACC.
'There are added responsibilities next year including the added duties of the Carers (Recognition of Services) Act, care in the community, and the added burden of increased client numbers because of the demographic time bomb (£35m in 1996/97 on DoH figures).
'The government must listen to the voices of local government. The underfunding crisis is very real and must be tackled as a priority.'