The report, More pain than gain, is due to be handed in today, a week before the official deadline. It said the situation had become so acute that some services were being forced into private hands.
It linked recruitment and retention with poor performance and low morale in one of a series of studies submitted to the commission.
The report concluded: 'The findings highlight the extent to which managers view councils' inability to recruit and retain staff as detrimental to both the possibility of improvement and the well-being of staff.
Social workers, environmental health officers, home care workers and planning officers were the worst affected, it added.
Three steps were strongly recommended to improve retention and recruitment - improving the image of local government, more funding from central government and, the most relevant for the commission, increasing pay.
The problems of recruitment and retention were further illustrated in another submission, All work and no pay, on unpaid overtime.
It said 57% of the union's local government members work unpaid overtime with a fifth working more than four hours a week.
The most likely to work unpaid overtime were often the lowest paid, including teaching assistants and nursery nurses, but 84% of chief officers also worked unpaid extra hours.
The report said council workers were willing to work so many hours without pay because they want to 'make a difference' for local people, but felt it was unfair.