The Scotsman (p12) reports that the Lib Dem rebellion came during a controversial debate in which Mr McConnell announced a crackdown against 'cheats' who fail to pay their council tax, and a relief scheme to help business in Scotland prepare for the impact of the revaluation of business properties.
Mike Rumbles, one of the five Lib Dem MSPs who rebelled against the executive, said the vote had sent a message to Jack McConnell, the finance minister, that the executive would need to rethink their approach towards local government funding.
He said: 'I am disappointed we didn't win but delighted that this is a shot across the bows of the executive. Having achieved a majority of only four, the executive will need to take this seriously and the finance minister will have to realise he cannot continue down this route.'
But Mr McConnell said the deal would allow local government to increase its spending by just over£6.7bn next year - an increase of 3.7%. The amount councils receive from the government would rise by 2.9% to£5.6bn.
The minister added: 'Councils will be able to increase total spending by more than 3% next year, mostly targeted at our shared priorities of education, social care and protective services.'